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Only a side note in a newspaper
The first time I read about ‚Graphene‘ was in a Swiss newspaper in early 2016. It was only a side note, which for some reason attracted me a lot more than those full double page reports about ‘the next big thing’. Those double pagers in popular newspapers usually indicate the end of a hype cycle - not the beginning.
Finding inspiration on the basis of side notes in financial newspapers is something that has worked for me in the past. Very often game changing moments are starting just like that. The next big thing never comes overnight and it almost never comes straight as a headline. Most of the time, the majority of people don’t see it coming. There are always a handful of people and blogs that were predicting it. But they got popular only in hindsight when everything became much more clear.
The same pattern happened also during the financial crises in 2007/2008 which can be traced back to many side notes referring to the beginning of something much bigger. Theoretically, everyone was sitting on the same information but only a few managed to read between the lines and realized that something much bigger was about to happen.
It's a wonder material
When I read that side note about this Australian company called Talga Resources, the newspaper described the material Talga was working with as a ‘wonder material‘.
Usually, I don’t fall for those buzz words. Therefore, this was definitely a reason to be extra skeptical. But it was enough for me to skip the weekend plans and to start doing a little more research in this sector.
For two days straight I dived into a huge amount of articles and reports and scanned well over one hundred companies that had ties in the graphene and graphite market. A complete new world opened for me. Eventually, I ended up throwing some stocks into my watch list.
Today, more than 4 years later, I want to see what happened with Talga and the graphene revolution. And as always, I will never stop asking.
What is Graphene? What is Graphite? And what is the difference?
In very simple words, take this grey or silver stone called Graphite. You probably already have heard of that. Now, take one very, very small layer from it and you will end up with a material called Graphene. And this Graphene has some very interesting characteristics.
To make it short:
Almost every product currently existing could somehow be improved by adding or replacing it with Graphene. In addition to this, an unbelievable amount of new products could be created. Because of its thinness, this material is considered two-dimensional. It is the only material that can remain stable at just one atom thickness. When mixed with other substances it could get even better.
This really does sound like a wonder material, doesn’t it?
But if it is so good, why hasn't it taken over the world yet?
First of all, when a new material is discovered, it takes many years to find out its exact characteristics and how it reacts in a certain environment.
Graphene was only discovered in 2004 by Konstantin Novoselov and Andre Geim. Those two british scientists later earned a Nobel prize in physics for their work. After the initial discovery, research and many long-term studies have to be completed about the material itself, the potential products it could be used for and everything related to it. Studies about health effects have to be made as well. What, for examples, if the material is poisoning?
The spider experiment
In one experiment a scientist from the University of Trento added graphene and carbon nanotubes to a spider’s drinking water.
Afterward, some of the spiders produce silk as they normally would, but the silk was up to five times stronger.
Although the spiders passed away during the experiment the scientists believe that there is massive potential since the silk of millions of enhanced spiders could produce webbing to make parachutes, rope, cables, and more products so thin but so enormously resistant that the net could hold a human body.
Path to market
Brave entrepreneurs need to risk bringing graphene and graphene enhanced products out from universities and its research labs to the actual market. They have to convince investors that there is something very new and exciting that potentially will improve current products not only a little bit but massively. Investors will look at different studies and they will surely do their own research and due diligence. It will take years for all the players and stakeholders in this new field to learn, grow and mature together and eventually create companies all along the value chain.
Upstream, Midstream and Downstream
If you want to build a lasting company you will eventually need to sell something, to someone, at some point. There are many options where you could enter the value chain. You may set up a mining firm to bring Graphite out of the ground. In mining this is called ‘upstream activities’.
However, you could also specialize in processing it or to add value to the material itself. Doing so by actually buying the graphite from a mining firm, improving it and then selling it to someone else. This is called ‘midstream activities’.
Alternatively, you could create entirely new products for the end consumer. Or you could improve existing ones by using graphene that you buy from a midstream company. This is called ‘downstream activities’.
The value chain
In commodity markets the price is determined by supply and demand. Once new companies pop up on the supply or demand side, it is likely that the price of the material gets fairly volatile. Then again, in the very early stages of a new material’s discovery the price is a matter of negotiation between companies that have it and companies that want it.
This is a whole other story but absolutely crucial to understand when investing in financial markets. You can have the greatest product and the most amazing team but if the timing is wrong it might not be enough to survive.
As some companies will fail to find further funding and will fail to continue to finance their operations, new companies will enter the game a little later. The landscape is therefore ever changing. Winners may appear at every stage. The right timing to those investments is therefore extremely important. So let’s look at Talga’s timing.
From Gold go Graphite
Talga Resources was founded in 2009 and listed on the australian stock exchange in June 2010. They raised 5mio and the share price back then was around 20 cent. Today it is around 60 cent with the market cap a little over 150mio dollar. All numbers are in AUD (September 2020: AUD 100 = 73 USD) .
The company's original plan was to build a gold and iron-ore mine. The company name back then was Talga Gold.
It was in 2011 at a Hong Kong mining conference when managing director Mark Thompson dropped his plans for a gold mine to pursue a fortune in graphite.
Among many, he studied old drilling records in Sweden and found at one location graphite more pure than what came from low-cost producers in China.
The previous owner of that mine was Teck Resources, a Canadian company that was looking for copper and gold. Talga Resources got in contact with Teck and ended up acquiring the mine.
Natural Freak Deposit
Thompson later described his discovery near the Swedish town of Vittangi as a "natural-freak deposit". The graphite is so concentrated that it can be sliced easily into blocks. Arguably, those blocks are easier and cheaper to process then what top producers work with in China. This is something I could not verify.
There are many existing companies who have their eyes and ears on every new trend and will invest millions or billions of dollars to be at the forefront of a new revolution. Their goal and their interest is not always very clear. In commodities markets dirty games are played on a regular basis.
Some players may want to create a shortage of a certain resource to force other players out of the market - only to sell the same commodity later for an even higher price. However, most of the time it is very straight forward. Big players want to earn money directly by speculating on supply and demand or by betting on promising companies. Sometimes, commodities can also become a strategic interest for certain nations or interest groups. I will come to that later.
Looking at the battery industry, current estimations predict a huge shortage in graphite for the second part of this decade. The driver behind this is mostly the electric vehicle market which needs a massive amount of batteries that include huge amounts of graphite. However, this will only happen if the EV revolution will happen at the pace that analysts expect it to happen.
Some of the big players in the industry already have plenty of experience with other battery materials. They are better positioned and have more resources and knowhow than Talga has. Also, they have access to a greater talent pool and they are financially less under pressure. However, even for them it remains a challenge to create something from scratch.
If they find startups which they believe are well positioned and can add value to their business they will simply try to buy it, form a joint venture - or knock it out of the market somehow.
If you bet on a startup with no existing products there is a huge risk that it will never make it to the market. History has shown that less than 5% of game changing startups will become a major player itself.
Therefore, be careful when considering investing in companies like Talga.
Korean companies securing essential patents
Some investors say, Graphene was one of the most investigated materials in the last few years. So I tried to do some research here. Huge companies from various sectors all around the world have already been working on it for years. Korean companies are securing essential patents related to the commercialization of graphene. The website graphene-info.com writes that between 2005 and 2013 nearly 3000 graphene-related patents have been applied for alone in Korea. On the forefront of this are Samsung, followed by LG.
Graphene was already used to create bending displays for smartphones and TV’s. The media jumped on those news. Graphene also received increasing media attention when prototypes of transparent devices were circulating through social networks. So let’s look at the other side of the story.
The risk of graphene
Because it is so thin and lightweight and at the same time very tough, the very nature of graphene might be cause for health concerns. What if we breathe in these particles? It is often looked at asbesto or the danger that comes when coal dust gets into the lungs because we are talking here on the level of nanomaterials. Therefore, a lot of research has to be made to really understand the effects this material will have - also when recycling it.
Companies that would want to replace plastic for graphene would require the product to be 10 times better than the old one. If it is only a little bit better, it's not worth the risk of switching from an existing, well-established product to a new less tested one.
Real life products?
Graphene is stronger than steel, conducts electricity better than copper and is so light and flexible that companies like Samsung Electronics are using it to develop new devices. But let’s have a look at other graphene products that exist today.
In the year 2013 the company HEAD started shipping graphene-enhanced tennis rackets. Maybe you remember the moment when you were holding your friends ultra-light tennis racquet for the very first time. The same goes for some shoes, helmets, ski equipment or bicycle frames that are so light that you actually can’t believe it when holding it the very first time. The sport industry has been an early adopter of graphene enhanced products. Today, graphene is widely used in consumer electronics. However, it is not as visible as in the sports equipment.
Some articles stated that automotive company Ford is mixing graphene with foam constituents, and the resulting parts are said to be 17% quieter, 20% stronger, and 30% more heat-resistant.
The future batteries?
And since we are just talking about numbers let’s go through another wave of claims that I can not verify but that do sound very promising:
No doubt, graphene is very exciting but producing high quality materials is still difficult. Many companies around the world are producing different types and different grades - ranging from high quality single-layer graphene to graphene flakes produced from graphite in large volumes. The market is controlled by privately owned companies and they tend to be very secretive.
So what is Talga doing?
As stated before, Talga used to be a gold miner. In simple words, they were about to dig gold out of the ground. Today, Talga owns 100% of five graphite projects in Sweden and is digging graphite out of the ground.
Here are the five graphite projects:
Highest grade in the world
From a total of 25 deposits the one with the highest grade is called „Nunasvaara“ and is located within the Vittangi Project.
In total, Talga owns 3 of the Top 10 grade graphite resources in the world. That is quite an impressive number.
Also, in the early days Talga was not shy pointing towards the advantages of having its operations in Sweden:
In an investor presentation some years ago Talga highlighted that the EU consumes 20% of the world's natural graphite production and imports 95% of it.
On one hand, this sounds very promising because the EU has classified graphite as a critical raw material. There might be a strategic interest to support quality graphite projects inside its own territory - like Talga’s.
On the other hand, it also means that Talga is directly competing with its Asian counterparts in a competitive worldwide market. In mining - but also in other areas of business - this has proven to be devastating for european companies since cost of operations almost never can be as low as in Asia. China plays every card they have and they will do so also in the future.
So, what makes Talga special?
Mining graphite is only one side of the coin for Talga. Graphite is made from layers of graphene so in theory anyone can produce graphene in a laboratory - but the big question here is at what volume and cost?
And here comes the story: Talga’s ore is different. Talgas ore is conductive straight out of the ground (!). It’s like an electrode.
In addition to that, Talga came up with a unique process to liberate large quantities of graphite and graphene directly from ore (in 2 of the 5 core projects). They can cut out entire bulks of the stone and process it in only one step. The process actually drives molecules between the layers of graphite to liberate pristine graphene in a single stage.
The world's biggest graphene producer?
Since natural graphite is already made of graphene, to separate graphite to graphene it is very expensive and hard to scale up. Due to the world's highest grade resource in the world and the new processing method Talga claims they will be a game changer and will ultimately be the world's biggest graphene producer.
Graphene is no doubt an extraordinary material whose commercialisation pathway has been constrained only by volume and cost of production, not applications. Over EU$2.5B in graphene research funding has been launched in the EU (Sweden) alone in 2014. But at some point, somebody will have to deliver the volumes once graphene finds its way into more products.
I believe there might be a chance for a European miner to compete with the Asian counterparts. But Talga has more to offer.
Looking back in the history of the company we can see some interesting twists and turns.
In 2013 and after its gold ventures in the early days Talga still described itself as a ‘mineral exploration & development company’
In 2014 Talga tried to get rid of the old gold and iron-ore projects.
In 2015 they started to call themself a ‘Technology company’. This was after they added ‘strong technology capability with over 20 PhDs and Engineers with energy product experience including: ex-Toyota, Tata, Dyson and Cambridge University alumni.’
The company moved from metallurgical breakthroughs in the lab to benchtop scale in their demonstration plant.
In 2016 Talga called itself an advanced materials company. And stated that they are a ‘Technology minerals company commercialising the world's highest grade natural graphite project to mass produce graphene and related products’
High volume / low cost graphene.
In February 2014 Talga announced exceptional results from graphene testwork on the Nunasvaara graphite project.
‘Graphene can be directly taken from unprocessed, unpurified Nunasvaara graphite ore in a onestep environmentally friendly process. In other words, no crushing or grinding or purification was required. Something that is unique in the world.’
This announcement has sparked some attention in the investment community. By making use of this ultra-high grade deposit and patenting its own processing mechanism, some believed there actually may be a real chance for Talga to break the chicken and egg problem.
In Talga words: ‘Talga aims to enable large commercial graphene applications which have to date been impeded by absence of bulk supply and prohibitive pricing.’
Talga also said they would be able to produce high volume for low cost. Talga assumed $55/kg ($55,000/t) for future bulk pricing in its scoping study. Something that analysts said will be very hard if not impossible to achieve.
Focus on four markets
The media at time was excited by future ‘hi-tech’ applications like bending smartphone or TV screens, however, Talga repeatedly pointed out that they believe the main driver of near term graphene commoditization is additives.
Talga decided to focus on four core markets that they believed were easy to access and would need huge volume of graphene.
Personally, I was triggered with the concrete and coatings examples. I read that if you add just a little bit (0,5% - 5%) graphene to concrete, UK scientists have found that it will be more than twice as strong and four times more water-resistant than existing concrete. Maybe also worth to note, by including graphene the amount of materials required to make concrete can be reduced by around 50 per cent – leading to a significant reduction of 446 kilograms per tonne of carbon emissions.
Considering the amount of concrete that is used worldwide this alone would make graphene demand skyrock. And Talga is sitting on a huge pile of it.
On top of that, I heard that Talga was also working on electrically conductive concrete.
If you make concrete electrically conductive it becomes one big underfloor heating element. So you can run a weak electric current through it and heat the ground up. This could be used for roads on airports or bridges that you want ice free in winter.
However, driveway heating already exists. They work with water pipes, gas pipes or electrics. But the copper cable roasts and causes problems. The water pipes may break and need costly maintenance where in some cases the concrete has to be opened again.
Ice free wind turbines
Graphene can also be mixed into other materials. In winter time wind turbines are cleared from ice with helicopters pouring chemicals over the blades. With talgas material you can make the blades electrically conductive and head them slightly up.
In more futuristic scenarios cars might be able to charge wirelessly while driving (!) on roads that use Talga’s graphene mix.
Potential Market for coatings
Graphene coatings could be found in applications where water-repellent surfaces are required. For example ship hulls, glass surfaces (mirrors, windows, windshields) and textiles.
Coatings with superior chemical, moisture, corrosion, UV, and fire-resistance properties could also be use cases for Talgas graphene. On medical devices, these coatings would provide a biocompatible surface that is resistant to degradation.
There are potential applications for graphene coatings in nearly every industrial sector, from aerospace to personal care. Examples include: more efficient and flexible solar cells, nano-electronic devices, supercapacitors, high-sensitivity gas sensors, molecular separation, and medical implants.
Talga started shipping samples
In 2016, first samples were shipped to end users. Talga also announced a collaboration with Tata Steel UK. In the months and years that followed a huge amount of partnerships and collaborations were reported. Most of them were so-called NDS, non-disclosure agreements.
In a company presentation they described it as follows:
‘Talga has evolved into a high tech advanced materials and technology company with a unique vertically integrated graphite to graphene product supply chain.’
However, in the last two years Talga’s focus shifted again. This time the focus is a lot more on batteries. Talga started to call itself a ‘a vertically integrated producer of advanced battery anode materials and graphene additives’.
There wasn’t much news about the graphene additives anymore. Does this mean that potential customers didn’t bite on the samples? Well, this is hard to say. Talga has a lot of partnerships but for most of them we don’t know what the deal is.
Pablo Alto rumours
Talga has created a research and product development team in Cambridge and presented some impressive test results.
On social media managing director Mark Thompson was seen flying to Pablo Alto only days after releasing some spectacular result for their anodes. He commented his tweet saying ‘Pablo Alto is calling’.
This was music to the ears of investors. However, there wasn’t too much news that followed in the months after.
Talga in a nutshell
Their main graphite product from Talga is called Talnode. The main graphene product is called Talphene.
Talga is targeting commercial production in 2023 and is currently engaged directly with a range of major battery manufacturers and automotive OEMs. Personally, I believe 2023 is too early for a commercial production.
Today, Talga has 36 commercial engagements for Talnode underway including one to supply to Daimler.
In-house research and development
Talga has built an in-house R&D team of 35 mining, technology and product professionals. Some are ex-Toyota, Tata, Dyson and Cambridge University alumni who are leading the Company’s creation of ready-to-use products.
In November 2019 Talga launched a commercial-scale trial of graphene coating on a cargo vessel. The product is an on-site dispersible powder that adds graphene to paints and coatings.
In December 2019 Talga announced a second commercial scale graphene coating on a ship. Since then we have not heard any news regarding this trial.
In May 2020 Talga announced that it will supply coated anode products to lithium-ion battery giant Farasis for evaluation.
Some time ago, a board member who happens to be a managing partner of Talgas 4th biggest shareholder, has resigned from the board. It’s worth noting but probably not worth speculating since there could be various reasons for that.
The dance with the mine approvals
For mining companies, mine approvals are always a big deal and can make or break a venture. Stage 1 of Talgas flagship mine is already approved and Talga is working and producing there.
Mine approvals for stage 2 were scheduled to occur between Q3 2019 and the end of 2020. In the latest company presentation it was moved to Q2 2021 and the first quarter in 2022. We have seen some of those delays over the last couple of years already.
Are the numbers holding up?
Talga is moving in the right direction, however, maybe slower than they should be. Some investors are wondering if the numbers maybe are not holding up to complete the definitive feasibility study. Only this week, the company announced it will release the DFS in the first quarter 2021. At the same time they announced in a press release some „Outstanding detailed feasibility study results“
The total cash position as of 31. March 2020 is 6,6 mio. They will again need more capital since the cash-burn rate has gone up massively since they invested a lot into research and development. I am optimistic that they will manage to find capital but investors should be careful not to take it for granted. Ultimately, they will also need to finance the next expansion step for their mine. The company still has to design and engineer mining and refinery facilities before it can sell anodes on commercial scale. This will take years before potentially big revenue will be visible in the books.
Edit: Talga just announced that raised AUD 10 mio and saw ‘significant investor interest’.
Talga Managing Director Mark Thompson said: “This strategically sized placement will enable Talga to execute the next steps in building it’s Li-ion anode production facilities in Europe, while maintaining a tight capital structure to provide shareholders best leverage to project success. The raising also strengthens our position as we enter deeper finance discussions with multiple potential project partners.”
Bet on the future
For potential investors this means (as always) you need a lot of patience.
Samples of both graphite and graphene products have been sent to various companies all around the world over the last 4-5 years. However, so far no major deal could be closed and only minimal revenue from those samples was generated.
The agreements and the news flow, however, look promising and are getting better with every year. Before nothing is announced it remains highly speculative. To me the rating for Talga Resources is still ‘hold’.
But it’s worth to keep an eye on both Talga and the graphene market.
Because remember, it’s a wonder material.