22 April Far East Capital weekly commentary

Hi All, the latest Far East Capital commentary,

Graphene advancements

The announcement by Talga that test work shows it can increase thermal conductivity in concrete through the addition of graphene is positive for the graphene sector generally, but should not surprise any of the graphene watchers out there in the market.

We have seen Eden Innovations rise from $10m to better than $300m based on carbon nanotubes in concrete, achieving 50% improvements in performance in a number of parameters. The scientists tell us that graphene can do even better.

Talga is saying it can get 30% better conductivity by adding a blend of its primary ore, and graphene. Thus it is talking about low and high tech together. It is saying that it can sell its ore (either as run-of-mine or with only limited processing) as an additive to the concrete mix. The economics of this will depend upon proximity to concrete mixing plants, as transporting the material long distances would not be very profitable. The question to ask is whether selling the ore in this manner is better than turning it into graphene and micro graphite, and whether other graphite deposits in Sweden are equally suitable for the the mixing with concrete. The usual logistical and competitive parameters need to be assessed.

The market capitalisation of Talga has increased to $135m on the announcement of this news, making it one of the best performing junior mining stocks in recent months, after two years of ordinary share price performance. Given that it has previously announced that it needs $30m for its processing plant, are we seeing the groundwork being laid for an equity issue to fund its development? Time will tell. At the end of the day the market capitalisation must always align with the earnings potential.

Relating this information back to a competing graphene stock, First Graphite, it is worth noting the disparity in the market capitalisations. Talga is at $120m while FGR is only $32m. Yet, anything that Talga can do on the graphene front FGR can do better, at lower capex and opex. Any advancement that anyone makes in the applications for graphene will benefit the whole graphene sector, but FGR will always be the lowest cost producer due to its very high starting grade of graphite and its low capital cost. We have a rising tide in the graphene sector and FGR is well placed in the lowest cost decile.

http://www.fareastcapital.com.au/imagesDB/newsletter/WeeklyComm22April2017.pdf