Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Do we know what the flake size is that Syrah sells? I'd be cautious about assuming TGR can fetch higher prices than other producers, particularly in the current market where prices are down due to oversupply of synthetic graphite from China.
I'd say it's safer to assume somewhere around $600 per tonne for TGR currently, which is still a decent margin for the business given their low operating costs.
We will soon find out though and very much looking forward to the next update.
Agree HarChris - certainly a great opportunity for those with cash to start a position/top-up.
This BAT overhang won't last forever and it's a minor bump along the road for TGR shareholders. By this time next year, I do believe the SP will be multiples of where it is today.
BB - the reason the SP is so low is that Battery Minerals are selling their recently acquired shares. I've just read their latest annual report and they definitely need cash, so it doesn't surprise me that they are liquidating most of their holding.
Not much the Poddar's or any current shareholder can do about that. This is a thinly traded stock and a big seller will have an outsized effect on the price.
We just have to wait until they stop selling - either by choice or because they've run out of shares. Once that happens, we should see a swift snap back.
My view is that the Batt situation is a great opportunity for long term investors to build a position. They're only selling because they need the money for their own business, not because they don't believe in TGR's prospects. I watched the Battery Minerals presentation that was posted a few days ago, and the speaker (not sure if it was CEO or not) seemed quite bullish on TGR and their medium term prospects.
That doesn't mean they won't sell shares, but the recent drop is clearly a result of them needing cash for their own business.
The resignation of another NED does give me some pause for thought. Although sometimes board changes can be beneficial before the next phase of growth. Let's see how the new appointments look and (more importantly) how long they remain with TGR.
For what it's worth, I've topped up again over the last few days. Current average is 21.7p so I'm happy with that. Once TGR is selling through 30,000 tonnes per annum, I do believe the SP will be multiples of where it is today.
Near term cash remains a concern but the prepayments will have unlocked production in the short term. The VAT receivable from the Govt also shouldn't be far away.
GLA.
For me, it's hard to see any bid less than £10 being entertained. If the business was in a worse position in December and they rejected the Turkish bid, why would they sell for less than £10 now that things have stablised? It doesn't really make sense.
In terms of the trading update - it was largely in line with my expectations and it's good to see that the business can still turn a profit when the market had a weak quarter. Inventory is reducing, profitability is increasing, and cost efficiencies are being realised. Essentially, they are laying the foundation for sustainable growth once the market improves.
I don't think we should expect a material improvement in profits, cashflow, and net debt until the middle of FYE24. There's still a bunch of old stock to get through and Jose mentioned that P1 will still be affected by discounting. However, once this is cleared then the newness of the range can be improved (which should increase revenues) and the business can fully pivot to the new commercial model.
It also seems that the new products they're launching are selling through quickly - which means that the company still knows how to resonate with their target market.
All in all, I'm feeling good about my investment and will continue to enjoy the ride. It definitely won't be smooth sailing, but I do think the business is on the right track and there'll be an eventual re-rate north of £10 per share.
As PDS2023 has said, the majority of the put options expired out of the money and hence MA wasn't required to purchase shares. He didn't sell any of his 10.58% ordinary shareholding.
The puts make it seem like he owns 18.29%, when in fact he only goes to that level if the share price drops and the put holders exercise their options, therefore requiring MA to buy the agreed amount of shares off them.
Hi Gaisan - appreciate the feedback and your points are noted. Of course the company has room for improvement and I would also like to see more NED's and a full time CFO.
Am I right to assume you're running the #FreeTirupati Twitter account?
Thanks for the balanced post Crocqman.
Clearly no one likes to see the SP dropping day after day; however the volume is light and it seems to me that there is a motivated seller (perhaps the recently departed NED) who is driving the recent block sales.
There's no getting away from the fact that TGR need to deliver over the coming quarters; however filling the time in between with negativity doesn't really help anyone. I fully expect production and sales to continue increasing, and with that will come improving investor sentiment.
For me, the key is to monitor the graphite price and market demand for natural flake. This is particularly important given the rise of synthetic graphite production in China. Per the article below, this is forecast to dampen prices over the next few years but the long term trend is positive for ESG friendly natural graphite (sold to markets outside of China).
https://www.fastmarkets.com/insights/graphite-market-outlook-five-key-factors-to-watch
So the demand will be there and I don't foresee any issues with TGR selling through 100-200k tonnes per annum. How they fund that ramp up is another matter and I do expect a mix of debt and equity financing in due course.
There's zero chance the Poddar's try to take the company private. It doesn't make any sense for a growing business to cut off their access to the public market, particularly given how hard it is to list in the first place.
The SP isn't the business and the market can value the company however it wants based on current information and general sentiment. I know having a low valuation makes it harder (and more dilutive) to raise cash, but I don't think it's a valid reason for taking a business private.
The best thing the Poddars can do is continue ramping up production and sales, get some new non-exec directors, and finalise the acquisition of TSG. Those will certainly improve sentiment and get the SP moving north again.
Genghis - as someone with experience in commodity finance, I can assure you that prepayments are a very common way for producers (i.e. TGR) to fund their working capital requirements.
It basically means you have a committed off-taker who is prepared to pay you up front for product. This helps to fund mining operations without the involvement of a bank which may carry restrictive covenants and security over the business.
For the buyer, they get to purchase the product at a reduced price which means a greater margin for them. It also locks in their access to the commodity, which is useful for securing their supply.
I was impressed that TGR were able to structure this kind of arrangement, as generally this is only done between larger commodity traders and producers.
Shame about the current weakness in share price; however this will come good once higher production numbers (and revenues) start to flow.
Not surprised to see the drop after the retail sales figures, but we should bounce back over the next few weeks. If the SP stays low into September then Mike Ashley will be buying more shares, as his put options will be close to their strike price down here.
so i've read through the whole annual report for fye23 and think there's a few salient points:
1. getting the first two mines into production took a lot of effort from the tgr team and they obviously had to contend with adverse weather events along the way. the reality on the ground is that there was no infrastructure in place at the mining sites when they started - no roads, no running water, no electricity. all of this had to be built from the ground up and (in my view) this is why it's taken longer to get to the 30,000 tpa production level.
2. the suni resources acquisition has sucked management time and effort away from the integration of tsg into the group. shishir has clearly stated that they couldn't pass on the opportunity, so they dropped tools on the tsg project and went for the suni acquisition. now that this has been completed and the mines are up and running, i think we will see progress on tsg.
3. it seems that indian foreign investment regulation is a bit of a minefield and there's quite a few hoops to jump through for an offshore company (tgr) to purchase a local business (tsg). also, they need a new valuation for tsg and i'd expect that they want to avoid having to actually pay hard currency for the business. initially, the purchase was meant to be a share swap but perhaps this is difficult to do with a uk plc.
4. in terms of related party transactions - i for one was concerned about this given the large share of revenue going to tsg/pranagraf. however, i assume that tsg are buying the graphite for a reason (i.e. to make flame ******ant materials) and then selling finished goods to customers. so, if tsg was owned by tgr then the intercompany graphite sales would fall away and be replaced by tsg product sales to third parties.
my main point is that tsg is still small and is reliant on graphite production from tgr. i don't believe it's some huge business which tgr are hiding away from us because the family is greedy and doesn't want to share it.
i think this year either one or two things will happen - 1) tsg is finally purchased/integrated into the group; or 2) tgr sets up a uk based graphite centre and moves tsg here. i've no doubt there's major value in the downstream business in time, but i think many pi's are overestimating how far along that company actually is.
fundamentally, there needs to be a resolution on tsg this year - particularly now that madagascar is fully up and running and the suni acquisition is complete. i'm looking forward to seeing how it all plays out.
gla. dyor.
Agree with Knowbody on this. Someone who takes a short obviously has a view about price direction or the trajectory of the company. They don't have any inside information that institutional longs don't know about.
Maybe they think they can make a quick 10% on the UK CPI print tomorrow? Maybe they think the UK macro situation will worsen?
Investing is about doing you research on a company and taking a view/position. Sometimes you will be right and sometimes you will be wrong. I certainly wouldn't be short down here, but these guys are clearly willing to take the risk.
I've finally decided to take the plunge and get back in. The prepayment news has removed some uncertainty for me and this is also an arrangement that can scale as new orders are received. Monthly production is growing and margins are solid, so I think they can now scale the business slowly but surely without too much more dilution (never say never with small caps and fundraising).
Holding this one for a good year or two to see how it goes.
GLA.
If the company is back to historical levels of profit (c.£100M NPAT), I just can't see the major shareholders giving it away for £12. At that level, EPS would be £0.84 and a normal 20x PE would result in a share price closer to £17.
That would therefore be fair value and a profitable company would always command a premium to that. As a result, I don't think anything less than £20 would be seriously considered.
I think the new CEO has much greater ambitions than a simple inventory reduction and cost cutting exercise. If they can improve profitability and stock turn, plus reduce some overheads, there is no reason this company couldn't throw off £200M net profit. Then we are talking about a serious re-rate in the share price to the mid £30's.
Just my two cents but I'm definitely holding through 2024/25, as that will be when the real money will be made here.
Some insightful points here Genghis and I agree with your comments. In terms of the high receivables balance, it's interesting to note that £2.6M of this was advanced to Battery Minerals to secure bank guarantees and payment of capital gains tax (in respect of the Suni Resources acquisition). There is also just over £1.0M in VAT refunds due from the government in Madagascar.
The actual trade receivables are nominal at £710k for FYE23. Obviously they need to be collected but they aren't going to move the needle much.
My key question is around the £2.6M advance for the acqusition - is this actually coming back to the company? You'd like to think that it is given its classified as an asset, but I'm not clear on the mechanics of this.
Further to the above, if you read Note 23 (Related Party Transactions) there appears to be quite a bit of business done between TGR and entities controlled by the Poddar family in India. As a result, it would be useful to know how much product they are selling to third parties and how much is being sold to related entities.
Just for transparency, I don't have a current position here but like to keep an eye on how things are progressing. I used to be a holder in the 105p range but sold out at breakeven before the big drop. Looking to get back in at some point but just waiting for more clarity on the cash runway.