I highly recommend Talga investors take a look at the terms of the offtake and financing deal QPM struck with General Motors this morning and it help contextualise why Mark may have opted to pursue a more traditional cap raise via insto's and retail.
Disclosure: I do hold QPM shares since 7 cents, but do not actively write on their threads - so this is not a cross promotion, but rather a peer comparison.
Like many shareholders, I was somewhat disappointed when Mark announced a cap raise at $1.10 to into's and retail, given he has been so careful for over 10 years to minimise dilution and we are so close to the inflection point with the Big 3 - Permits/Binding Offtakes & Financing all due to be finalised in the next 6 months. I thought there may have been a more creative funding solution he may have been able to negotiate given the advances stages of customer qualification and interest in graphite/anodes spiking recently.
As others have already stated, this funding was absolutely necessary to raise funds to give Talga a position of strength to negotiate binding offtake deals with major OEMs and the inherent uncertainty when permits will be granted and therefore EU financing that is conditional on the successful granting of the permit.
Why then did Mark decide to go with a traditional cap raise instead of a more creative solution such as that announced by QPM this morning, which includes an equity stake of up to $108m at a 20% premium to the last closing price and a long term offtake deal with a major OEM. Whilst on paper, it sounds fantastic and will generate a lot of news headlines and credibility to QPM's project and business model.
I suspect the reason Mark didn't pursue this option is the terms the OEMs would have demanded on Talga would not have been in shareholders long terms interest. Take a look at the terms GM negotiated with QPM (in bold below), which included the rights to all uncommitted Ni & Co for the first 15 years of Stage 1 and the entirety - 100% of Stage 2!! Whilst it is fantastic to have such a eager customer who wants to purchase all of your product for the next few decades, what this agreement loses is the ability to have competitive tension between customers seeking your product.
Through this strategic collaboration, GM is granted the right to purchase all uncommitted nickel and cobalt sulfate produced in the first 15 years of Phase 1 of the TECH Project. Furthermore, by undertaking an additional investment when QPM reaches a Final Investment Decision: • GM’s offtake rights for Phase 1 are extended to life of project; and • GM is granted the right to purchase 100% of nickel and cobalt sulfate under a Phase 2 expansion of the TECH Project.
Take a look at Pilbara Minerals and the prices they are getting selling their uncontracted spodumene into the spot market - record after record is being broken price wise as customers are desperately scrambling for the product. If Graphite is indeed going to follow Lithium (aka Lithium 2.0) as many are now forecasting, it would be strategically wise to have a range of Tier 1 customers and keep some of the planned production available for future spot sales to maximise returns and strategic corporate interest in Talga as a business. This is EXACTLY what Mark has stated in recent announcements following the ACC deal.
Therefore, I believe Mark has opted to raise funds via the traditional capital markets as the offtake terms ACC or other OEMs would have demanded too greater proportion of Talga's future production relative to the cost of capital raised and future profits/returns. Once you understand this context, it makes more sense why he pursued this finance strategy. We just need to be reminded of the sweetheart deal Tesla did for themselves with Syrah locking in a very low price for their future anode production in the US.
TLG Price at posting:
$1.11 Sentiment: Buy Disclosure: Held
(20min delay)