A mining boom with a green twist

Environmental protection is behind soaring demand for the specialty minerals graphite and vanadium, and it’s fuelling the share prices of a host of miners.

Summary: The surging global demand for alternative renewable energy sources is fuelling a boom in the share prices of companies linked to graphite and vanadium, two materials used in the manufacture of long-life batteries. It’s a classic case of “environmental mining”, and certain Australian stocks are enjoying the ride.
Key take-out: For now, the graphite and vanadium game is easily the best in the mining sector thanks to an expectation of sharply higher future demand (and price).
Key beneficiaries: General investors. Category: Commodities.

Protecting the environment and mining have always seemed to be mutually exclusive, but when it comes to graphite and vanadium, the two hottest metals in an increasingly buoyant resources sector, it is the best of both worlds.

While totally different in composition, graphite and vanadium are carving out a future of strong demand and higher prices because they are brilliant at storing electricity, the holy grail of the renewable energy industry.

Graphite is winning because it is a major component in the long-life batteries needed to power electric cars, arguably the next great manufacturing boom.

Vanadium also is winning because it could become a major component in the room-sized, long-life batteries, needed to store electricity for households and industry, plugging a critical gap in the solar and wind power industries which are naturally constrained to daylight hours or when it is windy.

The company closest to the intersection of what might be called the world of “environmental mining” is Syrah Resources, a one-time penny dreadful which has rocketed up to almost breach the $1 billion market capitalisation barrier in recent weeks, and is said to be the target of a $2 billion takeover offer.

Syrah has an excellent story to tell, and was first told by Eureka Report 18 months ago (Lead in the graphite pencil December 21, 2012) after I attended a graphite and graphene conference in London and visited the graphite exploration assets of Talga Resources in Sweden.

Graphene, a material made from graphite but only one-or-two atoms thick, is exciting for a number of industries including uses in technology (touch screen displays because of its excellent electrical conductivity properties), as well as a potential uses in strengthening concrete.

Back in late 2012 Syrah was trading around $2.73, thanks to the first flush of interest in its Balama prospect in the east African country of Mozambique. Last week the stock hit an all-time high of $5.99 amid rumours of a takeover approach from mining giant Glencore.

Balama is not only rich in graphite it contains high levels of vanadium, an unusual combination made even more attractive because the tonnage of potential ore is said to make it one of the world’s biggest single accumulation of both minerals.

In time, Balama could become a major supplier of graphite to the car industry and vanadium to the manufacturers of big batteries.

But, as it heads towards that objective it will it certainly not be alone in the rapidly expanding business of exploring for graphite and vanadium – and that’s when wiser investors will spot the first potential hurdle for all players in the game, there is theoretically no shortage of either commodity, just a shortage of operating mines.

All that speculators can see is that graphite and vanadium are far more attractive today than the trend-setting minerals of yesterday, such as iron ore, gold and coal.

With Syrah, investors have had a field day, and other graphite and vanadium players are a long way behind. Talga, which blossomed in 2012 and then faded in 2013, is charging back thanks to a possible breakthrough in graphene production and thanks to an investment in the stock by Australia’s richest prospector, Mark Creasy, has risen from less than 5c over the past year to a high last week of 47.5c, and recent trades around 38c, a gain of 660% but with the latest price valuing the stock at just $47.3 million.

Also aboard the graphite express are stocks such as Triton Minerals, up from 4c to 61c and a market cap of $166 million. Lamboo Resources, up from 4c to 83c and a cap of $102 million. Valence Industries, up from 18.5c to 45c and a market cap of $61 million. Kibaran, up from 5c to 32.5c and a cap of $37.5 million. Bora Bora, up 20c to 73c and a market cap of $20.4 million. Archer Exploration, up from 11c to 16.5c and a cap of $13.9 million. Valence, up from 18c to 46c and a cap of $62 million, and Malagasy Minerals, up from 1.3c to 4.3c and a cap of $7 million.

Vanadium players include TNG, which has just signed a development agreement with an associate of Korea’s industrial giant, Hyundai, over its Mt Peake project in the Northern Territory, a deal which has helped boost the stock from 3.6c to 25c and a cap of $139 million. Yellow Rock, which is re-exploring the historic Gabanintha vanadium prospect in WA, up from 0.5c to 1.6c and a cap of $7 million.

The market capitalisation figures, generally less than $100 million and in some cases less than $10 million, tell another part of the graphite and vanadium story. It is a speculator’s playground, for now, and while buying into the game might be relatively easy, selling out could be tricky if the market turns sour – a fact that should not be forgotten, and which was a warning in that original 2012 graphite story.

Potential problems ahead for the graphite and vanadium boom are many and, like all similar booms, a handful of winners might emerge, or no winners will emerge. This is what has happened in earlier hot commodity booms, including the infamous magnesium rush of the 1990s.

Older investors might remember the stampede into magnesium stocks on similar “help the environment” grounds, with the super-lightweight metal predicted to sharply reduce the weight of cars (by substituting heavy steel with magnesium) only to discover that carmakers declined to invest in the metal and dozens of magnesium hopefuls collapsed.

The electric car revolution appears to have more substance than the magnesium hype, with electric vehicle sales in power-rich Norway hitting a record in March thanks to sales of the sector-leading Tesla beating conventional rivals with 1,493 sold in the month, more than double the second-biggest seller, Volkswagen’s Golf.

In China, a new law has mandated that at least 30% of new vehicles sold by 2016 should be powered by alternatives to petrol as a step in cutting the country’s high levels of air pollution.

Set against this impressive potential for electric vehicle sales, and rising demand for long-life power storage using vanadium in “redox flow” batteries, are some equally impressive barriers, including:

  • A shortage of existing graphite and vanadium mines but no shortage of either commodity in the Earth’s crust, with explorers certain to find a lot more as demand and price picks up.
  • A crush of potential future producers, with an estimated 100 graphite explorers active in Canada alone, and dozens in Australia – set against forecasts of the world needing a handful of new mines to satisfy demand.
  • Relatively small current markets for both minerals, with total global graphite estimated to be around 3 million tonnes a year, a number divided by high and low-grade material, and shared with synthetic graphite which could be a future threat to mined production.
  • Vanadium demand is even smaller, measuring today at around 140,000 tonnes and with new mines already being developed to catch potentially higher levels of demand, including a $300 million mine developed by Canada’s Largo Resources in Brazil.
  • An appalling track record of Australian vanadium processing failures that include the 1980s flop of Agnew Clough at Wundowie in WA, and the even bigger flop of the Windimurra project (twice), also in WA.
  • The easy ability of big South African vanadium producers to boost output, which is what happened when Windimurra started production with the extra material killing the price which, in turn, killed Windimurra, and
  • China’s dominant position in producing (and consuming) both minerals and while its old and heavily polluting graphite mines are being closed by the government, the country is unlikely to sacrifice its market share without a fight.

For now, the graphite and vanadium game is easily the best in the mining sector thanks to an expectation of sharply higher future demand (and price).

But, it is a game and picking winners from a crowded field trying to prise open a niche in what are relatively small markets will not be easy, especially if companies such as Syrah can quickly seize a big slice of available demand.

Enjoy the ride – and enjoy the irony of a small part of the mining industry being the environment’s new best friend.

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