DoD Increases Investment in Accelerating Graphite Co.'s Feasibility Study

Source: Streetwise Reports 06/24/2024

Graphite One Inc. GPHOF announced that the U.S. Department of Defense has increased its share of expenditures in a cost-share agreement with the company.

The DoD increased its share from 50% to 75% of Graphite One's Defense Production Act grant to facilitate accelerated completion of the company's feasibility study (FS).

Based on a revised contract value of US$49.8 million, the DoD's maximum share of the accelerated FS program is now US$37.3 million.

"This development in our planned 100% U.S.-based graphite supply chain demonstrates the momentum Graphite One is building" said Graphite One Chief Executive Officer Anthony Huston. "For our shareholders, this means that for every dollar we spend advancing the Graphite Creek accelerated Feasibility Study, G1 receives 75% of those expenditures in DoD grant funding rather than 50% upon submission. We welcome the support of the Department of Defense as we continue our efforts to build a U.S. industrial capacity that serves the renewable energy transition, technology development, and national security."

Production of the element is needed for batteries in electric vehicles (EVs). Last fall, China imposed export controls on the substance. The battle recently escalated as U.S. President Joe Biden signed an executive order establishing a 25% tariff on Chinese imports, including natural graphite.

The U.S. is currently 100% import-dependent for natural graphite. Graphite One is working to develop a complete U.S.-based graphite supply chain solution anchored by its Graphite Creek deposit in Alaska and a proposed battery anode active material production plant in Ohio.

"The Graphite Creek deposit (is) recognized by the U.S. Geological Survey as the largest graphite deposit in the U.S." the company said in a release.

The Catalyst: An Essential National Defense Item

Graphite One said the objective of the DoD investment agreement is to perform the accelerated FS to "modernize and expand domestic production capacity and supply for graphite battery anodes necessary for electronic vehicles and alternative energy batteries as an essential national defense technology item."

The grant follows the designation of graphite as one of the battery materials deemed to be "essential to the national defense."

"This investment to increase domestic capabilities for graphite exemplifies Industrial Base Policy's commitment to building a resilient industrial base to meet current and future national defense requirements" said Dr. Laura Taylor-Kale, Department of Defense Assistant Secretary for Industrial Base Policy, when the grant was announced last summer. "The agreement with Graphite One (Alaska) is in furtherance of the Defense Department's strategy for minerals and materials related to large-capacity batteries."

Technical Analyst Clive Maund wrote on May 28 that "the intensifying debt crisis is expected to lead to a capital flight from all debt instruments and fiat, generally into tangible assets and specifically into commodities such as graphite, all of which are expected to soar."

The project's mineral processing plant would reduce more than 1 million tonnes of graphite (Cg) mineralization to 60,000 tonnes of graphite concentrate at 95% Cg annually, Graphite One said.

More than 41,000 tonnes of battery-grade CSG would be delivered per year for use in EVs, lithium-ion batteries, and energy storage systems.

The company recently completed a 57-hole, 8,736-meter drilling program at Graphite One, including assays of 9.63 meters of 13.19% Cg and 9 meters of 14.89% Cg.

"Concentration of critical minerals mining and refining capacity in China leaves our supply chains vulnerable and our national security and clean energy goals at risk" the White House said in a statement about tariffs. "The tariff rate on natural graphite and permanent magnets will increase from zero to 25% in 2026."

*Technical Analyst Clive Maund wrote on May 28 that "the intensifying debt crisis is expected to lead to a capital flight from all debt instruments and fiat, generally into tangible assets and specifically into commodities such as graphite, all of which are expected to soar."

He pointed out that Graphite One CEO Huston was recently invited by President Biden to a White House investment and job creation session on the critical minerals sector, which gives an indication of how seriously the administration is taking the domestic production of important raw materials like graphite.

More Than Just Pencils

Graphite, despite being made of carbon, the same element that makes up diamonds, is very soft, relatively nonreactive, and has high electrical and thermal conductivity properties. It's made of stacked sheets of carbon atoms and occurs naturally in igneous and metamorphic rocks.

It has a greasy feel because its flexible flakes easily slide over one another, making it a good "dry" lubricant.

It's also used when a material is needed that will not melt or disintegrate — it's used to make the crucibles for the steel industry and in some nuclear reactors to slow down fast-moving electrons. In addition to batteries, it's also used for pencil lead and in brake linings for heavy vehicles.

According to a report by Fortune Business Insights, the global market size for graphite is projected to grow from US$14.83 billion in 2021 to US$25.7 billion in 2028 at a compound annual growth rate (CAGR) of 8.2%.

"We maintain the view that natural graphite prices will be rising sharply in the coming years reflecting surging demand from the EV sector, as well as rising power costs and increasingly stringent ESG (Environmental-Social-Governance) regulations" Fastmarkets noted. "This will push the market into a significant deficit without required investment in the graphite space."

The U.S. Geological Survey's list of 35 critical minerals for the new electric economy includes both graphite and another vital battery metal, lithium.

"China has a stranglehold on both metals, meaning it can use them as a cudgel in trade talks with the United States, or it could freeze shipments of them during a war" noted Rick Mills, author of the newsletter Ahead of the Herd. "Indeed, when it comes to raw materials for the electric vehicle industry, China is undisputedly the most dominant force on the planet. Almost every metal used in EV batteries today likely comes from there, either mined or processed."

Ownership and Share Structure

According to Reuters, about 0.07% of the company is owned by institutions, and about 28% is owned by strategic investors. The rest is retail.

Top shareowners include Taiga Mining Co. Inc. with about 28.24%, CEO Huston with 0.5%, Director Patrick R. Smith with 0.36%, Executive Chair Douglas Hampton Smith with 0.25%, Kevin Greenfield with 0.04%, and Purpose Investments Inc. with 0.07%, Reuters reported.

Its market cap is about CA$95.09 million, with 137.81 million shares outstanding. It trades in a 52-week range of CA$1.73 and CA$0.64.

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1. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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* Disclosure for the quote from the Clive Maund article published on May 28, 2024

1. For the quoted article (published on May 28, 2024), the Company has paid Street Smart, an affiliate of Streetwise Reports, US$1,500 in addition to the monthly consulting fee.
2. Author Certification and Compensation: [Clive Maund of clivemaund.com] is being compensated as an independent contractor by Street Smart, an affiliate of Streetwise Reports, for writing the article quoted. Maund received his UK Technical Analysts' Diploma in 1989. The recommendations and opinions expressed in the article accurately reflect the personal, independent, and objective views of the author regarding any and all of the designated securities discussed. No part of the compensation received by the author was, is, or will be directly or indirectly related to the specific recommendations or views expressed

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The quoted article represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be only be construed as a recommendation or solicitation to buy and sell securities.