When I first looked at QGL I was impressed that the share price went from 15c to 70c during 2022 at a time when other graphite miners share prices had stagnated, then in 2023 when the global graphite market collapsed and the share price of all other graphite related companies (there are 26 on the ASX) plummeted QGL stayed steady. This must be a company with something special to offer or so I thought. However after a quick look at what had been achieved it became evident that the QGL share price has been driven by something other than market fundamentals. After looking at the financing prospects which I posted about earlier I decided to look a bit deeper into what is driving this company.
Definitive Feasibility Study
A quick rundown on the timeline leading up to the current DFS :-
No DFS has ever been communicated to shareholders. In March 2021 it was decided to just rename the reports already completed in 2019 despite all of them clearly stating that they were only preliminary reports, none of them were authored by Lycopodium. Again in late 2023 instead of a DFS there was a “Value Engineering Assessment” and a “DFS Financial Update” which I would submit are of such low input energy the basic construct of them was probably produced in a single afternoon’s work. Despite the proposed doubling of processing capacity and four years of cost increases all that has changed from the 2019 Mine Plan is a couple of lines in two spreadsheets, somehow most of the capex and opex costs have not changed at all.
A DFS would normally include a detailed risk assessment including mitigation strategies, environmental impacts, ESG considerations, a discussion of why the previous two iterations of the mine failed, infrastructure requirements, project schedule, plant and personnel requirements, legal obligations, funding options, intended market, marketing approach, none of which is addressed in the Mine Plan. How any prospective financier is going to take Quantum seriously based on the current published documents is beyond me.
Achievements since the 2019 “DFS”
As all the directors have full time jobs and there are no other employees progress in developing the project has been rather slow. Uley 3 Maiden Resource Estimate was produced and Uley 2 & 3 Extension Program is planned. This is despite Sal Catalano stating in his Feb 2022 interview that he considers expanding resource estimates to be “a misallocation of shareholders funds”.
An offtake agreement with MRI Trading was negotiated in July 2022, a seemingly quite positive achievement and a necessity to achieve financing, and the only real positive action towards production, although what the target market is has since become rather confused.
Despite this no actual engineering design work seems to have been carried out or announced as planned beyond drawing up a process flow chart.
The main task of the directors for the past four years in respect of their duties to QGL seems to have been to get together each three months to craft a compelling Quarterly Activities Report that suggests something positive is occurring.
Sunlands Power
This is the project that was promised to be the main value driver for QGL. Sunlands has common directors and lives in the same office as Quantum. It has no track record of having achieved anything at all. There are no joint venture accounts and no need for them when one side is responsible for most costs and must contribute 100% of the costs of a manufacturing plant but concede 50% of any future profit.
(Appendix 3 - The Quantum - Sunlands Partnership)
Long Duration Energy Storage is most definitely an area that is going to become increasingly important, there are more than a dozen different technologies vying to become part of the required solution. There are a multitude of companies vying for this market and they all differ from Quantum in that they have a) employees, b) factories, c) expenditures on R&D, engineering and planning. The main problem with Reserve Storage LDES is by definition it is a backup for when renewables (wind and solar) cannot provide enough power and financing for these projects is extremely difficult to obtain because the revenue streams cannot be adequately predicted. While these sorts of projects can often be proven to be technologically feasible in small pilot plants scaling them up to commercial size is notoriously problematic, the investment world is littered with failed companies who ran out of money before achieving their goal.
An EPC contractor was to be appointed in 2021 (ANN : 29 Jan 2021) and key vendors to be selected in 2023 (ANN : 28 Apr 2023) but engineering work does not so far appear to have progressed beyond some design drawings.
The only way any LDES project can get underway is with government backing and ARENA has already rejected Sunland’s application for funding (ANN : 5 Apr 2022). It is difficult to see how to advance this project from here.
Briefing to US Agencies - 4th March 2024
A battery anode material plant in the USA
I doubt there was a single Quantum shareholder who looked at this announcement and took it seriously. To think Eximbank or the US DOE is going to take this back of the envelope presentation seriously is laughable. Just look at the time, effort and cost put in by SYR to see what is required to succeed in this arena. But it supposedly presents the picture to shareholders that the directors are doing something so a good move from that perspective. After stringing the European Green Bonds story along for three years this should provide something to put into the Quarterlies for the next two years.
Chimaera Capital Limited
Chimaera and their associated investors have largely financed the whole show so how are they getting on. Better than you might imagine, here is a history of Chimaera Capital Limited shareholdings:-
23 July 2018. Refinancing through DOCA. 39,034,106 shares. Cost $3,442,808 (*1)
2021 / 2022. Conversion of Fees. 11,281,000 shares. Cost $1,020,036. (*2)
5 Aug 2022. Exercise of Free Options. 18,588,539 shares. Cost $0. (*3)
Total Shareholding 7 December 2022. 68,903,645 shares. Cost $4,462,844
8 Dec 2022. Offmarket sale to associates 40,990,315 shares. Sale $24,594,189 (*4)
5 Aug 2022. Sale of free options. 9,982,890 options Sale$5,989.73 (*5)
31 Dec 2023. Shares currently held 28,600,000. (*6)
(*1) Ann 27 Jul 2018. (*2) Anns 9 Jun 2021 & 8 Dec 2021) (*3) Ann 5 Aug 2022
(*4) Ann - Form 604 8 Dec 2022. (*5) Ann - R Pattinson 5 Aug 2022 (*6) Ann 13 Dec 2023
So Chimaera are looking sweet, what about their associated investors? From an (admittedly limited) analysis of top 20 shareholders over the past five years the ones who got shares through the 2018 DOCA (at a cost of $0.00252, revised to $0.0882 after the 1:35 consolidation) are steadily monetising their investments and exiting the register. Obviously the more new investors that can be attracted the better for this scenario and increasing the number of shareholders from 990 in 2020 to 1826 in 2023 is certainly facilitating the process.
Disclaimer
Everything I know about this company I have gleaned from company announcements listed on the QGL website and a single underwhelming 2022 interview with Sal Catalano available on youtube. Anyone can access the same facts as I did and is entitled to come to a different conclusion.
I suspect there is at least one contributor to this forum who knows a lot more than me about what is going on with this company, and what the possible end game is, and I welcome their learned rebuttal to the proposition that this company is no more than a carefully crafted house of cards.
