Investment date: 16 November 2021
Investment sector and stage: Resources, development stage
What does this company do?
EV1 is a sustainable, ESG friendly, advanced stage graphite project in Tanzania.
Graphite is a key component in lithium ion batteries.
Our previous battery materials investments have been very successful.
Up until now we did not have any exposure to graphite and its growing demand. Graphite has many other applications beyond electric vehicles too.
Why we invested?
Smaller, advanced graphite project so quick to market while graphite market strong
Fully permitted with JORC resource and DFS (US $87M capex for US323 NPV),
ESG focussed investment: ESG fund invested $8M and is forcing EV1 to be “best in class ESG”, so it can secure ESG capital funding to develop project
Market cap should catch up to peers by progressing down stream value add (good cap table, key shareholders escrowed.
What we expect EV1 to deliver prior to next cap raise (use of IPO funds)
We expect progress on these key objectives will re-rate the share price:
Key Objective 1: Final Construction Decision & progress ESG towards ESG Project Funding (to secure project funding)
Key Objective 2: Assess Downstream “Value Add” Opportunities (to increase market cap)
Key Objective 3: Increase Resource Size and find more shallow resource (to improve DFS economics)
What could go wrong with this investment?
If risks materialise they will negatively impact the share price
Any Tanzania sovereign risk flare ups will spook investors and dampen share price
Graphite prices could fall making the project harder to fund or uneconomical
Might struggle to secure ~$87M US to develop the project if market softens or they fail on ESG aspects
Then actually need to build the project (this risk doesn’t apply to this phase of the investment)
Our investment plan
We are holding a core position (min 50%) long term (4 to 7 years) to hold into first production
The company has a low market cap compared to peers, if EV1 delivers key milestones and the share price re-rates we will (progressively) sell ~20% with the goal to fee carry
if the company rises more than 500% after 12 months holding (CGT tax discount) we will look to take some profit progressive sell down of ~25%
We will asses the performance of this investment against this initial investment memo in each update commentary we provide
Key Objective 1: Final Construction Decision & progress towards Project Funding
The name of the game for EV1 is to reach a final construction decision and secure the ~US$87M required in capital costs to bring the project into production. DFS upgrades and optimisations will form a part of this process, but more importantly, EV1 needs to deliver all of the ESG requirements set out by ARCH (the cornerstone ESG shareholder), so that ARCH can help EV1 secure funding from other ESG funds in its network that only invest in top class, proven ESG opportunities.
🔄 DFS Optimisation
✅ Front end engineering design (FEED) – Appointment of Engineer
🔲 Front end engineering design (FEED) – Progress update
🔲 Front end engineering design (FEED) – Final report
✅ ESG – Initial assessment or report
🔄 ESG – Sustainability report
🔄 ESG – Quarterly progress reporting
🔄 ESG – Life cycle assessment report
🔄 ESG – Progress towards zero carbon operation
🔲 ESG – ESG investment readiness announced
✅ ESG – Independently assessed ESG score
🔲 ARCH Provides further project funding
🔲 ARCH introduces other ESG funds
🔲 Strategic Board appointment
Key Objective 2: Assess Downstream “Value Add” Opportunities
Assessing further downstream “value add” opportunities and the prospect of commercialisation is important for EV1’s success. Given that each graphite project’s mineralisation has a “unique signature”, it will be important for EV1 to work with potential offtake partners to ensure compatibility with existing technologies as well as the development of new technologies with EV1’s graphite.
✅ Market update on downstream value add studies
✅ Market update on downstream value add partnerships
🔄 Market update battery specific value add (studies or partnerships)
✅ MoU signed with downstream partner 1
🔲 MoU signed with downstream partner 2
✅ Offtake agreement 1
🔲 Offtake agreement 2
Key Objective 3: Increase Resource Size and find more shallow resource
Whilst an increase in the resource size is not necessary for making a final investment decision, the greatest opportunity to improve project economics identified in the DFS was adding more near-surface graphite deposits to substantially reduce mining costs.
We expect EV1 to undertake an expansionary drill program mid-way through next year, with a geophysics program to identify drill targets to commence imminently. We also want exploration to optimise the economics of the DFS by finding more resources at a shallow depth (cheaper to extract).
✅ Announce Exploration Program
✅ Drill Targets Identified/Refined
🔲 Drill Program commenced
🔲 Drill results announced
🔲 Resource Update
Investment Milestones for EV1
✅ Initial Investment: @20c
🔲 Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years