Summary
- I’m loading my portfolio with companies that mine metals essential to all EV batteries.
- Demand for graphite, lithium, and nickel is soon going to outstrip supply, leading the experts to predict a commodity “super-cycle”, rocketing prices upward in these EV battery metals.
- By buying the right mining company stocks, one can ride the EV adoption wave without having to guess which EV manufacturers end up succeeding, let alone surviving.
- One microcap graphite miner, NextSource Materials, plans a low-cost, high-margin operation to produce premium-quality graphite for EV batteries, and is fully funded to production in just a year from now.
- NextSource’s massive graphite resource is largely unknown outside the industry. That will change since a mining company titan just funded their mine to production and stepped in as Chairman.
Introduction
NextSource Materials’ (OTCQB:NSRCF) Molo graphite project is in the southern tip of Madagascar. It is over 900 square kilometers, situated in a sparsely populated, flat savannah-like setting, ideal for an open-pit mine. The project is fully-permitted, government sanctioned, compliant with Canadian NI 43-101, low in environmental impact, and fully-funded to production.
It is also completely unknown to most outside the industry, and I believe will serve as an excellent proxy for graphite demand in electric vehicle (EV) batteries. As demand for graphite soars – by 14 times within the next ten years by some estimates – NextSource Materials will have a producing mine with high-purity premium graphite ideal for EVs (along with all other high-tech electronics), ready to fill that demand.
In fact, NextSource has already completely sold-out all of its production for the 17,000 tons per year (tpa) Phase I of its mine, through off-take agreements with a European steel maker and one of the largest graphite traders and battery anode suppliers in Japan. In fact, NextSource reports that the graphite provided by NextSource to this battery anode supplier is in the Tesla (TSLA) supply chain. I can’t think of a better measure of the quality and purity of NextSource’s graphite.
Before diving into my rationale for an investment in NextSource, I’ll first describe my reasons for focusing on electric vehicle battery metals in general, and then provide a detailed run-down on what makes NextSource so attractive as an investment.
Why Invest in EV Battery Metals?
We can learn a lot from the past. There’s a lot of talk of financial bubbles right now, and justifiably so from just looking at current average price to earnings ratios vs. historical P/E ratios. Like many of you, I found myself struggling with the sense that the party is going to come to an end at some point soon, but not knowing where to turn for companies that will thrive regardless which EV makers survive. Granted, the “party” has already seen a bit of a peak for certain SPACs, especially EV-related SPACs like Nikola (NKLA), Workhorse (WKHS), Lordstown (RIDE), Canoo (GOEV) and QuantumScape (QS). All of these companies have come under fire, for reasons ranging from too-rosy predictions to promoting outright vaporware. While I still believe in companies such as Electric Last Mile Solutions (FIII), which are focused on specific markets where they have a unique advantage (Class 1 commercial vehicles in Electric Last Mile’s case), recent competition in certain areas like consumer vehicles and electric pick-ups might provide a glut of choices.
However, as an investor who looks for companies within the context of large multi-year trends, I believe that there’s always a party somewhere – you just need to know where to look.
It may surprise you to know that I’ve turned to junior Canadian mining stocks. That’s right, mostly microcap stocks trading on the Canadian exchanges and on the over-the-counter bulletin board in the United States. Too risky? Hear me out. Honestly, these junior mining stocks cannot be considered a traditional safe investment, but there’s something to be said for the tangible value of a proven and in-demand resource sitting in the ground waiting to be extracted. Kind of like storing your gold in a safe with a stuck door. You know it’s going to take some time and money for the technician to get the door pried open, but once they do your gold is all there.
I didn’t go searching for Canadian companies, but it so happens that Canada has long been a resource-rich, resource-mining friendly country with a very advanced battery technology and electric vehicle brain trust.
Read more of this article here at Seeking Alpha: NextSource Materials: This Sleeping Graphite Giant Is The Way To Play The Electric Vehicle Revolution
