Company description: Mapping the expansion plan
TGP is pursuing phased transformation of its two flake graphite deposits in Madagascar to potentially produce 81,000tpa of graphite concentrate by end 2024 from the current 3,000tpa level. The planned proceeds from the IPO (about 30%, or £1.8m, of the total amount allocated for capex is expected to be spent on mining and processing operations) are intended to cover mining and processing capacity expansion of 6,000t at Vatomina, bringing TGP’s overall graphite concentrate production capacity to 9,000tpa by mid-2021. At the follow-on development stages, another three processing plants of 18,000t capacity each are planned to be developed at Vatomina, while Sahamamy will see construction of the second plant potentially producing an additional 18,000t of high-quality graphite concentrate. While planned combined graphite concentrate capacity of 81,000tpa will make TGP one of the largest producers of quality flake graphite, we note that the planned expansion is in modular form and can be adjusted to a slower (or potentially faster) pace, if market conditions change. The planned mining expansion is expected to be closely aligned with development of the downstream operations, allowing TGP to fully benefit from operating synergies and optimise capital allocation.
On the downstream side, TGP currently operates a flake graphite-based, flame-retardant additive manufacturing unit, the Patalganga project in India, with current capacity of 1,200t. It plans to further expand this project and develop a comprehensive downstream flake graphite processing plant for hi-tech speciality graphite products in India. TGP is also looking to develop a research and technology centre, which would consist of a graphene manufacture and application development facility, and would conduct cutting-edge research and industry-focused technology development. The IPO proceeds are expected to fund the expansion of Patalganga to 4,800tpa (40% or £3.0m of capex from IPO) and the first stage of the graphene project (20% or £1.5m).
Exhibit 1: Tirupati projects summary and expansion plans
Project |
Location |
Ownership (%) |
Profile |
Status |
Current/proposed max capacity (tonnes) |
Development plan |
Upstream |
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Sahamamy |
Madagascar |
100 |
Mining |
Production |
3,000/21,000 |
High-quality graphite concentrate project with the 3kt plant commissioned in 2019. Expansion is planned in two stages, potentially bringing total capacity to 21kt by end 2024. |
Vatomina |
Madagascar |
98 |
Mining |
Development |
0/60,000 |
High-quality graphite concentrate production with 6kt capacity expected to be commissioned in Q221. Further expansion with three additional plants/modules to bring overall capacity to 60kt of concentrate is planned by end 2024. |
Downstream |
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|
|
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Patalganga |
India |
100 |
Manufacturing |
Production |
1,200/4,800 |
Manufacturing flake graphite-based, flame-retardant additive composite. Current capacity was commissioned in 2019. Expansion is planned to quadruple capacity by mid-2021. |
Speciality Graphite project |
India |
100 |
Processing |
Development |
0/24,000 |
Proposed integrated project for downstream processing of flake graphite. Planned to be developed in two stages with 12kt capacity each. |
Graphene research centre |
India |
100 |
Research |
Development |
- |
Proposed graphene manufacturing, technology and research centre. |
Mining and primary processing operations in Madagascar
Having commissioned the 3,000t Sahamamy project in Q119, TGP is currently developing a 6,000t plant at the Vatomina project, which is expected to be commissioned in Q221. Based on its modular expansion strategy, the company is considering the development of an additional four plants, potentially bringing overall production capacity to 81,000tpa of graphite concentrate by end 2024. At full capacity, about 75% of concentrate from Madagascar may be sold directly to industrial consumers, while the remaining 25% will be sold to TGP’s downstream operations on an arm’s length basis in commercial terms. In fact, upstream operations could sell 100% of its output into the open market if the company chooses and downstream operations could purchase graphite for their inputs from any other supplier. The businesses and operations are totally independent of each other. However, product from upstream is preferred to downstream due to its superior quality. The company’s mining and processing expansion plans are shown in Exhibit 2.
Exhibit 2: Madagascar mining expansion plans, tonnes
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Staged development across all projects allows for a relatively low initial capital outlay, with subsequent investment needs expected to be partially funded from the internal cash flow. Based on the information provided by the company, it expects to achieve capital intensity of around £250–290/t of mining and processing plant capacity at both projects, which puts it in the lowest quartile of all graphite miners. According to the company, the initial 3,000tpa facility at Sahamamy was expected to be built at circa £300/t of capacity. However, we understand the actual capital intensity was closer to circa £350/t including some exploration and infrastructure development costs (circa $451/t at current FX). At the same time, the 6,000tpa facility at Vatomina is expected to achieve capital intensity of about £235/t. The company estimates overall production and processing capacity of 81,000tpa to be about £260/t in current money terms. See Exhibit 3 for a relative comparison of estimated capital intensity and Exhibit 4 for estimated operational costs of various graphite producers. One of the reasons behind the relatively low capital intensity is the projects’ proximity to infrastructure and the favourable geology of the deposits, namely close to surface and free digging. Added to the lower costs are the company’s expertise in processing technologies, equipment design and manufacturing capabilities, all leading to a lean process, high recoveries, flake size retention and high purity of finished products.
According to the technical report compiled by SRK Consulting in 2019/20, TGP’s mining and processing operations are expected to have relatively low operating costs, supported by the favourable geology, access to infrastructure and the relatively coarse size of the graphite resources. During the ramp up phase at the Sahamamy project in April to December 2019, the company achieved C2 operating costs (direct cash production cost plus depreciation and amortisation, excluding indirect G&A and overheads) of £257/t (circa $332/t at current FX). The larger/jumbo flake sizes should also translate into higher per tonne revenue for the end-product. While the processing costs should be taken into account and could vary, these cost estimates could be compared broadly with graphite prices ranging from $1,000/t to $2,000/t for the large (+50 mesh) and jumbo (+32 mesh) flake sizes at fixed carbon (FC) of 95% and above. Further, based on SRK’s technical report, Sahamamy’s production from July to December 2019 was circa 50–60% jumbo/large, circa 25–30% medium and the remainder small/fine flakes, with circa 85–96% FC. At the same time, during the ramp up, the company reported Sahamamy achieved a selling price of US$837/t (circa £665/t).
Exhibit 3: Selected African graphite projects capital intensity (US$/tonne)
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Exhibit 4: Selected African graphite projects unit cash cost of production (US$/tonne)
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Source: Company data. Note: *TGP Sahamamy capex intensity is based on the project’s ramp up to 3kt capacity.
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Source: Company data. Note: *TGP Sahamamy opex is based on the project’s ramp up to 3kt capacity.
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Exhibit 3: Selected African graphite projects capital intensity (US$/tonne)
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Source: Company data. Note: *TGP Sahamamy capex intensity is based on the project’s ramp up to 3kt capacity.
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Exhibit 4: Selected African graphite projects unit cash cost of production (US$/tonne)
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Source: Company data. Note: *TGP Sahamamy opex is based on the project’s ramp up to 3kt capacity.
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Sahamamy consists of a mining permit covering 8km2 and is located about 8km aerially from Vatomina. The project was acquired by Tirupati with existing infrastructure and had been producing small quantities of graphite in the past. It has an environment permit for 3,000tpa capacity, a production team and internal infrastructure.
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The mining operation is presently a free-digging, open-pit operation. The 3,000tpa processing capacity implies run-of-mine (ROM) ore consumption of circa 80,000tpa and moving 240,000tpa of waste and ore. The project consists of two adjacent mining blocks: Sahamamy and Sahasoa. The mining permit for the Sahamamy block is valid to July 2039, while Sahasoa has a mining permit up to April 2056.
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Following the acquisition, TPG constructed and commissioned a new 3,000tpa process plant in February 2019 while simultaneously working on internal infrastructure, mine development and marketing strategy and development. According to the company, it has also established a new technology which reduces waste by 50% and produces construction sand. Commercial production at the plant started in January 2020 and reached full capacity in March 2020.
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According to SRK, between July and December 2019, the total ROM ore feed to the plant was 22,903t, while graphite concentrate production was 895t at 85–96% FC.
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As TGP plans to minimise upfront capex and equity dilution, it is pursuing a phased expansion approach at Sahamamy, with an overall capacity target of 21,000tpa by end 2024, a project for which the environmental clearance has already been granted.
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Vatomina is a greenfield project located on the east coast of Madagascar and situated about 70km south of Toamasina, the port city of Madagascar. The company has a 98% interest in the project.
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The mining permit covers a 25km2 area and is valid to December 2055. TGP currently has an environmental permit to produce 12,000tpa of graphite concentrate from Vatomina.
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The style of mineralisation is similar to that at Sahamamy and suggests shallow free-digging surface mining.
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The first 6,000tpa plant was designed in-house by TGP (as are all the other modules for expansion) and is under construction, with the aim of commissioning it by mid 2021. This operation is planned to be followed by three more 18,000tpa modular plants, bringing total production capacity at the project to 60,000tpa by end 2024.
TGP’s Madagascar projects are high-purity flake graphite deposits within a graphite-bearing rock that has been weathered leading to the formation of saprolite horizons (ore is shallow and free digging) with thickness varying between 15m and 20m. SRK Consulting provided a total JORC compliant mineral resource estimate of 25.5mt at 4.5% grade implying contained graphite of 1.1mt and an estimated life of mine of circa 14 years at full production capacity. According to TGP, it has explored 25–30% of its mineralised zone up to a 50m depth, from which it appears that the currently established compliant resource in terms of size and grade is somewhat towards the lower end compared to similar graphite projects in Africa (see Exhibit 6). However, in general this is not indicative of inferior project economics or lower project profitability as there are a number of other factors that play a significant role in determining profit margins in graphite mining and processing. Further, we note that there is some evidence in graphite mining of inverse relationship between the head grade and the flake size distribution (ie lower grade corresponds to larger flakes), with the coarser flake size leading to the premium pricing and higher profit margins.
At present the majority of TGP’s mineral resources are in the inferred category (see Exhibit 5). The company is yet to define mineral reserves and plan to conduct additional exploration work. As one of the potential next steps, SRK suggested to undertake a pre-feasibility study on the projects. To this end, TGP has allocated an initial budget of about £0.3m (we understand the company owns a drill rig, which lowers exploration cost) to be spent on expanding and upgrading its resource base and has engaged SRK to assist with developing a targeted exploration programme that is expected to be initiated shortly after the listing. Both projects have additional exploration targets, which coupled with the fact that the company has only explored about 25% of the deposits’ footprint so far, suggests potential upside to the resource base.
Exhibit 5: SRK resource estimates for Vatomina and Sahamamy projects
Project |
Resource category |
Quantity (Mt) |
Grade (TGC %) |
Contained graphite (Mt) |
Life of mine (years) |
Vatomina |
Measured |
- |
- |
- |
- |
Indicated |
3.2 |
4.30% |
0.138 |
N/A |
Inferred |
15.2 |
4.70% |
0.714 |
N/A |
Total mineral resource |
18.4 |
4.60% |
0.842 |
14 |
Sahamamy |
Measured |
- |
- |
- |
- |
Indicated |
1.4 |
4.10% |
0.057 |
N/A |
Inferred |
5.7 |
4.20% |
0.239 |
N/A |
Total mineral resource |
7.1 |
4.20% |
0.296 |
14.1 |
Group total |
Mineral resource |
25.5 |
4.50% |
1.138 |
14 |
Source: TGP Prospectus. Note: TGC stands for total graphite carbon.
Exhibit 6: Selected African mining projects resource (LHS, mt) and head grade (% TGC)
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Downstream processing operations
The flake graphite concentrate used for industrial applications, which typically has up to 96% FC, forms the input raw material for further processing. Additional processing includes refining up to 99.99% FC (which removes the remaining impurities from primary processed flake graphite), intercalation (the infusion of flake graphite molecular layers with other molecules, imparting the property of expansion at a trigger temperature), micronisation (size reduction with controlled particle sizing) and shaping (modification of shape from sheets to spherical or potato type). TGP’s downstream processing capabilities are being developed under two projects, namely the Patalganga and the Speciality Graphite Projects (SGP), both based in India. The company envisages the following development timeline for Patalganga and SGP:
Exhibit 7: Downstream capability development plans and planned commissioning timeline
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The Patalganga project is currently a small-scale manufacturing and production plant for expandable flake graphite composites used as flame retardants in various products for construction, metallurgy and other applications. The Patalganga project also houses facilities for flake graphite concentrate finishing, which provides the company with a launch pad for its Madagascan flake graphite into the Indian markets. The project also provides the company with early-stage earnings and secures a solid foundation for planned future developments, giving it early access to large and important Indian domestic and global customers.
The project is in the well-developed industrial area of Maharashtra 40km from Nhava Sheva Port, on the west coast of India. It has well-developed infrastructure, is close to input materials and has a skilled and technically qualified workforce with low-cost structures. India has various policies promoting manufacturing and business, including the ‘Make in India’ programme.
India has strong domestic demand for products with technologically advanced processes in place, something that TGP has developed with its own unique processes, proven at trials, with samples for multiple applications.
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The Patalganga 1,200tpa plant is producing fire-retardant grade graphite suitable for multiple applications like roofing, various foams, walls and coatings, to improve the ability to contain and control fire and material burn.
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The expansion of this facility to 4,800tpa is in progress to increase production capacity and expand product capabilities by adding other value-add products (high-purity graphite and micronised graphite). Test samples were approved and pilot-scale tests were completed.
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The Patalganga project assists the company with establishing its presence in niche products prior to developing larger projects, reduces gestation periods and provides early cash flows.
The company is also looking to develop a centre for graphene manufacturing and application, which should provide it with a technological backbone and help develop advanced materials.
TGP developed a zero hydrogen fluoride high-purity graphite purification process, producing the input material for graphene. It has also developed state-of-the-art technology for manufacturing graphene and plans to install capacity and manufacture graphene at a scale of 10kg/day by 2022. It is working with multiple universities and industries and the centre is planned to also manufacture ultra-high purity graphite (>99.99% FC) that will be sold as a graphene precursor, samples of which have been approved by users, as well as industrial scale graphene and graphene oxides. This unique zero hydrogen technology has the following benefits:
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high-quality two to four layers of graphene and graphene oxide;
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low cost, commercially feasible;
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zero-chemical, environment friendly; and
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the process has been standardised at 1kg/day scale.
Additionally, the company plans to use its expertise in mineral processing to provide consultancy services to industries, providing an additional source of revenue to the centre.