ASX:EV1
Last Price:
$0.205
Date of Initial Coverage
17-Nov-21
Initial Entry Price
$0.200
Returns from Initial Entry
3%
EV1 will achieve first production of the world’s most sustainably produced graphite by early 2024 (including value adding processing) coinciding with the onset of a long-term supply shortage in the graphite market.
Opened: 16-Nov-2021
Shares Held at Open: 3,125,000
What does EV1 do?
EV1 is a sustainable, ESG friendly, advanced stage graphite project in Tanzania.
What is the macro theme?
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 did we invest in EV1?
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 do we expect EV1 to deliver?
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.
Milestones
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
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.
Milestones
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
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).
Milestones
Announce Exploration Program
Drill Targets Identified/Refined
Drill Program commenced
Drill results announced
Resource Update
What could go wrong?
Sovereign Risk
Any Tanzania sovereign risk flare ups will spook investors and dampen share price
Commodity Risk
Graphite prices could fall making the project harder to fund or uneconomical
Funding Risk
Might struggle to secure ~$87M US to develop the project if market softens or they fail on ESG aspects
What is 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%
Disclosure: The authors of this memo and owners of Wise-owl, S3 Consortium Pty Ltd, and associated entities, own 3,125,000 EV1 shares at the time of publication. S3 Consortium Pty Ltd has been engaged by EV1 to share our commentary on the progress of our investment in EV1 over time.
✅ Initial Investment: @20c
🔲 Top Slice
🔲 Free Carry
✅ Initial Investment: @32c
🔲 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
General updates from EV1