Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
I said on my Twitter feed the other day that the enlarged reserves now reported at Palito should allow Serabi to replace and even surpass any shortfall from the tonnage trucked from Coringa. It may even be more profitable now that the average grade is up 11%.
There are logistic issues to consider on-site but Palito is where the existing ore sorter is already. So it makes sense to mine more there. The existing Palito plant can do 60 koz. It needs no modifications to achieve this. What it simply needs is more ore feed and the ore sorter being employed properly. This wasn't possible for the last 2-3 years because Covid and a lack of cash killed off mine development. Cash is no longer a problem and having it opens up new opportunities.
So any nonsense around the Coringa license still being critical to Serabi's future completely misunderstands the progress that has been made inbetween. This is one of those unique situations where the SP is ignoring far too much progress but it's so clear that investors are blind to it because they think it must mean something is wrong. The seller is helping compound this. Let's see where we are by April.
I agree HarChris,
This persistent seller isn't going to be around forever and the more gold rises the harder it will be for the market to ignore the deep discount here.
As things stand there is a strong possibility that gold will break ATHs and push on to at least $2,300/oz in 2024. If Serabi finally obtains its license for Coringa and gets stuck into its ramp-up to 60,000 oz then a treble up in share price from these levels is the least we can expect next year. FOMO in gold stocks could even push it beyond that.
With an updated 6-year mine life resource at 35,000 oz, strong cash on hand and new discoveries being made with Vale the downside remains limited compared to the upside. If gold alone were to deliver something near $2,300/oz in 2024 then a good profit could be made from here. But I am here for that upside opportunity which is being created by Serabi's past failures and the doubt that a persistent seller amplifies in what is a nervous and fearful market.
Hi Mcsquares,
I appreciate your point. I do trade a portion of many of the investments I own but I always have a sizeable core holding that never moves. What I perhaps sometimes fail to do is explain that properly. Trading a portion of any investment as it ebbs and flows doesn't change its long-term prospects so long as progress remains intact. The vast majority of long-term investors do this even if they say they don't.
Additionally, the facts I have laid out below on TGR don't change just because I decide to trade a portion of my holding in what is a very volatile and unpredictable market. Nor does it remove my right to think and believe in the longer picture.
I like talking about my investments and my thought process. Pulling together such pieces for a public audience helps bring clarity and grounding to my decision process and enhances my confidence in buying and holding through all the negative noise. It is central to why I do it. Investors can take from it what they will and challenge my narrative as they see fit. It is there as an argument only based on what I believe are solid supportive developments that are dominant to the less factually but strongly felt negative sentiment.
3/3
In addition, the license approval at Coringa is for a full mine. One that Serabi has no plans to build yet. Nor ever needs to. There are no tailings and limited infrastructure on site because all ore is planned to be trucked to Palito. So limited environmental hazard and limited water usage. But the project also sits outside of the maximum distance deemed required for an indigenous study anyway. Hence it always had the full support of the licensing authorities who actually stood with Serabi in court defending against any judgment calling for the study that has now been carried out and supported by the very communities that the court feels it needs to protect. This is why the key moment in all of this Coringa saga is not the license itself but the cancellation of the court judgment. A judgement that simply said that a community engagement had to take place. Not a change to the mining method or mine plan but an engagement.
I recognise that this is Brazil. Curve balls can still come. But the "encouragement" that Serabi has been receiving must also include the public prosecutor who brought this action and the federal court and they both approved the teibal communities agreement.
From 31st July 2023 RNS,
"The agreement has been presented and received approval of the Public Prosecutor’s Office and the Federal Court.
When considered with a level head there really isn't much standing in the way of this license being issued and Serabi "hope to see further progress on the licencing front before the end of the year and be in a position to start the civil works and acquisition of the crushing plant early in 2024."
But of course, nothing is nailed on 10% until it is achieved.
My point is though that Serabi with an extended mine life and new optionality at Palito doesn't need Coringa to deliver profits that can dwarf its current share price. That reserve upgrade removed their biggest production headache of the last 3 years. But their history and current market off-risk mentality has led to it being either ignored or misunderstood. That move secures further cash generation and further options in what is a very large land package.
Nor do they even need Vale to be successful either. Just deliver the signs that a couple of high-grade gold deposits are out there and it's game on. But if they are then that's another potential big-ticket item that can land at any time.
Serabi has clearly come through the worst of it and set itself up as a strong recovery play which allows me to show more understanding towards current management because I recognise that it hasn't been an easy ride for a great many junior BODs these last 3 years or so and if nothing else Serabi has emerged unscathed and in a low-risk position to finally deliver what I thought I was buying back in 2018.
2/3
Furthermore, yesterday's reserves and so mine life extension update return optionality to Palito.
At 67,000 oz as of 31st Dec 2021 and nearly two years of usage since that simply didn't exist. At 206,000 oz it does and suddenly Serabi has options to not only expand production at Palito itself (40koz per annum would still mean 5 years of mine life) but also drive more ore sorter use there. Since its construction in 2020, the ore sorter at Palito has had limited useful use. A lack of wider development drilling will do that.
Serabi only trucks ore from Coringa because it is financially beneficial and was necessary to remain cash flow positive. The trial license limits them to 50,000 tons per annum. Hence why we have seen so few ozs actually delivered. But this update now demonstrates that Palito can expand (if necessary) on its own. Hence why the RNS said,
"Mineral Reserves at Palito are equivalent to over six years of operations at current production levels."
But those current production levels include Coringa's 6,000-8,000 oz contribution. At Palito actual c. 27,000 oz it would be 7.6 times. That's a supportive clue for what I am demonstrating here because what it means is that Serabi doesn't need Coringa in order to deliver what or indeed more than it is right now. Plus, the average grades are up by 11% too. meaning more higher grade areas have been added and can be focused on the front end. But also compounding the argument that Serabi no longer needs Coringa in order to carry on delivering $1m in free cash flow per month.
The market in its ignorance has taken the reserves update for what it is. be it that it has ignored the value these reserves add. Why?
Because it is only focused on Coringa due to a lazy fixation that a Serabi without Coringa represents more risk when that is no longer the case.
That makes Coringa a free shot for (committed) investors at this share price level and arguably even higher.
But having studied Serabi for so long I also know how the CFO operates and he is not one to part with cash too easily. So the commitment to pay $1m for an ore sorter that could not be employed if the license does not materialise was noteworthy.
Then I place that against the indigenous communities' agreement. The Company's words around how key such an agreement is in Brazil. "The encouragement we are receiving from all stakeholders in support of the project."
Finished off by the public recognition received in Brazil for their community relations "securing 73% of more than 5,000 votes that were cast and beating the private Brazilian mining group Bemisa who secured 20.5% of the votes."
In terms of countering that previous bad press and easing concerns over the true nature and success of their negotiations with the tribal communities, such recognition really couldn't have landed at a better time.
1/3
My two pennies worth if I may.
Having been invested in Serabi on and off for the last 5 years I have witnessed much disappointment and my doubt remains that Mike Hodgson is the right man to lead this company.
But I do recognise the challenges they have had to face since the outbreak of COVID and I acknowledge how well they have steered the company through that period with limited dilution. I also recognise where they find themselves now and it is a very good place.
During the last 3 years, Serabi has had to deal with legal challenges to Coringa and some fairly hefty mud-slinging both in Brazil and the UK press. Poor grades at Sao Chico and a lack of optionality at Palito. Driven by the significant effects of being a camp-based mine operating under stringent Brazilian COVID regulations. This meant more costs and fewer options for mining.
Next came inflation and so pressures on their AISC costs which due to their underground mining methodology and camp-based setup have always been on the high side anyway. But it is the combination of the loss of optionality and delay to Coringa that really hurt them the most.
To overcome this Serabi found a solution whereby they could truck high-grade material from Coringa to Palito (thanks to Brazilian fuel price fixing and a slowing mining industry. meaning more truck availability) to top up the reduced production (due in part to the loss of Sao Chico but mainly the lack of optionality at Palito) enough to ensure that they could remain profitable.
Since then gold prices have acted favourably boosting their cash generation such that the CEO is above ground once more, back on the front foot because the business is generating $1m of free cash flow per month.
What that has done is heavily reduce fears around working capital such that they have committed to spend c. $1m on a new ore sorter for Coringa even before the license has been received. Which by the way is a big tell.
Serabi's cash generation is so healthy that they could if they wish cancel their $5m (unused) banking facility. Becoming effectively debt-free and so ready for a new debt deal that can complete the initial Coringa build-out ($10m) and accelerate wider exploration. It is that wider land package that initially attracted me to Serabi and Vale is currently busy paying for the initial exploration that will open up the best option for Serabi to start spending its money on in 2024.
2/2
Having now reached the inflexion point where non-dilutive debt can be obtained to add further growth (36,000tpa and beyond) that result stands out. There are not many junior miners who can add that sort of capacity (and iron out on-site problems. Think weather) + add such late-stage projects for such limited dilution. Especially in a deteriorating capital market environment like the one we have seen these last 12-18 months.
That sort of drive and commitment to protect and nourish my shareholding (even if it's ultimately for themselves) has me willing to keep an open mind on the relationships required to achieve it. After all the cost of the plant provided by Poddars-backed Indian suppliers is a fraction of what Chinese companies would want to be paid. Delivered in a fraction of the time because these projects (that they hold shares in) are most important and not simply sitting in a line.
Having been in junior mining investment for over 13 years I have seen many examples of Chinese support and what they get in the end is almost always far more than the Poddars-backed companies are taking here. That same tech has been confirmed as being suitable for Montepuez which means CAPEX and time savings on an even grander scale. With that comes the risk of things being done the Poddar way but I take great heart in the fact that these projects have been explored (JORC resource) and planned far better than Madagascar.
But again I can also be forgiving here because I recognise just how small and clearly hard-working the leadership team of TGR has been these last few years. hence why admin costs are so tight for what is a large capacity miner. Moving forward I would be pushing for a larger executive team which should now come as cash flows grow. Having a small team has led to mistakes. It has cost time and output but I get why it was done. So I remain forgiving so long as we now see the production and plans for 2024/25 begin to flow through.
I could add more but I will stop there.
This bear market has twisted the minds of many investors without them even realising it. The majority have turned to criticism and forgotten just how tough it is for management teams. Some know it but it suits their agenda.
These businesses aren't run on paper. They exist in the real world and it's really tough out there right now. They've dealt with COVID, then war, then inflation and now a market downturn. Many must be absolutely shattered. It is important to recognise that and also the changes that such conditions bring upon ourselves.
In such an environment cheap MC companies with proven solid records in deal-making, cost control and funding are high up on my list. Throw in low-cost capacity expansions and major late-stage project ownership in critical minerals + India and it's all the better. That doesn't mean a free pass. But such advantages easily trump the negatives as things stand.
1/2
A common theme of 2023 has been the highlighting of everything that is bad about a company and its management whilst treating everything that is good as purely the status quo. Barely worthy of mention or employment as a countermeasure.
I am aware of the mutually beneficial relationships the Poddars hold with their Indian entities and suppliers but also recognise the benefits which in my view heavily outweigh my concerns.
Despite the regulatory support for graphite and pending battery-led demand a period of difficulty lies immediately before most miners and industry players. But it is important to appreciate that recessions never strike everyone at the same time. They affect different industries and markets at different times. India is one of the most buoyant markets out there right now and could even become the next China. Hence German manufacturing companies are focusing heavily on it. GDP growth there is forecast to be +6% in both 2023 and 2024.
So right now at this particular time, it is highly beneficial to TGR and their shareholders to have such strong Indian market connections and sales. These next 6-12 months or so are about maintaining profitability whilst growing output, lowering costs and delivering the path to Montepuez. That in turn delivers the necessary non-dilutive debt to continue the growth path in Madagascar. Those accomplishments will (in time) reward shareholders handsomely and the connection to the Indian market may just turn out to be the key ingredient.
https://www.reuters.com/world/india/imf-raises-indias-fy24-gdp-growth-forecast-63-report-2023-10-10/#:~:text=%22Growth%20in%20India%20is%20projected,June%2C%22%20the%20IMF%20said.
Another point I would add is that TGR directors should be maximising shareholders' returns through maximum pricing. So yes such relationships at an appropriate time should be challenged and answers received.
But I am also not niave. Firstly, Madagascar is relatively low-grade. gas only just delivered +97% purity batches. is building new relationships for the expanded production. That all leads to a discount on prices. Does it cover all the gap on what is perceived to be market prices vs. achieved? No. But it shouldn't be ignored either.
Montepuez at +8% TGC is when things start to get really interesting and it is on the horizon.
Secondly, I would be more inclined to challenge the supplier relationships if as a shareholder I wasn't being looked after dilution-wise. I wrote a thread on Twitter demonstrating that TGR has added just 51% more shares since listing. In return, investors have received a 900% uplift in production capacity and the acquisition of two fully studied and permitted high-grade projects. One of which has had c. $30m spent on it to date.
FRom the MTEC FY Results,
"One of only 11 suppliers to win a place on Lot 2b of the new Digital and Legacy Application Services framework ("DALAS"), which is expecting to spend £700m-800m until September 2027."
Bidtstas report it as being a project with a total value of £2bn which supports lot2b being of said above value. So more like £60m - £70m.
https://bidstats.uk/tenders/2023/W38/807206994
The other thing which I think is worth considering is that TGR at 50% rated capacity and beyond can now begin to move away from the thrifty phase of its development towards a more corporate entity. That comes at a substantial additional cost.
Management is often criticised that the errors in corporate governance are deliberate or for self-gain. What I see is a tight cost base designed to avoid dilution at all cost which has led to management being extremely stretched such that things like TSG have been effectively sidelined. Some say that is a broken promise but the game hasn't run its full course yet.
In the end, the thriftiness and shares saved through it could well reward those that were prepared to stick it out for the duration.
I agree this is a solid appointment and in my mind goes a long way towards putting investors' minds at ease following Christian Dennis (Optivia Securities) leaving in July.
When it comes to TGR I don't have any real concerns about the level of resource experience in the business. My concerns sit around corporate governance, the lack of an experienced CFO and their strategy for financing Montepuez once the final costs to complete are revealed.
"Murat brings deep knowledge and expertise across corporate finance, project finance and financial and business strategy."
The hints are there in the RNS with the added benefit that Mr Erden also brings significant CFO experience if required later down the line. It takes more than just resource experience to run a significant mining business which is what TGR is planning to be in the next few years.
Happy.
Yes and along with the hydro power there is much to like about TGR's ability to drive their costs lower or at the very least keep them stable.
Looking forward to learning more tomorrow.
To clarify the Brent oil price demonstrates that TGR was paying elevated oil prices for the first 5 months of their FY23 compared to H2 2023 and more importantly HY24 (April to Sept 2023).
Then the pre-concentrate units kicked in.
What is also worth noting is all the disruption the operations had in HY23 as TGR upgraded infrastructure and relocated what is a substantial part of their processing. We are told things are now running smoothly with H2 FY24 base case production of 7,500 tons. That's a further 65% uplift in output + it's being produced in a more stable environment.
Again, I am not going to claim that the production cost will drop significantly nor is it easy to claim that it will jump higher than FY23. I would gladly take that cost vs. the basket price achieved in HY24 given the expected uplift in output. But perhaps we might get a nice surprise in December.
Worth noting my post from 20th Oct.
"I ran some calculations on the HY23 and FY23 costs of production and they clearly demonstrate that in H2 2023 TGR's cost of production was running at £250/Mt when producing 3,039 tons.
They just produced 4,508 ton in the first 6 months of FY24. So even with inflation that £250 should be further under pressure. But at the very least it should be fairly stable."
TGR haven't demonstrated it yet and there may indeed be more costs coming through now but anybody can break down the FY23 figures and see that the above H2 2023 production cost figure is valid.
Also, FY23 ran from April 2022 to March 2023. Take a look at where Brent oil was trading during HY23. It started at +$100 and didn't fall to HY24 (April to Sept) peak of c. $94 until early August. With the peak at $122.
Furthermore, take a look at when the pre-concentrate units for Vatomina were completed. Those being the ones that were designed to save considerable amounts of fuel.
The first one completed in August 2022 and the second between October and December. See pages 17 and 18 below.
https://www.tirupatigraphite.co.uk/images/TGPLC%20-%20AR%202023%20(Signed).pdf
Meaning that the effect of these pre-concentrate units only truly came through in H2 2023 (October to March 2023).
There is a question mark over the running costs of Sahamamy which came online in calendar year Q1 2023. But it cannot in my eyes outweigh the above. Fuel costs in HY24 ran at sub $90. The PCU units were in full service saving fuel and production (the most important element here) almost matching FY23.
It's difficult to conclude that the H2 2023 production cost would rise by much but even if we are missing something it certainly should be very healthy.
Morning all,
If you haven't read it then the TGR FY23 report on the company website is well worth your time. I have been sleeping on it thinking the RNS version captured the majority of the detail. I was so wrong.
It's packed with details on the path to date. Exploration. Hydro. Cost breakdowns etc.
IMPORTANT NOTE - The history line on CAPEX spending in the period clearly demonstrates that TGR built two PCUs at Vatomina for c. £200,000. See pages 16-18 followed by page 22. One was built from parts on site but still, we are talking pennies to achieve significant further production uplifts. Note also there are plenty of hints around the level of investment interests by outside parties too.
The report also identifies several times the need for these additional PCUs to achieve 100% capacity production. So they aren't new or a reaction to Q2. Investors including my good self simply haven't read enough.
Understood Genghis15 and appreciated.
Yes, more commentary from Simon Moores of Benchmark here. In days gone by this announcement would have added 20% to TGR's MC. In the current market it just gets a shrug.
Time to keep a close eye on graphite prices but at the very least it is difficult to conclude that graphite prices won't at least find support. The current $820 range as a base going forwards is just fine for a successful TGR. But of course, more is always welcome.
It surely also strengthens the hand of ex-China producers who are seeking financial support such as debt.It was a critical mineral after all even before this move by China.
https://x.com/sdmoores/status/1715359654094475664?s=20
I would just like to add that yes the cash position should be made more readily available to investors.
I also agree that risk remains until the funding is secured. But the current run rate in Q3 is also a major inflexion point that should not be so easily sidelined just because its current and not yet banked in a financial report.
Hi Genghis15,
You make some valid points. The head grade is not new and whilst this may be difficult to appreciate I am actually glad that they have finally accepted that 3% is the norm and are doing something about it.
I agree with TGR that one must extrapolate figures more than should be required. Corporate governance has lacked at times and really does need to be improved. But personally with my approach to investing such shortfalls can be very lucrative if I am able to de-risk them. What I also see is a lot of hard work from the CEO and the management team to get to where they are at ridiculously low cost and dilution. That doesn't make up for the lack of info but it certainly gives me more comfort than most.
That said we are in the first active year where production will see a marked uplift. HY24 results aren't due until December when more detail will be available. In the meantime, it is clear that money is tight but as I posted just before the messaging coming from the company is that non-dilutive debt options are being sought. But I do recognise your points about late accounts and the potential risk there. Still, the messaging came post that issue which I also have to respect.
As I demonstrated earlier with the recent quotes the messaging around non-dilutive debt came in the RNS that delivered the pre-payment. So there was no assertion on it being sufficient. But as always it is about we as individuals interpret what we read in the context of what we know to date.
The same goes for the Q3 50% rated capacity during Q3 statement which for me was clear. I never expected 50% rated capacity for the whole of Q3. But then nor did I expect a small reduction in production vs. Q1.
If TGR sticks to its word and raises debt for its working capital and planned CAPEX then there was never a need to raise funds 6-9 months ago. If not then of course this can be criticised. But the messaging to date says non-dilutive debt and their needs aren't great.
Lastly, I will happily talk about the downside. I will happily debate any negative points of which there are a good few but nor will I ignore the fact that TGR is trading at sub £15m MC. The downside is directly relatable to the current valuation.
I look at the risks and the progress achieved to date. Yes, I extrapolate the figures which say TGR does +10,000 tons in FY24 perhaps 12,000 tons. I see healthy prices being achieved. I see low costs to produce. That points me to a future outcome that is far stronger and more stable than a £15m MC demonstrates. That's investing in small caps in a nutshell. Find out what the majority don't know or don't wish to believe in and back it.
This market is barking mad at the moment and constantly looking for blood but it isn't always right.
Re-reading the messaging from the 8th and 10th Aug RNSs it is clear that TGR is going for non-dilutive debt.
From the #TGR 8th August Q1 FY24 RNS,
"In the meantime, the Company continues to engage in securing non-dilutive working capital arrangements to improve cash resources on the back of its strongly improving performance and order book."
The CEO also had this to say,
"We chose the tough but prudent path of refraining from a dilutive equity raise in the current subdued capital markets, managing our operations and growth within our available resources."
Then following the $1m pre-payment agreement on 10th Aug TGR said this,
"Going forward the Company will continue to focus on strengthening its cash position through other non-dilutive opportunities."
Yesterday in an interview the #TGR CEO said this.
"We have reached a stage as a company where we have a respectable revenue. We've a proven history of operating margins."
We've demonstrated our performance and we'll go for debt funding."
How much more clear does it need to be said?
https://x.com/BigBiteNow/status/1715324240403087467?s=20