Mark, I always start these interviews talking about cash, particularly for companies like yours that are burning it. Tell us what your cash burn is at the moment and how much have you got in the bank?
Well, Alan, normally our basal burn, I guess, would be about $8-10 million per year and we've got between $12 and $13 million in the bank. Do you think there's any prospect of you getting to sort of cash break even before you run out of money or are you going to have to raise some more?
Well we have to raise some more but we've got a lot of options about how we do that. It's not just equity. We're at a stage with our project partners and development that we're going to start transitioning into project finance and deals that involve other companies maybe buying into the equity in the project itself and sort of pay to play and that sort of thing. While being listed and being public means that equity investment is very executable and very, you know, the right thing to do at certain times, we're definitely transitioning more to where there's alternate sources of finance coming up for us. Just finishing on cash, you did raise $10 million in an institutional placement in August at 50 cents a share, which was a 7 per cent discount at the time and now the stock price is $1.50, so those people have tripled their money.
Yes. If I was a shareholder of Talga, I wouldn't be too happy about that. I mean, why didn't you give your existing shareholders the chance to buy some at 50 cents as well?
We gave existing shareholders the chance to do that about eight months before at 44. Right. Okay, but this time around no dice.
Yeah. Well, we were coming through COVID times, pre-election times. It was pretty choppy to be honest and we had done very well, I think in managing not panicking during the depths of COVID and doing something destructive to diluting the shareholders, even worse. This time we had an opportunity to bring in some new instos onto the register, but we had to act relatively quickly and lock it in, so that's what we did. mce-anchorRight. When you say you managed not to panic, what do you mean by that? What else could you have done?
Well, during the depths of COVID, of course, there were some changes in the listing rules, the way that allowed you to, even if you didn't have say, shareholder approved placement capacity, you could have issued extra volumes of shares. There were some extraordinary rules that came in allowing you to shorten and do some various placements in ways that were very criticised by the market for being heavily dilutive to shareholders.
Before the trouble hit, I can’t say we saw exactly what was going to happen with COVID, but late the year before, so late ‘19 in December, we closed a placement with an SPP to all shareholders at 44 cents and therefore through the depths of COVID when the stock frankly got down very low, got down to 20 cents, you know, in the lookout for cash we managed to decrease our burn rate. We did all the measures necessary to control the situation internally, and we held on as long as we can while still being appropriately capitalised and then we acted when the effect would have been less dilutionary. We only had to issue 20 million shares, which was a very small impact on the register. mce-anchorAs you say, the share price got down to 20 cents in March and is now well above ~10 times that price. Like all CEOs, I'm sure you don't want to provide a commentary on the share price, but just give us some sort of sense of what's happened. Why have your shares gone up ~10-fold, what's been going on? What have you done since March? It's not just simply that you raised some money.
Well, no, and also, let's be fair. I mean, we have in the last couple of years before that, we'd been at 90 cents already, so we should never have been down at 20. I mean, it was a sell down that happened during the COVID panic, and that's that. But you could argue that our value was just not being quite recognised all the way through and that's fine. That's the way markets work. You're coming off an extreme low so it looks better, but you're in a landscape Alan, where our business, which is making anodes for lithium-ion batteries is the largest part of our business going forward. In the last 12 months, people have seen that landscape accelerate from theoretical into reality. They're seeing actual sales of electric vehicles take off, so not just hockey sticks on a graph going forward, they're actually seeing them out-sell diesel cars in some countries, you're seeing the largest penetration rate of new vehicles are electric in many countries in Europe, in particular. Then you saw Tesla's share price go crazy and you're seeing the whole landscape of valuations in the EV supply chain going off, which involves batteries, which is us.
At the same time, you've got decreases in output in China. A lot of rhetoric around trade wars, the European Union talking about setting up tariffs via emissions rules against China. For Talga, which is potentially the largest graphite anode producer outside of China, then that makes us look, you know, not only is our markets rocketing up in actual evidence, not theoretical terms, but you're also getting all the rest of the landscape come along to support that, legislative support, economic support from various centres.
Then that's the landscape that's before you look at what Talga has been delivering, and what Talga has been delivering is partnerships with large state-owned mining companies, Mitsui, you know, we're getting the partnerships involved and we're publishing some of our commercial updates along the way. I guess we’re being revalued at a time when the whole landscape's going up. It's not just us. People, I think over the years dropped out of the EV supply chain because they were, you know, there's been lots of booms in lithium and cobalt, all these short-term sort of booms, and people got fed up with it and just sort of left it alone. And now they're seeing all this data come in, that it’s really happening finally after all these years and they're reacting by saying, crikey, we need some exposure in that area and they don't currently have any, so graphite stocks, lithium stocks, or all of those stocks in the battery supply chain are pretty well supported. Then you could argue that Talga’s own deliveries have been on top of that. I used to see your company as basically a graphite miner in Sweden, but in fact, it's better to think of you, it seems to me, now as an anode manufacturer, a graphene silicon anode manufacturer. I mean, that's your main product. Is that reasonable? I mean, yes, you do dig up your own graphite, but it's more about the production of these anodes, isn't it?
Yes, and the technology behind those, in the batteries. You could argue we are a specialist chemical company that makes advanced battery materials, and we just happen to own our own mines for the stuff to help divert and integrate and maximise our profits. But also, we've got a technology arm. We've virtually got ways of making new types of anodes that go into new generation batteries, which are in growing demand. In that sense, we're a battery technology company. So, you know, choose your pick, but either way, we're not in mining, and we’re not in resources and that's why at the upcoming AGM we've sort of proposed changing our name to Talga Group, because we have all these different technologies and innovative parts to the company, not just resources. mce-anchorYeah, that's right. I noticed that, and obviously that's the reason for that. Take us through your products and explain what they are in, and in particular, Talnode-Si, which I think is your key product. But you've got a bunch of other things that also start with ‘Tal’, haven't you?
Yeah. The landscape of copywriting and IP and stuff was if you use terms like graphite and graphene, those landscapes are pretty full and busy, but if you start off with something called Tal for Talga, it's a lot more vacant, so there's a lot more space to play. We have Talphite®, which is our brands of graphite that we make as a concentrate, and then we turn that into anode products and they're all Talnode® and then you have just different sub-brands. Talnode-C is actually our flagship. That's our main product actually, that's the bulk low cost that goes into 50 per cent, all the lithium-ion batteries have got an anode, it’s the negative side of the battery, so that's the bulk of that material. Then our next generation product is actually Talnode-Si and that’s silicon-rich, it's got some graphene in there, it's got some silicon. That’s a much more higher energy density product for cars to go either a lot further in range or go somewhere faster. That's developing at the same time, that's commercialising.
Then we have other Talnode products like Talnode-X is for super-fast charging and Talnode-E is a solid-state anode. All of these are designed, they're all quite innovative in their own way. They take an industry that's been around for 30, 40 years, and we sort of flip it on its head a bit. We literally go back to first principles on how do you want the anode particles to work and then we sort of go back from there, into the ground, into the geology that can make these products. By doing that, we're able to lower the emissions and sort of lower the costs. By having this range, it's designed to do deals now with companies that need lots of batteries in the short term, but as they start to increase the amounts of Silicon for different performance, we've got a product for that. And then even 10 years from now, when they start to go towards more solid-state, we've got a product for that. It's about building an anode production and technology company. mce-anchorAre all of these things protected by patents?
Some are where it makes sense to do so. Patents have got a slight downside in that they go public, so sometimes you want to keep things in-house just as internal knowledge. But, yeah, we have a whole suite of patents pending on some of these products and aspects of how to make them. Your latest quarterly has got a picture of you holding a patent certificate, next to some words that say that this is your first United States patent for the integrated mining method.
Yes. Tell us what that's about?
That is if you want to mine graphite out of the ground in a specific way that can efficiently be turned into graphene and other graphite products for some of the materials we make, we now own the US patent for that and there's patents pending in many, many other countries. It sort of protects the entire concept of the mining of graphite specifically to what we call electrochemically exfoliate, that's running electrical current through the rock and dissolving it as a method to make graphene. It sort of locks that up, and that's something that we first announced to the world back in early ‘14 that we were doing and so we felt that it was okay to follow through and get some protection for that. But we've actually got quite a big IP team. We've got a very, very rigorous process about identifying intellectual property and choosing which ones go public and which ones will be kept as a knowhow. That one was okay. mce-anchorAre you ready to start selling stuff yet?
Yeah, we’re selling stuff on a small, you know, it's immaterial right now, but we produce materials at a sort of pilot-scale, that has to expand probably through next year, you'll see some larger numbers come in from that. But we're not in full-scale commercial production, no, we're piloting up and upscaling. We started in the lab here in Perth and then we've moved to Cambridge in the UK and I think we announced our first Talnode product was at the European Battery Show in Hanover, early ‘18. In two and a half years, we've gone from the lab to delivering tens of tonnes of products to people per year and we need to scale that up into the hundreds of tonnes over the next year with larger pilot plants, what we call an EVA, and then we'll go on from there to commercial in ‘23. How much is what you sell going to cost? What are you going to sell it for?
Well, I can only refer you to the publicly published data, which is our PFS, our pre-feasibility study earlier last year, which had costs of just under $2,000 a tonne for the product and it's selling in that study, it's selling for just over $11,000 a tonne. Costs for us are essentially even lower than China, because the deposit is super high grade, and we've got massive yields coming off the product. We actually have got globally competitive costs, but the product you produce is quite a premium product. Yeah, fair enough. But where did you get the $11,000 from?
There was, I'm not sure if we ever published the discount, a heavily discounted number from Benchmark Minerals forecasting who survey all of the global graphite and anode plants. Is anyone selling the stuff now?
Products like ours are being sold, yeah. And how much for?
Prices below and above that level and we have agreements with people that include price ranges that include that price. Of course, as all these go up, you may negotiate something lower, but that that'll be revealed in future studies, how that will work. Have you had any reason since the pre-feasibility study to adjust your thinking on costs?
It varies as we keep optimising and bouncing things off the discussion with customers about what they want and whether that changes the process a bit or not. Sometimes they go up and then we find it again, going down. Certainly, the major thing we're looking at, Alan, is expansion and with larger scale, the costs will literally come down. In fact, yeah, we see the potential for costs to come down with expansion and we see product pricing – look it's a really very widely varying market. But to be honest, we see demand, right at the moment, you’re at all-time lows in the product pricing. You've got the last 10 years of declining activity post the China boom, and declines in the steel market and other markets for graphite, so you're at sort of historical lows at the moment for pricing.
What we see is over the next couple of years with the batteries taking off the way they are is that you go into deficit and pricing will go up. But we don't rely on that in our studies. Our pricing is based on today's prices, but longer term we see, and most of the forecast groups, and we use groups in China as well as in Europe, are predicting higher prices over the next few years. mce-anchorRight. I was thinking more of costs, but I suppose the question is whether, because that PFS talked about obviously margins of 80 per cent or more. Is there any reason for thinking your margins will be any less than that?
We'll just have to reveal that in future studies, Alan, but in general, I think the major point is if you can be in the lowest decile of production costs in the world you are going to be okay either way. And if you're trying to calculate the exact revenues and the value of the company via this method because anodes are all sold privately and they're not traded in any way, people can see, you know, the proof will have to be in the pudding, I'm afraid. Whenever you see a market where people are making 80 per cent margins, it doesn't take long for those margins to be competed away.
Agreed. Except that in this case going forward, there probably can't be a supply-side response to fix that problem. Why not?
Because all of the natural graphite deposits of the world, people don't realise, there's only a very, very small fraction of those can supply that market. Just having lots of graphite doesn't mean it's the right type to be able to turn into an anode and most of the world's deposits, particularly the larger they are, the less the amount they have that can be turned into anode. The amount of anode in the ground that can be brought out into batteries is way, way smaller than people think and the problem with having low graphite prices is there's no incentive for these mines to go back into production. In fact, to say, produce, say 10 per cent of their graphite can be turned into anode, then 90 per cent of other stuff they've got to sell, or they've got to dump it. And if the industrial markets are too cheap, they actually can't sell it to anyone and so that's why you don't have any Western graphite mines at the moment, pretty much. They actually don't produce battery material, they produce graphite. That's different. You want to be an anode producer, not a graphite producer. And so, I think that people don’t actually realise just how perilous that supply chain is. A few weeks ago, I interviewed Chris Burns, who's the CEO of Novonix, which I'm sure you're aware of, started as a company called Graphite Corp and had a graphite mine in Australia. And they pivoted because they came to believe that synthetic graphite was the way to go. And so Novonix, they then bought a synthetic graphite production facility in Tennessee and also bought this outfit in Canada, Novonix, which is sort of technology. But anyway, and so Chris Burns saying that the best sort of graphite is synthetic graphite and achieves better prices, and it's better and they're going to be making anode material. Although I must confess, I get confused between anode and cathode, and I can't remember whether he's producing cathodes or anodes, and maybe that's the answer, I don't know.
What do you say to that, that really anyone can make any amount of synthetic graphite, so is that your competitor?
Well, yes, and no. We don't see it as a competitor for a couple of reasons. Number one, people may not realise that synthetic graphite comes from fossil fuel products, so it’s actually coal and oil. It comes from coal, that's right, I know it's coal that’s been heated.
Well, it's coal products and it's oil products, petroleum products. It’s not just heated a bit. It's got to be taken up to like 3000 degrees, in China, it takes three weeks at 3000 degrees to cook this stuff up. Then it depends on, you know, where that power supply is. But the problem is the CO2 emission of say, Chinese synthetic is 60,000 times that of ours to make one tonne of anode, so China is 60,000 times worse. The problem with any synthetic is that your CO2 profile, your lifecycle assessment is terrible. And if you look at large vehicle companies like say Volkswagen, for example, is a signatory to the Paris Agreement, they’ve got to be fossil-free. They're very keen to lower emissions and if 50 per cent of your battery, which is the anode volume in a battery, if 50 per cent of it's made with fossil fuel products in a very, very high energy and very intensive energy way, it doesn't really align well, shall we say.
There's been a trend over the last few years to have less synthetic and more natural. It's sort of heading towards a 70/30 blend. When you combine that with the growth in the market, you're talking about a massive increase in demand for natural and not for synthetic. That's our general philosophy on it for that because the earth has already graphitised the carbon in natural graphite, that savings of CO2 and everything means that is actually the cleanest least impactful way to make the anode and it's cheaper. Plus, these days, you can make natural into a pretty much synthetic like performance product. With cheaper and lower emissions, we think that's the way to go. Obviously, there's a role, for synthetic. There’ll still be some people that want to use it in different amounts. It's just that it's not like, you can say everything's going to go there, in fact, the evidence it's just the opposite. I didn’t realise that there was more graphite in a lithium-ion battery than there is lithium.
Ten times more, depending on how you measure it. The demand for graphite, it's got to be much greater than it is for lithium, in fact?
Well, it is, and that's why it's been a bit of a head-scratcher over the last few years, why no one wanted to realise it. That's what you're seeing now is people are saying, my gosh, look at all the graphite. I think in a recent Morgan Stanley report, they recognised that there were two segments of lithium-ion battery supply chain that they recommended you should be in. One was separators, which is the plastic thing that goes in between the anode and the cathode, and the other one was the anode. They said the anode supply chain is the area where no one's paid attention that's going to boom because it's 50 per cent of all the volume of the battery. Where's that coming from and what countries is it coming from and under what conditions? By the time you go through that, you actually don't end up with a lot of players that can supply the volume in a clean way at a low cost to do that market and Talga is one of them. mce-anchorCan you tell us about what the sales process for your materials and your products is going to involve and what the pipeline looks like?
I will do my best. It's currently underway. We have many tens of engagements with battery companies and auto companies into batteries, and they are already testing our materials. We start off usually in the kilo type range, and then it goes up from there, with some of them that are in the hundreds of kilos to tonnes range. And it goes through a multi-year process of testing, where they build some batteries and test them and check them with their customers and then they come back and they want more material and then they carry on from there. It's an extremely long and complicated process because anodes unlike the rest of the battery which are based on metals, which are pure, it's just based on a purity argument. Anodes actually work because of the shape and the internal structure of the anode particle, so they have to be physically tested.
They can't just be bought like zinc or copper or lithium or cobalt, because if you just get the right purity of product, you can use it in your battery, if someone meets the spec. With anodes, it's a little bit more complicated than that. They have to physically test them until they're ready to buy them. We've got a commercial team and they interact with our technology team and the pilot plant delivery guys and they send out all the samples and all these customers are being interacted with and there's hundreds and hundreds of engagements across anode products and graphene products. I think we last published that we had about 36 major battery-related engagements who are working on anodes with six of those being some of the largest automotive companies in the world.
That process has already been underway and we're expecting to close, well, next year at the sort of latest I imagine, because it's to do with project financing, we expect to sort of mature those into supply agreements that can underwrite financing of the project. And you expected to be selling product in 2023. Is that right?
Correct, yeah. During your pilot phase, like when you're producing hundreds to possibly thousands of tonnes you can also be selling some of that material. That's part of your, it's just part of your marketing scale up as well. You can't give away the stuff for nothing. You've got to get some sort of cost into, but yeah, the full commercial starts in ‘23 and we've also got a scoping study on a major expansion, which will be a multiple scale expansion of this project that is due actually later on this month. How much will that cost?
I can’t say until the study's out but obviously, if you scale up multiples, there'll be multiples of capex, but the opex comes down and, of course, you'll see a massive increase in the way the project is going to work. mce-anchorYour capitalisation on the market is now $350 million or so, is there a prospect that you'll try to fund this expansion through equity? Like raising $50-100 million or something?
I'm not sure. I mean, it's a subject for discussion. We have many options that have opened up to us, actually even just in the last three months that weren’t there previously. There’s going to be a wide range of ways to play it, to be honest, Alan, and we'll be working very hard to, I mean, I'm still one of the largest shareholders, so, you know, definitely not one for dilution. But at the same time, we need to run things in the best way possible based on market risk and other things as well. Our general strategy at the moment is we've brought in, earlier we've announced LOIs with Mitsui and LKAB. LKAB are the state-owned mining and mineral technology company of Sweden and they have all the mines next door to us, roads, rail, port facilities, you name it, the entire workforce, that looks almost exactly what we would need ourselves. There's amazing synergies there, so you can sort of tell that the strategy is around introducing some key partners into the project that would do a huge amount of the heavy lifting, which while Talga sort of manages it, and in that way, will decrease the cost to Talga. Would you entertain a full offer for the company while you're in pilot phase?
I’m definitely not after that, but I mean, if something sprang up, of course, we'll just have to review it at that time. That's not – the aim is to build it. No, I understand that. I'm just wondering, do you have in your mind eventually an exit here or to see it through?
I have in mind dividends, Alan! I don’t know [laughs]. Dividends, excellent!
I don’t know if I’m allowed to say that, but no, gosh, I mean, it's been 10 years of my life since I created the company. We moved into graphite nine years ago with the vision of this happening in the market and a vision of what we could do in that market and we're just getting going. That PFS had an NPV of $1 billion in it, obviously, expansions should be better than that. It's certainly not going to be worse, you'd assume, or we wouldn't do it. The company to my mind is barely just getting rerated up to where it should be. You must feel vindicated after that pivot of nine years ago from gold into graphite.
Yeah, sure. I mean there’s profits to be made in gold, but I like what we're doing because we believe in what we do. We've got a really passionate, smart team, we love what we do. We’re doing something economic, but we also know that we're solving problems in the world. We think this is a great thing to do. That's why a huge part of our motivation every day, going through what we've gone through, and frankly, the last eight to nine years has been almost entirely recessionary the whole time in our business and it's because we think we're doing something really valuable in the world. And it sounds like, or it seems like you enjoy employing scientists as well.
Well, this is a bit of a moat in a business, right? If you want to just dig up graphite and say, “Oh, now we purify it and it's anode”. Well, it’s really not. If you want to interact with big automotive and battery companies, and you've got to talk their language, and if you want to produce a product which they want, you need your own bunch of battery scientists. And we've got great people from all over the world that work for us in Cambridge, in the UK, also in our factory in Germany, and in our future operations in Sweden. Look, if you don't do that, you don't really own it, right? You're just sort of contracting out to someone and sometimes that's good, but if you really want to own it and control it, because ultimately we see this as a very, very strategic asset, to be honest for Europe, in particular, possibly for the world, then you want to control it. Yep. Well, great to talk to you, Mark, thanks.
Any time, Alan, cheers. That was Mark Thompson, the Managing Director of Talga Resources.
TLG Price at posting:
$1.53 Sentiment: Buy Disclosure: Held
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