The Next Big Thing is Graphite: Does Sri Lanka have a fighting chance?

Written by Vagisha Gunasekara

In 2012, The Critical Metals Report interviewed Jack Lifton, a Senior Fellow in the Institute for the Analysis of Global Security about the next generation metals and minerals. The question posed was: “In the last five years, investors discovered lithium and the rare earths. What will be the next big thing?” The response was GRAPHITE.  

Carbon rich Sri Lankan vein graphite is the purest natural graphite on the planet. It accounts for less than 1% of the world’s graphite output. Though finite, Sri Lanka has many vein graphite reserves. Furthermore, the National Institute of Fundamental Studies (NIFS) has developed cutting edge innovations that should place the country in an advantageous position in the global graphite industry. However, there are impediments to achieving that goal. To understand these better, it is important to first look at the global market demand for graphite, how Sri Lanka’s graphite industry evolved to what it is today, and the geopolitical powers and interests at play in this space.

Uses of Graphite

This unique mineral that is high in electrical and thermal conductivity, has traditionally been considered a pedestrian industrial mineral used to make pencils, golf clubs and tennis racquets. However, the demand for graphite in steel and automotive industries, where the mineral is traditionally used, is increasing by 5% each year, causing a surge in graphite prices. Moreover, new applications such as lithium-ion batteries, fuel cells and nuclear and solar power all use graphite. The lithium-ion battery, widely used in the consumer electronics industry in devices like mobile phones, laptops and tablet computers, is one of the fastest-growing uses of graphite. 

Fuel cells, known to be a clean, low-cost efficient technology, are becoming popular as more and more countries opt for low emission energy technologies. General Motors has invested more than USD 2 billion in R&D on automotive fuel cells, and BMW and Volkswagen both own stakes in SGL Carbon SE, the world’s largest maker of carbon and graphite products. Graphite is also a key component in cutting-edge nuclear reactors, in ultra-high-speed microprocessors, and many other applications that are currently being researched by the Defense Advanced Research Projects Agency of the U.S. Department of Defense. 

Graphite

There are three types of natural graphite: flake, amorphous, and vein. In 2019, the total worldwide production of graphite amounted to 1.1 million metric tonnes. Turkey has over 90 million metric tonnes or the largest natural graphite deposits in the world. China, with the second largest graphite reserves in the world, is also the leading producer of the mineral. In the 1990s, China exported large volumes of raw graphite to the global market which subsequently caused graphite prices to plummet. However, in recent times, China is no longer selling this resource cheaply, as they move to graphite-based value-added products and other uses highlighted by the “Made in China 2025” programme. With China’s ambitious plans to achieve carbon neutrality by 2060, it is likely that their own graphite is being used to develop renewable energy technologies. 

Graphite

Global Graphite Production and Demand

Graphite mining and processing is limited to a handful of countries in the world, and in 2019, China, Brazil, Madagascar and Canada were the leading producers. This unique mineral that displays properties of both metals and nonmetals, is on the cusp of explosive market growth. According to World Bank projections, graphite demand will increase by 500% between 2018 and 2050. The global graphite market is expected to reach USD 21.6 billion by 2027. With demand for graphite growing approximately 50% per year and prices for this prized crystalline allotropic form of carbon reaching USD 2,500-3,000 a tonne, the future for graphite production and innovation in this sector is excellent. The global electric vehicle uptake is likely to drive 700% of the graphite demand growth by 2025.

Two professors from the University of Manchester – Kostya Novoselov and Andre Geim – were awarded the Nobel Prize in Physics for their work with “graphene”, single-atom-thick sheets of carbon. Hailed as the only two-dimensional material known to mankind, graphene has exceptional qualities that make it a building block for other graphitic material. Therefore, graphite can be explained as a mineral composed of many layers of graphene. Its high electron mobility is 100 times faster than silicon; it conducts heat twice as better than diamond; its electric conductivity is 13 times better than copper; it absorbs only 2.3% of reflecting light; its tight-knit structure does not allow even the smallest atom to pass through a defect-free monolayer graphene sheet; and its high surface area of 2,630 square metres per gram means that one can cover an entire soccer field with less than 3 grams of graphene. 

Hundreds of companies, including IBM and Intel have invested in graphene research, and in 2012, the British Chancellor of the Exchequer George Osborne committed USD 80 million towards it. As Graphene conducts electricity at a rate 30 times faster than silicon, it is being studied for use in ultra-high-speed microprocessors. IBM is exploring whether graphene’s magnetic traits will be useful in developing medical devices to detect diseases in their early stages. It is also working with the U.S. Department of Defense to investigate whether graphene can improve mobile phone efficiency. Nokia is testing the use of graphene in touch screens, particularly in foldable phones. In collaboration with South Korea’s Sungkyunkwan University, Samsung researchers have created a flexible touchscreen from “printed” graphene, which can be integrated into clothing. Graphene is generally commercially synthesized from graphite, the soft form of pure carbon found in the natural environment. 

The main technology of the future for which graphite will be essential is the rechargeable lithium-ion battery. The lithium-ion battery industry is growing 30-40% annually as hybrid and all-electric vehicles, consumer electronics and power tools switch to lithium-ion from other inferior battery technologies. The current annual graphite production of 400,000 tonnes will not be sufficient to cater to the future demand. Where will this new production of graphite come from? 

Enter Sri Lanka’s මිනිරන්

Graphite mining in Sri Lanka has a history dating back to the Dutch colonial occupation of the country. The first mention of graphite deposits is mentioned by the Dutch Governor Rijckloff van Goens in 1675 in a correspondence to his successor Joan Maetsuycker. The earliest records of graphite exports are in 1825, and the first commercial shipment had taken place in 1829 to Joseph Dixon, founder of the American Crucible Company. 

Sri Lanka’s graphite exports peaked during the First and Second World Wars. During the first five decades of the 20th Century, graphite extracted from nearly 6,000 small scale mines exported 35,000 tonnes per year. By the turn of the 20th Century, graphite mining was a significant source of wealth for an emerging class of elite, some that later went on to play significant roles in the country’s transition from colonial administration to local rule. The Kahatagaha-Kolongaha mines were operated by the Senanayake, Kotelawala and de Mel families. Entrepreneurs such as Don Charles Gemoris Attygalle, Don Spater Senanayake and Deunge Disan Pedris were notable individuals that accumulated considerable wealth due to their ownership of large mines. In fact, members of these families such as Sir John Kotelawala, and Dudley Senanayake who proceeded into electoral politics, established their constituencies in the mining areas where their families had influence. 

Graphite

After WWII, and the British retrieval from Ceylon, many of the graphite mines located along the country’s “graphite corridor” were abandoned. The graphite industry in Sri Lanka was nationalized in 1971 with the takeover of Bogala, Kahatagaha and Kolongaha mines. Other smaller pits that were previously in operation were subsequently abandoned due to the falling global demand for graphite. Furthermore, after the French discovered graphite in their colony of Madagascar in 1912, low-cost Madagascar graphite became popular, and production in countries like Sri Lanka gradually declined. Currently, on average, Sri Lanka produces 4,000 metric tonnes of graphite annually. The world’s largest producer of graphite at the beginning of the 20th century, Sri Lanka’s production now account for 0.4% of total global production. 

Global graphite production by country

Graphite

In 1990, under the World Bank Public Sector Restructuring Programme, the Government of Sri Lanka privatized the Bogala and Kahatagaha-Kolongaha mines, the former under Bogala Graphite Ltd, a limited liability company owned by Graphit KropfmUhl GmbH, Germany, and Advanced Metallurgical Group (AMG), Netherlands, respectively. The Kahatagaha-Kolongaha mines were re-nationalized and are now wholly-owned by the Government of Sri Lanka. Ragedara graphite mine is operated by Sakura Graphite Pvt (Ltd) in partnership with the Canadian Elcora Resources Corp. 

Map of Sri Lanka’s graphite mines

Graphite

Raw Vein Graphite Exports

Sri Lanka is the only country in the world to produce vein graphite. “Vein” graphite is the rarest and most valuable form of graphite due to its high level of purity. It accounts for less than 1% of the world’s graphite output. Due to its high degree of crystalline, vein graphite has slightly higher thermal and electrical conductivity, and has the highest degree of cohesiveness among all natural graphite materials. This means, vein graphite is easy to mould and can be formed into solid shapes without it having to go through an expensive treatment process. As such, higher grade graphite results in low production costs. Despite the promise of vein graphite, Sri Lanka remains a colonial economy that continues to export non-value-added raw vein graphite, earning only a fraction of the potential in the global market. 

Consider the lithium-ion battery as an example. Battery-grade graphite, also known as spherical graphite (SpG) goes into making the anode in lithium-ion batteries. Currently, battery-grade graphite is made primarily from synthetic graphite. Synthetic graphite tends to be 10 times the price of natural graphite. Natural graphite, however, has to be subjected to an intense chemical treatment to reach 99.95% purity, thus increasing the cost to reach high purity levels. Therefore, producers tend to prefer synthetic graphite due to convenience and relative cost. Vein graphite, the type found in Sri Lanka, with relatively high spherical quality, would be a more cost-effective substance that could be used to make battery-grade graphite. 

Graphite

Patented Graphite Related Sri Lankan Innovations

In 2021, Econsult Asia Pvt (Ltd) conducted a Graphite Market Analysis & Valuation Report for the National Institute of Fundamental Studies (NIFS), Sri Lanka, based on NIFS’ patents for the modification of vein graphite into battery-grade. The NIFS research project on graphite was conducted by a team of scientists led by Research Professor Ashoka Kumara who specializes in material processing and device fabrication, Research Fellow Athula Wijayasinghe, who has expertise in nanotechnology and physics of materials, and under the overall leadership of Professor Saman Senaweera (former Director, NIFS) and Senior Professor Ranjith Premalal de Silva (Acting Director, NIFS). 

Three innovations by the NIFS : National Institute of Fundamental Studies  has secured three patents in this regard: 1) chemical oxidation of purified Sri Lankan vein graphite for anode of rechargeable lithium-ion battery (SL patent #18728), 2) method for purification of Sri Lankan vein graphite by acid leaching to ultra-high purity (SL patent #18729), and 3) lithium carbonate coated Sri Lankan vein graphite for rechargeable lithium-ion battery anode (SL patent #18730). 

NIFS has developed a cutting-edge chemical solution that can be used to separate vein graphite from the excavated rock. This solution will be used to extract graphite from waste discarded by graphite mines. And further experiments are currently underway to use the proprietary chemical solution to extract graphite directly from the mine. 

Sri Lankan Super Expanded Graphite can be globally price competitive: Furthermore, NIFS has developed “super expanded graphite” to a double layer of graphene, the atom-thick honeycomb sheet of carbon atoms. Their method of extracting graphene from graphite has increased the yield of graphene four-fold, which in turn makes Sri Lankan high-purity graphene price competitive in the global market. NIFS has also developed battery electrodes and an oil absorbent using the super expanded battery graphite. 

Econsult Asia considered the vertical integration of the graphite supply chain from mining to manufacturing of two products that the NIFS already has capability to make – coin cell batteries and battery pouches. Several assumptions were made to conduct the valuation, including that Sri Lanka’s graphite deposits will last for 40 years with the annual production of 2,000 tonnes of raw graphite. The expected annual production capacity is 26 million coin cell batteries and 20 million battery pouches. An average operating profit margin of 2% over sales revenue was considered in line with that of global battery manufacturers such as Maxell and Panasonic. The project considered an investment of USD 70 million for mining and processing and USD 40 million each for coin cell battery and battery pouch manufacturing plant. As such, a total investment of USD 150 million was considered. 

Econsult Asia concluded that the vertical integration of the graphite supply chain from mining to manufacturing coin cell batteries and battery pouches alone would, by 2030, generate a free cash flow of USD 2.6 billion, and a discounted cash flow of USD 1.6 billion to the firm. The valuation projected a net present value of USD 2.1 billion at a 55% internal rate of return. The valuation also projected a 40% saving per tonne of graphite, and an overall cost reduction of 5.17% due to the use of NIFS innovations. 

What’s Stopping Us?

Despite the development of cutting-edge technologies by the likes of NIFS and possibly other institutions such as SLINTEC, Sri Lanka is not moving forward in processing graphite in ways that could double or triple our current earnings from this valuable mineral. While usual explanations such as ‘the lack of political will’, ‘corruption’ may well be in effect, there are deeper, underlying factors beyond the national level at play. 

The criticality and potential scarcity of graphite has been identified by both the United States and the European Union, and each declared graphite a “supply-critical” mineral. In 2012, the British Geological Survey ranked graphite right behind the rare earths and substantially ahead of lithium in terms of supply criticality. What this means is that there is much more to graphite than pencils. 

Few multinational companies hold exclusive mining rights: A handful of multinational companies have gradually entered the graphite mining industry in Sri Lanka. Raw graphite, mined at a cheap cost here, is exported to countries like the United States, Germany, South Korea, where the value-addition takes place. Through various partnerships, they have increasingly acquired mining rights to graphite deposits in Sri Lanka. In 2019, Ceylon Graphite Corp, a Vancouver-based Canadian company listed on Canada’s TSX Venture Exchange, created a subsidiary – Sarcon – that acquired a license for K1 graphite mining project in Sri Lanka. 

The license is the highest category license in Sri Lanka and grants the company exclusive rights to mine, process and trade in graphite mined within the project area. The company holds exploration rights over a land package of around 120 square kilometres in Karasnagala, Gampaha District. This land package has a rich past, as it represents the majority of the known historic graphite resources in Sri Lanka, with production dating back to the 1920s. Royalties of around 7% of the export of graphite will go to the Government of Sri Lanka, while super profits will be accumulated by Sarcon and Ceylon Graphite. 

Geopolitical powers at play may snatch the remaining mines away: There is also good reason to make a link between the controversial Millennium Challenge Corporation (MCC) agreement and Sri Lanka’s graphite deposits, and other mineral reserves. The area covered by MCC’s Colombo-Trincomalee corridor has uncanny resemblance with the graphite corridor of the country. Natural graphite is not currently extracted in the U.S., and will take 10 years to reach production. Therefore, American manufacturing industries are entirely dependent on foreign sources for the raw material. Foreign dependency on material inputs is seen as risky to the U.S. Economy and the Defense sector in particular. These materials include oil, graphite and other minerals. Hence, the U.S. in recent years, have turned attention to materials like rare earth minerals, vanadium, gallium and natural graphite as major preoccupations of their national security and foreign policy. In 2017, President Trump issued an executive order for the development of a federal “critical minerals strategy” to reduce the risk posed by foreign dependence on 35 minerals. Signing the MCC agreement would have allowed U.S. companies to mine graphite in Sri Lanka without compromising their own graphite reserves. 

Lessons from Bolivia’s Coup: Bolivia’s once celebrated President Evo Morales was overthrown in a military coup on November 10th, 2019. The country has suffered a string of coups, executed by the military and the oligarchy on behalf of transitional mining companies. Initially, these companies mined tin. Tin is no longer Bolivia’s kryptonite. It is lithium- an essential mineral used in the production of the electric car. Bolivia has 70% of the world’s lithium reserves. However, the country has struggled to raise investment to develop lithium reserves in a way that brings wealth back into the country for its people. 

Over 13 years of Morales’ Presidency, he tried to build a different relationship between his country and its resources. He was not in favour of transnational mining firms benefiting from Bolivia’s resources. The attitude of the Morales government toward the transnational firms resulted in many adverse consequences. Many multinational companies took Bolivia to court. Morales government’s decision to partner with Chinese firms stemmed from the difficulties of striking fair deals with Western transnational companies. With this, the Morales government walked into the Cold War between the West and China. The 2019 coup against Morales cannot be understood without taking into consideration geopolitical realities. 

In fact, the tweet (below) by Tesla’s Elon Musk saved by the author at the time of the coup, speaks volumes about the power wielded by Western companies on minerals that belong to the people of developing countries. Tesla (United States) and Pure Energy Minerals (Canada) were two Western transnational companies that showed great interest in having a direct stake in Bolivian lithium. But their business prospects were intercepted by parameters set by the Morales government. Evo Morales was in the way of the occupation of lithium fields in Bolivia by non-Chinese transnational firms. Hence, he had to be overthrown. It is hardly surprising that Tesla’s stock rose astronomically after the coup. 

A National Industrial Policy: need of the hour

The story of vein graphite in Sri Lanka reveals two positive factors. One, Sri Lanka still has untapped mines of vein graphite, which is projected to be highly sought after in the next few decades. Two, as was illustrated by the scientific achievements of NIFS, we have the scientific know-how and the capacity to develop graphite from raw material to value-added goods. What we need is a comprehensive national industrial policy and a long-term plan to bring Sri Lanka up-to-speed with industrial development. Such a policy must also ensure that licenses for the remaining mines are granted in accordance with a new social compact between the investor and the state, in a way that profit sharing from mining is done in the best interest of the Sri Lankan people. 

There is optimism about the draft National Industrial Development Policy, particularly for graphite, given the thrust on fashioning our industrial production in line with the global trend towards a green economy. It may be challenging for the state alone to raise capital to develop graphite-based industries in Sri Lanka, or for NIFS discoveries to realize their full potential. Partnerships with local or foreign investors may be the pragmatic measure to adopt, however, keeping in mind two things. One, mineral deposits such as graphite are Sri Lanka’s assets; hence they should be used for the development of the Sri Lankan people. Two, as long as Sri Lanka exports raw graphite, we will remain a colonial economy, dependent on multinational companies that will accumulate profits by exploiting our assets. While there may be numerous obstacles to Sri Lanka developing our own graphite-based value-added industrial production, it may be the only way forward for our country. 

Start typing and press Enter to search