Graphite mining and the energy transition - Sykes - Nov 2017 - MinEx Consulting

MinEx Consulting Strategic advice on mineral economics & exploration
Will graphite explorers (again) be
the next to benefit from the
renewable energy transition?
John Sykes
Strategist, MinEx Consulting
also
PhD Candidate, Centre for Exploration Targeting,
The University of Western Australia (UWA)
Lecturer, Strategic Management of Resource Companies,
Business School, UWA
Managing Director, Greenfields Research
Mines and Money Conference
28th November 2017, London, UK
1

Overview
1. What did we learn from the last graphite boom?
2. Is the graphite demand opportunity still there?
3. Can graphite supply scale up enough to meet
demand?
4. How do we put the graphite mining story together?
5. Conclusions
2

1. WHAT DID WE LEARN FROM THE
LAST GRAPHITE BOOM?
Will graphite explorers (again) be the next to benefit from the
3

The world is entering the ‘energy transition’
BATTERIES
• Power storage /
averaging
• Portable energy
• Rechargeable
(reduced waste &
energy efficient)
RENEWABLES
• Theoretically
infinite
• Non-carbon
emission
generating (at
source)
• Distributed sources
Increased
energy
demand
Increased
environment
focus
Increased
transport
Images: Shutterstock
4

Creating new opportunities for energy metals
RENEWABLES METALS
Uranium
Rare earths
(neodymium,
praseodymium &
dysprosium) – in
the generator
magnet
Silicon & germanium;
Gallium-arsenide;
Copper-indium-gallium-selenide
(CIGS);
Cadmium-telluride
Images: Shutterstock; Wikipedia; solarchoice
Lead-acid Alkaline (zinc-
manganese)
Lithium-ion
(graphite,
manganese &
cobalt)
Nickel-
cadmium /
zinc
Nickel metal
(lanthanum-rare
earth) hydride
Vanadium
redox
BATTERY METALS
5

Straining supply chains: the ‘critical metals’
antimony, arsenic, barium, beryllium,
bismuth, boron, cadmium, chromium,
cobalt, gallium,
germanium, graphite,
indium, lithium,
magnesium, manganese, mercury,
molybdenum, niobium,
PGMs, rare earths,
rhenium, selenium, silicon, silver,
strontium, tantalum,
tellurium, thorium,
tungsten, vanadium
Components of ‘criticality’
ECONOMIC
PARADIGM
Important uses
STRATEGIC PARADIGM
Potentially geopolitically
restricted production, e.g.
USDOE critical metals reports
SUSTAINABILITY
PARADIGM
Potentially
environmentally / socially
restricted production,
e.g. EU critical metals
reports
‘China produces
65% of the world’s
natural graphite’
- Olson, 2017
“Dust emissions
from the mining of…
graphite had
become a major
issue, air pollution
from dust had
become… known as
graphite rain.”
- Olson, 2017
Sources: Sykes et al., 2016a,b
6

The mining sector and investors have piled in!
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Lithium (again)
RARE EARTHS
BECOME HOT
COMMODITIES
TheBull.com.au, 06 Jun
2011
Why these graphite
miners have soared
more than 87%
The Motley Fool, 24 Jun 2014
Lithium-ion
battery demand
sends shares in
miners soaring
ABC, 14 Jun 2016
Investors
put stock
in uranium
ABC, 24 May 2006
GraphiteRare earthsLithiumUranium
Cobalt
Graphite?
Talison Lithium
to raise $194m in
IPO
Business News WA,
24 Nov 2009
Profit from the
cobalt boom
The Motley Fool, 17 Feb 2017
Ontario
Graphite
seeks £40M
AIM listing
The Telegraph, 29
Oct 2017
7

But it’s been a mixed market story so far…
0
100
200
300
400
500
600
700
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Growth of metal market groups
2007-16 (US$ billions)
Minor Critical Metals Minor Battery Metals
Minor Renewables Metals Precious Metals
Base Metals
Battery
Metal
2007-16
Price
Change
Graphite 114%
Lithium 110%
Manganese 2%
Lead -35%
Zinc -40%
Vanadium -44%
Cobalt -54%
Nickel -75%
Cadmium -83%
Renewables
Metal
2007-16
Price
Change
Rare earths 135%
Silicon 39%
Arsenic 35%
Copper -16%
Selenium -21%
Germanium -23%
Gallium -25%
Indium -47%
Tellurium -59%
Source: USGS (2016, 2017) For category definitions see appendices
8

2. IS THE GRAPHITE DEMAND
OPPORTUNITY STILL THERE?
9

“All the batteries on earth can store
only ten minutes of the world’s energy
needs.”
Isodor Buchmann (2011)
‘Batteries in a Portable World’
10

Many batteries, many uses & raw materials
Lead-battery systems Lithium-battery systemsNickel-battery systems Other battery systems
ICE vehicles Electric vehiclesConsumer products Energy storage
Source: Battery University
11

“The battery has not advanced at the
same speed of electronics,… Instead of
two years, the capacity of lithium-ion
took ten years to double.”
12

Many lithium batteries, uses & inputs too
Source: Battery University
Lithium Cobalt
Oxide
Anode:
Graphite
Lithium Nickel
Manganese
Cobalt Oxide;
Anode: Graphite
ICE vehicles Electric vehiclesConsumer products Energy storage
Lithium Iron
Phosphate
Anode: Graphite
Lithium Nickel
Cobalt Aluminium
Oxide
Anode: Graphite
Lithium Titanate
Anode: Lithium
Titanate
Lithium
Manganese Oxide
Anode: Graphite
Lithium Air
Anode: Air
Lithium Metal
Anode: Graphite
Solid-state Lithium
Anode: Lithium
Lithium Sulphur
Anode: Lithium
Current
Future
13

“…the battery is best suited for portable
and stationary systems. For [large]
motive systems the battery lacks
capacity, endurance and reliability. The
dividing line… lies with the electric
vehicle.”
14

Batteries are not yet driving graphite
Natural graphite uses, 2014 (%)
Brake linings & refractories Foundaries & lubricants
Batteries Other
• The battery opportunity
for graphite is exciting;
• Potential 15-25%
growth rates for the
battery segment;
• But still emerging?
• Graphite is still mainly
used for non-battery
applications;
• Is it supply
constrained?
Data: USGS
15

3. CAN GRAPHITE SUPPLY SCALE UP
ENOUGH TO MEET DEMAND?
16

Graphite is looking supply constrained
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Production (Kt) Price (2016 US$/t) Value (2016 US$M)
Volume driven growth
Price driven growth
Data: USGS
17

Supply constraints need resolving
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Production (Kt) Price (2016 US$/t)
• The short-termist view is that miners
and explorers benefit from price
spikes;
• Price spikes are good for profits &
raising capital, but not for building
mines;
• Each spike, destroys demand and
stops market expansion – it is bad
over the long term
• Over the long-term graphite suppliers
need to vastly overfulfil consumer
demand (and complimentary
minerals, e.g. lithium, cobalt,
manganese)
• These metals need to become
‘uncritical’.
Volume driven
growth
Price driven
growth
Data: USGS
18

Metals markets have transformed before
0
100
200
300
400
500
600
700
800
900
1900
1917
1934
1951
1968
1985
2002
Growth in market size
indices of copper and
aluminium 1900-2014
(1900 = 1)
Cu Index Al Index
0
50
100
150
200
250
300
1900
1917
1934
1951
1968
1985
2002
nickel 1900-2013
(1900 = 1)
Cu Index Ni Index
0
5
10
15
20
25
30
1950
1958
1966
1974
1982
1990
1998
2006
uranium 1950-2013
(1950 = 1)
Cu Index U Index
Source: Sykes et al., 2016b; Data: USGS
19

Discovery, supply and demand together
Nickel
Discoveries in
Sudbury & New
Caledonia
Bulk open
pit mining
Flotation &
smelting
advances
Demand for
armour
Ability to handle
radiation
Uranium
Demand for nuclear
weapons
Demand for nuclear
power
Bulk mining
for very low
grade radium
Radium-uranium
discoveries in the
Congo
Aluminium
Bauxite
discoveries in
North America
Bayer and
Hall-Heroult
processes
Transportation
demand
Bulk open
pit mining
Source: Sykes et al., 2016b; Images: Shutterstock
20

Graphite has great potential for growth
Metals Constraints removed
Graphite Discovery Sup. Use
Copper Dis. Supply Use
Germanium Dis. Sup. Use
Indium Dis. Sup. Use
Tellurium Dis. Sup. Use
Arsenic Discovery S Use
Gallium Dis. Sup. Use
Selenium Dis. Sup. Use
Silicon Dis. Sup. Use
Cobalt Dis. S Use
Lithium D Sup. Use
Metals Constraints removed
Nickel Dis. Sup. U
Vanadium Dis. Sup. U
Lanthanum D S Use
Lead Discovery S
Cadmium Dis. Sup.
Manganese Dis. S U
Zinc Dis. S U
Neodymium D S Use
Praseodym… D S Use
Dysprosium D Use
Uranium D S
Fullyunconstrained
Fullyunconstrained
Most
constrained
Least
constrained
Source: Sykes et al., 2016a
21

4. HOW DO WE PUT THE
GRAPHITE STORY TOGETHER?
22

Navigating the energy transition is complex
Wonderland
1984
Third
World
New
World
Old World
NOW
(An unknown
number of
economic
cycles to come)
Old
World
(Beyond which is
the unknown)
‘Economic paradigm’
‘Sustainability
paradigm’
‘Strategic paradigm’
‘Transition’
Source: Centre for Exploration Targeting PhD Students Scenarios Workshop, 2016
23

WONDERLAND?
GREEN
ECONOMY
STRATEGIC
RESOURCES
SILICON
VALLEY
PROTECTIONISM
STRATEGIC
RESOURCES
ISIS
DISRUPTION VOLATILITY
CETA
DEAL
INNOVATION
PARIS
AGREEMENT
Disruptive innovation within a global regulatory framework
allows leads to voluntarily industry-led energy transition
TESLA
Source: Centre for Exploration Targeting PhD Students Scenarios Workshop, 2016; Images: Shutterstock
24

Nineteen Eighty-Four?
BREXIT
STRATEGIC
RESOURCES
OLD
WORLD
MILITARY-
INDUSTRIAL
COMPLEX
TRUMP
STRATEGIC
PARADIGM
WAR
PUTIN
MIDDLE
EASTERN
PROBLEMS
Geopolitics and conflict forces a government-led energy
transition in the fossil-fuel poor parts of the world
Source: Centre for Exploration Targeting PhD Students Scenarios Workshop, 2016; Images: Shutterstock
NEW
WORLD
25

Different implications from each scenario
WONDERLAND
Business capabilities
• Spot new technology by working with
innovators ‘on the ground’;
• Understand niche markets before they
become the next big thing;
• Be able to scale globally quickly.
Winners & losers
• In a globalised world only one or two battery
technologies, hybrid car companies, and
renewable energy sources will win, so
backing the right idea early is critical.
• However advantage is only ever temporary,
as the next big thing is already on its way –
innovate ruthlessly to stay on top.
NINETEEN EIGHTY-FOUR
Business capabilities
• Work closely with government to ensure you
get the big contracts;
• Global scaling is impossible;
• Understand your local market, and what
technologies can work there.
Winner & losers
• In a divided world many ‘just good enough’
energy technologies will exist, supported by
government and their geopolitical need, so
picking ‘a winner’ is less important.
• The slow changing nature of government
means that within each block this is a stable,
slow changing world.
26

Enter via existing consumer markets
ICE Vehicles Consumer
Products
Electric
Vehicles
Energy Storage
Wonderland X √√√ √√√ √√√
1984 – New World X √√ √√ √√
1984 – Old World √√ √√ X X
1984 – Third World √ √ X X
• The various existing consumer products for graphite will be
around in any future, unless prices are so high they destroy
demand;
• This would also destroy the nascent graphite-in-batteries
market;
• Existing graphite consumer markets are a good entry point for
miners.
27

5. CONCLUSIONS ON GRAPHITE &
THE ENERGY TRANSITION
28

Graphite and the energy transition
• The energy transition will likely have a substantial impact on some
currently minor metal markets, including graphite;
• The multitude of renewable energy, electric vehicle and battery
technologies, however, means it is not clear which technologies
(and thus minerals) will be required in the future;
• However, graphite is broadly exposed to the lithium-ion (and some
other) battery markets, so a relatively robust bet;
• Unfortunately, many minor ‘critical’ metals, including graphite, are
supply-constrained by non-geological and non-technical issues;
• The mining industry will therefore have a major impact on which
minor metals will become available for mass consumption as
energy metals by renewables and battery companies;
29

Graphite mining and the energy transition
• So far, the graphite (and wider energy transition) opportunity has
not been fully realised by the mining sector;
• Nonetheless, graphite (and some minor metals markets) have the
latent potential to become major industrial mineral markets;
• Miners therefore need to think carefully about their strategy
aligning supply capabilities with appropriate market entry and
demand scenarios;
• In the end, the socio-political context of the energy transition will
determine into which sort of future we progress and how graphite
is used;
• With this uncertainty, a ‘hedging’ type strategy is most appropriate,
with the best hedge for graphite being a focus on existing graphite
consumer product markets.
30

Contact details
John Sykes
Strategist
MinEx Consulting
Perth, Australia
Email: John.Sykes@MinExConsulting.com
Website: www.MinExConsulting.com
Copies of this and other similar
presentations can be downloaded
from my website
Thank
You
31

Acknowledgements
• Buchmann, I., 2011, Batteries in a Portable World, Third Edition, Cadex Electronics: Richmond, BC, 328p.
• Buchmann, I., 2017, Battery University: Cadex Electronics, accessed 28 November 2017, at
http://batteryuniversity.com/
• Kelly, T.D., and Matos, G.R., comps., 2014, Historical statistics for mineral and material commodities in the
United States (2016 version): U.S. Geological Survey Data Series 140, accessed 28 November 2017, at
https://minerals.usgs.gov/minerals/pubs/historical-statistics/
• Sykes, J.P., Wright, J.P., & Trench, A., 2016a, Discovery, supply and demand: From metals of Antiquity to
critical metals, Applied Earth Science, 125, 1:3-20.
• Sykes, J.P., Wright, J.P., Trench, A., & Miller, P., 2016b, An assessment of the potential for transformational
market growth amongst the critical metals, Applied Earth Science, 125, 1:21-56.
• U.S. Geological Survey, 2017, , Mineral commodity summaries 2017: U.S. Geological Survey, 202p.,
accessed 28 November 2017, at https://minerals.usgs.gov/minerals/pubs/mcs/2017/mcs2017.pdf
• We’d like to acknowledge the efforts of the Centre for Exploration Targeting scenario planning team whose
work contributed to this presentation: John Sykes, Allan Trench, T. Campbell McCuaig, Jonathan Bell,
Jeremie Giraud, Constanza Jara Barra, Ahmad Saleem, Dave Stevenson and Jan Tunjic.
32
References

Category definitions for slide 8
• Precious metals: gold, platinum groups metals & silver
• Base metals: aluminium, copper, lead, nickel, tin & zinc
• Renewables metals: arsenic, gallium, germanium, indium, rare earths,
selenium, silicon & tellurium
• Minor battery metals: cadmium, cobalt, graphite, lithium, manganese &
vanadium
• Other minor critical metals: antimony, barium, beryllium, bismuth, boron,
chromium, magnesium, mercury, molybdenum, niobium, rhenium, strontium,
tantalum, thorium & tungsten
33

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