NOTE – Please read entire comment before clicking on links for more easy reading. Links given only for more info.
Many thanks to
@tobyjack for her excellent research which assists everyone in the graphite sector to a great extent.
I’ll try to give my own comments on the 6 factors which the 3 experts have considered in their rankings for their article in “Industrial Minerals”.
Before I start, note the table on Pg 1 which seems to be IM’s estimate of graphite price.
@Bobsa - I remember that you were looking for some info on graphite price sometime back. You might want to look at this chart.
Note that higher purity graphite offered a better price than lower purity graphite. They first listed according to purity and then flake size.
In other words, 94-97% purity small flake ($750-800) actually seems to command similar price as 90% purity large flake ($750-850). I’ve previously discussed how TON’s purity could be a great positive going forward.
Another point on Pg 2 – “Plans by LG Chem, Foxconn, Boston- Power, Samsung and, more recently, Apple, to build and devote more resources to expanding Li-ion battery manufacturing capacity are also expected to add significantly to demand.”
Like I mentioned earlier in below link, if demand picks up, then we don’t need to worry about just Tesla as there will be a lot of other companies engaged in the same stuff, and China is definitely going to be one of the leaders.
http://hotcopper.com.au/threads/sol...e-revolution-decade.2508023/?post_id=15205289
Okay straight to the 6 factors now
1) Factor 1 - Deposit size and quality (deposit size, contained graphite and enterprise value)
As expected, TON has got a 10/10 rating on this factor.
They have given 20% rating for size (fig 1 and 2), 30% for grade (fig 3) and 50% for enterprise value (EV)/tonne of contained graphite (fig 4). Note that they have given more importance to grade than size and TON still comes out on top. See figures 1-4 for more info.
Fig 1 shows that TON is way ahead. Fig 2 shows that TON and SYR are so huge that they had to be excluded and separated from other companies for that chart to even make sense for other companies.
Fig 3 shows that we are doing much better than many other graphite companies on grade.
Fig 4 shows how cheap our market cap is. The EV/tonne figure cannot even be seen, illustrating how dirt cheap we are, showing how highly we could rate on peer analysis for potential upside.
This is a major factor as to why we have dominated “factor 1” as we represent such unbelievable value in terms of being dirt cheap right now.
To best of my knowledge, Valence is the only ASX producer right now. This is why I keep saying that
once TON gets to production, current 1-2c price changes are immaterial, in longer run. Just check how much premium a producer gets (Valence) just for being in production.
So this is really how undervalued TON could be and how much potential upside could exist if we just make it to production
I’ve really analysed an article which considered 6 major pitfalls preventing explorers from making it to production, and believe that TON is one of the best placed to get to production.
http://hotcopper.com.au/threads/common-pitfalls-risk-management.2554553/?post_id=15646650
Conclusion – Not only are we no.1 and have received a 10/10 rating but we are also well placed to make it to production and once we do, our Enterprise value has huge potential to soar as show in figure 4
2) Factor 2 – Location (country risk) and logistics
As they mentioned, the projects in Australia, Canada and the US ranked fairly highly, ahead of projects in Africa. This is another reason why companies with projects in Sweden and Australia got a better rating of 9, Tanzania seemed to have received 4.5 and Mozambique seemed to have received 3.
Note that we have been rated very highly overall and just the fact that our project is in Mozambique upset the rating a little bit. Could Mozambique have been rated higher? Maybe, but then I am not an expert in African politics. What I would be concerned about is how TON aims to address the perceived risk.
I think this points is addressed in the Rubicon analysis. Thanks to TJ for her inputs which made that analysis possible
http://hotcopper.com.au/threads/ann...n-mozambique.2544956/page-94?post_id=15565943
Another great comment from TJ not included above analysis which should not be lost is on Emerton/Caravel/Plexus benefit to TON, and that insight should also be read in conjunction with the above
http://hotcopper.com.au/threads/ann...n-mozambique.2544956/page-96?post_id=15566097
Here is some additional analysis on the Moz projects update which contains lot of news of government co-ordination.
http://hotcopper.com.au/threads/ann-mozambique-projects-update.2552002/page-28?post_id=15626869
Conclusion - So while I’m not expert on African politics, IMO, the influence of Rubicon/PacMoz/Emerton, etc. will help to process any red tape, and I believe that we are addressing any perceived Mozambique risk to the best of our ability. Our associations might even be an advantage as compared to other graphite companies in Mozambique or even in the continent of Africa as a whole. So considering all that, I believe that a much better rating than 3 should have been given. But to be fair to the article, the rating seemed to be 3 for all Moz companies and hence it does not appear that further company specific info was considered.
3) Factor 3 - Flake size distribution
Fig 5 is the relevant chart here. The chart seems to analyse proportions of larger flake sizes relative to small and fine graphite flakes. The positives for TON are that we have achieved a
rating of 8 which is very good.
Figure 5 also shows that we do indeed have a
large proportion of large and extra flake.
One factor IMO which should also be considered is the fact that this just takes into account
proportions. Note also as can be seen in “factor 1”, we are miles ahead in terms of deposit size, etc. Thus, if we take into
account actual quantity of large flake vs just a percentage/proportion (which fig 5 and factor 3 seems to be considering), this could be even more positive for TON.
Also note that Ancuabe could be the announcement that shakes up “factor 3,” guys 
But even without, the Ancuabe announcement, we are doing very well and have been rated very high
4) Factor 4 – Product purity
I have also discussed this in earlier comments how TON’s purity could be a major positive in longer run.
4 extracts from this point of the article -
a) “Graphite purity is particularly important for the higher value end uses like Li-ion batteries and is a key determinant in saleability of the product.” -
I have discussed this in the past too. Triton has mentioned this in its presentation in May and AMG presentation also seems to suggest that
purity would be a key factor for batteries. This could be a major boon for us as we could be
best positioned to tap battery demand if that sector picks up in the coming years. I have explained earlier how a boom could potentially happen at some time, and TON definitely seems to be prepared for a boom if it arises
http://hotcopper.com.au/threads/sol...e-revolution-decade.2508023/?post_id=15205289
b) “It is also a key factor in the cost of production, as if further processing is required to make the product saleable, this could dramatically increase the operating cost.” -
This is
very important in the event of a graphite bust. I have also analysed this scenario recently and mentioned that cost would be one of the critical factors
http://hotcopper.com.au/threads/graphite-oversupply-leading-to-price-crash.2550716/?post_id=15609422
I can’t predict how the graphite sector would evolve guys. What I like is that TON is best positioned to be very profitable in a boom and is most suited to survive a bust.
c) “There is also an environmental consideration in whether acid leaching or thermal treatment is needed and whether this may impact the attractiveness of the product for certain applications, such as ‘eco-friendly’ products.” –
Again, this could be a great criterion as the world moves towards being eco-friendly or at least appearing eco friendly. China has also been concerned in recent years of environmental implications. Once more, TON scores
d) “As a final point on this factor, it should be noted that graphite companies are increasingly considering moving further downstream and performing further product beneficiation themselves in order to differentiate their businesses to potential customers and achieve a higher price for the final product. While this involves additional capital and operating costs, the advantages of stronger customer relationships and higher margins are attractive. In this instance, we highlight the intentions of Archer, Flinders, Syrah and Valence and expect that others may be considering the same” –
I feel that considering TON’s close associations with AMG, this could help in further purification if possible. Again, considering that we are going in for vertical integration and have very close relationships with YXGC, we are possibly best positioned for the further product beneficiation, stronger customer relationships,etc. that the article mentioned. So IMO, TON should have received top rating for this point.
Conclusion - Best rating of 8 among all graphite companies. Not too bad guys. We could have potentially received an even better rating as I mentioned above. I’m pleased overall, though.
5) Factor 5 - Product offtake agreements
We have received a rating of 6 which some other ASX companies received.
Could we have received a better rating. You decide guys –
YXGC joint venture / vertical integration analysis
http://hotcopper.com.au/threads/yxgc-joint-venture-analysis.2515920/?post_id=15283877
This is the analysis of TON’s recent vertical integration JVs with YXGC in China and Mozambique
SQZG LOI – funding and graphite offtake – detailed analysis
http://hotcopper.com.au/threads/my-2c-on-sqzg-and-road-ahead.2503216/?post_id=15165592
The mega agreement with SQZG covering equity funding, debt funding, future offtakes etc. If this is finalized, TON could be significantly derisked. Important to note that TON keeps pushing ahead with new deals, offtakes, etc.
SQZG LOI – funding and graphite offtake – short analysis
http://hotcopper.com.au/threads/ann...icanda-hill.2502678/page-134?post_id=15161113
This is a short analysis of the above LOI with SQZG giving a quick overview on the deal
SQZG LOI extension – pros and cons
Well the SQZG deal timeline has been extended. Here are my views on the pros and cons
http://hotcopper.com.au/threads/loi-extension-pros-and-cons.2527630/?post_id=15396933
http://hotcopper.com.au/threads/loi-extension-pros-and-cons.2527630/page-7?post_id=15398892
Here is a superb comment from @toohug01 on the matter
http://hotcopper.com.au/threads/update-from-brad-boyle.2527638/?post_id=15397017
Analysis of TON’s first offtake with YXGC vs SYR’s offtake
http://hotcopper.com.au/threads/recent-movement-and-road-ahead.2486301/page-85?post_id=15039210
I’ve gone in detail analyzing offtake agreement of both companies. TON’s appeared to much better on most metrics. Important to note that TON has come out with much more good news since then including SQZG deal, YXGC JV’s etc.
Conclusion – I think we could have received a better rating guys. We have done remarkably well on this factor, and I believe a better rating could have been warranted.
The article mentions that it should be noted that the value attached to some of these agreements at an early project stage should treated with caution, as they are likely to contain caveats or ‘get-out’ clauses, contingent on final product qualification from pilot or full-scale plant production. So, it is possible that the delay with SQZG caused some uncertainty and we probably received a lower rating than we could have received. Nevertheless, no ASX company has received a better rating than us. So, once, the values of our offtakes actually come to fruition, it would represent additional upside for us in terms of valuation.
Factor 6 - Timeframe to production
TON got a 4 out of 10 like many ASX companies. Could it have done better.Maybe?
http://hotcopper.com.au/threads/amg-the-critical-minerals-company.2556880/page-28?post_id=15682608
Check out point 18 and 20 from my recent AMG analysis above. Straight from the horse’s mouth guys – AMG itself is suggesting that Ancuabe operations could commence in Q2 2016.
So once more huge potential upside as this is an additional area that we are already doing well right now.
Final Conclusions
Firstly, congrats to all the ASX companies which scored well on different metrics. Well done.
The purpose of my above analysis was not to compare any company (and I have hence tried not to name any other company) but just to see if TON could have scored better on any criterion and/or if any potential risk has been well addressed by TON.
A lot of the info in that article has not come as a surprise to TONners as we have already known this stuff.
It was nice to get an evaluation of the graphite sector from a 3rd party, and I’m very pleased to see that TON have received a very high rating on all metrics. Thanks for the article again TJ, and thanks to the writers of that article for a very well written article. This is definitely one of the most informative graphite articles I've read till date.
Risk always exists folks. As the market feels a company is derisked, it progressively assigns a higher market value. Key to great returns of course is getting in early. TON has always appeared to have a great risk -reward ratio with much lower risk for huge potential rewards in future. I continue to be impressed with anything that I read about TON, and it seems that TON is receiving more positive glances by everyone as time passes by
Cheers
