Tirupati Graphite plc (LON:TGR, TGRHF.OTCQX), announced the successful completion of the acquisition of Suni Resources SA in Mozambique on 3 April 2023. DirectorsTalk caught up with Daniel Ingram, Research Analyst at Optiva Securities, for his views on the acquisition and revised value of the company.
Q1. What are the highlights of Tirupati’s acquisition of Suni Resources in Mozambique?
A1. Tirupati acquired the Mozambique assets for a cash and shares consideration of AU$12.5 million, with the shares issued at a significant premium to market price. The Company acquired multiple strategically significant resources (a 12x increase in Tirupati’s total JORC compliant contained graphite resource), with a Definitive Feasibility Study and extensive pre-development work already in place. In terms of value for money, the deal stacks up for Tirupati.
Q2. What are the benefits of the acquisition?
A2. Firstly, the acquisition gives TGR access to a large enough small flake graphite resource to turn heads on a global stage. The large/jumbo flake mix in Madagascar sells for a higher market price, and is more applicable in high end graphene use cases, but small flake graphite for use in Electric Vehicles currently dominates the industry conversation. The other potentially unforeseen benefit of the acquisition is that it allows TGR management to add value through operational efficiency. The projects combined are permitted for 150k tpa of total production, which the Battery Minerals Feasibility Study planned to roll out using 50k tpa modules. Geologically, the resources are not massively dissimilar from TGR’s Madagascar operations, so there is potential scope for the Company to use smaller modules (as it has done in Madagascar), to improve on both CAPEX and OPEX.
Q3. Why does asset diversification into smaller flake material, as a result of the acquisition, offer strategic advantages?
A3. At face level, the asset diversification might not seem to be material, as historically small and large flake prices have been quite strongly correlated. The real benefit will be in the shift in global demand going forward. Car manufacturers are rushing to secure supply contracts with ex-China small flake graphite producers, as they need to ensure throughput for the projected growth of EVs as a market share. If Tirupati can get the Mozambique projects up to scale, the demand for the smaller flake product could eclipse that of the larger flake. In a more mundane sense, operating in multiple jurisdictions also hedges regulatory/political risk, as well as the risks of inclement weather which have hurt TGR in past years.
Q4. What’s your view on the revised value of the company?
A4. The value proposition of TGR has always been significant, arguably never more so than now. The next operating year promises 30,000tpa of topline production capacity in Madagascar, and news on the development strategy for Mozambique. Compared to its peers, TGR can be seen as significantly undervalued. Particularly in Australia, graphite peers with far less developed projects, or worse CAPEX/OPEX requirements trade at multiples above Tirupati. With Graphite becoming an increasingly hot topic in commodities, and global overdemand looming, Tirupati has to be one of the cheapest entry prices into the space.
Tirupati Graphite PLC (LON:TGR) is a fully integrated specialist graphite and graphene producer, with operations in Madagascar and India.
