Talga Resources: Vertically Integrated And Extremely Undervalued

Talga Resources: Vertically Integrated And Extremely Undervalued

Introduction

What are the biggest challenges of flying personal transportation? Most likely battery capacity and the weight of the materials used. The combination of durable light-weight materials and high capacity electric batteries will lead to the adoption of flying personal vehicles one day.

While it still sounds like a distant future, there is a company whose technologies are addressing both issues today. Surprisingly, it is not a privately-held startup researching some nanoparticles in a lab.

This is a listed company with technology whose products are progressing through confidential qualification processes with 35 active Li-ion battery manufacturers including six major global automotive original equipment manufacturers (Talga Looks to Expand Battery Anode Capacity).

Enter Talga Resources (OTCPK:TLGRF), a vertically integrated advanced materials company focusing on battery anode and graphene additive products from Australia.

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The current environment

The current investors’ attitude towards technology companies promising us a greener future by liberating us from the dominance of the combustion engine can be best described by this meme:

Shut Up And Take My Money! | Know Your Meme

Talga is a startup which claims that it can increase battery density by 20% and is valued above USD 1 Billion in the latest financing round (Sila Nano’s battery tech is now worth over $1 billion). Even Nikola (NKLA), a publicly-traded company with a questionable reputation whose claims have been challenged and/or proven false is still valued at around USD 9 Billion (per October 9, 2020).

One would expect Talga Resources to be extremely overvalued by now. Luckily, it is not. Talga’s market capitalization is only around USD 150 Million (per October 9, 2020).

In my opinion, there might be several reasons why the company has been under the radar and was not noticed by the general investing public yet:

  • As a former gold explorer (founded in 2010 as Talga Gold), Talga is viewed by the general investment public as just another penny stock Australian miner.
  • The company is based far away from Silicon Valley and is not listed on the US Stock Exchange. However, the shares can still be acquired in the US OTC.
  • Battery materials like Lithium, Nickel, and Cobalt get more media attention than Graphite.

Talga Resources overview

Talga is a vertically-integrated advanced materials company, whose business activity lies in three interrelated fields

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(Author’s representation)

Graphite mine

Talga is developing a graphite mine in Sweden, with a trial 25,000-tonne mine already approved. The full-scale production is planned for 2023. According to the Pre-feasibility Study (PFS) conducted in 2019, Talga’s mine exhibits pre-tax annual revenue of USD 188 million and IRR of 55%. The estimated Net Present Value (NPV) of the project over 22 years is USD 1.056 billion, calculated with a discount rate of 8 percent (Outstanding PFS results support Vittangi graphite development). The mine is likely to be expanded greatly with the Niska Expansion Project. The scoping study for the project is underway and its results will be published in November 2020. image

(Company Presentation CSIROE October 2020, Page 20)

Anode Products

Talga not only mines graphite, but it also develops graphite anodes that are used in battery manufacturing. I consider this illustration from The future of Energy Storage: Cobalt and Lithium Markets Strategic View to be extremely helpful to visualize the role of graphite anode in battery manufacturing.

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The company is currently developing a whole pipeline of anode products:

  • Talnode-C: Engineered graphite for fast charge, high power, high capacity, and low-temperature performance
  • Talnode-Si: Silicon-graphene composite anode for higher energy density
  • Talnode-X: Graphite-based anode with ultra-fast charge capability
  • Talnode-E: Graphite-composite anode materials for Solid-State Batteries

(Investor Presentation August 2020, page 10)

Talnode-C and Talnode-Si are currently undergoing customer qualification with numerous parties. Unfortunately, these engagements are under active non-disclosure agreements. It is important to realize that unlike lithium, Nickel or Cobalt Anode Materials require customer testing in batteries at increasing volumes to enter long-term contracts.

Graphene

Graphene was the original reason for me to invest in Talga resources back in 2018. Graphene is a two-dimensional atomic-scale material, that is made of a single layer of carbon atoms. Andre Geim and Kostya Novoselov were awarded the 2010 Nobel Prize in Physics "for groundbreaking experiments regarding the two-dimensional material graphene."

The material possesses different unique characteristics.

image(The Science Thinkers)

It can be combined with other materials to enhance their properties. Since graphene was discovered, scientists around the world researched different graphene applications. There are so many potential application fields that even Wikipedia has a standalone article on the potential application of graphene. However, since its discovery, most of the unique graphene characteristics remain in the lab. The two biggest challenges of graphene are scalability and price. Most important however is that its unique properties were observed in labs, and most of them cannot be transferred into the real-life application just yet.

Talga Resources develops graphene-based products in four different sectors.

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(Graphene Week 2018 Company Presentation, Page 8)

The ones that can be meaningfully scaled mid-term are coating and battery storage.

Coating application

In December 2019, the company announced the commencement of a new large-scale trial of its coating product Talcoat, a graphene additive for maritime coating. The product is an on-site dispersible powder that can add graphene’s properties into paint and coatings. The evaluation period was set for 12-18 months, meaning that the results can become available anywhere between January and July 2021 (New Graphene Coating Large Scale Trial).

Battery storage

While I was writing this article, Talga announced its decision to fast-track its Mass-Producible Silicon Anode Product - Talnode-Si - Silicon-graphene composite anode for higher energy density. This is a result of the high sample demand for this product from its customers:

To address the increased commercial sample demand Talga has shifted its Talnode®-Si sample production onto industrial scalable process and production equipment, boosting the Company’s Talnode®-Si sample production capacity 10x. This is sufficient to deliver into fast-growing product development and customer qualification programs, and further highlights the scalability of Talga’s silicon anode production approach.

Moreover, the company is focusing on Talnode®-Si preliminary feasibility studies that they plan to finalize in Q1 2021. The goal is to evaluate stand-alone commercial production in Europe (Talga Fast Tracks Mass Producible Silicone Anode Product).

Talnode-Si aims to address the two most important characteristics of the current battery technology – to increase the capacity and to reduce its loss after charging cycles.

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(Company Presentation CSIROE October 2020, Page 16)

Why it is the right time to invest in Talga Resources

Talga is a vertically-integrated technology company that possesses both the natural resources and the technology to develop products that are likely to be in high demand from EV and battery manufacturers around the world. The company was not affected by the current “EV-Hype” and is still valued as a pure natural resources miner whose mine is still 2 years away.

Additionally, Talga has a naturally competitive advantage in different areas.

Resource Grade

Talga’s mine is estimated to have the highest grade of graphitic carbon among its competitors.

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Investor Presentation November 2019

Costs

Talga’s mine and anode production facility is located in Sweden, a country with almost half of the electricity production which is covered by hydroelectric power stations. Low energy costs in combination with a high amount of graphite in the ore give Talga an advantage in ore processing and anode production. This makes the company a cost leader in coated anode production.

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(Talga Anode Project pages 13 and 17)

Geopolitical considerations

Sweden is a developed country in terms of physical and digital infrastructure and gives Talga Resources easy access to the European battery market. Taking into consideration the recent development in the global trade and pandemics impact, secure supply chains among friendly and stable countries, which share the same values, are likely to be even more important in the future.

ESG

Mining is a dirty and energy-consuming business. Talga, on the other hand, is a low-emission leader. The company mines natural graphite, using 100% sustainable electricity and locally-produced materials. This is how Talga achieves both extremely low production costs and C02 emissions.

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(Company Presentation CSIROE October 2020, Pages 6 and 18)

Investor-friendly management

Mark Thompson is an extremely investor-friendly CEO. He holds regular webinars where he answers investor questions. He takes his time to explain his ideas and vision and does not dodge hard questions.

The company has raised additional equity in the past and have done it in an investor-friendly manner. In August 2020, Talga Resources raised AUD 10 Million in institutional placement. The previous offering was done among existing shareholders in November 2019, where the company raised AUD 6,2 Million in an oversubscribed offering.

In one of the webinars, I asked Mark why he did not try to raise more money to have enough cash buffer in case of an emergency. He explained that he wanted to avoid a stronger dilution and is aiming to finance the mine and other projects in a non-dilutive way, which he was very confident about. For example, through partnerships for project finance.

Near-Term catalysts

Numerous near-term catalysts can catapult Talga into a different league, which is likely to positively affect its valuation and create a positive feedback loop for the stock price going forward:

  • Niska Scoping Study to evaluate the significant capacity expansion of the planned Anode Project in November 2020.
  • Recently, Talga has signed a non-binding Memorandum of Understanding to evaluate the joint development of Talga’s Anode Project with Mitsui Group. I expect this MoU to develop in a development agreement in the coming months, maybe shortly after the results of the scoping study.
  • Additionally, the trial qualification programs that have been underway for a long time might result in contract wins for Talga that might be announced shortly.
  • Talnode®-Si preliminary feasibility study to be finalized in Q1 2021.
  • There should be results of the large-scale trial for Talga coating graphene product - Talcoat - mid 2021 at the latest, which might lead to revenue-generating contracts for the company.
  • Finally, even though there are no definite plans about it now, I count on a possible listing in the US in 2021.
Disclosure: I am/we are long TLGRF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.