...Interesting take on this graphite minnow from Next Investors which I quite like.
Sarytogan Graphite (ASX:SGA) holds 100% of a huge graphite project in Kazakhstan, strategically located between Europe and China.
SGA has the highest grade graphite resource of any ASX listed graphite company. It is also the second largest contained graphite resource on the ASX. What is the macro theme?
Graphite is a critical raw material used in the manufacturing process for lithium-ion batteries - it cannot be substituted in battery anodes.
The battery market is rapidly growing, with graphite demand expected to be five times greater than current levels by 2050.
Consequently graphite is now listed as a “critical mineral” in the US, EU, India, Japan and Australia. Our long term bet
(NOTE: This is what we think the ultimate success scenario looks like for this particular Investment over the long term (5+ years). There is a lot of work to be done by the company to get to this outcome and obvious risks to which need to be considered, some of which we list below).
Given this graphite project’s strategic location in between China and Europe, we hope that if SGA proves out the size and economic extractability of the resource, it will generate interest from major mining companies, leading to a takeover of SGA for $1 billion+.
Highest grade graphite resource on the ASX
SGA’s graphite project has an inferred JORC Resource of 209Mt at a grade of 28.5% TGC (total graphite content) for 60Mt contained graphite. This makes it the highest grade graphite project on the ASX.
Second largest graphite resource on the ASX
The project’s 60Mt of contained graphite resource ranks second only to graphite producer Syrah Resources (capped at $880M).
Low market valuation relative to its graphite peers
Based on its inferred 60Mt contained graphite resource, SGA currently trades with an enterprise value/tonne of contained graphite resource of $0.74/tonne. This compares with graphite major Syrah Resources which trades at $5.19/tonne and graphite developer Renascor which trades at $48.37/tonne. We expect this gap to close as SGA’s market cap rises with upgrades to the classification of its resource and progresses to mine development studies. (Note: the EV/contained graphite (A$/tonne) calculations are based on closing prices as at 21 July 2022).
Project located in Kazakhstan - an established mining jurisdiction between EU and China
Kazakhstan’s mining legislation is based on Western Australia’s mining code. The country is the biggest producer of uranium in the world producing ~45% of global supply in 2021. Companies like Chevron and Exxon Mobil own and operate projects in-country. Kazakhstan’s unique location also presents itself as a future supplier of battery metals to downstream users in Europe and China.
Tight capital structure
There are only 132 million shares currently on issue. 54% of SGA’s shares are escrowed (mostly for two years from the IPO date). This includes the 39% held by founder and Technical Director Dr Waldemar Mueller. There is therefore a limited number of shares available in the event that there is increased demand - we think the SGA capital structure is leveraged to growth.
Extensive Kazakhstan experience and expertise
Technical Director and major shareholder (owning 39%) Dr Waldemar Mueller brings extensive in-country relationships to SGA. This is a big positive for an ASX listed company operating in Kazakhstan. We think Dr Mueller will be able to navigate doing business here, and given his large shareholding, is incentivised to deliver success for SGA shareholders.
