Graphite: What is it?
It’s carbon. Specifically, it’s carbon that the earth has subjected to intense heat and pressure. It’s highly conductive and relatively light weight. Practically, graphite comes in 2 forms: synthetic and natural.
Synthetic Graphite is made in a lab using petroleum products. It takes a great deal of energy to make, so it ends up being expensive and perfect. Synthetic graphite has zero impurities, and is easy to use. You’ll find it in tennis rackets and golf clubs and anything else made by people that order graphite in kilograms.
Any operation that orders its graphite in tons can’t afford to use synthetic graphite. And why should they when natural, mined graphite will do just fine? It’s mainly used in foundries, brake linings. As you’ve no doubt heard from your friendly neighborhood stock promoter, the quickest growing use for graphite is in the lithium battery sector. There are a few different styles of deposits, and the stuff ships as one of three main types. Flake, lump and amorphous.
Physically Speaking, And How Much?
Nothing absorbs and conducts heat while keeping its shape quite the way graphite does, so it isn’t easily substituted for.
Graphite isn’t a metal so it can’t be melted or bent and shaped like copper or aluminum. But particle shape matters to the industrial users of graphite, and so does particle size. Since there is no way to put two pieces of graphite together to make a larger piece, larger particles of consistent shape are more valuable.
The ‘amorphous’ graphite is effectively a powder. It sells for $370/t because its utility is limited. The more useful flake graphite goes for $1240/t and sometimes even more for larger flakes. High-grade lump and chip graphite, produced only in Sri Lanka – is fetching $1890/t in 2017. It’s that high-grade Sri Lankan graphite that we’re here to talk about.
Industrially Speaking – The Birth Of Sri Lankan Graphite
That’s why the “World is Short on Graphite” story isn’t a new one. Spikes in graphite demand create graphite shortages. The first such shortage surrounded industrialization and graphite’s use in foundries.
In the years following the Civil war, the graphite world has undergone and continues to anticipate something of a seismic shift. Foundry materials are still the primary use of natural graphite, but lithium ion batteries are catching up quickly. Mass proliferation of consumer electronics got the contemporary graphite market moving in 2011, but it really got the market’s attention when Elon Musk’s Tesla Motors figured out how to run 1800 laptop cells in series and use them to power a car.
The graphite in Sri Lanka is Special. It occurs in veins, like gold deposits, and has a continuity to it. Instead of graphite flakes disseminated through, rock, the Sri Lankan deposits tend to be large, continuous, high grade faces that are low in impurities and can be extracted in large chips or lumps. Battery anodes are made from spherical graphite.
The high-purity graphite that comes out of Sri Lanka deposits is what Ceylon Graphite is after.
Between the ubiquity of battery powered devices and the excitement behind electric cars, I think that small-cap investors sometimes lose track of just how small the graphite market is. World production of graphite in 2015 was 1.9M tons. For perspective, the world produced 19M tons of copper and 57M tons of aluminum in the same period. With one small exception (shout out to Eagle Graphite, Nelson, BC), there are no stand-alone graphite companies who are producers. The big companies that produce graphite all deal in other industrial metals, too, like chalk and silica. It’s handy to think of graphite as an industrial material, instead of as a metal.