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Chinese Purified Graphite for Cleantech Batteries and the Negative Environmental Footprint; A Canadian Company Emerges (Zenyatta Ventures---ZEN/ZENYF) as a Solution and Important Player for this Issue.

It is well known that China has serious environmental issues affecting its entire ecosystem as well as human health. A combination of global ambitions, swift industrialization (like other continents in the past), and negligent environmental oversight has contributed to severe problems. Although the Chinese government has acknowledged the problems, the responses have been extremely slow and less than adequate.

Graphite, which is now considered one of the more strategic elements by many leading industrial nations, is contributing to a big environmental issue in China. Chinese companies are the largest producers and exporters of purified graphite, which is a key ingredient in ‘cleantech’ batteries. Purification technology has been increasingly applied to Chinese graphite to achieve carbon (‘C’) contents of more than 99% which can compete with synthetic graphite of >99% C in many high-performance applications. The Chinese graphite is the dirty and impure flake type which requires aggressive treatment to remove the other elements attached to the graphite crystals.

Purification methods either use a dangerous and highly corrosive hydrofluoric acid (‘HF’) to upgrade ‘flake’ type graphite or, in the case of synthetic graphite, an energy intensive (expensive) thermal treatment to achieve grades of >99% C. Synthetic graphite (derived from petroleum coke) has its own environmental issues related to energy use and toxic release of chemicals through a stack during the process. Since the 1990’s graphite purification utilizing HF has predominantly been carried out in China at the expense of the environment and no consideration for the health and safety of workers.

HF is an extremely dangerous acid and ranked as one of the most hazardous compounds to human health. It needs to be treated differently than other acids. Concentrated HF covering 2% of the body can be fatal. To possess HF, your facility must meet strict and costly infrastructure requirements. You need a rigorous health and safety program involving training, first aid, storage, handling and the eventual disposal of the toxic waste. Chinese graphite producers have been slow to adapt the necessary environmental controls that are standard in developed nations like the United States. With increasing protests from local residents and customers of this purified material, the Chinese government is starting to take notice and (unhurried) action to improve the standards which are typical in developed parts of the world.

After purification, the bulk of this Chinese high grade material is sold to various corporations in Japan and South Korea where a proprietary carbon coating takes place and is turned into graphite anodes for Lithium Ion Batteries (‘LIB’). LIB’s are found in everything today from smartphones and laptops to electric vehicles. Around 65% of LIB anode material production is located in Japan. Japan was traditionally the center of the global battery industry but has moved a lot of production offshore to China through the 2000’s to take advantage of lower (environmental, raw material & labor) costs. China, South Korea and Japan account for ~95% of global production of LIB’s. Up to now these corporations have been using China to supply purified graphite material at the expense of that country’s environment and labor. What is bad for China is bad for the world.

You have to applaud Tesla Motors. All vehicles require raw materials and to alleviate pollution and increase supply chain transparency, Tesla has announced it will source raw battery materials from North America for use in its $5 billion LIB gigafactory. Batteries are the subject of considerable environmental debate, requiring large quantities of raw materials in their manufacture.

Large multi-national corporations need to protect their image (public profile) in this environmentally conscious age. By manufacturing electric vehicles with LIB’s, they are positioning themselves as environmentally responsible companies. It will seriously harm the company brand if raw materials, like high purity graphite, are sourced from environmentally damaging processes or jurisdictions (i.e China). Willful blindness on the part of these corporations will no longer cut it. Supply chain transparency is easier to track and is expected in an ever demanding ‘green’ world.

With changes in policy over the coming years China will be in a stronger position to export higher value purified graphite. This is a position that China’s government wants many of its other mineral industries to follow, but its costs will be more in line with the rest of the world. China may no longer be a reliable and low-cost supplier of purified graphite to the world; which will be good for their people and the environment.

Regardless of these issues playing out in China an alternative naturally occurring high purity graphite deposit already exists. Zenyatta Ventures (ZEN.V/ZENYF). owns the unique Albany graphite deposit and is emerging as a significant player in the graphite sector.

Zenyatta (‘ZEN’) discovered an extremely rare and large graphite deposit in North America (Canada) that can be upgraded to >99.9% Cg without the use of aggressive acids or high thermal treatment. Production cost under their recent PEA shows a low of less than US$1.90/kg (based on current exchange rate). No other deposit like it exists on the planet. Zen appears to be disrupting the graphite space with an innovative process to upgrade its material. The Company is positioned to provide the world with a large tonnage (long-life), raw graphite material with a superior and consistent high purity product. It will also be derived from a benign deposit with an environmentally sound and cost-effective process in a politically stable jurisdiction. Zenyatta may be very attractive to many companies that are seeking to be 100% self-sufficient and abide by their environmental philosophy in the graphite supply chain. China can no longer be considered a stable supply chain and reliance on them must be reduced, especially by Japan (remember all of the NDA's Zenyatta signed last year after meeting with a slew of Japanese companies? This was announced in concert with the initial PEA delay but it is something I've pointed out and the company has openly validated in press releases).

The world trend is to develop products for technological applications that need extraordinary performance using ultra-high purity graphite powder at an affordable cost. A high degree of crystallinity and purity results in various positive qualities that graphite is known for such as electrical conductivity, thermal conductivity, compressibility, dimension stability, bending strength and lubricity. Some of these key physical and chemical properties make it critical to modern industry for emerging high-tech or clean-tech applications. There is a robust demand for graphite across the many traditional industrial uses as well as demand from evolving technology. New applications that require graphite are being created constantly. There has been a sharp increase of focus surrounding production techniques of battery grade material for example. Many companies are focused on developing a supply chain based on a more environmentally friendly method rather than the HF acid-intensive practices that Chinese companies’ use.

As the global movement against pollution intensifies, companies and countries will have to align their supply chains with their environmental philosophies and what the world expects of them. A growing wave of engaged youth are at the forefront of this ‘green’ awareness campaign; we cannot ignore this impatient and well organized group if we want to transition to a more sustainable energy future for them. ZEN's graphite may be part of the solution for a smaller environmental footprint and these things matter greatly to next generation players generating significant demand for quality graphite.

I've attached a weekly chart of Zenyatta Ventures (ZEN/ZENYF). Notice the descending channel that has proven quite reliable in terms of lows/highs over a long period of time (2.5 years). I think this is an enormous flagging pattern that will sooner or later be breached on the top of the channel. However, just buying near the channel lows and selling near the highs is a double. Each time the bottom line was touched, the stock took off in between a few weeks and a few months, not a long time to make such a hefty percentage gain.

I am long shares of ZENYF

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