How to Profit from Graphite Mining

Graphite mining is one speculative way for investors to diversify their mining portfolios.

A growing number of investors are interested in graphite because it is used in the lithium-ion batteries that power electric cars. It’s a strong plus for that metal, but it also has a number of other potentially profitable uses. For example, when added to steel, it increases its carbon content and makes it stronger. In the automobile industry, graphite is used in gaskets, brake linings and clutch materials. It also has a range of other industrial uses, including in other components of electric motors, batteries, lubricants and pencils. Graphite is increasingly used in electronic devices, such as smartphones, flat-panel displays, laptops and tablets.

China now produces about 70% of the world’s graphite. It keeps about 60% of its output for its own use.

What is Canada’s role in the global graphite supply chain?

Canada is emerging as a significant player in the global graphite supply chain with several major mining projects under development, particularly in Quebec and Ontario, positioning itself as a potential alternative supplier to China which currently dominates global production.

Graphite demand will likely continue to rise as demand for new electronic devices increases with a coming rebound in the global economy. There are potential graphite mines and graphite deposits in Canada and around the world. These deposits could be brought profitably into production if prices rise high enough.

As well, higher prices would likely spur manufacturers who use graphite to look for substitutes (including synthetic graphite in certain applications), and to increase recycling.

What are the risks associated with investing in graphite mining, such as price volatility and regulatory challenges?

Investing in graphite mining companies carries several significant risks. Price volatility is substantial, with graphite prices fluctuating based on global supply-demand dynamics, particularly influenced by China’s dominant market position and EV battery demand fluctuations. Regulatory challenges include stringent environmental permits, varying provincial mining regulations across Canada, and evolving ESG requirements that can delay project timelines or increase compliance costs. Additional risks include technical challenges in producing battery-grade material that meets strict specifications, potential substitution by synthetic graphite or alternative battery technologies, high capital expenditure requirements for mine development, and geopolitical factors like trade tensions or supply chain disruptions.

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How do geopolitical factors influence the graphite market?

Geopolitical factors shape the graphite market primarily through China’s dominant production position, Western nations’ critical mineral policies, trade tensions, varying environmental regulations, clean energy transition demands, and resource nationalism in graphite-rich countries.

A speculative graphite mining pick

Northern Graphite first sold shares to the public in April 2011, when it raised $4 million by issuing 8 million common shares at $0.50 each. The company is now listed on the Toronto Venture exchange under the symbol NGC.

Northern Graphite believes that its deposit contains large crystal-graphite flakes, which command a premium price. The company continues to drill to further define the deposit. It has also reported positive results from a test to determine whether the ore can be processed into high-quality graphite concentrate that is ready for sale.

Higher prices of graphite would likely spur manufacturers who use graphite to look for substitutes (including synthetic graphite in certain applications) and to increase recycling. All of this could affect longer-term demand for the company’s graphite if it brings a mine into production.

We don’t cover Northern Graphite in any of our newsletters, but we’ll keep an eye on it for members of Pat McKeough’s Inner Circle. Meanwhile, one of the best way to invest in graphite at this early stage is through major technology companies like IBM, who are funding the next stage of its research into graphene computer chips. Graphene’s extremely high conductivity would make it ideal for this use.

Here are 5 things we look for when we recommend mining stocks—including graphite mining stocks:

1. We generally stay away from mining stocks operating in insecure and politically unstable regions like the Congo and Venezuela, or in countries with little respect for property rights and the rule of law, like Russia or Mongolia. Mining is inherently a politically vulnerable business; you can’t move the mine to another country, and local citizens sometimes believe that a foreign mining company is robbing them of their birthright, even though they probably need the foreign company’s capital and expertise to get any value out of the ground. We like to see graphite mining stocks in countries like the U.S. and Canada if the demand for graphite rises.
2. When we recommend pure-exploration graphite and other mines, we prefer those that operate in an area with geology that is similar to that of nearby producing mines.
3. We look for well-financed junior mines with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests. The best junior mines, including graphite mines, have a major partner who has agreed to pay for the drilling or other exploration or development, in exchange for an interest in the property.
4. We like mining stocks with a strong balance sheet and low debt.
5. We want to see favourable factors, like attractive geology, before we recommend any mining stocks that operate in hostile environments, like the high Arctic.

How has the growth in electric vehicle demand heightened your interest in graphite mines? Share your experience with us in the comments.

This article was originally published in November 2021 and is regularly updated.