The emerging applications for graphite, particularly lithium-ion batteries, have gained traction in the markets over the last months. 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. Today, rough 65% of battery anode material is sourced from natural spherical graphite and 33% from synthetic graphite material.
As a critical material for new applications with huge demand potential, graphite stocks have performed well in the first quarter of 2017 with an average gain of 11.5%. An early-stage graphite company, Great Lakes Graphite was one of the top performers, rallying 28.6% as management implements its business model of gaining a foothold in the graphite market, ramping up its marketing effort beginning with micronized synthetic graphite before moving further up the value chain to selling and delivering high-purity micronized and spherical graphite products for energy storage and lithium-ion battery applications.
Headquartered in Toronto, Great Lakes Graphite Inc. (TSX:GLK.V) (OTC:GLKIF) is an industrial minerals company that is focused on marketing and supplying value-added graphite products to customers in North America. In the company’s fiscal year ending October 31, 2016, the company joined the graphite supply chain generating $226,522 in revenue. In the most recent quarter, the first fiscal quarter of 2017 ending January 31, 2017, Great Lakes Graphite reported graphite sales of $144,851. Currently, synthetic graphite is being sourced and sold at a negative margin while the company is establishing and developing a client base. Management anticipates a positive margin when the company ultimately will offer micronized and purified natural flake graphite products processed at its industrial facility located in Matheson, Ontario, and even at a higher margin when graphite material is sourced from its Lochaber Graphite Project located in the Province of Québec. However, management’s immediate focus remains the sale of third-party graphite material as the company develops a customer base in the marketplace.
In the meantime, the costs of developing management’s initiatives (including management, consulting and professional fees, along with exploration activities and the refurbishment of the Matheson milling facility) resulted in a net loss of $616,336 ($0.01 per diluted share) for first fiscal quarter of 2017. The company’s operations were funded by $455,000 in net proceeds from the issuance of 5,882,352 Flow-through shares at a price of $0.085 per share in a non-brokered private placement as the company prepares the Matheson plant for operations
Great Lakes Graphite began generating revenue with synthetic graphite in mid-2016 when kick-started its fast-track approach into the graphite market. While preparing its contracted Matheson plant for operations and later developing its own Lochaber property, management pursued product sales by a Go-To-Market plan to generate revenue by first establishing a brand name product 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 broader and faster distribution platform.
Management understands the unique procurement processes for graphite products and is in the process of endeavoring 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 custom graphite products to suit the needs of each individual prospective customer. Once the customer is on board with a long-term supply contract, the customized product makes the relationship quite sticky due to the relative difficulty for the customer to switch to another supplier.
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).
In the last few days, the company posted 20 photos on its facebook page demonstrating the breadth of its sampling program. Included in the photos is a large 53-pound sample request.
The initial business model for Matheson plant is to source flake graphite for approximately $1,200 per tonne, process the raw material at Matheson into micronized graphite at a cost of $400 tonne and distribute the finished product at $2,500 per tonne. Management is fast-tracking the company’s entry into the graphite marketplace by refurbishing a graphite micronization facility (rather than first developing a mine) at a much lower relative cost and in a lower-risk manner.
Management’s goal is to ultimately sell higher-value graphite, namely micronized graphite (94%-97% purity), micronized purified graphite (99.5%-99.9%) and eventually spherical graphite (99.9%).SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR and to view our disclaimer.
Great Lakes Graphite has named Polaris Battery Labs, LLC as a partner, a sample making and test lab for lithium ion batteries. Polaris can provide complete laboratory support for proof-of-concept and prototyping towards bringing battery technology toward mass production.
On March 22, 2017, Great Lakes Graphite announced the formation of 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 of 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.
In the company’s March 2017 presentation, the estimated capital required to bring Matheson to production was reduced from $5.0 million to less than $2.0 million. As of January 31, 2017, Great Lakes Graphite has incurred $819,896 in refurbishment costs with respect to the Matheson’s plant facilities and equipment, but the commissioning target date has been pushed out to the first half of 2017.
The number of customers has increased from three to five. In addition, the time range required to migrate the customer from qualification sampling (bench-scale and pilot-scale) to long-term supply agreement has been modified from 14-24 months to 6-to-24 months. Apparently, there is an indication that qualification time for one of the company’s sampling customer is going to be shorter that originally than originally anticipated.
According to the company’s March 2017 presentation, Great Lakes Graphite’s initial customer, US industrial customer located in Texas, now appears to be under a long-term supply agreement for micronized synthetic graphite used in drilling fluid applications.
The order for 400 kilograms (0.44 ton) of micronized natural flake graphite (which was announced on February 3rd) was air freighted to a large corporation headquartered in Western Europe with production facilities in North America and the Middle East; the materials was ordered for the purpose of conducting production-scale qualification tests in foam and chemical applications. Previously that corporation had received an initial two-kilogram sample for pre-qualification testing in December 2016. The company continually provides samples of graphite products for qualification to potential customers across a range of targeted industries.
The order for 20 tons of synthetic graphite (which was announced on January 24th) from an international customer located in the Middle East is on route by container ship. The graphite will be used in a series of qualification tests to confirm its suitability for use in the construction industry in the manufacture of steel.
Graphite Supply Chain
On March 15, 2017, Great Lakes Graphite announced that it had 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. DNI Metals sources natural flake graphite concentrate from a Brazilian producer and handles the logistics and brokering of the material from Brazil to North America. Two years ago Great Lakes Graphite entered into a 5-year supply agreement with DNI Metals for the ability to purchase up to 34,000 tonnes of graphite concentrate material. The graphite product is under 100-mesh (sub 150 micron) graphite concentrate with an average purity of 96%+. Great Lakes Graphite will have the material micronized to the standard sizes 45 μm, 20 μm, 10 μm and 5 μm to address specific customer specifications.
Management is pursuing a unique 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. However, in due course, management anticipates micronizing and purifying graphite at its low-cost Matheson facility, and ultimately converting flake concentrate from its Lochaber Graphite Project to premium-grade spherical purified graphite. 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$11.7 million with 123,444,330 million shares outstanding.