How to Win in the Graphite Space

- June 22nd, 2016

Jon Hykawy of Stormcrow Capital took some time to talk to the Investing News Network (INN) at this year’s Zimtu Capital’s Vancouver Commodities Forum.

Jon Hykawy of Stormcrow Capital took some time to talk to the Investing News Network (INN) at this year’s Zimtu Capital’s (TSXV:ZC) Vancouver Commodities Forum.
In our interview, Hykawy said the graphite market remains strong on the battery side, although it’s still slightly weaker on the steel side.
When asked about what has surprised him about the graphite industry so far this year, he suggested investors still don’t fully understand what it is that makes up battery graphite.
“There are preferred sources, there are preferred supplies, but really it’s a game that’s going to go to the inexpensive producer,” he said. “To be able to compete in this space, you have to be able to compete with the Chinese producers on a cost-per-tonne basis.”
Watch the video below to see more what Hykawy has to say:


Interview transcript
INN: We’re coming up on the halfway mark of the year. What has surprised you the most about graphite?
JH: Can I be entirely facetious and say I’m surprised that anybody actually still cares? No, I’m kidding. The graphite market to date remains very strong on the battery side. It remains robust in terms of demand in some of the technical aspects. Obviously, it’s weak still on the steel side and on the anode side because of the weakness in metals, like aluminum metals like steel. What I guess surprises me the most is that investors still don’t completely understand what it is that makes up battery graphite, that makes up anode graphite. The fact that, frankly, just about any graphite will do at the end of the day. There are preferred sources, there are preferred supplies, but it’s really a game that’s going to go to the inexpensive producer. I mean, to be able to compete in this space, you have to be able to compete with Chinese producers on a cost-per-tonne basis.
INN: Do you think graphite could take over lithium-ion batteries in the future?
JH: Well, certainly natural graphite’s been making inroads into lithium batteries for years. The synthetic graphite that’s normally used in automotive batteries, like in a Tesla (NASDAQ:TSLA) or in some of the other very high-end batteries, is starting to make way to natural simply for cost-saving purposes. And as the battery companies become more comfortable with the safety profile of a battery that contains natural graphite, that is going to continue to happen.
I don’t think there’s any reason for it to go the other way. In fact, there’s good research that tends to suggest that natural graphite in a lithium-ion battery actually increases the energy density of the cell, makes the battery better.
INN: What should investors consider before investing in graphite? 
JH: If you’re looking at a graphite company, frankly the only thing that’s going to matter to you is production cost. That’s the only thing that should matter to you. Any company in this space that’s going to succeed is going to have to be able to produce at a cost that makes them entirely competitive with the Chinese.
INN: How do you think junior graphite companies will be able to compete with Chinese pricing?
JH: The only way they’re going to be able to do it is two factors, really. It’s type of deposit and the old adage of location, location, location. So, producing in a very remote location, even with a deposit that’s really high-quality but in hard rock is probably a lost cause. What we’re going to be looking for are fairly high-grade deposits, hosted in friable rock or in sediments, in clays, so that the mining required is very inexpensive, the processing is available, and hopefully this deposit is also close to the coast or close to highways so it can be transported out relatively simply and relatively inexpensively.
INN: What is the last graphite stock you were interested in and why? 
JH: I’m going to actually say a small junior that very few have heard of, and to be fair, I have not followed this story for a bit of time, but Canada Carbon (TSXV:CCB). And the reason for that, is Canada Carbon’s deposit hosted some exceptionally pure material. They had demonstrated, when I was last looking at it, that they had done some pretty remarkable things in terms of being able to process that graphite. Using some available but fairly new technology that involved thermal and chemical processing. So, they were able to purify it to levels, in small samples, that even synthetic graphites weren’t able to achieve. And so, it’s a pretty remarkable result.
Now again, you’ve got to be able to do it at a price and you’ve got to find a market for not only the graphite but for everything else that’s coming out of that mine. That’s a bit of a challenge, but hopefully the company’s able to bridge that and come to the market. It would be interesting.
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Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network.
Editorial Disclosure: Canada Carbon is a client of the Investing News Network. This article is not paid for content.

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