Interesting post by EvilPlum on London board Personal thoughts:...

Interesting post by EvilPlum on London board

Personal thoughts:

1) This is the first time the new management themselves have claimed a month of breakeven, followed by a month of small profits, which is where I thought we would be at this stage, so all very encouraging. The drivers for this are increased production, (going 24 hours), plus a significant % reduction in Cost of sales, as follows:

The accounts for 12 months to 31/12/14 and 6 months to 30/06/15 both show Sales of circa £150K and both show Cost of Sales of circa £180K, but the RNS gives the three months as circa £190K for both figures, so by moving to 24 hour production they have achieved a significant % reduction in cost of sales. The Finished goods inventory addition of £95K for the three months implies a lag between production and sales, but you would expect this given the geographical distance between the site and its markets, and that we are now generating regular monthly production, rather than production that only previously occurred in sporadic phases of stop / start.

Targeted production and sales in excess of 400 tpm from January 2016 seems a perfectly realistic target based on progress so far, and it should then just be a case of tweaking the plant over the following weeks and months to get it to achieve its 6K target for 2016. That means going over 500 tpm later in the year, but the plant is capable of that, as I have always regarded the 6K target as something they can blow out of the water, rather than something set in concrete by limits to capacity.

2) The detailed JORC 2012 compliant resource report is in preparation for release in January, so there is going to be a substantial upgrade on reserves at that time, which can only add value to the company, so the sooner the better.

3) The new news for me in the RNS is the discussions with Tirupati to co-operate in the establishment of an Indian based joint venture to develop a flake graphite value addition facility to process graphite into a range of intermediate products. The further up the production chain you move, the more value you add, so this is intriguing, and if we are moving beyond being simply a producer of the raw material to making enhanced materials that utilise the raw material, then the implications to the bottom line are obvious. The various valuations predate this development, so this JV represents something new that hasn't yet been priced in.

The RNS tells us that large flake graphite samples from Stratmin's present operations have been successfully tested by Tirupati in the manufacture of exfoliated flake graphite, so applications are being pilot tested that can presumably be scaled up in due course. Given that Tirupati are driving this, as it's their pilot, it shouldn't be a distraction to Stratmin at this stage, in terms of time, effort or cost, but it's a logical step for them to investigate, so more news will follow