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Great Lakes Graphite (GLK.V) Expands Its Partnership Platform

05/15/2017


TSX:GLK.V
OTC:GLKIF

Summary

• Great Lakes Graphite. (TSX:GLK.V) (OTC:GLKIF) is favorably positioned to participate and benefit from the increasing demand for graphite material. 
• Great Lakes Graphite began generating revenue with synthetic graphite in mid-2016. 
• Management is pursuing a fast-track approach into the graphite market with a Go-To-Market plan through a direct sales effort in order to secure long-term supply contracts. 
• Great Lakes Graphite is also soliciting channel partners in an effort to secure a broader and faster distribution platform.
o Very recently, Great Lakes Graphite partnered with Shamokin Carbons to develop, manufacture and distribute both high-purity micronized synthetic and micronized natural flake graphite products.
o The relationship joins the collaborative efforts with Ashland Advanced Materials LLC (purification operations in Niagara, NY), DNI Metals (natural flake graphite supply from Brazil) and Polaris Battery Labs, LLC (test lab for proof-of-concept and prototyping of lithium ion batteries).

Headquartered in Toronto, Great Lakes Graphite is an industrial minerals company that is focused on marketing and supplying value-added graphite products to customers in North America. The company joined the graphite supply chain generating $226,522 in revenue during the latter part of the prior fiscal year by selling approximately 400 tons of graphite. The company continually provides samples of graphite products for qualification to potential customers across a range of targeted industries. During 2016, Great Lakes Graphite sent out 124 samples, and thus far during 2017, has booked orders for 840 tons of graphite product.

The company has qualified graphite materials with two customers and has another three in the qualification process. Great Lakes Graphite’s initial customer is Texas-based industrial customer that uses micronized synthetic graphite in drilling fluid applications while the company’s second customer is based in the Middle East and uses synthetic graphite in a construction material application. The time range required to migrate the customer from qualification sampling (bench-scale and pilot-scale) to long-term supply agreement thus far has been 6-to-24 months. 

Management is implementing a business model to gain a foothold in the graphite market, ramping up its marketing effort beginning with micronized synthetic graphite and providing solutions to build and solidify strong relationships with customers before moving further up the value chain by selling and delivering high-purity micronized and spherical graphite products for energy storage and lithium-ion battery applications. 

Great Lakes Graphite is pursuing qualified prospects in the targeted markets of lubricants (greases and sprays), friction (drilling fluids and brake pads), thermal management (pebble bed nuclear reactors, heat management systems and commercial ice-melt systems) and energy storage (batteries and fuel cells). These prospects are driving the process of determining the company’s current specific product offerings. 

Management’s immediate focus remains the sale of third-party graphite material as the company develops a customer base in the marketplace. The ultimate goal is to ultimately sell higher-value graphite, namely micronized graphite (94%-97% purity), micronized purified graphite (99.5%-99.9%) and eventually spherical (battery grade) graphite (99.9%).

Management understands the unique procurement processes for graphite products and is in the process of attempting to build and solidify strong relationships with customers. This direct marketing effort is a key core competency of the company. Great Lakes Graphite’s marketing approach is to create strong customer relationships with end-users of graphite by thoroughly understanding of each prospective customer’s specific graphite requirements and by providing samples for qualification testing. The company’s sales and marketing activity continues in order to build a base of long-term customer relationships across a diversified cross section of graphite applications.

Demand for Graphite Increasing 

According to Benchmark Mineral Intelligence, over $15 billion will be invested in new lithium-ion battery capacity through 2020, increasing the battery anode market to 250,000 tonnes. The traditional markets for graphite are automotive brake linings, lubricants, electric motor brushes, pencils, batteries, among others. However, the blue sky drivers of increasing demand for graphite are lithium-ion batteries and the Electrical Vehicle (EV) market, both of which are expected to grow 20%+ annually for the foreseeable future. 

The macro investment case for graphite is becoming more widely-known. With increasing demand for portable electronic consumer products (smartphones, tablets, notebooks, power tools, etc.), the rise of battery-building gigafactories and the step-up to mass production of hybrid and electric vehicles, more graphite will be needed for the manufacture of lithium-ion batteries. Though non-battery, graphite-related markets (such as refractories, brake linings, clutch facings, pencils, batteries and lubricants) have been lackluster, the dominate catalyst for future growth of the overall graphite market is anticipated to be the increasing demand for rechargeable lithium-ion batteries. 

Recent Developments
 

On May 3, 2017, Great Lakes Graphite announced the execution of a Memorandum of Understanding (MOU) with Shamokin Carbons, a privately-owned company focused on the production and processing of carbon and graphite products for multiple markets and industries (foundries, steel plants, glass manufacturing, brake linings, lubricants, coatings, batteries, fuel cells, etc.). 

In the proposed relationship, Shamokin Carbons will work with Great Lakes Graphite to develop, manufacture and distribute both high purity micronized synthetic and micronized natural flake graphite products. The natural crystalline flake graphite is being sourced from Brazil through the wholesale graphite business of DNI Metals (CSE: DNI, OTC Pink: DMNKF). Great Lakes Graphite has a 5-year agreement with DNI Metals for the supply of up to 34,000 metric tons of 100- mesh 95% carbon. In March, Great Lakes Graphite placed a purchase order for 2,320 metric tonnes of graphite with DNI Metals with a shipping schedule from July through December, with one shipping container load of 20 tonnes having already been delivered this year. The company and Shamokin Carbons are designing the systems and infrastructure to ramp up the manufacture of micronized synthetic and high-quality natural flake graphite in line with marketing efforts and production requirements of Great Lakes Graphite. DNI Metals has established a distribution network that currently sources graphite material from Nacional de Grafite, a private Brazilian company which has annual production capacity of 72,000 tonnes.

Great Lakes Graphite and Shamokin began working together last year, leading to the sale of 400 tons of synthetic graphite. The companies are also working on natural flake products, which have thus far resulted in initial sale of 400 kilograms of micronized natural flake graphite in early 2017 to a customer based in Western Europe for a production-scale qualification test. The graphite was sourced from Brazil and micronized by Shamokin in an ISO9001-certified facility located in Pennsylvania. 

Great Lakes Graphite, Shamokin Carbons and Ashland Advanced Materials, LLC (aka Americarb) have agreed to collaborate in planning for the manufacture of ultra-high purity grade, battery-anode graphite. In March 2017, Great Lakes Graphite formed a partnership with Ashland Advanced Materials, LLC (a privately-owned provider of graphitized carbon products headquartered in Niagara Falls) for industrial-scale purifications of micronized graphite (a critical capability for the manufacture of graphite material suitable for lithium-ion battery anode usage). Ashland has an 110,000 square-foot facility with multiple induction lines for high-temperature (3,000 C), heat-treating materials for use in the solar cell and fuel cell industries. Ashland benefits from its location by being able to utilize hydropower from Niagara Falls.

Concurrent with the Shamokin Carbons announcement, Great Lakes stated that Northfil Resources Limited and the company had mutually terminated all contractual arrangements of the Facilities Use Agreement concerning the refurbishing, use and operation of the Matheson facility for micronizing graphite concentrate. Great Lakes received $412,360 from the Provincial Government of Ontario (through the Northern Ontario Heritage Fund Corporation) to refurbish the Matheson facility for commercial production operations. The capital was offered as a combined grant (30%) and non-revolving term loan (70% or roughly $288,652). The company is expected to repay the loan, and the Province of Ontario is expected to benefit from the refurbishment of the Matheson facility, which is almost ready to be commissioned.

Great Lakes Graphite continues to gain visibility in the graphite market and recently applied for membership in the New York Battery and Energy Technology Consortium (NY-BEST), a private-public coalition of corporate, entrepreneurial, academic and government partners whose mission is to be the authoritative news and information resource on energy storage and also to advance the commercialization process for energy storage technologies.

Great Lakes Graphite is active on twitter relaying new and expanding applications for graphite, and also soliciting inquires for additional customers (see image below from GLK tweet).

Conclusion

Management is pursuing a business strategy of providing value-added, higher-margin, micronized and purified graphite directly to customers. For now, management is executing its Go-To-Market business strategy, acquiring customers by generating sales with sourced graphite product. Great Lakes Graphite is still in the early stage of its development as management is not anticipating profit from operations in the near-term. The company will continue to require equity and/or debt financing to fund operations for the current 2017 fiscal year. Currently, Great Lakes Graphite has a market capitalization of approximately CDN$8.02 million with 123,444,330 million shares outstanding.

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