Tech sector is key to Graphite One’s plan

VANCOUVER — North America needs lots of it, but doesn’t produce any. It is integral to a raft of important new technologies, from lithium-ion batteries to pebble-bed nuclear reactors. It is also the raw ingredient behind graphene, the highly touted super material that is so strong, conductive and versatile that it is expected to change the world.

It is flake graphite and Graphite One Resources’ (TSXV: GPH) deposit on Alaska’s Seward Peninsula, which sits at surface and in sight of tidewater, is among the largest deposits in the world.

Three years ago Graphite One was a gold exploration company. In early 2011, while raising money for its Alaskan gold project, company president and CEO Anthony Huston found himself chatting with a broker about graphite.

Huston’s background is in technology, so he already understood graphite’s integral role in new technologies. Delving deeper, he realized that North America produced very little graphite, especially the high-quality kind that the tech world needs.

Huston asked his lead Alaskan geologist if there were any graphitic schists near their project. There weren’t — but the geologist had another idea. Years ago he had assessed a really nice graphite project near Nome for the U.S. Geological Survey, and he still knew the family that owned it.

The Tweets are well-known in Alaska: family business N.B. Tweet & Sons is one of the largest gold dredgers in the state, and has operated placer mines on the Seward Peninsula for more than 110 years. But during the First World War the family produced another commodity: 500 tons of graphite, mined from surface on the family’s claims, hauled by tractor 3 km downhill to a barge and shipped to the southern states to feed steel forges and munitions factories.

When the war ended, graphite demand slid and the Tweets turned their attention to gold. But they kept their claims on the Kigluaik Mountains in good standing, partly because a geologic report from 1919 described the Kigluaik deposits as “high grade [up to 98% carbon] . . . even the poorest material is regarded as good ore as compared to many commercial locations.”

Having held the ground for almost a hundred years, the Tweets weren’t going to sell it to just anyone. Similarly, Huston and his team needed to be sure this new direction was right for their shareholders. The now-partners spent a year getting to know one another and completing due diligence investigations.

By early 2012 they had a deal. Graphite One is earning full ownership of Graphite Creek — as the project is now known — by making staged payments to the Tweets totalling US$425,000. A final payment of US$250,000 in early 2014 will complete the earn-in. The Tweets also hold a 5% production royalty, which can be reduced to 3% for $4 million. Graphite One also had to put at least $1.3 million into the ground, which it surpassed with a $4.5-million exploration campaign in mid-year.

That program produced two key results.

First, it delineated an inferred resource of 164.5 million tonnes grading 4.61% carbon. The resource includes a high-grade, near-surface of 7.8 million tonnes grading 13.49% carbon that could become a starter pit.

Second, the resource stretches along 2.2 km of strike, but geophysical surveys tracked the graphitic schist along 18 km of strike. Huston says drills are stepping out along the lengthy favourable zone and are “finding similar results to what we found [mid-year].”

As such, there is potential for Graphite Creek to host a very large flake-graphite deposit.

“Where it gets exciting is that we definitely have the potential to have over a billion tonnes of graphite, so we really believe we could have the largest graphite deposit in North America, if not in the world,” Huston says.

The graphite at Graphite Creek is also high purity and large flake. In initial metallurgical tests last year, material from Graphite One produced a rough concentrate that graded 99.2% carbon. Lithium-ion batteries require 99.9% carbon, which is easily attainable from a rough concentrate of 99.2%.

Huston and his team want to make graphite grading 99.9% carbon and sell it into the burgeoning lithium-ion battery market in three years. The next goal along that route is completing a feasibility study by the end of 2014. In the meantime, Graphite One’s drills are focused on two tasks: growing the defined resource, and stepping out along strike to prove up the potential for a much bigger resource down the road. 

Graphite Creek is well situated for a quick push to production: there are roads within 20 km and tidewater is 3 km away. But why the haste?

For the simple reason that demand for flake graphite keeps climbing and supplies are not keeping up.

The graphite market is experiencing a perfect storm: demand from conventional applications for low-grade, micro-crystalline graphite continues apace, while novel applications are driving up demand for high-purity, large-flake graphite. Meanwhile, the world’s largest graphite producer — China — is limiting and taxing exports.

As a result, analysts see a global-graphite deficit looming. The situation prompted the U.S. to label graphite a “supply critical” material, and the European Union added graphite to its list of strategic materials. Exactly when the deficit will hit, however, depends on a list of hard-to-forecast factors, ranging from global economic growth to the number of hybrid electric cars on the streets; and from the pace of global nuclear energy growth to science’s success in achieving great things with graphene, the newest graphite product.

For now, the world produces and uses 1.1 million tonnes of graphite annually. About 60% of that graphite is micro-crystalline or amorphous, which is the least valuable and most abundant form of graphite. The rest is flake graphite, which has a higher carbon content at 80–98%, compared to 70–80% in amorphous. It also occurs in flakes, as the name implies, and carries less ash and sulphur contamination.

Amorphous graphite has long made up a bigger chunk of the market than flake graphite, but that balance is shifting. Most new graphite applications require high-quality material, and several of those new applications have big futures.

At the top of the list are lithium-ion batteries. Lithium-ion batteries boast the best energy density-to-weight ratio among batteries, so they have become the go-to for portable consumer electronics. They are also used to power fully electric vehicle and are making inroads into the hybrid electric-vehicle market, replacing nickel-metal hydride batteries.

With rising demand from cell phones, tablets and hybrid and electric cars, the lithium battery market is expected to growth 25–30% annually over the next few years. Some of those batteries are small, but others are large — a single lithium-ion car battery can require as much as 40 lb. flake graphite.

Other kinds of batteries also require graphite. Vanadium redox batteries, for example, which are used to store the energy generated by wind turbines and solar panels, require up to 300 tonnes of graphite per 1,000 MW of storage.

Then there are pebble-bed nuclear reactors, a safer type of nuclear reactor being developed and built in South Africa, China, the U.S. and the Netherlands. Fed by fuel embedded in graphite pebbles, pebble-bed nuclear reactors require 3,000 tonnes of graphite on start-up and consume another 1,000 tonnes each year of operation.

These applications alone ar
e expected to grow demand for large-flake graphite, notably in the short term. The longer-term outlook looks even brighter, for one reason: graphene.

Graphene

Invisible cloaks. Electric cars with apple-sized batteries that recharge in minutes. Flexible electronics, like touchscreen phones that could be rolled up. Printable solar panels. Reinforced, conductive plastic.

These are some of the possibilities that may soon become realities, thanks to graphene — the newest known form of graphite.

A graphite crystal is made up of thousands of individual sheets of carbon latticework stacked atop one another. These layers can slide around, giving graphite its lubricity. Almost a decade ago, Andre Geim and Konstantin Novoselov at the University of Manchester isolated individual sheets of graphite. Each sheet, with carbon atoms arranged in a hexagonal honeycomb akin to chicken wire, is a layer of graphene.

While a one-atom-thick sheet may not sound like much, graphene is among the most highly touted and versatile substances of the last hundred years. On the small scales tested to date it is the strongest, most conductive and most temperature-resistant substance in the world.

More than 9,200 patents for graphene-based inventions have been filed since the material was first isolated in 2004 — an achievement that earned Geim and Novoselov a Nobel Prize. The European Commission is pouring €1 billion into graphene research over the next 10 years. Electronic giants like Nokia and Samsung are also pouring hundreds of millions into graphene research.

IBM has created a 150-gigahertz graphene transistor. The quickest comparable silicon device runs at 40 GHz. Head is designing a graphene tennis racket. Graphene-based inks that can print out electronic circuits are expected to be among the first commercial graphene applications, followed by graphene-laced plastics that are stronger and conductive.

If even a fraction of the suggested applications for graphene become widespread, global demand for the high-purity, large-flake graphite needed to make graphene would soar.

“Graphene is going to change the way we live,” Huston says. “I’m not out there beating my chest on it right now because they haven’t figured out how to make it commercially viable, so it’s still three to five years away. It’s the longer term for graphite, but once it comes online, it’s going to come online in a big way. The floodgates are going to open and manufacturers are going to need a stable, safe supply.”

That is something not currently available. China controls the graphite market, producing 70% of annual global output. Foreseeing a supply crunch, in recent years China consolidated the graphite operations in Hunan province, the most significant amorphous graphite region in the world, and put them under state control. Production has dropped and China is encouraging domestic beneficiation, in part by implementing a 20% export tax and a 17% value-added tax. Authorities also instituted export-licensing requirements.

Growing demand and limited supplies pushed prices up. In 2005, a tonne of large-flake, 94–97% graphite was worth US$700. Today a tonne is trading for US$2,750. These numbers are approximations, as graphite prices are determined in direct negotiations between buyers and sellers, with prices based on size and purity.

Graphite Creek is one of only a handful of flake-graphite projects in the world that could be in production in the medium term, and the only significant one in the U.S., which doesn’t produce graphite.

“China is starting to hold out on graphite and the only other operating mine in North American is in Canada, and is slated to close down in a few years,” Huston says. “So we think three years is a perfect timeline — we will come online and be the only operating graphite mine in the U.S.”