Simon Moores on Spherical Graphite and the Benefits of Exploration

Earlier this month, Graphite Investing News (GIN) had the opportunity to speak with Simon Moores, data manager at Industrial Minerals, about spherical graphite and increased exploration in the graphite industry, two topics he has recently written about. 

In the interview below, Moores explains what spherical graphite is, discusses how new exploration efforts have benefited the graphite industry and gives his outlook on where graphite prices are headed moving into 2014.

GIN: Today I’m mainly interested in talking about a couple of articles you wrote recently. The first was on spherical graphite — can you start by explaining what it is and how it’s produced?

SM: Spherical graphite is the battery grade of graphite that the industry needs to make superior lithium-ion batteries.

To make it, you first mine medium- to large-flake graphite. Then you have to go through an expensive secondary process to turn the flake shape, which is flat, into a spherical shape. This requires a lot of fine grinding/spheroidization and chemical purification that ultimately produces the desired product, which is pure and also very fine. That is sold to customers in the battery industry.

GIN: Are there any other end users?

SM: Spherical graphite would just be exclusively batteries. It’s being used specifically for that, to produce longer-lasting, higher-performing batteries.

GIN: My understanding is that although many companies want to convert their flake graphite into spherical graphite, that process still needs some fine-tuning. Why is that?

SM: That’s a good point. It’s still a new technology commercially speaking. The knowledge has been around for a long time, but the commercialization of it hasn’t. The only place that produces significant quantities of spherical graphite at the moment is China — those outside of China can’t compete on a cost basis. It’s a very wasteful process that excludes higher-cost processors.

Basically that means in the last two years junior companies have been putting some of their money into the research on that side — it’s a true value-added process and one that will resonate with shareholders. Those that develop and refine their process now will be well positioned in what is expected to be a big future market.

GIN: Those juniors are just investing in the technology at this stage?

SM: Yes, on a smaller lab scale. The key for juniors is to learn how to use their ore to produce spherical graphite in an economical way. This takes a lot of trial and error. So their efforts today will pay dividends in the future.

GIN: So juniors are pushing to get this technology developed. Do you think that there’s going to be much progress soon, or will it be a longer process?

SM: I think it will be a long process because the market’s not quite there. I mean, spherical graphite is being bought and sold. At Industrial Minerals Data we track one spherical graphite price at the moment, and it’s mainly being bought and sold between China, Japan and South Korea. The global market is still quite small though. It will not only be a case of R&D, but also of waiting for the actual market to mature.

GIN: In the other article I want to talk about, you discuss the benefits that the graphite industry has reaped since new players started emerging in 2011. What are some of those benefits?

SM: I wrote the article to outline the impact that exploration has had on the graphite industry. I mean, if you look at before 2011, there were hardly any projects. New exploration caused the graphite industry to look at itself in detail, including the quality of resources being mined, how long present resources will last and whether mines are fit for existing and developing markets in 2013 — it’s the creation of competition that’s done that. I think another key benefit is that without that competition there never, ever would have been the same intensity of exploration.

So now, in effect, existing producers that are looking to expand their resources have a good amount of projects to pick from. They’re in a perfect position — just look at all the projects, all the publicly available data and choose their next resource. That’s a huge zero-cost benefit to the industry, and that’s really what’s happened in Canada.

GIN: One of the other benefits you mentioned in the article is that there has been more openness about pricing; however, I’ve noticed it’s still not always easy to find prices for graphite. Do you see even more openness coming in the future?

SM: The way graphite is priced and how it’s traded have been put it in the spotlight because you have a lot of new entrants coming in who are inexperienced in the graphite trade, versus people who are very experienced. Generally, people in graphite have long careers in the industry, so you’ve got two ends of the scale.

I don’t think a specialist product like natural graphite will be traded on an exchange like some other commodities, but I do think there is a need for a responsible, robust price and data collection system for the industry. That is what we are doing with Industrial Minerals Data (www.indmin.com/GraphiteAnalysis).

GIN: Even as all these positive things are happening, many graphite juniors ultimately will not survive. When everything is said and done, will it be the companies operating prior to 2011 who come out on top once again?

SM: It’s a difficult time for a lot of companies, especially with funding, and that’s happening across the world, not just in Canada. The ones that have done the bulk of the work and the ones that you continually hear about are also the companies that the industry is looking at.

GIN: To finish up, I’d like to ask you about prices. When we spoke in June you said you expected flake graphite prices to remain stagnant for the rest of 2013. Did that prediction end up coming true?

SM: They’ve pretty much remained flat and inactive except for a slight fall in September. In June, the 80-mesh large flake was at a midpoint of $1,350 per tonne. Then in September it dropped a bit, so it was $1,275 per tonne.

GIN: What do you think investors can expect heading into 2014?

SM: Good question. We’ve had a year of inactivity, and the last time we had a year of inactivity and uncertainty was 2009. What happened a year later was a huge price spike because demand rebounded and producers could not react in time. Now, I don’t think that’s going to happen this time because the supply side is wiser. But if prices start rising, which we do expect at some point in 2014, we think probably that will happen in the second quarter, when more buying starts happening.

I also think that should demand rebound, supply shortages will be more acute with large-flake graphite.

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

Related reading: 

Simon Moores Talks Prices and Serious Graphite Companies