Investments in Graphite Mining Can Yield Huge Profits
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Investments in electric cars are not surprising to anyone anymore. Those interested in the topic already know such companies as NIO Limited (NYSE: NIO), Li Auto (NASDAQ: LI), XPeng (NYSE: XPEV), and, of course, Tesla (NASDAQ: TSLA). Recently, such giants as General Motors (NYSE: GE) and Ford (NYSE: F) have also got on the list. The stocks of the latter carmakers have also started to grow after the companies announced they were concentrating on making electric cars.
There are plenty of companies in the sector, so you can go on looking for the one that has its stocks yet to grow. However, the problem is that almost all such companies are losing, which means you cannot analyze the state of finance of a carmaker and decide whether it will survive in the competitive market. Currently, more attention is paid to the investor supporting the company, and if they are someone like Jeff Bezos, the company has chances for survival.
Anyway, there is another way of investing in the growing market of electric cars. Today, I would like to show you a company yet unknown that has a chance to make a huge profit on the increased demand of carmakers for its product.
The most important and expensive part of an electric car is the battery. Hence, the next goal of investors must become companies that produce batteries. But we can go even farther. A battery contains a mineral called graphite; we all know it because it is also used in pencils. For now, scientist have failed to invent a battery for electric cara that would not have graphite in it.
Hence, take a look at companies that mine and process graphite. The stocks in this segment have good chances for growth. However, firstly we will touch upon the contents of batteries and the part that graphite plays in it.
Graphite in batteries
Graphite is used for making anodes in lithium ion batteries.
The higher energy density has the battery, the larger the operational range in the car. Scientists struggle to increase energy density without decreasing the life of the battery. In the end, they decided to change the graphite anode for a lithium metal one. Energy density increased, indeed, but the life of the battery decreased, and it had to be charged more often.
Engineers went even farther and decided to apply lithium metal on the graphite anode. However, this destroyed the lithium ion elements. To avoid this, scientists created a special electrolyte that stabilized processes in the battery. Thus they increased energy density and the operational range several times. The goal was reached but graphite was still there.
Then scientists from Samsung did make a graphite-lacking battery, which was lighter and smaller than a "normal" one. Energy density of a usual lithium ion battery grew from 250 Watt*h/kg to 900 Watt*h/kg — thanks to silver carbon powdering on the graphie anode that protected the latter from destruction.
As a result, Samsung engineers took batteries closer to such a traditional energy source as gasoline that has energy density of 2,900 Watt*h/kg. Scientists created new types of batteries but each has graphite in it. Hence, this mineral will remain necessary in batteries of new types as well, which means investing in graphite-producing companies is reasonable.
Who supplies the US with graphite?
Now — to the countries that are the main suppliers of natural graphite.
90% of American companies use graphite. The main suppliers are China, Mexica, Canada, and Brazil. In the USA, graphite mining stopped in 1990. The mineral is only imported.
The world leader of graphite production is China, and it is one of the chief supplier for the USA.
What might the conflict with China lead to?
The recent phone talk of Joseph Biden and Xi Jinping made it clear that the confrontation of the two countries is likely to continue.
In particular, Biden mentioned the unfair economic policy, violation of human rights in China, and tough actions in Hong Kong. This shows that the USA will try to tell China what to do. Xi Jinping noted that problems are better solved in a dialog.
Mind that in 2016 China answered to the US sanctions by imposing fees on exported commodities, including graphite. This made US batteries more expensive alongside other graphite-containing goods. Further confronting might mean even higher fees or a total ban on export of graphite in the USA.
In such a situation, companies that mine graphite inside the country will be the beneficiaries. One such company is Westwater Resources Inc (NASDAQ: WWR). And as long as graphite has not been mined in the USA for over 30 years, those who are just beginning work in this direction can make a serious profit on future sales.
Westwater Resources
Westwater Resources was founded in 1977 and produced uranium. However, it left this business in 2016 and focused on mining mineral resources in the USA (lithium and graphite) that were necessary for producing clean energy. Westwater management expects demand for these elements to increase thanks to the popularityof electric cars.
The company entered the market of graphite by purchasing Alabama Graphite Corp. in 2018. The company develops and mines lamellar graphite. Westwater also holds three lithium pools in Nevada and Utah. The company plans to mine about 17,000 tons of graphite annually, while the yearly import amounts to over 50,000 tons, which means all the mi ed graphite might go to the domestic market.
Who will create demand for Westwater products?
Tge key point in the future success of Westwater might be the fact that graphite has been named a strategic resource on the initiative of the Ministry of Defense. By law, the military must buy such resources from domestic companies only, which means the Ministry of Defense might become a future client of Westwater.
However, carmakers will constitute the majority of the its clients. Westwater management relies on them heavily as each battery for an electric car contains over 45 kilos of graphite.
Semiconductor shortage
Recently, production of electric cars has become hindered by a shortage in semiconductors. Even so, carmakers report record sales.
Hence, when the situation with semiconductors becomes better, electric car production will go on growing, and we might see General Motors and Ford among the clients of Westwater. Another way of using graphite is producing stationary batteries. A trend in electric cars is followed by a trend in renewable energy sources.
Electric energy from sun or wind is unstable and needs to accumulate. This is what batteries (containing graphite, of course) are used for. Domestic batteries are also an important part of this market. They are used in smartphones, laptops, tablets, and other similar devices. The forecast annual growth of revenue in this market is 12%.
Westwater only needs several large clients in any of the segments above, and its income will be growing ever so fast. Further success will depend on how fast they will manage to increase their producing powers.
Trump’s decree made Westwater stocks grow
The stocks of Westwater are trading in an uptrend. In September 2020, the stock price was growing noticeably fast thanks to Donald Trump's decree supporting graphite production in the USA. That decree was meant for decreasing dependence on China and other countries exporting critical elements to the USA. It promises support to the mining and processing industry.
That day, agitation around the stocks of Westwater was amazing, so they soon became overbought. As aresult, they dropped by 60% several days later.
However, the decree was actually signed and came into force. The segment got revived, and long-term investors returned in Westwater stocks, raising their price by over 200% since two months ago.
Currently, the nearest support for the price is the 200-days Moving Average. After last week's minor correction, the stock might start growing again. There is no reason in placing goals as the long-term investment horizon spreads to the end of 2021 at least. The stocks are likelt to keep growing alongside production in the sector.
Bottom line
Obviously, the US lost quite a deal by stopping to mine graphite inside the country, so now they need to cover up for this. Anyway, the reason for stopping is understandable. Graphite mining entails serious pollution of the environment, which means it is easier to print more dollars and pay for the import than mine the mineral at home.
However, mining becomes more modern and less dangerous as it used to be. As a result, we get a resurrecting sector. Hence, it will long remain promising, and it is high time to find companies and buy their stocks.
The only risk with Westwater is its management. If it makes a mistake in the development, investments will not live up to the expectations. Otherwise there are few scenarios how they might fail to make the company profitable with such demand for graphite.
