Whadda we love? Ridiculous promises!

By Travis Johnson, Stock Gumshoe, February 14, 2013

Well, and we also love you — of course. Just wanted to make sure you know that on this lovely Valentine’s Day.

We are inundated every day with email ads that our loyal readers forward on to us, and we appreciate every one — we want to know who’s promising you 1,000% returns, or who’s promoting the next company that they say will change the world and give you life-changing profits. That’s what we do.

But our thirst for the new ideas, and the urge to sniff out the new teasers, sometimes leads us to forget that the pushiest and most successful ads are probably ones we covered months ago, when the publishers were just starting to test them out … and before they had been mass-mailed to every single investor in America.

So today I’m checking in on a few ads that folks are asking about like crazy … but which are definitely not “new”.

The first one is from Byron King for his Energy & Scarcity Investor — the basic pitch of the ad is that there’s an electronics manufacturer who’s going to introduce a groundbreaking product in the next few months that will shake the whole industry, and herald the beginning of the graphene revolution.

So the pitch is tied to Samsung’s years-long effort to develop flexibile OLED screens that can be built into new handheld, foldable or rollable products — like a smart phone or tablet that rolls up or folds to fit more easily into a pocket, or a screen that wraps around the front and back of a device. And they are trying to build these, though it’s not necessarily graphene that’s making these things possible — at least, not yet. Samsung has been showing prototypes and promising big breakthroughs in these kinds of flexible plastic screens for several years now, and it does indeed look like they’re going to actually have a product out sometime this year.

Which might capture folks’ attention, it’s hard to say with consumer products — it will certainly have the cool factor, but we’ll have to see what it is and gauge consumer reaction before we have any idea whether or not it will actually solve a problem or create a need for buyers and become more than a cool niche gadget.

It’s also possible that graphene as an investment theme will get a bump from any such exciting next-generation product introduction — even though graphene probably won’t play a role in the first flex screens. Graphene is still mostly in the research labs when it comes to next generation chips or displays or other products, though it’s widely expected to revolutionize electronics and other industries over the coming decades.

But, as we’ve said many, many times over the last two years regarding the several graphite stocks that have have parabolic moves based on spiking graphite prices and hyping graphene ads, graphene seems very unlikely to have a big price impact on graphite in the next few years. Most graphite is used for steelmaking and industrial lubrication purposes, and the fastest-growing cutting-edge demand for graphite is not from thin-film graphene producrs but from lithium-ion battery makers (Li-ion batteries require more graphite than they do lithium). Graphene is a great story, but graphene products, though they may eventually create incremental demand for the highest quality natural graphite, are not going to be a commodity story … if graphene changes the world, the lion’s share of the wealth will be created from those who create the graphene most efficiently and design products that most effectively use graphene, not from the miners who dig up large flake graphite from underground. I think the polysilicon corollary is useful to remember — graphene is often touted as a replacement for silicon, with computer chips made from graphene in the years ahead, and silicon did indeed change the world. But I suspect that most of the wealth from the silicon revolution flowed through Intel and Texas Instruments and the other companies that created silicon chips — not from the chemical companies and refiners who turned silica into polysilicon wafers. Or from the companies that dug up the world’s purest silica to use in this pursuit.

That doesn’t mean that graphite miners can’t be profitable, of course, but they’re all hurting now — lowering steel demand from China and a weak economy in Europe and perhaps slower-than-hoped adoption of electric cars (and their big lithium batteries) have meant a lot more to graphite prices than has the future promise of graphene. So all of the graphite companies that we see pitched with some regularity spiked in 2011 and early 2012 when graphite prices were peaking, and collapsed in the second half of last year when graphite prices fell markedly. Most of them are not actually producing graphite, and some are years from doing so, but they are, like any junior miners, very sensitive to the price action of the commodity they’re trying to extract.

Byron King’s pick is still Focus Graphite, which has done a better job than most of tying its story not just to the Lac Knife graphite deposit but to “advanced” graphite uses and high-technology graphite research, including investing in processing and refining techniques — their ticker is FMS in Canada and FCSMF on the pink sheets. The stock caught fire a few months after they went public in 2010, thanks partly to the fact that they got a lot of attention from Byron King and other pundits, but has been very volatile and is far off its highs and still gradually declining these days. We first wrote in detail about this one back in June of 2011, when Focus Metals (as it was then called) was priced around a dollar a share and carried a $56 million market capitalization. Since then they’ve sold a lot of shares (as is common and seen the price spike up a few times, but the stock is now below 70 cents (thanks to the additional shares sold, the market cap is up to over $70 million despite the 30% drop in per-share prices). We wrote about it again when this latest teaser campaign from King got revved up, in September of last year, you can see that updated note here if you like. Focus is still working at infill drilling of Lac Knife and also getting more data for their rare earths project, though that is likely even further off as an actual producing project.

There’s a good interview here about the graphite market in general, worth perusing if you’re speculating in the junior graphite names — it’s a complicated business with opaque pricing, tight producer/consumer relationships, and lots of different grades that are tailored to different products. I’d bet that we’ll see some more graphite bubbles form as news flow dictates, which will probably help to drive up the shares of the juniors again at some point, but there’s a lot of speculation that goes into any assessment of the eventual value of these companies. The other junior miners that are frequently touted and recommended have been Flinders Resources (FDR.V FLNDF) restarting an old mine in Sweden, Northern Graphite (NGC.V NGPHF) trying to jump-start a long-known resource and turn it into a mine in Ontario, and Syrah Resources (trades only in Australia, at SYR) with its massive resource in Mozambique. Syrah also posts a reasonably overview of the graphite market on their website here, though it looks like the data is from a year ago when graphite prices were still sky-high.

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