how to think about graphite going forward (by chris berry)

5/7/12  

How To Think About Graphite Going Forward

May 2, 2012 Toronto, ON

Graphite Express Conference Chris Berry

The material herein is for informational purposes only and is not intended to and does not constitute the rendering of investment advice or the solicitation of an offer to buy securities. The foregoing discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (The Act). In particular when used in the preceding discussion the words “plan,” confident that, believe, scheduled, expect, or intend to, and similar conditional expressions are intended to identify forward-looking statements subject to the safe harbor created by the ACT. Such statements are subject to certain risks and uncertainties and actual results could differ materially from those expressed in any of the forward looking statements. Such risks and uncertainties include, but are not limited to; future events and financial performance of an investment which are inherently uncertain and actual events and / or results may differ materially. In addition from time to time I discuss investments that are not registered in the U.S. or Canada. We may, from time to time, own a position in companies mentioned in this presentation. Please perform your own due diligence and consult your financial advisor before considering investing in companies discussed this presentation.

5/7/12   4  

5/7/12  

5/7/12  

5/7/12  

5/7/12  

5/7/12  

5/7/12  

Electrification

The rising quality of life in the emerging world

Resource Nationalism – The Strategic/Critical Metal Theme

Security of supply

5/7/12  

China figures prominently

Synthetic graphite is a major factor, but is expensive to produce

Our research indicates that there is excess capacity in the marketplace

This is a market negotiated by buyers and sellers so pricing can vary

5/7/12  

5/7/12   13  

Today’s uses:   Refractories and Crucibles – 33%   Steelmaking – 26%   Brake Linings – 7%   Batteries – 5%   Other Uses – 29%

Tomorrow’s Uses:   Lithium-ion batteries – growing at 20%/y   Fuel cells – non-transportation applications   Pebble bed nuclear reactors – pebbles are tennis ball size

and must be replaced   VRBs – need 300 t graphite for 1,000 MW storage

Of note is investment in battery capacity   GS Yuasa – $350M   LG Chem – $303M   Liotech - $420M

5/7/12   14  

We see excess capacity in China, however many expect supply to be constrained through export quotas, VATs, and mine closures

If we look at the market for “today’s uses” of graphite and assume it grows at 5% y-o-y to 2020, world consumption will grow to 1.86 Mt

This ignores the higher projected growth rates in batteries, fuel cells, and pebble bed nukes (PBNRs)

5/7/12   15  

The need for graphite inside the Middle Kingdom is clear:

The 12th Five Year Plan is the “greenest” in Chinese history

US$634 billion on next generation R&D

Rising extraction costs, depleting resources, and mine consolidation

5/7/12   16  

KNOW THE FOOTPRINT

A graphite deposit is not “one size fits all”

Mesh size and carbon content can vary

A graphite producer must sell all inventory – can it do so at a profit?

5/7/12   17  

25% +48 mesh jumbo flake 97% C 20% +80 mesh large flake 94% C 40% +100 mesh medium flake 95% C 15% +200 mesh small flake 94% C

A “balanced” footprint is likely the best as this can help insulate a company from demand shocks

Electrification The race for intellectual property

pushing innovation forward Resource Nationalism Security of supply is HUGE KNOW THE FOOTPRINT

5/7/12  

  Our focus is on the interplay between macro economics, geopolitics, and the natural resource sector

  We co-publish a complimentary newsletter with Dr. Michael Berry focused on Discovery Investing called Morning Notes. You can subscribe at www.discoveryinvesting.com

  My email: cberry@house-mountain.com   Twitter: cberry1   Skype: chrisberry97   LinkedIn

  www.house-mountain.com

5/7/12   19