Offtake Agreements Key to Graphite Market Success

Most analysts agree that the graphite sector is overloaded with competing junior companies — and 90 percent of them won’t be around just a few years from now. While global demand for graphite is growing at a healthy clip, projected demand isn’t enough to support the supply anticipated from today’s pipeline of projects.

As a niche market, the graphite sector is a different breed than the gold and copper markets. Perhaps most importantly, it has no market-established pricing scheme; rather, prices are negotiated under offtake agreements between sellers and buyers.

To achieve success, graphite companies must thus develop strategic, long-term partnerships with industrial end users. Those that have been able to do so enjoy a crucial advantage in a market that is too small to accommodate the dozens of competing companies that have entered the space in the past few years. Hence, the best graphite plays for investors are juniors that have aligned themselves with buyers in key markets and are on the fast track to production.

Lomiko locks in offtake agreement with global graphene producer

One company that recently landed a key relationship and offtake agreement is Lomiko Metals (TSXV:LMR), which is developing its wholly owned Quatre Milles project in Quebec, Canada. The company’s latest graphite characterization tests on Quatre Milles graphite material indicate that the project “has significant potential as a near surface, open pit mining project” and is capable of supplying industrial-grade graphite, according to a recent press release. The test results show that 75.3 percent of tested material was classified as graphite flake, with 38.36 percent falling in the +80 mesh, large-flake category. The median carbon purity for the sample was 98.35 percent, with nine samples showing results of 100-percent carbon. The graphite material at Quatre Mills is also an “excellent candidate for graphite to graphene conversion testing,” Lomiko’s CEO, A. Paul Gill, stated.

Lomiko leveraged the potential of its graphite project in February of this year, forming a strategic partnership with Graphene Laboratories, a private revenue-producing company that provides graphene to scientists at leading universities and national laboratories as well as to industrial end users developing graphene-related products.

Graphene, often called a “wonder material,” is a two-dimensional, pure carbon material that occurs naturally in graphite. Its unique properties (incredibly light and thin, flexible and 200 times stronger than steel) have made it the focus of several emerging applications, from steel-enforcing paint to mobile device display screens.

Lomiko and Graphene Labs have agreed to work together on creating “a vertically integrated supply chain” that will allow them to “capitalize on the secure supply of high quality graphite, provided by Lomiko, and the extensive customer database and expertise in graphene materials brought by Graphene Labs,” states the press release announcing the partnership agreement.

Graphite Investing News (GIN) recently spoke with Lomiko’s Gill to discover more about the partnership and why his company chose the graphene market over the more traditional graphite market.

GIN: One well-respected expert in the graphite space recently commented on the fact that the graphene market is too early stage to have a material impact on the bottom line for junior graphite companies. So, why graphene?

APG: There actually is a huge market for graphene. More than 7,000 graphene patents have been filed around the world and billions of dollars have been spent on research. Our partner, Graphene Labs, alone has sold graphene to 4,000 customers. We’re talking about Fortune 500 companies. They’ve got a fantastic customer list that includes Ford (NYSE:F), Sony (NYSE:SNE), Samsung (LSE:BC94), LG (KRX:066570), the US army and NASA, just to name a few. A company called Graphene Nanochem (LSE:GRPH) just raised $50 million on the UK’s AIM stock exchange. The graphene market may not exist to the level that the graphite market does, but you have to recognize where things are going rather than where they’ve been.

Junior graphite companies focusing on the more traditional markets have a problem because they’re competing with the Chinese, who are pumping out graphite at very low prices. There are nine graphite companies competing at every level of the market, and if they all went into production, even at a small level, that would crush the market by creating an oversupply situation. That’s a dangerous scenario because you have to put your prices down below your costs to compete with China.

GIN: So, the highly competitive nature of the overall graphite market played a factor in your decision to enter the graphene space?

APG: Absolutely. You have to realize where your competitive advantage is. For us that’s in graphene. We’re here to make a profit and become a top player in a growing market. This way we can back door into the graphite market; if we have extra capacity, we can ship it out to the graphite market and our costs will be almost zero because we will already have made money selling our product to our graphene end user. We believe we’ll see a better profit margin in the graphene space, which will give us a competitive advantage by ultimately reducing the cost of any graphite production.

GIN: What’s in it for Graphene Labs?

APG: The idea they want to take public is creating a graphene pipeline with a secured supply of graphite. They want to create long-term contracts with all the big companies producing graphene products, with Lomiko as a supplier. And this is good for us because we don’t have to go out and find customers. Graphene Labs already has an extensive customer base. They are recognized worldwide as graphene material experts and they are actively working on industrial-scale production.

Focus Graphite reaches beyond the graphite mining space

“Leverag[ing] the advantage of your graphite deposit by creating a cutting edge, high technology graphene business component” is a part of the “four point formula” for mitigating risk put forward by Gary Economo, CEO of Focus Graphite (TSXV:FMS), another graphite junior with a graphene partner. Writing in the February 2013 issue of Industrial Minerals’ Graphite and Graphene, Economo echoed Gill’s sentiments on the graphene market, commenting, “[i]nnovation means looking beyond the borders of a graphite mining property and to future markets.” Economo believes the market will see monetization over the next one to two years, “driven by demand from the green energy and infrastructural sectors.”

Focus Graphite, which owns the Lac Knife graphite project in Quebec, holds a 40-percent interest in Grafoid, a graphene technology company focused on developing high-quality, economically scalable graphene and graphene derivatives from graphite ore. Late last year, Grafoid signed a three-year collaborative research and development agreement with Hydro-Québec’s research institute (IREQ) for the development of next-gen rechargeable batteries that use graphene, supplied by Grafoid, as well as lithium–iron-phosphate materials. IREQ is a global leader in the development of advanced materials for battery manufacturing.

Last month, Focus Graphite reported that a preliminary Phase II Locked Cycle Test shows that the average amount of graphite flake recovered from core samples is 92.2 percent, with the proportion of large flake (+80 mesh) ranging between 35 and 58 percent at an average purity of 96.6-percent carbon. The most recent drilling results on the Lac Knife property indicate a significant strike-length extension south of the main deposit as well as in the continuity and thickness of grade. Highlights include drill hole LK-12-170, which returned 66.8 meters grading 14.68-percent graphitic carbon. Focus Graphite is planning a two-phase summer 2013 drilling program to further map the limits of the graphite deposit.

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Related reading: 

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INN Video: Paul Gill, CEO of Lomiko Metals, Speaks on Canadian Graphite

INN Video: Gary Economo of Focus Graphite Discusses the Competitive Global Graphite Market