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The Synergy Between Natural Gas, Lithium And Graphite


Natural gas is too "unstable" to use on our roads and highways where millions of cars and trucks are subject to millions of traffic accidents. From a safety perspective alone, natural gas vehicles should not and cannot be allowed on our roads. There are simply too many uncontrollable variables.

Natural gas can however, power the transportation of the future as feed stock for electrical power generation. Because natural gas is so abundant, it makes sense that electric power plants will use more and more natural gas as their feed stock over time. As this abundant source of power generation comes on stream, look to invest in the companies that stand to benefit from this game changer.

Although energy providers such as Duke Energy (NYSE:DUK), and Progress Energy (OTC:PREX) are good bets as is laid out by, electric power storage is also a great place to take a long term view. Progressive companies in that space looking for fuel cell solutions (large fuel cell stacks that can burn nat gas) include Ballard Power (NASDAQ:BLDP), Plug Power (NASDAQ:PLUG), and Hydrogenics (NASDAQ:HYGS) They are all pursuing such a solution at this writing.

My focus today however, is on the growing importance of energy storage. In the age of mobile devices, electric cars, wind and solar power and grid protection, it is crucial that proper energy storage devices, both large and small, be developed and keep developing.

Many investors are not aware that there is 8-12 times more graphite in a Lithium-ion battery than there is lithium. As Lithium and graphite become more and more the "go to" source for new battery technologies, from your iphone and laptop, to golf carts, electric motor cycles, cars, trucks, ships and large storage facilities, look to the miners who produce, or will produce graphite and those who produce lithium carbonate from two different sources, hard rock (pegmatite) and lithium brines or clays. Let me explain.

The largest supplier of Lithium today is Sociedad Qumica y Minera de Chile S.A. (SQM) which produces Lithium as a byproduct of its massive Potash operations. As with other large miners, SQM sells it's lithium on a spot market (there is currently no futures market for lithium)

Now electric battery manufacturers and car makers require a steady stream of lithium carbonate for their manufacturing processes so as not to interrupt production. To date, suppliers such as SQM, FMC et al have refused to sign contracts to supply a continuous, uninterrupted supply of product to manufacturers. This is mainly because, even though brine production is the most economical way to produce lithium, it is more sporadic than spodomen production, due to the natural drying out process supplied by the sun, that makes it more economical in the first place. In other words, it is extremely hard to provide a "steady stream" of Lithium carbonate for a production facility.

Australian producer Talison Lithium (TLTHF.PK) (TLH-T) is the largest, pure lithium producer on the planet, and its spodomen production from its Greenbushes operation in Western Australia, is the richest hard rock deposit on earth. Talison supplies over 300 customers with product and is the largest supplier to the growing Chinese market, due to its ability for continuous production and its proximity China. Talison also boasts a very large brine deposit in South America due to its purchase of Salares Lithium in 2010. Since 2012 Talison has reported at least a 25% increase in the price of lithium it sells to it's over 300 customers, the majority of which are in China.

FMC Corporation (FMC) is another large producer based in South America, with brine production as a byproduct of other operations such as potash. As with SQM, lithium is only a part of its total operations and as potash becomes more important as agriculture attempts to feed a hungry world, its share price looks attractive as well.

As the lithium market grows, you should not ignore the juniors who have popped up over the past five years to take advantage of large deposits which may at some point, be quite productive or gain the notice of larger producers as consolidation takes place, as it so often does in young, growing markets.

In this space I like both Western Lithium (WLCDF.PK)(WLC-T) for its large, Kings Valley clay deposit in mining friendly Nevada where Tesla may build it's promised "mega" battery plant, and Rodinia Lithium (RDNAF.PK) (RM-T) as it owns three of the top 20 lithium brine deposits on the planet. If there is a future consolidation in the industry, these two should be tops on the majors lists.

The above chart shows some of the other companies working in this field and as you can see from the chart, Lithium is a common denominator in battery development.

Currently there is no large producer of graphite in North America as almost 80% of all graphite to date has been provided by China. China, however, is now beginning to restrict graphite exporting as it considers graphite a crucial element. This opens a huge door to first movers in North America.

At the top of that list are deposits in Canada being developed by Mason Graphite (OTCQX:MGPHF), Focus Graphite (OTCQB:FCSMF) and Northern Graphite (OTCQB:LMRMF). These are still small companies, but have huge deposits of the purest natural graphite, and as I pointed out, have first mover advantage. Focus Graphite also is making a push into the burgeoning graphene market.

Another Microcap with a similar profile is Lomiko Metals (LMR-TSE) which is also making a push into the bursting production of the wonder material, graphene.

I will leave that space for a future article.

Disclosure: The author is long CZSVD, RDNAF, FCSMF, MGPHF, LMRMF.