“Graphite has not yet had its lithium moment,” says Brent Nykoliation, Executive Vice President of NextSource Materials.
It’s a short statement, but there’s a lot inside it to unpack.
First, it’s all about the batteries.
Seasoned mining investors will recall a time, not too long ago when lithium was an obscure commodity that hardly anyone took an interest in. Incredible as it now seems, it’s been less than ten years since the lithium market really got going. Ten years ago, gold had just finished a run up to US$1,800 and that was where all the action was at.
But then came electric vehicles, the Paris Agreements signed at COP 2015, and lithium’s place in the sun was assured. Even now, after a period of considerable weakness, the lithium price is trading at several times the levels it’s customarily been at one, two, or more decades ago.
But batteries need graphite, too. And a lot of it.
In electric vehicles, graphite is the largest material by volume in a lithium-ion battery, making up around 40% of the standard electric vehicle battery, and it doesn’t matter which type of lithium battery you’re talking about either – the nickel-cobalt ones or the iron-phosphate ones, all require lots and lots of graphite regardless of the cathode chemistry.
Crucially, though, at least in regards to times past, the cost of graphite has been lower. Thus, historically, while it makes up 40% of an electric vehicle’s battery, graphite tends to account only for around 10% of the battery cost. The market gets less spooked, and also less enthusiastic when the ratios work that way round, and so, although graphite has bubbled up now again, most notably in Australia a couple of years ago, on the whole, it has tended to continue under the radar.
Unlike lithium (and cobalt), where the majority of world production now goes towards battery demand, graphite’s biggest demand market remains, for now, the steel industry. Graphite has not yet had its lithium moment.
But that is going to change.
A typical EV requires between 160-200 pounds of graphite. Just last month the Chinese government announced it would be imposing export restrictions starting December 1st on processed graphite that is used in lithium-ion batteries.
That caused a flurry of attention in the market as certain graphite companies – although there aren’t many – pointed out that this move was only likely to exacerbate already existing trends that point towards a significant supply-demand imbalance in the future, as there is a lack of graphite projects that are not located in “countries of foreign concern”.
How serious will these Chinese restrictions be remains open to question.
Exporting value-added graphite is big business for them, and they aren’t likely to do too much to damage that.
“They don’t want to impact that business to their own detriment,” says Nykoliation. “But they are sending a message that they have the leverage to disrupt Western EV supply chains if they so choose.”
The message is: graphite is crucial for electric vehicles, and we control the graphite supply.
Your move, Western World.
It’s against this backdrop that NextSource’s Molo mine and project in Madagascar starts to make a whole lot of sense. Not only is it big beyond any reasonable expectation, but it’s a vast primary resource that is outside of China, where almost 70% of the world’s graphite mines are located.
So if, as Benchmark Minerals Intelligence is predicting, there’s a seven or eightfold increase in graphite demand in the next seven years, NextSource will be as well placed as anyone to supply that greater need.
This is all the more meaningful because NextSource is already up and running and has begun production. Currently, at Molo, the final stages of ramp-up are underway, and the first commercial shipment and sale of SuperFlake® graphite concentrate under existing offtake agreements is expected to occur in early 2024. How has this been possible, when almost everyone else in the graphite space has been floundering?
The short answer is: quality asset meets quality strategic shareholder.
Sir Mick Davis, late of Xstrata and now running investment vehicle Vision Blue Resources, is chairman of NextSource. NextSource is the sole graphite investment in Vision Blue’s portfolio of energy transition materials. And Nykoliation emphasizes the importance of that relationship.
“The investment by Vision Blue was the catalyst that allowed us to reach production and provides our company access to a very experienced technical and mine operations support team as needed as we advance towards our mission – to become a vertically integrated global supplier of battery materials through the mining and value-added processing of graphite,” he says.
So, Vision Blue thinks there’s a lithium moment for graphite on the way, and Molo is their way to play it.
What is it about Molo?
The numbers tell the story simply enough. The project holds 23.6mln tonnes of graphite in the measured resource category, which on the 17,000 tonnes per year currently planned allows for a mine life of more than a hundred years. Overall, NextSource has delineated a resource of more than 140mln tonnes, with over 300 line kilometres (186 miles) of additional graphite identified on the property.
If ever you were looking for an alternative and virtually unlimited supply outside of China, this is surely it.
But there’s more.
The Chinese have the stranglehold on the midstream graphite products that go into the batteries themselves, in particular, what’s known as spherical purified graphite, or SPG for short. China produces 99% of the SPG globally. SPG is processed from flake graphite and is further “coated” with synthetic graphite to produce CSPG, which is the final form of graphite that goes into the anode of a lithium-ion battery.
Now NextSource, as any commercially savvy graphite company ought to do, has put in place off-take agreements for its graphite. The German major steelmaking conglomerate thyssenkrupp Materials Trading is one partner.
But the other is one is a leading Japanese value-added graphite processor and an anode sales and marketing company, that possesses the know-how of how to make CSPG. That know-how has now been licenced exclusively to NextSource and puts the company in an almost unique position in the western world’s mining sector.
This is a company that has the ability to be vertically integrated by next year and combine a critical raw material with processing capability to produce a product that can go straight into EV batteries.
And if graphite demand does increase sevenfold in seven years, NextSource is unarguably in pole position to be the prime beneficiary.