Today we have to put my usual cautionary note up top. The stock Frank Curzio is pitching as the key supplier for “The 20-Second Battery” is ridiculously small. It has already been recommended to his subscribers over at Phase 1 Investor, so presumably they’ve gotten their fill of the stock (he also touted it about two years ago, at three times the price it trades for today), so there’s no rush. This is a $30 million company (a bit smaller than that, actually), so ONE person investing $10-20,000 could easily drive the stock dramatically higher with a market order — God knows what a couple thousand of my closest friends might do to the stock if they got excited.
The teaser pitch says he’s going to host a conference call with experts on this company on May 1, but though something might be learned there by his subscribers (who cough up $3,000-5,000 a year for the info) it’s not necessarily going to drive the stock higher on that day. What would drive the stock higher is if you all learn about it from us, and rush out and buy it. So please, take your time and research the idea if it intrigues you.
And yes, I know, I shouldn’t be writing to large groups of people about such teensy stocks. But Curzio’s ad is apparently going out to thousands of folks, and lots of my readers are asking, so we’ll just assume that you’re adults and won’t buy a stock just because Phase 1 teased it and because I shared the name with you. Deal?
OK, got that off my chest — now let’s get into the decipherization of the teaser pitch.
The ad starts off with a compelling premise — that we’re on the verge of the next major advancement in battery technology….
“A mobile phone battery so powerful it could jumpstart your car…
“‘The 20-Second Battery’
“It charges in 20 seconds or less… lasts for months on a single charge… and is virtually indestructible.
“This could lead to a New ‘Industrial Revolution…’ — BBC World News
“A revolutionary new kind of battery will soon hit the world market.
“Dubbed “The 20-second Battery” by technology insiders, because it takes only 20 seconds to fully charge… It’s smaller, lighter, and thinner than regular batteries… and could power a laptop for up to four months at a time.”
So that’s obviously appealing — I think we’re all aware that battery life is one of the great limiters of the increasingly mobile and portable world, to say nothing of the transportation challenges presented by the fact that electric car batteries take overnight to fully charge.
New battery technologies are constantly being promised, and battery technology is constantly evolving, but it does appear that we’re really waiting for that next “leap” to take us beyond Lithium batteries (that’s what’s in your cell phone and laptop, and in the Tesla), something even lighter and smaller and, perhaps more importantly, something that can be recharged much, much, much more quickly.
So is that technology now finally coming? Here’s what Curzio says:
“In the months to come, this new battery could make the one in your phone, in your tablet, in your laptop, completely obsolete.”
Yes, “in the months to come” is marketing-speak for “someday,” especially when we say that’s when your current battery will be “obsolete” … not when you’ll actually be able to buy this new “20 second battery.” Copywriters (and lawyers, presumably) love these kinds of squishy time periods that sound imminent. After all, if he said “years to come,” you might relax, think about it, and make the terrible decision to not subscribe to the newsletter to find out about the stock this very second.
The tease is, of course, about the “miracle material” that will make this new fast-recharging, more powerful battery possible. If you’ve been reading any newsletter ads over the past couple years you already know that this material is, yes, graphene.
Ooops, I’ve let the cat out of the bag — I’m pretty sure Curzio didn’t use the words “graphite” or “graphene” once in this latest ad presentation, so there’s your first “secret” revealed.
Here’s more from the ad:
“… it’s no surprise that right now, governments and technology companies around the world are racing to get ahead in the development of the material behind this technological revolution…
“In 2013 the European Commission rewarded researchers across Europe $1.37 billion to research the new material behind ‘The 20-second Battery.’
“Recently, a very powerful European country announced the development of a research consortium dedicated to the research and development of this special material at the cost of $120 million.
“The South Korean Government has funded research to the tune of $300 million.
“And according to technology research firm TechNavio – R&D focused on applying this new material to technologies in industry worldwide is projected to grow over 60% between 2012 and 2016.”
And one of his catalysts for investing, so he says, is that he’s seen the big players get involved — like Microsoft and Nokia, who he thinks are motivated to get ahead on graphene commercialization and therefore come out with the first wafer-thin TV or long-lasting phone battery or whatever… here’s a bit of what he said on that:
“Nokia is one of the companies working with a flagship R&D facility in Europe that recently received a 1 billion euro grant… just to develop the technology behind ‘The 20-second Battery’…
“Nokia holds multiple patents in this technology….
“But lately Nokia’s mobile device sales have been slumping – resulting in the recent acquisition by Microsoft of Nokia’s Devices & Services business.
“Under the terms of agreement, Microsoft has paid approximately $5.44 Billion in cash for not only their devices and services… but to license Nokia’s patents for the next 10 years…
“Microsoft seems to want to compete with Apple and Samsung for a larger share of the cell phone market.
“And the best way to do that is by being one of the first to implement this new battery technology.”
Yes, graphene is a major, major R&D focus of all kinds of electronics and materials companies (and governments and academics) around the world. It’s a hugely game-changing material, I think everyone understands that the potential of this nanomaterial is humongous — it’s stronger than steel, it’s flexible, a thin film over a coffee cup could hold up a dump truck balanced on a pencil and still be transparent, it’s much more conductive than copper, etc. etc. The possibilities are almost limitless, and the promise has been touted by some of the big mining newsletters for at least the last three years.
Why mining firms? Because one of the ways to make graphene, the sheet of graphite that’s the thickness of a single atom, is by using high purity flake graphite. Which is mined out of the earth, which makes up the lead in your pencil, which is used in steelmaking and in lithium ion batteries (yes, a typical lithium battery has more graphite in it than it does lithium).
So, the argument always goes, if graphene is going to change the world… won’t the folks who can mine high-purity graphite get rich?
Well, maybe. That involves quite a bit of future prognosticating on a raw material that’s actually quite common and comes in lots of different purities, and can also be made synthetically — it so happens that most graphite is mined in China, though their control of that market is not as absolute as it is in the rare earths sector, but carbon is everywhere and graphite is really just the purest form of coal.
Graphene is so overwhelmingly valuable as a highly processed nanomaterial that the actual cost of the raw material to make it is inconsequential — the end cost is really all processing right now, when you’re talking about using a single atom’s thickness of a material it doesn’t really matter whether the price is $1,000 a tone or $50,000 a ton.
Since no one has figured out how to reliably mass produce graphene at a reasonable cost yet, and the two-dimensional material in the form of a graphene sheet it was really only isolated for the first time ten years ago (the nobel was awarded for that in 2010), betting on a graphite miner as a key to future graphene supply is highly speculative. The current mechanical method of making sheets of graphene, which is what won the nobel prize (researchers used scotch tape to peel an atom-thick layer of graphene off a piece of graphite), is not necessarily likely to be the way that mass amounts of graphene are produced in the future — it seems likely that some sort of chemical or lithography process will lend itself more to mass production, and whether or not that process requires a certain kind of natural graphite input or not is still completely up in the air as far as I can tell. Everyone from miners to chipmakers to academics to chemical companies is trying to figure out how to make graphene and create a stable supply for the market that everyone thinks will come, but we’re not there yet.
Which isn’t to say that graphite is a silly thing to invest in, of course — just that the price of it isn’t going to be driven by the commercialization of graphene at least in the next few years, and I’m sure Frank Curzio knows that, too (pitching graphene and 20-second battery recharges is way cooler and sexier than pitching steel refractory demand, and far more likely to catch the attention of possible subscribers). Graphite’s price is likely going to be driven by industrial demand for graphite as a lubricant and in steelmaking, and by lithium battery demand. (More graphite will go into pencils than into graphene for at least the next several years, I’m guessing.) So if Tesla’s new battery project further ignites the demand for lithium batteries in electric cars, and steelmaking continues to grow, perhaps graphite prices will go higher.
There’s a good interview here of Simon Moores, manager of Industrial Minerals Data, from earlier in the year about prospects for graphite and about whether it might end up being connected to graphene someday (definitely not “in a few months”), with the basic conclusion that he expects gradual price improvement this year because of steel refractory demand and possible higher upside from battery demand if the end users all start competing for the same large-flake graphite.
So get graphene out of your head for the moment and think graphite … and let’s see which stock Curzio is touting…
First he talks up the Chinese monopoly, which also helped to inflate the rare earths bubble a few years ago:
“Ending China’s Monopoly in 2014
“… this ‘miracle material’ doesn’t just exist as a natural substance in the ground. It is derived from a very specific type of mineral that is only produced in about 12 countries, five of which produce low quantities (less than 8,000 tons a year).
“In fact, China currently produces more than 70% of this mineral’s global production. China consumes nearly half of what they produce for themselves.
“This leaves the U.S., Canada, Australia, Europe and pretty much every other modern country at the whims of an unpredictable supply from China.
“Of course, the Chinese government is also doing its part to drive up prices of this mineral as a result of its efforts to monopolize it.
“In 2012, for example, Chinese government officials announced that they would consolidate the 200 mines in China’s Hunan province – where the material is mined – down to about 20.
“Officials said this would help improve safety standards and the environment. But in reality this is just another way of China attempting to reduce production and gain more control over this highly valuable substance.
“The Chinese government has even imposed a 20% export duty and a 17% value added tax for countries looking to import it.”
And then we get a few clues about this little company he’s recommending:
“… in a remote area of the world, near the Arctic Circle, a large deposit of this mineral has been discovered.
“And even better news for investors is that this mine is controlled by a tiny Canadian mining firm that is set to begin producing in just a few months.
“This is one of the few sources for this miracle material outside of communist China. That makes it not only politically stable, but also extremely valuable to the Western World.
“As news leaks about the incredible uses of this material, I expect the stock to climb. Based on my conservative estimation it could easily triple in value over the next few years, if not quadruple.”
OK, so that’s good — near the Arctic Circle is a decent clue. How about some more?
“The mine was initially constructed in 1995 by an entirely different company. But despite being one of the only deposits of this mineral outside China, production was shut down in 2001 due to low demand….
“… a small Canadian company purchased the mine in mid-2011 and has been hard at work restarting its production.
“This project has an estimated 13 years of steady production…
“And with the recent selloff in the junior mining sector, now is an ideal time to buy a stake in what could soon be one of the largest producing mines of its kind, outside of China….
“will start producing this mineral within the next 6-9 months. Specifically, the company believes that this mine could produce up to 16,600 tons of this mineral each year. (To put this in perspective, some of the largest mines in the world produce less than 17,000 tons of this mineral annually.)
“Based on a 13 year supply, this could be an extremely lucrative opportunity. Let’s be conservative and say that this mineral may trade at roughly $1,500 per ton over such a long period of time, it would still make this company’s deposit worth an incredible $320 million… That’s over 10 times the market cap of this small firm!”
I don’t know how conservative that estimate is, since large flake graphite has only spent a year or two above $1,500 a ton, but this tease is all about Flinders Resources (FDR in Canada, FLNXF on the pink sheets), owner of the Woxna mine in Sweden.
Here’s how Flinders sells itself on their website:
“Low graphite prices during the 1990s and 2000’s negatively impacted graphite supply with little investment made in new mines during this period.
“A materially better graphite price today is why it makes sense to re-start Flinders Resources’ Woxna graphite mine. Flinders’ Woxna mine is substantially funded, fully permitted, constructed and ready to be brought back in to production. The Woxna Project is unique due to its high quality large graphite flake, long life expandable resource, first class existing infrastructure, potential to upgrade to value added lithium battery graphite and its strategic position within the European Union.
“The fully-permitted and past-producing Woxna graphite Project remains unique in terms of the low startup capital, a high quality coarse graphite flake product and proximity to Europe, one of the world’s dominant graphite markets. Flinders Resources is currently refurbishing the Woxna graphite mine and processing facility with the aim to be in production by July 2014 to capture favorable graphite market conditions in the European market.”
Flinders does say they’re equipping themselves to get to 16,000 tons per year of production, and that they’re aiming at taking up to 10-20% of the European market for graphite with production that includes several grades of large flake, medium flake and fine graphite — in most cases these kinds of products are apparently pretty specifically tailored to end customer needs. They also say they’re funded through to restarting production this Summer, so they certainly have a much easier and faster path to actually creating revenue than any other graphite junior I’ve heard of … but this has been such an over-promoted part of the junior mining sector, with a big boom and bust cycle over the past few years, that I can’t say that I’ve looked that closely at any of the companies.
Curzio did recommend Flinders back in the Summer of 2012, and tease it for Phase 1 back then, too, but he would presumably have been stopped out of the stock at some point since then (Frank and most of the Stansberry editors are pretty strict about using stop losses). Presumably it was re-recommended at some point recently (looking at the volume of trading and knowing the Phase 1 typically publishes on the first Tuesday of the month, after market close, I suspect this was his recommendation for March and it helped the shares go from 40 cents to 60 cents).
There are other potential catalysts for the stock, the big one is probably the start of production this summer (careful — in mining speak, “this summer” could easily mean, “hopefully by Christmas”) and any kind of indication about how profitable that production might be — I haven’t looked at the details to have any idea of whether or not they’ll be immediately cash-flow-positive on production or not. And the wild card is the potential that they might merge with fellow Scandinavian junior Tasman Metals (TAS in New York, TSM in Canada), a somewhat larger ($75 million or so) iron and rare earths explorer with assets in Sweden and Finland. They announced that they were discussing a merger back in December, but I haven’t seen anything more recent than that.
I did take just a quick look at their Preliminary Economic Analysis (PEA) that they filed back in December — I’m not an expert at deciphering these, but it looks like they are estimating annual revenue of about $20 million based on trailing twelve month pricing for the different grades of graphite they’ll produce (that excludes the highest peak prices, so that’s good and reasonably conservative) and operating and selling costs per ton of about $730, so decent margins are possible. They also include an analysis that gives phase 1 of the mine a Net Present Value (NPV) of $26.6 million and a payback period of less than four years (life of mine 13 years). Which would make their current market cap of about $25 million look pretty reasonable but not necessarily cheap. As I said, I’m no expert on these or on the graphite market in general, but it seems like to consider this an easy buy you’d have to be assuming that graphite prices are going up. That’s better than a mine that isn’t even permitted or a discovery that doesn’t even have a PEA, since at least you have some assumptions and a near term potential for revenue, but I have no idea what the stock will do this year.
So that’s about all I can tell you. I know Myron, who writes a column about mining stocks for the Irregulars (our premium members), has been interested in a bunch of different graphite plays over the last year (I think he most recently talked about graphene in February), and that many of our readers are graphite and graphene aficionados, so if you’ve got an opinion on Flinders or anyone else in the sector, well, feel free to let loose with a comment below.