There’s always an opportunity to make money in the markets.
You just have to do the hard yards to find it.
Even in the current near 10% collapse in the stock market, some savvy investors have just doubled their money.
This didn’t involve short selling, or using any of the sophisticated trading you’d expect from a hedge fund. All they needed to know was which part of the market was about to take off…and buy the right stocks.
Even facing a slowdown in the US, the disintegration of Europe, and the very real prospect of China hitting the skids, there are still some parts of the market soaring.
So, what is this hot sector? And is there still time to get on board? Read on for more…
I’m talking about graphite.
You might have heard me discuss graphite before, as I’ve been following this story for a while now.
In last month’s Diggers and Drillers newsletter, I looked at Aussie graphite stocks and tipped one in particular. Readers that followed the tip are now sitting on gains of 105%, in the same time the market has fallen 7.4%.
This is exactly what I look for: investing opportunities the market has missed. In this case, the mainstream didn’t know anything about graphite. Some of them still don’t. Just this morning I read this drivel in The Age:
‘Consider also that Graphite’s price has quadrupled in the past four years and in your humble columnist’s opinion there is evidence of a bubble. Graphite’s worth as a commodity is not disputed. But from a supply perspective it is not hard to see tonnes of it coming on stream. Graphite is very easy to process, because it is simply pure carbon. You just crush carbon and then purify it using gravity.’
The most important point missed here is that there are different types of graphite.
The Right Type of Graphite to Invest In
The investing opportunity lies in FLAKE graphite. Its counterpart, amorphous graphite, is indeed a dime a dozen. But flake graphite is only found in a few places in the world.
It is rare.
What is even rarer is flake graphite that can be processed easily.
Put simply, graphite is found as a component of other rocks; typically it makes up 1%-20% of the volume. Extracting it can be complex, and in some rock types, it can be too expensive to be viable. So you can forget the fuzzy notion that ‘graphite is very easy to process, because it is simply pure carbon. You just crush carbon and then purify it using gravity.’
As for ‘tonnes of it coming on stream’…well…that’s generally the idea in mining.
However there are no significant new projects that will be ready to meet the rapidly growing demand. Smart operators saw this opportunity, so are out there looking for the stuff now. The number is growing because there is money to be made.
But the fact is the success rate for small-cap miners is around 5%. Most players will fall by the wayside. So an oversupply of flake graphite is very unlikely indeed.
The low success rate is the reason it’s so important to do a great deal of research. You need to filter out the duds at the start to give your investment the best chance of making gains.
The good news is the Aussie market has a few serious contenders. And while some are weighing in with uninformed and sensationalist talk of a bubble, the fact is that smart investors are still buying. It’s not just punters having a crack. Some of the largest resource funds from Australia, and also Canada, are lining up…
Graphite – The ‘Next’ Mineral Sands All Over Again?
The Canadian market has decades more experience with graphite than the Australian market. Its investors have a good appreciation of what to look for, and know the kind of money that could be made so it’s a big vote of confidence to see them weighing in already.
The graphite tip I suggested to readers has already more than doubled in a month. If they felt like it they could have the pleasure of selling a few shares to big name fund managers for a 100% mark-up. However this could mean missing out on much bigger gains. This show has just begun.
In fact, this stock reminds me of Iluka (ASX:ILU).
A few years back no one knew anything about its proposed commodity either – mineral sands. But the company found and developed the world’s dominant supply of the stuff, and grew from a minnow to a $5 BILLION company in the process.
Graphite Sector to Produce the Next Iluka?
But as I mentioned, getting from explorer to producer is a difficult process.
Having the right ingredients greatly improves your chances. Having a large, high-grade resource, in a good jurisdiction, and sufficient infrastructure provides a very strong foundation.
And luckily for Aussie investors, one of the graphite stocks right here on our market has exactly that.
Dr. Alex Cowie
Editor, Diggers & Drillers
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