There is more graphite than lithium in electric vehicle batteries and the market for graphite used in batteries has grown by 250% since 2018. In addition to EVs, graphite is critical for use in solar panels, wind turbines and a whole host of military applications. It is also used in cores of nuclear reactors. But the supply chain is about to be disrupted as China has announced a graphite export ban.
China produces 61% of the world’s graphite and 98% of the ready-to-use material. In just 12 days, China will impose a ban on the exports of two types of graphite (synthetic and natural) and derivative materials without a special license. This comes after the U.S. limited the communist-run country’s access to high-end semiconductor chips in what seems like an escalating trade war. China said it was looking after its “national security and interests,” by applying dual-use export controls on certain types of graphite. The dual-use tag is used on items that can also be used in military technology.
We are now likely to see a disruption in supply chains and sharp increase in graphite prices. And this comes after prices had dropped to a 11-year low, down over 50% year on year during June. So the potential for a powerful bounce in the prices for graphite off oversold levels is high.
Over the longer term, natural graphite and active anode material (AAM) demand is expected to increase four and eight times, respectively, over the next 10 years.
3 Stocks to Profit from China’s Coming Graphite Export Ban
There are several micro-cap companies with some graphite in the ground, but only three names that I would personally consider for getting exposure to graphite.
Syrah Resources (SYAFF) is an Australia-based company that operates the world’s largest graphite mine in Mozambique, while expanding its active anode material production facility in Louisiana. Production in Louisiana is expected to start by year-end. Most of the production will be to supply an integrated Tier 1 battery manufacturer and automotive OEMs. A definitive feasibility study is also ongoing to expand the Vidalia facility in Louisiana to 45,000 tons of active anode material per year. Syrah Resources has entered into an off-take agreement with Tesla (TSLA) for 8,000 tons of AAM per year from the Vidalia plant. Syrah is the only operating vertically integrated natural graphite AAM supplier outside of China.
Enterprise value is $411 million with $87 million in net debt. This is the most advanced of the graphite companies we track. (Company Website)
Nouveau Monde Graphite (NYSE NMG) operates a demonstration Phase-1 facility. NMG is advancing the commercial parameters and the execution plan for the Phase-2 Matawinie Mine and Bécancour Battery Material Plan, expected to start producing in 2026. Future growth will come from their UATNAN mine, which has an even larger resource and returned an after-tax IRR of 26% and NPV of C$ 2,173 million. NMG is expected to produce 100,000 tonnes per year, according to Pallinghurst, with a mining life of 30 years. Panasonic Energy is now producing EV lithium-ion batteries at its prototype production facilities testing NMG’s active anode material, a major step toward a definitive off-take agreement.
Enterprise value is $158 million with just $7 million in net debt. (Company Website)
Northern Graphite Corporation (NGPHF) is a small-cap graphite producer with revenue growth of 7.3% in the latest quarter. They aren’t yet turning a profit but that could change quickly if graphite prices spike higher. The company 100% owns the Lac des Iles (LDI) graphite mine in Quebec, advanced stage Bissett Creek Graphite Project in Ontario, and the Okanjande graphite deposit/Okorusu processing plant in Namibia. Lac des Iles is producing at 15,000 tpy, but has capacity to expand to 25,000 tpy. The Namibia mine should come on stream next year at 31,000 tpy, more than doubling their production profile. Bissett Creek could start production of 44,000 tpy by 2025. Northern Graphite plans to build North America’s largest Battery Anode Materials (BAM) Plant to produce 200,000 tpa of battery anode material in Baie-Comeau, Quebec, Canada. They also have an option to acquire a 33.3% equity interest in NeoGraf. The vertical integration gives them greater operational control and should result in higher margins.
Enterprise value is $33 million with $12.4 million in net debt. I view this as a high-risk/high-return play for investors with a high risk tolerance. (Company Website)
Graphite miners have consolidated and pulled back a bit after the initial news from China. I think this presents an opportunity for investors that did not buy the initial breakout to pick up shares. I expect another push higher in graphite mining stocks over the next few weeks as we near the December 1st target date for China to ban exports. If you would like to receive all of our mining stock picks as soon as we add them to the Gold Stock Bull portfolio, sign up here.