Graphex Group (GRFXY) - Makes 5% of China's Spherical Graphite needs

We recently spoke with Dan Nye, Chief Strategy Officer for Graphex Group. The company is one of the world’s largest producers of spherical graphite, a critical component of lithium-ion batteries, used in the ongoing electric vehicle (EV) revolution.

Company Overview

Graphex Group Limited, based in Hong Kong, develops technologies and processes for the enhancement of renewable energy. The company focus is on the enrichment and manufacturing of spherical graphite and graphene, key components for EV batteries, lithium-ion batteries, and advanced solar-energy products. The company owns a collection of 25 patents and utility models covering various technological, design, and processing applications for graphene and graphite. Graphex Group serves a full suite of customers across the globe.

Executive Team                                     

In addition to Nye, the management team at Graphex includes Chan Yick Yan Andross, CEO; Luo Liqun, Head of Research; and Qiu Bin, Executive Director.

Hong Kong, China And The Globe   

Graphex is listed on the Hong Kong exchange and is based there as well. Nye indicated that Asia is a great place for the company’s listing. The Hong Kong connection may make a number of investors feel skittish and Nye addressed that straight away.  From Nye’s perspective, when investors think of Graphex Group, they need to be aware that it is an international company, with wholly owned subsidiaries, located in various parts of the world. Graphex is a 100% foreign-owned entity and has a subsidiary in Mainland China that actually is wholly owned and produces spherical graphite in Heilongjiang Province. They also have a subsidiary in the United States and they're using that subsidiary to market and sell their technology outside the Asian markets. 

While it’s true that historically most of the battery makers for electric vehicles and other renewable energy solutions have been located in Asia, the geography of production is changing. By 2026, there should be about 10M electric vehicles sold per annum. By the 2030s, more EV’s may be produced than internal-combustion-driven vehicles. Now battery production is expanding into Europe, the United States, and parts of Canada. Graphex is seeking to leverage both their product sales and their technology to help companies outside the Asian markets produce spherical graphite, which is the company’s core product. 

Nye doesn’t at all worry that the Chinese influence will endanger his company’s margins. Graphite is a global commodity. What the Chinese pay for it is the same as what everyone else pays for it. Furthermore, graphite is a high-demand product. Graphex sells it at the global price.

Graphex: Not A Mining Company   

The Graphex Group is not a mining company. Nye believes that there are numerous risks in the mining sector. There is a very long trail to profitability for a mining company, including finding a resource, preparing a feasibility study, getting the right people and equipment, and transporting the product. 

Instead, Graphex is an industrial-level processing business. They buy raw flake graphite and process it from its highly irregular original form. They use mechanical and chemical operations to convert those very irregular pieces of graphite into spherical forms of about 10 to 15 microns in diameter. The diameter is important because it optimizes the way that the battery makers will take that product, and compress it into a battery anode. 

The Graphex Group is one of the larger spherical graphite producers in the world. With their current technology, they produce some 10,000 metric t of spherical graphite each year. 

Spherical Graphite Business Model

At this point in time, many new players are coming into the global graphite mining and producing arena. Graphex hopes to leverage these new entrants’ technologies to help them go from simply producing raw graphite to being able to provide spherical and coated graphite. The business model involves helping clients continue to improve their processing lines and to improve the yields in the battery anode domain.

The value of those enhanced graphite products is many more times higher than the raw product, so the incentive for these new firms to work with Graphex is clearly there. The benefits not only extend to the miners themselves but to the countries that host the mines with increased employment and tax revenues.

Financial Snapshot                               

In 2019, about 200,000 metric tons of spherical graphite was produced in the world. In that same year, Graphex produced about 5% of the total. Company revenues came in at US $50 m. About 60% of those revenues were derived from the sale of spherical graphite. Revenues from spherical graphite are expected to increase. Forty percent of revenues come from non-graphite-related businesses at this time, but this will become a smaller percentage going forward.

A Variety of Contracts                         

Graphex sells to a variety of customers, including, but not limited to, battery makers and distributors. They work hand-in-glove with each customer to come up with a specialized contract designed for their particular situation. These contracts could vary from cross ownership, to a royalty model, or to pure consulting. 

Nye indicated that he prefers the royalty model. By holding a royalty in a business, it can be updated as needed, it provides a nice steady income, and that income comes with extremely high margins.

Graphite Supply                                    

Graphex has had no problems acquiring their raw graphite. They buy it at a market price from a mine that produces about 60% of the world’s total supply of graphite. There are no fixed contracts. If for some reason they need graphite from other sources, that could execute those contracts as needed.

Conversations with the Americas and Europe    

Graphex has a subsidiary in the United States and is actively having conversations all over North America, as well as in Africa and Europe. At the moment, most lithium-ion batteries are produced in Asia.

There's a real push now to produce the batteries in the United States and Europe, for example, by Tesla and General Motors. They need graphite to produce these batteries and these days there is continued tension between the United States and China. These companies and others are no doubt thinking how they can secure resource supply to produce their own batteries. How can they hedge their risk for lithium, cobalt and other materials away from Asia? 

Graphex thinks that it has huge opportunities with North American and European plants. They are an international company with subsidiaries outside of China and are desirous to negotiate contracts that mitigate the risk inherent in obtaining the key materials. 

Recapture of Spherical Graphite?

Consider a lithium-ion battery. Its anode consists of a strip of metal with spherical graphite on it. When the battery is charged, lithium ions are forced into the graphite anode and that liberates an electron to release energy. 

The metals in these batteries can be recaptured and recycled. Nye indicated that he is not sure if this process would be economic or not. But, he sure hopes it is or will be. He doesn't want to see the world going down the path of green renewables and then find out there’s quite a bit of pollution associated with that. He is aware that some companies are working on battery recycling. 

Future Applications for Graphene

Graphex has the capability to produce graphene and is exploring some newer uses for this amazing material. Graphene has many useful qualities: it’s super strong and highly conductive. There are some aspirational applications that are quite exciting and on which Graphex is working. For example, it can be used as a membrane-filtration material. Because of its high conductivity, it can also be used in advanced display technologies. And, even more science-fiction-like, people are thinking about using it to develop space elevators.

Summary

In summary, the main focus of the Graphex Group is to produce spherical graphite. Their main approach is to leverage their experience, technology, and patents to help graphite producers produce much higher-grade and higher-margin products.

To find out more, go to the Graphex Group Website