Increasing Demands of the Alternative Energy Sector

There has been a growing focus within the Canadian mineral exploration industry towards supplying materials for the high-tech and alternative technology sectors. This is evident in the increasing number of Canadian companies acquiring graphite, lithium and rare earth element (REE) properties.  

At Fundamental Research Corp., we maintain a bullish outlook on long term oil prices and believe that this has already started a consumer shift away from the norm of large gas and diesel powered vehicles. Instead, we believe that demand is shifting towards increased fuel efficiency and electrically powered transportation, such as hybrid and electric vehicles. Demand for battery components is only going to increase in the long term as the world moves away from the use of fossil fuels in everyday transportation.  

Nickel metal hydride is the most common battery used in hybrid cars, whereas lithium ion batteries are currently used in electric cars. The lithium ion battery can, on average, hold twice as much charge per pound as the nickel metal hydride battery. Thus, we believe that hybrid cars are also headed in the direction of the lithium ion battery. As a result, demand for lithium is likely to increase. 

The fastest growing use for graphite is as anodes in a variety of batteries. Since the use of battery technology is on the rise, it stands to reason that demand for graphite will increase in conjunction. 

Materials used in electric motors will also become more desired along with that of the battery components.  Two of the most important elements for the motors are the REE’s neodymium and niobium. Niobium is being actively explored for by companies such as Quantum Rare Earth Developments Corp. (TSXV: QRE), which is developing a high grade project in South East Nebraska. Note that the US currently imports 100% of its niobium consumption. 

Focus Graphite (TSXV: FMS) is not only determined to become a producer of high quality graphite through its Lac Knife project in Quebec, but the company also holds a rare earth element property in the same province with enrichments in neodymium. This puts Focus in the position of potentially supplying multiple materials to the alternative energy sector. The company is also working towards the goal of producing highly processed forms of carbon such as graphene and carbon nanotubes. This is through strategic partnerships with Graphiod Inc. and CVD Equipment Corp., both research and development firms. This makes Focus a key player amongst those working towards establishing a commercial supply of graphene products in North America. 

We closely monitor other mineral exploration companies targeting graphite, including Standard Graphite (TSXV: SGH) and Lominko Metals (TSXV:  LMR). Standard has several promising graphite exploration plays with similar favourable geology to Focus’s Quebec project. 

Companies that we monitor with lithium projects include Ultra Lithium (TSXV: ULI) and Pan American Lithium Corp. (TSXV: PL). Ultra has a lithium property in Ontario, as well as two promising international prospects. Pan American is focusing on lithium brines in Chile and extending interest into Mexico. 

The proactive move by companies such as Focus Graphite towards providing a range of complementary products indicates a shift towards a more holistic production methodology. The prospect of Canadian sources of graphite, lithium and rare earth elements is promising to the future of Canada as a global leader and supplier in green technologies. 

FRC provides fee based coverage on some of the companies mentioned in this article. 

Nicole Engbert, BSc., is research associate-mining for Fundamental Research Corp.

Brian Tang, CFA, the founder of Fundamental Research Corp., and Sid Rajeev, CFA,  the company’s vice president and head of research, will present an eduction workshop on “Discrepancies between commodity prices and resource stocks” on Friday and an investor masterclass on “An Introduction to the Analysis of Junior Mining Companies for Investment Purposes” on Saturday during the Chicago Hard Assets Investment Conference.