Just one year ago, graphite was the new black gold. The market couldn’t get enough of it, and hardly a week went by without the announcement of a new graphite company or an old company repurposed to meet what was going to be a critical shortage of supply. Investors bought on the rumour, and one year later, they’ve sold on the news. Paul Gill, President/CEO of Lomiko Metals Inc T.LMR, puts it bluntly, “So many of the small graphite companies are walking dead because there is never going to be a customer for them.”
He explains, “You have Syrah Resources in Australia, which has just put out a huge graphite resource. You have Energizer T.EGZ in Madagascar and Timcal operating in Quebec and Northern Graphite V.NGC in Ontario. Demand is rising organically at 20% annually, but the amount of supply in the pipeline has blossomed incredibly.”
Lomiko got into the graphite game last year. It bought the Quatre Milles Project, 3,780 hectares located 175 kilometres northwest of Montreal. Drilling there has suggested a potential graphite deposit of 50 million to 100 million tonnes. Gill could have stood in line for project funding with all the other graphite contenders, but it wasn’t an appealing prospect.
And so Lomiko has decided to change its game. Its future will be based not on the provision of raw materials per se but rather on the creation of enduser products, specifically graphene, a carbon allotrope of—all hyperbole aside—almost unlimited potential. To that end, it announced February 12 an agreement with Graphene Laboratories Inc of New York.
Lomiko will provide natural high-quality flake graphite from Quatre Milles to Graphene, which will attempt to develop the means to convert it to graphene at a much lower cost, which would enable widespread commercial usage. The agreement states that Lomiko may provide equity financings exclusively to Graphene for two years, if it meets the criteria of at least US$500,000 within eight months, US$1 million within 12 months and US$2 million within 18 months. Should Lomiko not meet these conditions, it will lose exclusivity but retain the right to provide equity on a non-exclusive basis.
In other words, Lomiko has hitched its wagon to Graphene Lab’s star. They have the expertise, Gill says, but they need “to capitalize and grow their business. They haven’t released revenue numbers because they’re a private company, but they do have revenue and many customers.”
Gill doesn’t deny that Lomiko, a company with only $150,000 in cash, faces a daunting challenge: a $4-million challenge, in fact. “We estimate a $2-million pricetag to take Quatre Milles to resource estimate, PEA and completion of metallurgy,” he reports. “The $2-million commitment to Graphene Labs is in addition to that.”
How does Lomiko intend to raise the money? Gill replies, “We’ve already been talking to institutions and investment bankers. We have 3,000 shareholders, but what we don’t have is a group that will take it right to the institutions and bring in the $5-million to $10-million financings we’ll need in the future.”
The challenge is great, but the potential rewards are greater still. For as the Daily Mail reported 18 months ago, “Some researchers claim [graphene is] the most important substance to be created since the first synthetic plastic more than 100 years ago…. It is tougher than diamond but stretches like rubber. It is virtually invisible, conducts electricity and heat better than any copper wire and weighs next to nothing.” Graphene has been touted as a superefficient replacement for silicon in integrated circuits and as the catalyst for the creation of computer screens that can be rolled up like paper.
So what is graphene, exactly? Andre Geim and Konstantin Novoselov, who won the 2010 Nobel Prize for their work on it, describe graphene as a “material that should not exist,” a “monolayer of carbon atoms tightly packed into a two-dimensional honeycomb lattice and…a basic building block for graphitic materials of all other dimensionalities.”
Some researchers claim [graphene is] the most important substance to be created since the first synthetic plastic more than 100 years ago. It is tougher than diamond but stretches like rubber. It is virtually invisible, conducts electricity and heat better than any copper wire and weighs next to nothing—Daily Mail
Graphene’s atomic simplicity gives it its strength and makes it the most multipurpose material yet discovered. Geim and Novoselov (both knighted last year) first created graphene in 2004. By the end of 2012, CambridgeIP reported 7,351 graphene patents and patent applications worldwide. The top 10 patent holders include IBM, Samsung, SanDisk and Xerox. Last month, the European Commission, which calls graphene “the wonder material of the 21st century,” announced a grant of one billion Euros to the “Graphene Initiative.”
Elena Polyakova, founder and President/CEO of Graphene Labs, has a doctorate in physical chemistry from the University of Southern California and first started working with graphene in 2005. “It is actually not one thing,” she says. “Let’s call it an umbrella term.” She explains that there are currently two ways to produce it from graphite: “One route is using chemical separation, and in this case we’ve adapted material called graphene oxide, which is good for some applications. Another route is just to split graphite into so-called graphite nanoplatelets. This material is literally graphite but split into very thin sheets.”
She stresses that, in contrast to competitors, Graphene “is an active company. We have laboratory space and employees and are already producing graphene for sale. Our main customers are in the research and development space.”
Polyakova believes that graphene’s first common commercial use with be in composite materials: “Most likely polymers mixed with graphene where graphene is acting as a filler enhancing the polymer’s properties.” (Such as this announcement from Australia of a compound more bulletproof than Kevlar.)
Why did Graphene decide to ally with Lomiko? Polyakova replies, “When we produce graphene materials, the quality of our samples strongly depends on the quality of the graphite, and so we will incorporate high-quality graphite from Lomiko into our current production.” This, she says, is Graphene’s “short-term plan.” Its “long-term plan” is to “drive down the costs of production.” For example, “Right now, the cost of graphene oxide is about $170 per gram, and for commercial applications, we have to drop it by a factor of 10. I think it’s easily doable, as soon as we scale up production.”
New York-based research analyst Chris Berry agrees that price is crucial. “Most of the graphene that’s actually produced today is made from synthetic graphite, and that’s part of the reason why it’s so expensive,” he says. “The question is how do you scale up graphene production to the point where it’s a commercially viable enterprise where you can invest and make money doing it.”
Berry argues that a good analogy would be with the lithium-ion battery. “The electric-vehicle revolution hasn’t taken hold because the cars are just too expensive. They are too expensive because the battery is so expensive. If there is a breakthrough in battery chemistry which lowers the cost, then all of a sudden the electric car becomes affordable to an entire demographic that has been priced out of the market. My opinion is that graphene is in a similar situation now.”
Berry also agrees with Gill’s description of graphite juniors being “dead men walking.” He reports, “Just a little over a year ago I was actively monitoring about six publicly traded graphite exploration companies. By December 2012, I was tracking about 80. That doesn’t include some of the private companies, of which there are about 10. I see the number of graphite exploration players heading down closer to six in the coming months, and that’s because the market doesn’t need 80. It might need a couple outside China in the next few years. The frontrunner, if you will, is Northern Graphite V.NGC (and, full disclosure, we own shares in the company). Their CAPEX is going to be only about $110 million to $120 million.”
He concludes, “A strategic relationship, alliance or offtake is a must-have in graphite. Whether or not you do it with an automaker or Graphene Labs, it doesn’t really matter. Once you have it, that’s a huge plus.”
Stephen Riddle, CEO of Asbury Carbons, a commercial graphite producer for 119 years, characterizes the graphite boom as old wine in new bottles. “We experienced the same thing in the 1980s,” he says. “Back then it was due to the refractory industry starting to consume flake graphite. Many of the graphite deposits in Canada have been around for longer than I’ve been alive, and they’ve been through three or four different names. Take this deposit now called Northern Graphite V.NGC. Five years ago, its Bissett Creek Deposit was called Industrial Minerals; 25 years ago, it was called Princeton Resources; and 40 years ago, it was called something else.”
The deal with Graphene Labs sets us apart from our competitors because there is an enduser involved. We’re going to have a customer for the next two years, and we’re going to be able to participate financially in the upside of graphene. And we’re no longer competing with industrial graphite plays. We saw the facts of graphite supply and demand, and they told us we had to change—Paul Gill
Riddle, who has been something of a mentor to Gill, argues that the explosive growth in graphite companies was based on fundamental misconceptions about graphite itself. “The total graphite industry worldwide is about $13 billion to $13.5 billion, but about a billion of this has nothing to do with graphite powder or granular materials. Even though it is graphite, it’s not graphite related to what Lomiko or any of these mining companies are involved in, which is natural flake. Somebody writes an article, and says, look at the new Boeing jet, it has 80% graphite carbon fibres in it. But there is no natural-flake graphite used in making carbon fibres.”
Riddle has a much higher opinion of the viability of a company like Zenyatta Ventures Ltd V.ZEN, which is engaged in purifying natural graphite to a grade that could replace synthetic graphite. Even there, however, there will be hurdles. He asks, “When will the battery companies be ready to make the switch? Why do they prefer to use synthetic graphite at a higher cost? Is it because they trust the controls of the synthetic graphite? Is it because right now the anode part of the battery isn’t their major cost area?”
Investment analyst John Kaiser is as skeptical as Riddle with regard to the growth prospects for natural-flake graphite juniors. As for graphene and vertical integration, “Graphene is a potential future use for graphite, but it’s a bit of a stretch to link graphene innovation to some graphite deposit somewhere in North America or elsewhere in the world. Graphene is a big company space with very intensive RD required. What are the juniors going to contribute to that equation?”
This is not a question Gill has pondered lightly. “We have to raise money,” he declares. “If we don’t capitalize Lomiko and Graphene Labs, we’re not going to go anywhere.” To Gill, it all comes down to a simple matter of risk versus reward. “We want to be at the high end of this space. That’s where the highest margin is. The deal with Graphene Labs sets us apart from our competitors because there is an enduser. We’re going to have a customer for the next two years, and we’re going to be able to participate financially in the upside of graphene. And we’re no longer competing with industrial graphite plays. We saw the facts of graphite supply and demand, and they told us we had to change.”
At press time, Lomiko had 66.9 million shares trading at $0.055 for a market cap of $3.7 million.
Article source: http://business.financialpost.com/2013/03/03/lomiko-signs-a-transformational-graphite-deal-with-graphene-labs/