| The Penny Sleuth Features: Penny Stocks, Options and High-Growth Opportunities! |  |      | A Bonanza-Grade Opportunity in This Household Material
By Byron King
February 15, 2011
Dear Penny Sleuther,
There’s a bonanza-grade investment opportunity in a mineral that you’re probably familiar with. It’s a substance that many Americans come into contact with every single day — and few think twice about… And it’s a substance that could bring your portfolio significant gains in 2011.
I’m talking about graphite…
What do I mean? Why invest in graphite? Really, isn’t graphite just squished-up coal, that’s been turned into really slick carbon? Don’t you find graphite in metamorphic rocks all over the place? Can’t you just buy graphite down at the hardware store, and squirt it into the lock on a door when the key sticks? How do you make money with graphite?
Those are all good questions. So first, let’s define what we’re talking about. Graphite is a metamorphic mineral, composed of pure carbon. Geologically, and based on how we find it in the crust, graphite is a super-high grade of coal (or maybe organic-rich black shale).
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Sticking with the coal-grading sequence, though, let’s just think about peat — like in the bogs of Ireland and such. Then, after time, pressure and heat, the peat turns into lignite, bituminous and eventually anthracite coal.
Squeeze that anthracite some more, and you get “meta-anthracite,” a fancy way of characterizing graphite. Thing is, graphite doesn’t ignite very well — an advantage in most respects — so it’s not a hydrocarbon fuel.
The Background for This Profitable Mineral
Graphite is a mineral. In terms of crystallography, it’s an “allotrope” of the element carbon. An allotrope is an element that can exist in two or more different forms, based on different modifications of the atomic structure. The term is used for elements only, not for compounds. (If you’re talking about different forms of a compound, the term is “polymorph.”)
With carbon, there are three common allotropes. There’s diamond, where the carbon atoms are bonded together in a tetrahedral lattice arrangement. This lattice arrangement is why diamond is very hard.
There are other forms of pure carbon, called “fullerenes,” named after the late, great Buckminster Fuller. In fullerene structures, the carbon atoms are bonded together in spherical, tubular, or ellipsoidal formations. It’s astonishing science at work. Fullerenes are so new to our collective knowledge that people are just starting to figure out what to do with them. But it’s safe to say that the technology of fullerenes is very promising.
Then there’s the point of this article, graphite. You get graphite when the carbon atoms are bonded together in sheets of a hexagonal lattice. The “sheet” structure is what makes graphite slippery, and useful as a lubricant.
Graphite was chemically identified in 1789 by a German scientist named Abraham Werner. Werner named the substance after the Greek word γράφω (graphō), meaning to draw or write. Even back then, graphite was used in pencils. (No, a “lead” pencil is not made of the element lead!)
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Unlike its diamond allotrope, graphite is a semi-metal. Every carbon atom in graphite has what’s called a “free valence electron.” Hence graphite is an electrical conductor. Graphite is very stable. It’s lightweight, chemically resistant, hard, scratch-resistant and a great means of transferring heat energy.
Graphite burns at a very high temperature (3,000 degrees or so), and is therefore useful in numerous electrical and thermo-chemical applications, from arc-lamp electrodes to thin-film heat sinks — such as are contained within your Apple I-Pad. Quite a bit of natural graphite is consumed in refractory processes, electric arc steelmaking, brake linings, foundry facings and lubricants.
There’s also a substance called graphene, which occurs naturally in graphite. Graphene has unique physical properties. It may be one of the strongest substances ever identified. On that score, we’re still in the very early innings of understanding the technology that could come out of graphene.
Pricey Material — Up to $20,000 a Ton!
There’s much more to tell you about graphite, but suffice to say that it’s very useful. Let me clarify that line. The “good” graphite is very useful — because there’s a lot of graphite out there in the rocks that’s just junk for all intent and purposes.
In fact, good graphite is not that easy to find. Graphite prices have more than doubled in recent years. Based on recent quotes, a ton of 97% pure graphite goes for over $2,000. A ton of ultra-pure, 99.99% graphite will set you back over $20,000.
China controls 80% of the global graphite market — just like China runs 97% of the world supply of rare earths. But the Chinese are running low on graphite reserves, same story as with rare earths as well. So graphite prices are going up and Chinese quality is going down.
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In fact, you may be interested to know that Chinese businesses are working in North Korea, making deals to open and operate graphite mines in the Hermit Kingdom. Really, how scarce does something have to be that you’ll set up shop in North Korea to get it?
Thing is, there’s a lot of big, new demand coming for graphite? For example, one entirely new source of demand — over and above the traditional uses in steelmaking, brakes, etc. — is the global proliferation of lithium ion batteries, such as we see in products ranging from computers to cell phones to automotive battery packs.
“Lithium” batteries actually use about 10 times as much graphite as they do lithium. I don’t know why we don’t just call them “graphite” batteries.
Ultimately, this often-ignored resource holds the key to substantial gains in 2011. Don’t pass up an opportunity to gain graphite exposure for your portfolio.
Editor’s Note: Right now, there are a few pure-play graphite stocks worth watching… First up is China Carbon Graphite Group (OTC: CHGI), a tiny $40 million graphite producer. This is a play that only the risk-hungry investor will want to take on – a relatively low float and considerable risks added from investing in Chinese stocks in this environment mean that this isn’t a play for everyone.
A safer alternative is GrafTech International (NYSE: GTI), an Ohio-based graphite producer. For better or worse, GTI’s size insulates it from many of the risks seen in CHGI.
Until we meet again,
Byron King
Resource Analyst for the Penny Sleuth
P.S.: I’ve discovered a tiny penny stock that provides the best exposure to graphite right now. In fact, I’m so impressed with this stock’s operations that I’ve already recommended shares to my Energy & Scarcity Investor readers. To learn about ESI, and get my full graphite write-up, just click here…
A Bonanza-Grade Opportunity in This Household Material is featured at Penny Sleuth.
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