Graphite-focused NextSource is up over 500% in the past year on recent deal making and growing investor interest in the battery material space. CEO Craig Scherba talked to Kitco on Wednesday. Last month NextSource Materials signed a 10-year agreement with thyssenkrupp Materials Trading to deliver approximately 35,000 tonnes per annum of graphite concentrate from the company's Molo mine in Madagascar.
Successful companies in the battery material space usually have deep relationships with their suppliers that according to McKinsey, last month, graphite focused next source material signed a ten-year deal. ThyssenKrupp materials trading. The company has been a role adding mounting giant, Mick Davis, his chair, and March next sources up 542% for the year.
CEO is Craig Craig. Welcome to Keiko. Thank you for inviting. Let's start with that supplier deal, which really elevated the stock. What is ThyssenKrupp materials and what connects source provide them? Uh, just encrypt as a very large conglomerate that does mostly steel industry type things. People are probably familiar with them for the elevators that they ride into or else the escalators, for example, but they do supply a lot of steel products around north America and the world.
I think they've got 1400 offices all over the world right now. They're one of the largest refractory grade graphite traders in the world. They do about 60,000 tons of that per year. Uh, so it essentially, they're one of the largest graphite traders outside of China, which is very significant for us because the largest market driver for the graphite industry is the refractory industry.
It's about two thirds of the graphic industry right now, and that's the tried and true kind of bread and butter. And to have a Western based, a very, kind of a large name, Group like and for them to want to have extra phase development as well for the long-term, uh, it was very important for us moving forward.
I think you're a, you're a, you're a corporate, uh, corporate development person was talking about bifurcation. So you had ThyssenKrupp, which was taking one source of materials from a next source. And then you're also providing a Japanese company with a battery grade graphite. Yes. So essentially the, uh, basically we're developing a project in phases.
So the first phase actually we started construction three, two months ago. Uh, the project is based in Madagascar. The first case is 17,000 tons. Uh, roughly half of that production will go to, to synchronize. And that goes into the refractory industry and the other half is going towards a Japanese trader, which really kind of plugs into the Tesla supply chain.
Uh, and that's a very important obviously growing industry that you hold graphite industry cause graphics the anode, of course, and with the mind. The, what people don't often realize is there's a very extensive qualification procedure involved with qualifying your graphite, especially with the OEMs. And so to have a group that actually does the processing, uh, supplies right into the attaching Panasonic Tesla supply chain, as well as all of the OEMs in Japan.
It's a huge boom for us, uh, because what they want is an additional 20,000 tons as well. So the first phase of the operation that the Japanese group we'll get, we'll go into the qualification round about 2000 tons, goes into the Testa supply chain. They'll put it in vehicles and run it around for a year.
What passes that basic. That will trigger a 20,000 ton off take. So all of the mine development is based in phases, so we can grow organically with our off takers. I want to get into that batter material space more, and just talk about, uh, how you actually service that. And then also what the opportunity is there.
But if we could take a step back for a minute, can you explain what graphite mining is? I mean, how is it different? Say from a lithium copper, Ethan, like a coal mining opera. Uh, well, I guess the traditional commodities, most people follow. I mean, obviously it kept goes very incentivizing that the, uh, the traditional quantities are basically on exchanges.
And so you can get a pricing on the internet. You can find out what the pricing is. And lithium actually is even on exchanges right now. I think it's on the LME in March of this year. Uh, graphite is not a so graphite pricing. It's a very opaque market. You have to have an arrangement. A sales agreement in place and you negotiate the price basically.
One-on-one uh, so it's very opaque in that manner. The other kind of difficulty of what the graphics. Is this not just the purity of the product, it's the purity of the product, of course, but it's also the size of the product. So there's a flake size distribution portion as well. And then if you're going into different markets, there's other ease Arteric type of scientific things that you required as well.
For example, in the lithium-ion battery market, you need charge capacity. If you're going to expand the graphite foil, for example, all the telephone screens, all of the computer screens, television screens that you see, they have a graphic foil sheet. That's called thermal expansion. The graphite has to have a special criteria for that.
And then of course, thermal conductivity, if you're looking in the refractory industry as well. So there's a number of different criteria that you have to basically check off all the boxes for the graphite industry, which is a little bit different than the traditional commodities that people really. Uh, now you're in Madagascar.
Is, is there any type of what you would say? Is there like, kind of like a, like there is an Athabaska for uranium? It just seems, it seems like there's these graphite mines that are all over the world. Uh, is there any particular characteristics or any particular regions for a fine. Yeah, absolutely. So it kind of goes back to how graphite is formed.
So graphite is formed into very high temperatures and very high pressures. Uh, so the reason that graphite is using the refractory industry, it has a melting temperature of 3,600 degrees Celsius and how it's actually formed as he gets some kind of carbon based material. It can start off as a precursor of coal or oil, or does it really matter what the carbon content usually starts with originally anyways, but when you do subjected to very high temperatures, it boils off all of the volatiles.
You just left the car. And then the high pressure aligns all the carbon molecules into sheets of graphite. So what you're looking for is very high grade metamorphic train. So granulate faces, uh, really kind of metamorphism is what you're looking at. Madagascar is quite unique in the fact that, uh, where we're located in the south is what's called a pressive sheer system.
Uh, so when you had the formation, like on two, on the land you had, you knew on one side of Madagascar and the African continent. They were basically sandwiched together and that whole suture system gave you the pressure in the high temperatures. And so we are, I guess, blessed with a lot of graphite. We have over 300 blind kilometers of graphite mineralization on our process, our property, uh, and it's all very large flight, very high purity.
Uh, so if you're really looking for graphite deposits, you're looking in high-grade metamorphic environments. That's what, for example, uh, in Eastern Canada, there's a lot of graphite deposits you're looking at go there. China's right. Now you mentioned the to a supply stream. So you had the refractory that was happening with ThyssenKrupp and then you also have the Japanese automaker, which was talking about, uh, batteries.
Can you step back out? What is the demand picture for graphite right now? I mean, it must obviously be growing with which is happening with EDS. Yeah, absolutely. So it's about 800 to 900,000 tons per year of this as natural flake graphite, that market is basically broken off into three different things.
Uh, the largest portion of that market is the refractory industry, right? It takes about two thirds of the graphite demand. Right now that's a tried and true industry. It grows at about two to 3% per year. Uh, so basically it's lockstep with GD. Uh, if you're looking at the graphite foil market. So once again, this is in the back of all your television, television screens and iPods and whatnot, that particular market is where the highest end graphite is.
So you get the highest price premium for that material that expands that graphite, foil expanding material. That's about 10% of the market. And then of course lithium-ion batteries. That's what everybody's looking at right now, uh, that market's a little bit more 20% of the total graphite. But what's interesting about that particular market is it's growing leaps and bounds.
So that's about 20 to 25% growth rate per year. Uh, so it's kind of interesting in the next few years, it's going to eclipse the volume demands for the refractory industry. So you're really getting the whole graphite industry kind of pivoting over to more of a technological play away from industrial middle, uh, still with basics.
So was there many, a traditional suppliers that were in this space? Uh, you know, before, um, before Nexstar. Oh, absolutely. So, I mean, what's interesting what the graphite world is about two thirds of all the graphite produced in the world comes from China, uh, like so many of the commodities, but it's one of the few commodities that actually China has within its own borders.
Uh, so they've basically cornered the market, uh, in the graphite world probably the last 50 years or so consolidated that. And then now with the advent and the growth of the lithium battery, It's a very strategic resource for not only the Chinese, but every other Western world now as well, because you're getting that pivot basically from internal combustion engines or the ice engines to EVs and graphite is essential for that, where the Chinese really don't.
As they do 100% of the value add processing for graphite. Uh, so really quickly the processing, uh, basically kind of root for that. You just start off with a flake graphite, and then you have to do what's called sphere lization so you basically make small spheres out of that graphite, then you purify it and then you coat it with a synthetic graphite running around that.
And that goes into the animal. So that whole kind of middle portion of the old value add chain is dominated by the Chinese. What's addressing, looking at, uh, the Evie material space. And, uh, you've mentioned already. It's just that the chemistry is very important to you just have to have this, uh, you know, enhanced a refining process, uh, for a, what you're a.
No. Absolutely. So, I mean, the, uh, the chemistry is a little bit different with, uh, graphite mineralization. Once again, is tagged on, off with other kind of easy Terrick type of criteria. Uh, so if you're looking at the leukemia and battery space, for example, the graphite has to be very high purity with carbon, but it can't have deleterious elements that will basically make the battery run runaway, thermal runaway.
So you're looking at iron vanadium. You don't want any of those in your graphite mineralization whatsoever. Uh, and then of course it has to have high charge capacity, and so on. Is there any substitutes out there for graphite? Uh, so there's a natural graphite and there's also synthetic graphite. So synthetic grappling, you can make basically from a Coke fines.
Uh, what you do is you subjected to very, very high temperatures and an actress and furnace, uh, basically bake it for two to three weeks in very, very high temperatures. And it crystallizes, uh, into very high purity carbon. It does not have the same crystal structure. However, it is a natural flagrant. So what happens there is the graphite that you'd get from synthetic graphite is very well used, uh, to basically produce torque in lithium-ion battery.
Whereas natural flake graphite gives you the range. And so it's a blend of actually the two. So you use natural flake, graphite and synthetic graphite. Uh, Tesla's formulation just went from 50% natural to 50% synthetic. And they've actually just switched that. I believe it was about six months ago to 60% natural and 40%.
I was just going to say the, uh, the Silicon content everybody's talking about. The advent of sales look ongoing into the battery. Chemistry is now, uh, what happens with silicone is Silicon expands 400 times. Uh, once you start getting lithium intercalated with the silicone. So what they do to mitigate that is natural flake.
Graphite will soak up that expansion where synthetic graphite does not. So there's actually a limit to how much silicone you can put into a battery because you want that for more charge. So the more Silicon they put, the more natural flake graphite they put and the Silicon content is not going to go higher than 10%.
So when you see, is there, I guess, a risk of the replacement? Uh, not really. I mean, all of these things, they kind of go hand in hand, you're growing the mind right now. Maybe it could talk about over the next 12 months and some of the milestones you're going to be hitting it next. Yeah, absolutely. So the mind will be commissioning in the second quarter of next year.
Uh, and once again, that's for 17,000 tons. And so that's a flake graphite concentrate that we'll be putting out of the back of that plant. Once again, going half to the refractory industry, artistic Trump, and then have to our lithium-ion battery partners into the Tesla supply. Uh, what's really interesting with the whole test, the supply chain angle though, as well, is that, uh, we have a three-way collaboration with, uh, basically the trader for an attachment as well as the Chinese group that does this realization and purification for Tesla right now.
Uh, and so actually what we're doing right now is we're doing a technical. To quantify the costs of the replication of that exact facility in a different jurisdiction. So we're looking, of course, at all the regular suspects, they're looking at European markets in north America anywhere where really those OEMs and what's interesting is you've got a lot of governmental agencies that are actively trying to get a battery supply into their borders right now.
I mean, you just had this recent, I guess, follow up with the electronics going into vehicles and the whole chip shortage and what that is really. To all of the OEMs right now is that their supply chain is very, very important. They have to mitigate the risks associated with having that cutoff by having different suppliers.
And graphite is very important in the fact that it's the arrowed in their batteries. People are switching over to, uh, electric vehicles away from internal combines. And 100% of the value add processing of that graphite is done in China right now. So we have a very unique position in the fact that we actually have the group that does the purification, the sphere of ice issue for Tesla right now in China.
And we can replicate that exact facility in a different jurisdiction, uh, and basically started. And what that does too, is it shortens off the time required to verify that material with the OEMs, because that's a very real long process. Great chairman, thank you for speaking with Keiko. It was an absolute pleasure, Michael.
Thank you. Greg is CEO of next source materials. My name is Michael McCray and you are watching Kitco news.