There was a big flurry of activity in graphite stocks on Friday, and the reason for this was that China has imposed export controls on graphite, which means that countries like Canada and the U.S. will have to look elsewhere to secure supplies — the U.S., in particular, will be impacted because it is by far the biggest importer of Chinese graphite so this news is a big deal as China produces two-thirds of the world's graphite so clearly China — after being provoked — is adopting a "hit 'em where it hurts" approach.
Demand for graphite is rapidly growing due to its use in electric vehicle batteries and other energy storage applications so its price is likely to ramp up significantly, which will be good news for non-Chinese producers. Current production of graphite in the U.S. is non-existent, but Graphite One has a sizeable deposit that it is working on bringing to production.
As it says on the company's website . . . "The Graphite Creek Property, located on the Seward Peninsula in western Alaska about 60 kilometers north of Nome, has been discovered to hold America's highest grade large flake graphite deposit, with 10.95 million tonnes of measured and indicated resources at a grade of 7.8% that could yield as much as 850,000 tonnes of contained graphite material.
Overall, an assumed 44 million tonnes of graphite mineralization at 7% contained graphite (Cg) available to be mined from the company's Graphite Creek Property could support a project life of 40 years, producing 60,000 tonnes per year of graphite concentrate at 95% Cg with an 80% yield. In response to the news about China, a number of graphite stocks posted big gains on Friday, notably South Star Battery Metals Corp. (STS:TSX.V; STSBF:OTCBB), which surged 24% on huge volume and NextSource Materials Inc. (NEXT:TSX;NSRCF:OTCQB), which shot up by 28% again on huge volume.
NEXT closed well off its highs, but the chart looks very bullish, so the only reason that it closed well off its highs was due to trapped earlier buyers who weren't aware of the news dumping onto the higher price. So, it is expected to forge ahead and is also rated an Immediate Buy.
The gain in Graphite One Inc. (GPH:TSX.V) was more modest at 7.7%, but it was on the strongest volume since July, and so it is expected to "join the party," which is why we are looking at it here. Now, let's look at its charts.
Starting with the 20-year chart, we see that the company has been around for a long time and started trading back in 2007. Its performance — up to now — has been unimpressive as although there have been some tradable wild swings, it is still well down on its price in 2007.
In mid-2020, it broke out of a huge bullish Falling Wedge pattern that had formed over many years and proceeded to advance until late 2021 before rolling over again and dropping. This advance included a couple of big spikes, which are characteristic of this stock that could work to our advantage if it does another of them soon.
Zooming in via the 5-year chart, we see that the retreat from late 2021 high brought it back to a zone of strong support in the CA$0.90 – CA$1.00 area, which generated another short-lived spike early this year before it came rattling back down to the support again which it has just arrived at, and given the price / volume action on Friday and the important news that triggered it, it is very well placed to do another spike and this time, given that the news is "game-changing," the spike could be bigger than previous ones and more of the gains resulting from it could stick.
Lastly, looking at the 1-year chart, we see that the decline from the highs last February – March has taken the form of a fairly orderly downtrend channel, and the interesting thing is that, in addition to bringing the price down closer to the strong support mentioned in the last paragraph, it has also brought it down close to the lower boundary of the broad downtrend channel so that it is currently substantially oversold relative to its now flat 200-day moving average, which increases snapback potential.
This month's new low was not confirmed by momentum (MACD), which has shown a positive divergence, and Friday's gain on the biggest upside volume since July was clearly a bullish development, especially given the strong performance of other stocks across the sector.
Graphite One is therefore considered to be most attractive here and rated a Strong Buy. While there is overhead resistance on the way up, its effect should be mitigated by the abrupt change of sentiment resulting from the news out of China, meaning that it could do a big spike anyway, resistance or not.
Graphite One's website.
Graphite One closed at CA$1.12, $0.83 on October 20, 2023.
Originally posted at Clivemaund.com at 5:00 pm EDT on October 22, 2023.
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- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Graphite One Inc.
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The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.