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Graphite Investments

Which Graphite Companies Are Best?

Written by Nick Hodge
Posted May 30, 2012

It's been called a “miracle material” and “the newest next big thing” by scientists and market analysts alike.

It's being used to create bendable phones and touchscreens... tiny self-powered oil and gas sensors... and even synthetic blood that can be used in any person on the planet.

Demand for this material has already jumped 4,000% in the past two years.

I'm talking about graphene.

But more important than what it can do for energy and technology is what it's going to do for investors.

Let me explain...

Seen This Show Before

In the mid-oughts it was uranium. A few years ago it was rare earths. Right now is graphite's time in the sun.

You see, graphene is made from graphite. And graphite comes from the ground.

So as demand for it rises (already up 4,000% with much more to go) and so does the price, mining companies with access to quality deposits are going to become very wealthy.

But, as happened with the uranium and rare earth bulls I've already mentioned, there will be impostors as well.

A year ago there were two pure-play graphite miners listed on the Toronto Exchange. Today there are more than 50.

Most are just hopping on a bandwagon, changing their name to something graphite-related to see if they can go along for the ride.

More than 75% of graphite production comes from China.

There are only a few legitimate companies with a producing or near-production graphite mine. Those are the companies you want to invest in.

Nuts & Bolts

Here's the deal with graphite...

Synthetic (man-made) graphite currently used in high-tech applications sells for up to $20,000 per tonne.

Natural graphite (mined) sells for much less, about $2,500 per tonne right now. That's up from about $1,000 just five short years ago.

Why?

Because new advances are allowing mined graphite to be used in applications once reserved only for man-made graphite. And with a price difference of $17,000 per tonne, you can bet companies that need graphite now want the natural stuff.

But there's a catch...

Not all natural graphite is created equal. It's measured by two things: size of the flake and carbon content.

Only the largest graphite flakes with the highest carbon content fetch the highest prices.

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Ahead of the Herd

As I just said, two years ago you could count the number of viable non-Chinese graphite producers on one hand. Now the number of “proposed” graphite projects is about to cross 100.

So how do you know which are legitimate and which are trying to go along for a ride?

Research.

I've been doing my own for months. I even went to visit a graphite mine last year.

The company I found has already delivered a modest 60% gain so far.

But it's still early... The mine hasn't even started producing yet.

When it does, it's off to the races.

What's more, an independent security analysis firm just released a full briefing on the industry and all its players this month.

Industrial Alliance Securities ranked 36 graphite companies in control of 98 graphite projects.

It put the companies in three tiers — Lower, Mid, and Top — according to amount of graphite, exploration, feasibility studies, permitting, and more.

The company I found last year — and which still has plenty of upside once production starts — was ranked at the very top of the Top tier.

It was the best of every single graphite project that was evaluated.

Here's a paraphrasing of how that 31-page research report concludes:

... A minimum of 4 new mines and as many as 23 will be needed to go into production outside of India and China between now and 2020 to cope with the growth in demand.

We identify 36 companies, out of which 6 qualify for our Top Tier category. These companies operate the most advanced projects that could be taken into production in a short time frame. Companies in this group are likely to enjoy the first-mover advantage and produce returns for investors in both the short and the long term.

As the exploration season heats up, investors will need to look for the first indications of which companies are wasting time and which are advancing step by step in establishing the right deposit, the right management and most importantly the right graphite to start production in the next 3 to 5 years.

After releasing that report earlier this month, Industrial Alliance Securities initiated coverage on what they thought was the best graphite mining stock to invest in.

Because it's closest to production, has large flake/high carbon graphite, and a huge, proven deposit... Industrial Alliance rated it a Speculative Buy with a $3.00 price target.

Word is slowly getting out...

Call it like you see it,

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Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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