Bill Gates, Jeff Bezos, Richard Branson, and other billionaires are putting hundreds of millions of dollars into domestic battery manufacturing. For example, Breakthrough Energy Ventures recently participated in a $240 million funding round by a secretive startup called Form Energy, which is building a $760 million factory in West Virginia next year.
The interest in building a robust domestic battery supply chain is rising following new government regulations and incentives.
The Inflation Reduction Act requires 50% of the value of battery components and 40% of its critical minerals to come from domestic sources or countries with free trade agreements to qualify for the full $7,500 EV tax credits. Moreover, the Biden administration recently awarded $2.8 billion to supercharge U.S. manufacturing of batteries.
But rather than investing in secretive startups spending billions, investors may consider more stable parts of the supply chain.
Invest in the Picks & Shovels
Battery manufacturers have tremendous upfront costs to establish manufacturing facilities and enter production, making them inherently riskier than raw material plays. While raw material companies may have mining costs, they typically enter into long-term contracts before production, providing investors with predictable cash flows.
Many investors gravitate toward lithium mining companies to capitalize on rising lithium prices. But lithium companies are commanding a premium valuation, and production is increasing rapidly to meet demand. A better bet may be lesser-known battery materials, such as graphite, with less competition and better long-term economics.
Graphite is the primary material in a battery’s anode, which takes in and holds lithium ions during charging and releases them to provide energy. While a typical 60kw battery has about 20 pounds of lithium, it contains roughly 160 pounds of graphite, making it the largest battery component by weight. And currently, there’s no domestic supply.
Graphite One: The Pure Play
Graphite One Inc. (TSX-V: GPH) (OTC: GPHOF) is the only domestic graphite pure-play and one of the few broader graphite pure-plays. In addition to housing one of the largest graphite reserves in the world, the project includes an advanced graphite material and battery anode manufacturing plant planned for Washington State.
The company’s Graphite Creek Property sits on the Seward Peninsula and represents one of the largest deposits in the world. According to the pre-feasibility study (PFS), which the results were released on August 29, 2022, the property has a pre-tax net present value of $1.9 billion (or $1.4 billion post-tax) and a 26% pre-tax IRR (or 22% post-tax) over a 26-year project lifespan.
Unlike a typical mining company, Graphite One plans to establish a domestic anode manufacturing plant to process purchased materials in the near-term, enabling automakers to meet IRA standards to acquire 40% of critical minerals from an acceptable source. Then, it can integrate its in-house graphite supply when its mining operations go live long-term.
The company has already crossed several key milestones:
- February – The Company announced a testing agreement with the Pacific Northwest National Laboratory (U.S. DOE), whereby the lab would test the samples produced from its graphite concentrate.
- The Company also announced significant graphite grade from a step-out hole (22GC079) drilled 2 kilometers west of previous resource drilling and 4 kilometers west of the PFS pit boundary which encountered 58.2 meters of 4.18% graphite. The main objective for the upcoming drilling program is to increase the annual concentrate production compared to the assumptions used in the PFS.
- March – A U.S. Geological Survey report stated that the Graphite Creek graphite deposit was the largest known flake graphite resource in the USA and among the largest in the world.
- The results from the 2022 drilling program increased the measured and indicated resource by 15.5%.
- April – Graphite One received the first active anode material samples produced from Alaska graphite and were shipped to the Pacific Northwest National Laboratory for testing.
Currently, Graphite One shares trade with a $128 million market capitalization on the OTCQX. With an NPV of nearly $2 billion and near-term plans to manufacture in Washington State, investors may want to reconsider the stock as a way to capitalize on the domestic battery manufacturing supply chain for electric vehicles.
Bottom Line
Bill Gates, Jeff Bezos, Richard Branson, and other billionaires are putting hundreds of millions of dollars into domestic battery manufacturing. Rather than speculating on startups, investors may want to consider investing in raw materials to capitalize on these dynamics and Graphite One Inc. (TSX-V: GPH) (OTC: GPHOF) offers a unique opportunity.
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