The firms in my portfolios have not only great assets, but also great management and excellent business plans. These companies are building themselves over time and creating new wealth. Over the long haul, I’m not overly concerned about the companies on my list. When the smoke clears, they’ll be standing tall.

The End of Big Finance and Big Welfare-Warfare State

Let’s distill the problem. We live in an era — and I believe it’s the END of an era — when the West’s so-called “finance industry” grew far too large and is now collapsing. Same thing with the so-called “welfare state” and its companion “warfare state.” Big Finance is dying, as is Big Welfare.

Back in the 1960s, something like 15% of overall U.S. corporate profits came from the banking and finance side of the economy. By the early 2000s, something near 50% of corporate profits came from running money. That was, quite simply, too much of the economy devoted to finance.

Occupy the Resource Space

This issue of the collapsing “finance industry” gets back to a point I’ve made before, that finance — running money — isn’t what creates wealth.

You create wealth by digging or pumping something out of the ground. Then you refine it and process it, adding value along the way. Then you turn the product into a finished good that somebody else needs or wants. The idea of “finance” is OK to facilitate the foregoing, but not as an end in and of itself.

This line of thinking gets back to why I like the resource space. It’s why I pound the drum so hard for you to “occupy” the resource space, so to speak. Banks come and go — although many of them don’t go fast enough, in my view. But a good oil field or ore deposit is forever — well, almost forever, or at least until someone comes along to pump it or dig it out. Occupy that.

I’m inclined to think that the next financial revolution will bring competition to government-issued currencies. The next useful currencies will be backed by real assets — gold, silver, energy and more. So owning an interest in oil, uranium, precious metals and more will be like owning the “banks” of the future.

Sincerely,

Byron King
for The Penny Sleuth

The Sector That Will Grow Your Wealth… In Any Market was originally featured in the Penny Sleuth.

Think about that. Who buys beryllium?

The big airplane builders have fat order books. The rest of aerospace is still doing things that have to get done — for example, building satellites that launch on a multi-year schedule, which is immune to short term ups and downs in the economy.

Plus, a lot of other tech guys are selling equipment like gangbusters, and contributing to the demand for beryllium products.

There’s even a growing use for beryllium within the automotive industry, due to the element’s lightweight and strength. Imagine cracking that market.

And we’re still in the pre-game warm-up for beryllium as part of the nuclear fuel cycle. Wow, that would send demand soaring — in a space where one tiny company is gaining a strong technological edge over everybody else…

Star Trek Outside of Boston

I’ve visited high-end mills before, but this place takes first prize. It’s relatively small, but it reflects a world-class level of quality. In fact, the site I visited is filled with literally Star Trek kind of stuff — high-level niche manufacturing, using the sharpest part of the cutting edge of technology.

The equipment I inspected at this company’s mill is mostly brand-new. The mold-making and metal-casting processes are beyond complicated — they’re truly ingenious. They have brought the old “lost wax” process to a modern pinnacle. The actual casting involves melting alloys at about 2,000 degrees Celsius and pouring metal into molds under a near vacuum. Don’t try this at home.

From the street level, you’d never know that this facility is a metal foundry. It looks like a book warehouse. The air inside the facility is double filtered, and there are virtually no outside emissions. All of the water that gets used in processing is contained on site and eventually recycled or disposed of in accordance with the highest standards — and this is Massachusetts, where standards are plenty high!

Lighter, Harder, Stronger… Better!

I held items in my hand that are much lighter than aluminum, yet harder, stronger and stiffer than steel. Indeed, I’m not kidding about the Star Trek analogy. I handled “space-rated” copies of products that are — right now — hanging off satellites that orbit the earth.

I also handled copies of metal castings that are critical to advanced U.S. weapon systems. Indeed, these products are so advanced that one senior executive asked me to confirm that I’m a U.S. citizen just to touch one object. He explained, “Under the ITAR (International Traffic in Arms Regulations), we can’t discuss this or show it to people from most other countries.” Needless to say, no photo of that one.

At the same time, this company’s products are for sale not only into aerospace markets. Some of the company’s goods ship across the world for use in products as wide ranging as construction equipment, oil drilling bits and computer chip fabrication systems.

Sincerely,

Byron King
for The Penny Sleuth

No Recession for the Fourth Element was originally featured in the Penny Sleuth.

Until now, its importance to national defense has not been well understood, except to military professionals across the world that follow these kind of developments. Well that’s about to change…

Because one little-known company has discovered a revolutionary new proprietary technology that makes important use of “The Fourth Element”… A “super metal” that could help save countless soldiers lives with its unique properties…

The Department of Defense calls this rare metal “essential for important defense systems” and says that it “… possesses unique properties that make it indispensable in many of today’s critical U.S. defense systems, including sensors, missiles and satellites, avionics, and nuclear weapons.”

In fact, this “super metal” technology can be used in an incredible array of different areas… including nuclear, aerospace, defense, telecom, computing, electronics, medical, automotive, oil & gas, and many more…

Already, this tiny company holds several high-end patents and trade secrets for manufacturing this revolutionary product. Not to mention this savvy company has also acquired the rights to mineralized properties in two Western U.S. states and Brazil… so they can provide their own “fourth element” metal to their production line.

This is an under-the-radar company like no other — and today’s your chance to cash in.

Simply put, once the news leaks out about this tiny company’s revolutionary “super metal” breakthrough, you could see this company’s stock price soar 10-fold or more…

The “Super Metal”…a Miracle Metal

The angle is beryllium, the magic metal. I’ve been following beryllium since February 2008.

Beryllium is a silvery white metal, No. 4 on the periodic table of elements — hence all the “fourth element” talk. Beryllium is one of the lowest-density metals there is. It is very lightweight. Yet beryllium has six times the specific stiffness of steel.

In short, beryllium is a miracle metal.

So what does all this mean?

It means that beryllium has an incredible combination of properties that occur in no other metal. And it means that super-smart people have figured out how to use beryllium in all sorts of applications.

I’m serious. Rocket scientists use beryllium — in rockets. Beryllium goes into satellites and space structures, aircraft, optical systems, semiconductors, medical imaging and nuclear systems. And as the story up above demonstrates, there’s beryllium in gun sights, rocket launch rails, camera gimbal systems and more.

Why use beryllium? Because it provides unmatched capabilities for medical, aerospace, defense, information technology, scientific, nuclear and other applications. When designers have to come up with products that work at the extreme edges of performance — from the dirt of a mountainside sniper position to the depths of outer space — they specify beryllium.

Back in 2008 I introduced Energy & Scarcity readers to a beryllium company. The share price took a hit in the market crash of 2008 and 2009, but has since recovered and is up nicely. Business is good, and shares are holding their own. Today, this company has a strong position within the beryllium market.

But… there is a much smaller company those shares hold much more potential upside…

This play is also more of a beryllium pure play. In fact, this company is more like a high-tech play, in that Silicon Valley sort of business model.

Why do I like them? They are coming up with new ways to manufacture and get beryllium products into the marketplace. They are not just trying to sell the same sorts of things.

It’s a different business model, rooted in efficient use of the basic resource with serious upgrades via high-technology…

The business model is an aggressive form of development, prototyping and large-scale production, with sales at high margins.

Later this year, they will begin a drilling assaying program on its Utah mineral property. The idea is to produce their own beryllium, it’s that whole vertical integration idea.

On the manufacturing side, they have facilities that it rolled up in Indiana, Missouri and Pennsylvania. These facilities focus on beryllium-copper alloys, which are super hard and useful in all sorts of industrial applications. The contracts are coming in, and production is ramping up…

And now is the time to buy into this “super metal” while prices are still cheap…

Sincerely,

Byron King
for The Penny sleuth

This “Super Metal” Could Supercharge Your Stock Market Gains was originally featured in the Penny Sleuth.

But ask the average man on the street why gas prices are on the rise, and you’ll discover that there is very little understanding about how the world works today.

Truly, the world energy market is a complex system. Many things influence the price that we pay at the pump.

So what’s poised to send prices at the pump higher?

A lot of things.

To start with, I could tell you a long story about the depreciating dollar and how inflation is creating higher prices at the pump.  This, as you know, has been true over the past few decades – and looks to continue into the future.  And although inflation will increase the price of commodities like oil, it isn’t something that will spur a rampant rise in the price.

For that to happen we’d have to look directly at supply and demand for oil. Indeed, there are plenty of things that could trigger a price spike like 2008’s high of $147 a barrel.

For instance political events can trigger a rise in the price per barrel. Nationalization or even the idea of an all out “oil war” could catapult prices to well over $220 a barrel, overnight.  Clearly, with any disruption of output in the Middle East prices could skyrocket.

Situations like this can create vast opportunities.

And lead to huge profits for investors…

Today, I’d like to tell you about a sure-fire reason that prices at the pump are expected to go higher. And later on I’ll show you exactly how you can profit from this same event.

Surprisingly the main trigger is just pure and simple science. It’s known as Peak Oil, and it’s the end of cheap oil as we know it…

The Peak Oil theory was pioneered in the 1950s by a geologist named M. King Hubbert (1903–1989), who worked for Shell. He reviewed mountains of data concerning oil discoveries, extraction and production dating back as far as the 1860s.

Hubbert noted the common trend in oil field development for a new field to come online and oil production to increase as the field was drilled and developed. But then, over time, the inevitable effects of depletion would kick in and cause the overall production of the oil field to steadily decline.

The discovery side of the Peak Oil theory holds that mankind has identified and located, if not actually discovered, most of the conventional crude oil that there is to find in the crust of the Earth. The production side of the Peak Oil theory holds that mankind has produced and, of course, consumed something near half of it. In terms of really big Peak Oil numbers, out of a worldwide resource base of conventional oil that is estimated by some knowledgeable commentators at about 2.2 trillion barrels, about 90% has been discovered and about 1 trillion barrels have been extracted and consumed over the past 150 years or so.

So the fact is Peak Oil is an event of profound significance. One commentator on the subject is Ali Samsam Bakhtiari, a retired director of the National Iranian Oil Co. He has been studying the history of petroleum and the oil industry for decades. He has a collection of databases from every major producing region of the world. Dr. Bakhtiari is among the most respected oil analysts anywhere. Bakhtiari has reviewed the available evidence on world oil production and believes that world output peaked absolutely in the summer of 2006.

If Dr. Bakhtiari is correct, then the world is many years passed the “peak” point of Peak Oil. The future of conventional oil extraction is all downhill from here. Which does not mean that we cannot make some money on the phenomenon. And in the post-Peak Oil future, you will definitely want to have some money…

Okay. So we’re past the point of no return with the supply of oil.

Although some oil finds, even big ones, will surface over the coming years they won’t make up for failing production and increased oil demand.

This paints a pretty grim picture when it comes to the price of oil.  Prices are set to rise for all the reasons listed above.

But even past peak oil, inflation and increased demand certain market shock events could drive the price of oil up over $300 per barrel.

The oil market is tight – every year demand stretches the limits of our oil supply and all it would take is one blip on the supply side to throw this delicate equilibrium off.

With the events we’re seeing in the Middle East I don’t think we’re far from a super spike in the price of oil.

And if that’s the case, you’ll want to take a look at the oil that offer you a chance to profit from a general rise in the price per barrel. Plus, plays that are out of the “danger zone” and won’t be affected by Middle East turmoil. This way you’ll have the opportunity to profit from oils next leap higher.

[The Sleuth’s Note: Doing a quick search with Google Finance’s Stock Screener, we were able to find a few small-cap domestic oil companies to get you started. They are: ATP Oil & Gas Corp. (NASDAQ: ATPG), Kodiak Oil & Gas Corp. (AMEX: KOG), and Vantage Drilling Company (AMEX: VTG). As always, this is just a place to start. Before investing in anything, we recommend you do your own research.]

Sincerely,

Byron King,
for Penny Sleuth

How You Can Profit from Exploding Oil Prices was originally featured in the Penny Sleuth.

Junior miners are, of course, the tiny companies hard at work finding… exploring… and hopefully mining some type of valuable mineral.

Yes, some of these companies will go bust as they burn through cash…

But find the right junior mining company and your life could change forever. In fact, I know of no other plays that have produced such amazing life-changing profits time and time again. Just look at some of recent gains I found through our friends at Casey Research…

Northern Freegold went up 117% in just one month.

Osisko Mining soared 284% in the matter of 6 months.

Or, International Hill climbed 200% in 7 months.

When it comes to junior miners, most investors search only for companies in the precious metal and oil sectors. But today I’d like to introduce you to another “secret” set of miners that are poised for takeoff.

They’re busy at work mining a breakthrough new mineral.

It’s a material that China already has on lock down. And, no, I’m not talking about rare earths… oil… or anything like that. Let me show you what I mean…

Recently, two scientists won the Nobel Prize for their pioneering discovery of this breakthrough new material.

They call it the “New Silicon.”

It’s billed as the wonder material of the 21st century…

With the power to revolutionize micro-electronics… just like the introduction of the silicon chip nearly 50 years ago.

According to the National Science Foundation, it’s called this material is the “New Silicon” because it’s a leading candidate to replace silicon in applications ranging from high-speed computer chips to biochemical sensors.

This new wonder material could have a major impact on the way we live, work, and play.

Just like the “old silicon” made our lives easier, richer and safer when it was introduced into thousands of products in the 1960s…

According to PC World, the “New Silicon” has transistor speeds up to 10,000 times faster than the “old silicon.” And it’s cheaper to produce.

Incredibly, it’s only one-atom-thick… 100,000 times smaller than a human hair… yet has the strength, flexibility and electrical conductivity to open up new horizons for high-tech applications, military uses, construction — almost anything you can imagine.

In other words, its potential isn’t even fully known or even imagined yet. That’s how new and amazing this is…

So what, exactly, is this “New Silicon?”

It’s simply graphite – and specifically a new substance called “graphene.”

Graphite burns at a very high temperature (3,000 degrees or so), and is therefore useful in numerous electrical and thermo-chemical applications, from arc-lamp electrodes to thin-film heat sinks — such as are contained within your Apple I-Pad.

Quite a bit of natural graphite is consumed in refractory processes, electric arc steelmaking, brake linings, foundry facings and lubricants.

There’s al

“New Silicon”: The Next Junior Mining Sector Poised For Lift-Off was originally featured in the Penny Sleuth.

A Series of Unfortunate Events…

That’s what I thought. Except lately, it’s as if we have entire flocks of black swans, paddling up to the edge of the lake and walking out into the front yard. And then these critters cause big trouble.

Japan Black Swan

Let’s take a look at the Japan black swan, with its associated nuclear blackbird. The Japan earthquake-tsunami-nuclear disaster has wrecked large swaths of the Japanese economy, with ripples out to the rest of the world. Japan faces immense human suffering — they’re still picking out bodies nearly a month after the earthquake and tsunami. God bless them… it’s heartbreaking.

Japan also faces a long, cold future. Expect to see chronic power shortages, industrial disruption, logistical challenges, endless cleanup work and bills that boggle the mind. It’s a heck of a lot more than the news-grabbing article about how Ford Motor Co. can’t get “tuxedo black” paint pigment for its car assembly factories.

There are many globally important production and logistical channels that pass through central Japan. We have yet to understand the full impact on world commerce. Stand by for shortages of everything from name-brand automobiles to electronics to optical instruments to you-name-it. I think we’ll all be surprised as this plays out.

Of course, the Japan disaster ripped into the world’s nuclear power renaissance. Most nuclear stocks are knocked down, although I expect things to get better over time. The question is how long will it take?

At ground zero, the site of the wrecked nuke plants, the Japanese have huge bills to pay. It’ll be hundreds of billions of dollars over many decades. It’s pretty much pure “cost,” too, for the Japanese. That is, it’s not investment in the sense of the Japanese ever getting the money back. The expenses and efforts will go toward keeping the nuclear mess under control, and sort of cleaning it up.

Through it all, stay sanguine. Keep in mind that large capital projects, from mines to power plants, have a life cycle measured in decades. Policymakers, regulators, business executives, bankers and investors need to beware of making 10-year, 20-year or 30-year decisions based on the headlines of a week, a month or even six months.

Japan or no, the rest of the world’s reactors still need fuel. You shouldn’t discount a uranium play as a long-term investment.

[Editor's Note: There are a number of resource funds right now holding uranium assets, but Middlefield Uranium Focused Metals Class (MUTF_CA: MID210) may be worth a closer look.]

Until we meet again,
Byron King
Penny Sleuth

May 11, 2011

This Industry Is Still Gearing Up for Growth was originally featured in the Penny Sleuth.

Many of the small-cap companies I recommend to my Energy & Scarcity Investor readers are the so-called Canadian junior companies. These are companies whose shares trade, usually, on the Toronto Venture Exchange (TSX-V), a small-cap version of the highly regarded Toronto Stock Exchange (TSX). Or sometimes, the small guys’ shares trade on the London Exchange, or Australian Exchange or the Over-the-Counter (OTC) board in the U.S.

Often as not, the Canadian junior companies are resource developers that are burning cash. They’re definitely risky… but wow, some of them can deliver the returns!

When you deal with the small-cap resource investment space, it helps to be a geologist. It helps to understand how this business works. It helps to understand exploration, geophysics, drilling, mineralogy and much else. That’s because the vast majority of mineralized zones are NOT commercial ore and will never become a mine. The vast majority of acreage is NOT hydrocarbon-prospective and will never make an oil field. Remember this! Know it, learn it, live it!

Vast multitudes of investors buy shares in small-cap companies that never go up, and likely go down. You can lose your shirt a lot faster than you can make a five- or 10-bagger, that’s for sure!

There are dozens of small Canadian (and Australian and British) junior out there. Sometimes I travel from New York to Toronto to London to Hong Kong — and Brazil, South Africa, Serbia, Hungary, Turkey and more — to find potential investment ideas. You can eliminate almost all of the companies you review from contention before you decide on a small-cap play.

After you make an investment, it requires constant attention. You need to continue to monitor the management, the financials, the developments. The small guys don’t have nearly the information machines that the big guys have, so you may have to dig harder for real information.

So this is what I have to do even to begin to make it all work. I have yet to figure out how to make it work without that level of attention to detail. Point is, these small-cap guys are hard to find, hard to track and risky. Small-cap investing is hard, if it was easy, everyone would be doing it.  When tracking these small-caps on your own, make sure you continually keep an eye on these companies. Keep an eye on their financials and other business developments. If you put in the time and research they can produce outstanding gains for your portfolio.

Until we meet again,
Byron King
Penny Sleuth

April 18, 2011

Big Gains from Small-Cap Juniors was originally featured in the Penny Sleuth.

So what are we to make of the announcement, out of Beijing, that the Chinese Ministry of Land and Resources has brought 11 rare earth mines under state control?

The Ministry announced that the 11 mines, covering an area of 978 square miles, were the first batch of “state planned mining zones” for rare earths.

According to news accounts, Chinese authorities stated that the government’s goal is to strengthen “protection and reasonable development” of the rare earths sector.

This news about rare earths may not exactly be thunder out of China. But under the circumstances, it sure touches a nerve because China already controls about 97% of world’s rare earth resources. In recent months China has tightened control over rare earths by slashing quotas for overseas shipments, halting unauthorized exports, hiking export taxes and cracking down on heavily polluting mines.

The overall picture is that China is consolidating a formerly fragmented industry. The result is — and will continue to be — industrial consolidation, stronger state control and generally higher prices in the future.

China is already enjoying greater returns from its diminishing rare earths exports. Toward the end of January, China’s Ministry of Commerce reported that China’s rare earths exports totaled 35,000 tonnes (metric tons) in the first 11 months of 2010, exceeding the posted annual quota of 30,300 tonnes.

With soaring international prices, the value of China’s rare earths exports jumped by 171% from 2009.

Looking ahead, the Commerce Ministry announced last month it is slashing rare earths export quotas by about 35% for the first six months of this year.

Let me make a few points here, based on my observations over time, as well as what I heard Chinese representatives say during a recent trip to Hong Kong:

• China’s leadership truly views rare earths as a current and future, strategic center of gravity for national economic development, future tech of many forms, and of course military power. They will manage this rare earths issue from the top-down, making policy and directing assets and capital as appropriate.

• Past mining practices have caused immense and immeasurable environmental damage within China. Meanwhile, much of the past practice used poor techniques that did not maximize output or return on investment. The strategic nature of the rare earths issue makes now as good a time as any to clean up this mess.

• The unlicensed, black market for Chinese rare earths materials has amounted to as much as 40% (maybe more) of total output, up until recently. This is entirely unacceptable in a Communist state with a nominally “planned” economy.

• Looking forward, China will “cooperate” with the international community on future rare earth exports — but ONLY to the extent that the overall process benefits China.

• I anticipate that, primarily, China will focus and prioritize its export of rare earths materials that go into value-added articles that then must come back to China to use in other manufacturing.

• The Chinese are smart enough to identify potential markets for rare earths that COMPETE against China. They’ll do everything they can — active and passive measures — to divert exports away from these kinds of markets.

Here’s the bottom line. There’s a great future for the rare earths industry in the West… but you have to be careful about chasing momentum. You need to invest wisely, with a focus on companies that can actually deliver an end product after managing years of capital expenditure, and forming-up many systems of systems.

Sincerely,
Byron King
Penny Sleuth

March 21, 2011

Great Future Investing in Rare Earths was originally featured in the Penny Sleuth.

According to the Chevron executive, “My greatest challenge is to manage a large array of aging assets.”

In the Permian Basin, Chevron is producing oil from fields discovered many decades ago, often using pipe and equipment that was installed decades ago. Oh, it would be nice to rebuild everything with new steel and equipment, and all the latest automation. But you can only justify so much new investment wells that produce 6.5 barrels per day before it’s cheaper to plug them…

This New Technology IS Working

At the same time, the modern U.S. oil business is not just all about managing legacy assets. For all the oil that’s ever been pulled out of the Permian Basin, MOST of the original oil is still down there, in the source rocks and in reservoir rocks that won’t give it up very easily.

So Chevron is using the Permian Basin as a modern laboratory for new oil recovery techniques. There’s still a lot of oil down there, but now it takes more imagination, capital and technology to extract it.

With some old reservoirs, Chevron is pumping CO2 to “flood” the reservoir, mix with the oil in place, and then move that oil out of pores in ways that traditional water-floods won’t reach. In fact, Chevron is working on ways of making the oil less viscous via CO2, and then “sweeping” the reservoir with water floods. The idea is to increase recovery from the reservoir, to get every drop that will possibly flow.

Chevron is also drilling new wells into formations that were not, traditionally, oil producers. Up until now, the rocks had something “wrong” with them — such that they didn’t give up the oil.

Indeed, some new types of oil bearing rocks have the permeability (“impermeability” is a better word) of granite. But the kinds of hydro-fracturing that we see in shale formations is also beginning to yield a lot of “new” oil from tight formations.

Chevron had eight, powerful pumper trucks all lined up. These pumpers were just roaring away, pushing barrels of fracturing fluid (mostly water, with chemical additives and propping-sand) down the hole.

The idea is for the fluids to work their way into the rock formation, and literally crack open a series of fractures as far away from the well as the energy will carry. Then when the water comes back out, the sand that’s been mixed will stay in the fractures and hold them open. This makes it easier for oil to move out of the rock formation and into the well.

According to the University of Texas Bureau of Economic Geology, there may still be 60 billion and more barrels of oil left in the Permian Basin — half the oil reserves of Iraq, by way of illustration. The trick is to develop technology to get it out.

It’s the new tech – with companies like Chevron out in front — that will keep the Permian Basin supplying oil for another 100 years — and offering new investment opportunities in the process. This is one technology you will want to keep your eye on.

Until we meet again,
Byron King
Penny Sleuth

March 9, 2011

A “Flood” of Profit to Come from This Oil Technology was originally featured in the Penny Sleuth.

I’m talking about graphite…

What do I mean? Why invest in graphite? Really, isn’t graphite just squished-up coal, that’s been turned into really slick carbon? Don’t you find graphite in metamorphic rocks all over the place? Can’t you just buy graphite down at the hardware store, and squirt it into the lock on a door when the key sticks? How do you make money with graphite?

Those are all good questions. So first, let’s define what we’re talking about. Graphite is a metamorphic mineral, composed of pure carbon. Geologically, and based on how we find it in the crust, graphite is a super-high grade of coal (or maybe organic-rich black shale).

Sticking with the coal-grading sequence, though, let’s just think about peat — like in the bogs of Ireland and such. Then, after time, pressure and heat, the peat turns into lignite, bituminous and eventually anthracite coal.

Squeeze that anthracite some more, and you get “meta-anthracite,” a fancy way of characterizing graphite. Thing is, graphite doesn’t ignite very well — an advantage in most respects — so it’s not a hydrocarbon fuel.

The Background for This Profitable Mineral

Graphite is a mineral. In terms of crystallography, it’s an “allotrope” of the element carbon. An allotrope is an element that can exist in two or more different forms, based on different modifications of the atomic structure. The term is used for elements only, not for compounds. (If you’re talking about different forms of a compound, the term is “polymorph.”)

With carbon, there are three common allotropes. There’s diamond, where the carbon atoms are bonded together in a tetrahedral lattice arrangement. This lattice arrangement is why diamond is very hard.

There are other forms of pure carbon, called “fullerenes,” named after the late, great Buckminster Fuller. In fullerene structures, the carbon atoms are bonded together in spherical, tubular, or ellipsoidal formations. It’s astonishing science at work. Fullerenes are so new to our collective knowledge that people are just starting to figure out what to do with them. But it’s safe to say that the technology of fullerenes is very promising.

Then there’s the point of this article, graphite. You get graphite when the carbon atoms are bonded together in sheets of a hexagonal lattice. The “sheet” structure is what makes graphite slippery, and useful as a lubricant.

Graphite was chemically identified in 1789 by a German scientist named Abraham Werner. Werner named the substance after the Greek word γράφω (graphō), meaning to draw or write. Even back then, graphite was used in pencils. (No, a “lead” pencil is not made of the element lead!)

Unlike its diamond allotrope, graphite is a semi-metal. Every carbon atom in graphite has what’s called a “free valence electron.” Hence graphite is an electrical conductor. Graphite is very stable. It’s lightweight, chemically resistant, hard, scratch-resistant and a great means of transferring heat energy.

Graphite burns at a very high temperature (3,000 degrees or so), and is therefore useful in numerous electrical and thermo-chemical applications, from arc-lamp electrodes to thin-film heat sinks — such as are contained within your Apple I-Pad. Quite a bit of natural graphite is consumed in refractory processes, electric arc steelmaking, brake linings, foundry facings and lubricants.

There’s also a substance called graphene, which occurs naturally in graphite. Graphene has unique physical properties. It may be one of the strongest substances ever identified. On that score, we’re still in the very early innings of understanding the technology that could come out of graphene.

Pricey Material — Up to $20,000 a Ton!

There’s much more to tell you about graphite, but suffice to say that it’s very useful. Let me clarify that line. The “good” graphite is very useful — because there’s a lot of graphite out there in the rocks that’s just junk for all intent and purposes.

In fact, good graphite is not that easy to find. Graphite prices have more than doubled in recent years. Based on recent quotes, a ton of 97% pure graphite goes for over $2,000. A ton of ultra-pure, 99.99% graphite will set you back over $20,000.

China controls 80% of the global graphite market — just like China runs 97% of the world supply of rare earths. But the Chinese are running low on graphite reserves, same story as with rare earths as well. So graphite prices are going up and Chinese quality is going down.

In fact, you may be interested to know that Chinese businesses are working in North Korea, making deals to open and operate graphite mines in the Hermit Kingdom. Really, how scarce does something have to be that you’ll set up shop in North Korea to get it?

Thing is, there’s a lot of big, new demand coming for graphite? For example, one entirely new source of demand — over and above the traditional uses in steelmaking, brakes, etc. — is the global proliferation of lithium ion batteries, such as we see in products ranging from computers to cell phones to automotive battery packs.

“Lithium” batteries actually use about 10 times as much graphite as they do lithium. I don’t know why we don’t just call them “graphite” batteries.

Ultimately, this often-ignored resource holds the key to substantial gains in 2011. Don’t pass up an opportunity to gain graphite exposure for your portfolio.

Editor’s Note: Right now, there are a few pure-play graphite stocks worth watching… First up is China Carbon Graphite Group (OTC: CHGI), a tiny $40 million graphite producer. This is a play that only the risk-hungry investor will want to take on – a relatively low float and considerable risks added from investing in Chinese stocks in this environment mean that this isn’t a play for everyone.

A safer alternative is GrafTech International (NYSE: GTI), an Ohio-based graphite producer. For better or worse, GTI’s size insulates it from many of the risks seen in CHGI.

Sincerely,
Byron King
Resource Analyst for the Penny Sleuth

January 15, 2011

A Bonanza-Grade Opportunity in This Household Material was originally featured in the Penny Sleuth.