An interesting episode of 4 Corners on ABC Television this week...

An interesting episode of 4 Corners on ABC Television this week about Chinese dominance in the EV, Solar Panel and battery industries that is worth watching. The Chinese view presented on the show was that there is no production overcapacity in these industries as claimed by the West, just future strategic planning that the US and Europe are not capable of.

Coincidentally there is a compelling contrary view posted in a Foreign Affairs magazine article this week titled “China’s Real Economic Crisis - Why Beijing won’t give up on a failing model”. The writer claims that the current Chinese economic model in those industries is on a path to failure and if USA and Europe persist in trying to compete with it, that will fail also and it will be a race to the bottom that neither side will win. He contends that US tariffs are a lazy answer to the problem that will lead to less future innovation and economies of scale and will not benefit US consumers at all.

I don’t think anyone knows how this battle will finally play out but in the meantime the exChina graphite industry generally and battery anode manufacturing in particular is caught in the middle and not progressing at all, while the further downstream players (battery manufacturers and EV manufacturers) try to understand it all. As Talga’s quarterly points out 99% of spherical graphite and 93% of battery anode currently comes out of China, the other 7% is manufactured by one company, POSCO in South Korea.

Despite all the grants, loans, subsidies and tariffs being thrown at the industry every other prospective anode producer is struggling.

Posco Future M

Posco currently manufactures battery anode material in Sejong using precursor material sourced from China. The capacity of that plant is 74ktpa although actual production is not disclosed. In 2022 they announced a new 80ktpa factory in Pohang to make USPG and anode using graphite partially sourced from Syrah in Mozambique. From Syrah’s March quarterly :-

However, it is my understanding that FID has not yet been achieved on this new project and it has been downsized and delayed out beyond 2027 as evidenced by Posco’s website :-

Westwater Resources inc

This company has had a small qualification plant operating for several years in Kellyton, Alabama and commenced building a 12.5kta commercial scale plant in 2022 however construction was ceased in June 2023 when funds ran out. Despite having a binding offtake agreement they are still unable to obtain finance to complete the project.

Syrah Resources Ltd

Syrah have finally completed and commissioned their 11.5ktpa anode plant in Vidalia, Georgia. They have a non-binding offtake agreement with Tesla for 8ktpa and other prospective customers. They have had to slow production as no customer is willing to purchase. The reasons are set out in detail in Syrah’s June quarterly but basically battery manufacturers want to continue purchasing cheaper product from China until new tariffs come into operation in 2027. Plans for an extended 45kta plant have been shelved.

BTR New Material Group.

This Chinese company is nearing completion on a new 80ktpa plant in Morowali, Indonesia, Although they have purchased some natural graphite from Syrah the majority of this plant's production seems to be devoted to producing artificial graphite anode.

There are ten further plants in the planning stages in USA, Europe and Mauritius and around a further twenty in the dreamtime stage. None of these projects seem to be progressing pending some indication as to how the geopolitical situation is going to play out.

So that brings us to Talga.

The commentary on this forum seems to suggest the belief that once the Supreme Court ruling is favorably received that the button will be pressed on a construction start. I am skeptical of that scenario.

There are non binding agreements with Vercor and ACC and qualification material has been supplied to more than 20 other prospective customers but so far it seems that no binding offtakes have been signed.

I would surmise that a condition precedent in the European Investment Bank Consortium funding package is that binding sales agreements are necessary for final approval.

While the funding package apparently accounts for 60% of the Capex there is still a further 40% to be arranged either by way of a strategic partner or capital raising. Euro600 mil x 40% = Euro240 mil = A$375 mil. Not an insubstantial sum and what will the effect of that, if it can be achieved at all, be on existing shareholders at the current share price?

I don’t want to appear to be a downramper, I have been watching Talga for a while and am very impressed by the company, Mark Thompson and the whole business model. In normal circumstances it would be an investment no brainer. But I am wondering in the present environment if the current Supreme Court standoff is not a blessing in disguise that gives the company some extra time to get all the other ducks in a row.

The difference between the hype and the reality in the graphite industry appears to be enormous, however I am no expert on this subject so I welcome any other contrary views or even a complete rebuttal of my post.