Transcript of Alan Kohler's interview with Mark T.
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Talga Secures Battery Contract with Key Car Client
Mark Thompson, the CEO of Talga Group, tells Alan Kohler about the company's five-year offtake agreement to supply ACC, owned by Mercedes, Citroen, Alfa Romeo and Maserati.
By
Alan Kohler·4 Oct 2022
Mark Thompson is the CEO of Talga Group which has a graphite mine and factory in North Sweden. The reason to talk to them is that they’ve just signed an offtake agreement with a company called ACC which stands for Automotive Cells Company, that’s a battery-making business that’s owned by Mercedes Benz and the company that owns Alfa Romeo, Chrysler, Citroen, Fiat, Jeep, Peugeot and Maserati, and also another battery company called Saft. That’s about 60 per cent of the current output that they’re proposing from this facility in Sweden that is a non-binding offtake, so the next step is for it to be made binding which they’re working on so need to keep an eye on that and obviously they’ll be announcing some more offtake agreements I think and they are proposing to increase the output from the facility in a couple of years’ time.
Interesting business and they’re certainly in the thick of the battery business as I observed to Mark at the end of the interview I think that what we’re looking at here is a takeover at some point, they’ll sell the business to a big European battery maker I guess. Obviously he’s not talking about that but I think that’s the game here, that’s for sure.
Here he is, Mark Thompson, the CEO of Talga Group.
Mark, as always we’ll start talking about cash. The most recent quarterly I’ve got is June, the cash burn in June was 6 million or so and you had 13 or so million in the bank at the end of the quarter. What’s the situation today, can you tell us?
I can’t, actually, until we put the cash flow out in the quarterly coming up at the end of this month but, obviously, we’ve had a very busy year delivering on lots of things including building plants, the first coated anode plant in Europe.
Have you raised any more money during the past three months?
No, that situation is intact.
Right, so you’ll probably need to raise some more money soon, won’t you?
We’re always reviewing our capital needs, Alan.
Right, very good, I’m sure you are. Can I ask will you be raising more money soon?
I couldn’t answer that either. I must say obviously the markets are extremely choppy right now, we’ve got a lot of opportunities with a lot of different groups, certainly the share price has come off from some recent highs but it’s also holding up pretty well, I think, compared to peers. We’re heading into project financing stage where we’ve got a number of investment banks and state institutions visiting the site looking at the project finance. At some stage we’ll be transitioning from standard sort of equity or company equity facing strategies to more project finance strategies but along that pathway there’s always things you have to respond to depending on how the timing is going and the outside world. That’s about all I can say right now.
No worries. Okay, what prompted this interview today is the announcement the other day of an offtake agreement with Automotive Sales Company SE which seems to be owned by Mercedes Benz and Stellantis, is that right?
Correct.
And Stellantis makes Alfa Romeo and Chrysler and Citroen.
Peugeot.
Maserati.
Maserati. We might be power your future car there, Alan, if you drive that sort of thing.
I haven’t got a Maserati unfortunately.
It’s significant that they’re a global brand of vehicles, a big number of vehicles that’s for sure. They’ve set up their own battery-making company within this electrification of all of their models.
And ACC is that battery-making company, is it?
That’s right and it’s Mercedes, Stellantis but also Saft, Saft won’t be well known in Australia but it was a pretty significant European battery maker that was doing predominantly energy storage for stationary things, wind farms, that sort of thing. Also, some mobility like trains and they were branching out towards vehicles and they were bought by the French energy giant Total Petroleum. The Total Saft connection then booked up with Mercedes and Stellantis and the three of them have created ACC and they’ve been testing out materials and obviously finding them of interest to enter into an offtake for 60,000 tonnes over five years going forward.
They’re not producing batteries yet, is that right, or they are?
To a small degree but they’re expanding. They have plans that relatively soon their plans are to be up to 120 gigawatt hours of batteries which would say that to give it some idea of scale that’s about 3 to 4 times the size of Tesla’s giga factory, the current one in Nevada, and they’ll have that across probably two or three countries in Europe.
Right, so this is a non-binding offtake agreement at this stage, how much is it for and when will it become binding?
Negotiations are obviously at a fairly advanced stage because we’ve got a legally binding requirement as part of this to go to binding by the end of next month, end of November. So obviously the parties are quite well advanced and aligned with what we’re trying to do. The volume is 60,000 tonnes over five years starting up around ‘25 so you have this ramp-up so your early years are smaller amounts and then they get bigger and bigger as the year goes on and that fits in well with the sort of start of our commercial production at the end of ‘24 so yeah it probably represents about 60 per cent of our planned stage one production so it’s a very good cornerstone and it’s obviously a very high quality customer, they’re European and global, and it's got those top end brands in it as well as bulk, shall we say, brands like your Citroens and your Peugeots. It’s a very good fit, we think, and it’s aligned with what we’ve been saying for years which is battery manufacturing has to be built outside of Asia and if you build in Europe where there’s a huge amount of production it makes sense to have a local supply chain for that. This is, we think the first of many sort of such agreements that we’ll be doing similar to what the lithium guys have been doing for the last few years.
You’ll be supplying this from your German factory?
No, it’ll be coming from our Swedish factory so yeah we are building an integrated mine and anode factory in Sweden, in North Sweden in the town of Lulea and that’s where the material will be delivered to them from.
Right, is that place cold?
During winter, during summer it’s like a Spring day in Perth I guess but during winter it can get chilly but everything is built for that, the roads, the rail, the ports, everything all operates as normal 365 days of the year.
Basically, you’ll be digging up the graphite and then processing it on the spot there and producing your branded graphite called Talnode C, is that right?
Correct.
How much does that sell for, will that sell for per tonne?
I guess all I can say about that is that we published a DFS last year, a detailed feasibility study, and the pricing of that product in that study was around $US11,000 to 12,000 a tonne and we’ve also published the year before that a scoping study that sort of indicated much bigger volume, so five times our volume in which case we would lower the price to between $US9,000 and 10,0000 a tonne. All I can say that when it comes to negotiations on offtakes and things is that pricing is subject to those private negotiations with each company, there’s no sort of benchmark price that’s public and what we have said is that pricing will – we don’t go into too many details about that structure but we certainly are keen to have a floating reference price meaning that over time as prices for battery materials do tend to rise you’re coming off multi-year decade lows in graphite for anodes in particular that we would allow the price to sort of rise to wherever the market is going. We forecast and other people in industry forecast that anode prices will probably double over the next several years.
So that 60,000 tonnes of off take with ACC, that’s for the whole of the five years, right, it’s not per annum?
Correct, so if you projected a price of $US10,000 a tonne then obviously that’s $US600 million or about $A800 million over five years so it’s an extremely good foundation as part of the financing of the project and sort of validating its value especially when our market cap is currently only about $A400 million.
Yeah, so that’s 600 million over five years and what did you say, that was 60 per cent of your output?
Yeah.
Right, and you haven’t sold the rest yet?
No, we’re looking to allocate. To be honest in the last six months there’s been quite an air of desperation from battery makers looking for anode, I think over previous years they’ve just assumed they could get it from their usual suppliers but things have dried up and so now prices are heading upwards and volumes available has shrunk so we have to be careful who we allocate to, that there’s a good fit for us longer term how it fits into our development and growth strategies. It’s probably fair to say we could have placed multiples of our output over the last year but we’re just being very careful who, what, how, and 60 per cent is appropriate right now. We’ll probably look to place most of the rest of the production into offtakes but we’ll also maybe leave some free for the spot market to take advantage of different opportunities in the short term.
Is that output from Sweden, will you be producing more than that say from Germany or somewhere else?
No, the plan is for all production to come from Sweden. The German plant develops – essentially it’s got several roles, it works out the processing and the mineralogy, it works out our processing technology that we then transfer up to Sweden and it also is currently expanding its production of silicon anode material so we have another battery material called Talnode SI which is a silicon-rich graphite product and we’ve been scaling that up in Germany. It could be that if that goes into commercial production that it might be in Germany but the graphite which is the bulk of the business, we want that to be up in North Sweden where the power costs are not only very low but the power itself is all coming from hydro and wind so it’s 100 per cent renewable powered up there whereas down in Germany your power mix is a bit more mixed.
Right, okay, so is that going to be your absolute maximum output? I think we must be talking 100,000 tonnes over five years, right?
Yes, so the plan – what we call now stage one, so the DFS study is just under 20,000 tonnes of anode each year for just over 20 years. We have also published a study increasing that by five times so it’s what we call the Niska expansion. Behind this stage we have an expansion stage that’s under a scoping study which takes the actual output of anode up to just over 100,000 tonnes, so five times larger.
Right, and when would that happen?
Around ’26, ’27, subject to the usual things to do with permitting and timeframes along the way btu the idea is to get this into production first and then the exact scale of that expansion and the financing of that will be a lot easier to assess in more detail.
What’s your broad assessment of the battery market at the moment?
For lithium-ion batteries the demand is massive, there’s huge capacity being talked about and indeed being built, there’s battery factories being built everywhere around the world, a huge scale is being added. But the raw materials are the problem. Obviously, we’re in touch with a lot of car makers and battery makers that are relatively new, they’re not currently established, and they are only just realising how bad the supply chains are, that there’s not enough lithium, there’s not enough graphite, there’s not enough nickel and they’re all starting now to get a lot more active in looking at getting involved with mines, going upstream all the way to a mine and getting involved with the finance of it. That’s what we’ve seen happen in lithium and nickel and we expect it to happen in graphite as well. To be honest it’s mostly all about these critical raw materials to support the batteries, they haven’t been investing enough in it and realising how bad it was.
The fact that you can build a battery factory but not necessarily have tied up the materials to go into it seems pretty basic to us but to the auto makers they’ve sort of been used to pretty much ordering whatever they want from anywhere in the world and having a lot of globalised supply to solve their problems. They’ve just had a lot of shocks to that recently and they’re now realising that if you don’t have raw materials there’s no battery and definitely no graphite there’s no battery.
In fact, a chart on one of the presentations you did, in fact a recent presentation you did, shows that graphite is the main volume material in lithium-ion batteries. They actually should be called graphite batteries, shouldn’t they?
Indeed, and indeed Elon Musk himself did state this, that the lithium-ion battery should be renamed the graphite nickel battery because that’s the predominance of the material that counts to them in volume. I think graphite has been the ugly duckling of the battery materials because it’s not the most expensive one. I guess what they’ve forgotten about is that because it forms the bulk of the active material in the battery,
no graphite, no battery. I think they just sort of assumed that there was plenty of it around because it was cheap and they didn’t realise that while all the anodes are made from graphite not all graphite can become anode, most graphite gets made into industrial products, grease and refractory bricks, and all sort of other products. There’s only a small segment of the graphite industry that can currently make anodes for batteries and I think that’s only just becoming apparent to them.
Now I think graphite is coming up in importance, it’s getting talked about more at the highest levels.
Is there much of it around in the earth’s crust?
See that’s the problem, in the earth’s crust is there a lot of graphite? The answer is yes, there’s literally hundreds of millions of tonnes of the stuff, the problem is very rarely does it concentrate in a way that makes a product suitable for battery. Most of that graphite cannot actually be turned into a battery. Yeah, so it has a high crustal abundance but it’s not a metal. If you had a high crustal abundance of, say, lithium or gold or something like that, it’s really a matter of money to get it out and turn it into whatever you want, I think the crustal abundance argument holds. But for graphite it breaks down because if the graphite isn’t the right size, if it’s too big or too wide or it’s got the wrong crystallinity, the wrong internal structure, it actually won’t make a battery. A lot of that graphite in the earth won’t translate into making the material for the batteries and so by the time you filter out all that stuff the amount of material available for batteries is not that big.
I think Benchmark Minerals at their conference last week on giga factories in Asia pronounced that there needed to be 97 new mines built, 97 new graphite mines built to meet demand for batteries.
How many graphite mines are there now?
In the western world there’s like a handful. Western world – I should say there’s one or two in Africa, there’s none currently operating in Australia, there’s one or two significant ones in South America, there’s nothing in all of North America, there’s maybe one small one operating in Canada. Yeah, you’ve literally got outside the northern and central parts of China you’ve probably got about half a dozen mines of different size, six when we need 97.
That same presentation showed that 58 per cent of the mined graphite comes from China.
That’s right, which they consume domestically. A lot of that material they produce also cannot go into batteries so it’s 58 per cent of mined graphite, not all of which will go to batteries, most of that will go to over a million tonnes a year of industrial product. What’s interesting about China is the downstream while they might only mine 58 per cent of the graphite they process nearly 100 per cent of it. Graphite that does get mined elsewhere around the world, in Africa and South America, gets transported to China where it gets processed into the precursors to make the batteries and so they control that. It’s actually a worse supply chain than rare earths and lithium, and other materials that people think about a lot, China has a stranglehold on it but their stranglehold on graphite is actually worse and is what is now being coped with by – you’ve seen with the USA’s Inflation Reduction Act where they’re starting to build lots of infrastructure and bring lots of material in and Europe is looking like going the same way, if they don’t want Chinese material they have to set up the downstream processing of graphite to be available for batteries. The pressure is on now, the past years they just didn’t care about it so much.
Will yours be the first graphite processing factory outside of China?
Right now, we have built what we call the electric vehicle anode plant, the EVA, and that’s the first factory capable of making coated anode in Europe that we know of. There may be some more in some other places we’re not aware of. There’s some outside of China in Japan and Korea, of course, and Taiwan, but they rely entirely on Chinese material coming in so that entire supply chain is looking for new supply coming in and we would be one of the most advanced and the most developed anode producers outside of China at the moment.
Just remind us how you came to own that Swedish deposit of graphite?
It was a strategic decision about 10 years ago to do exactly what we’re doing now, it’s taking a while. The thesis was that electric vehicles and electrification of everything was going to drive new battery demand and if you look at all the minerals that go into a battery while lithium and copper were pretty obvious targets they’re also quite big and expensive developments and graphite looked like it was the one that had the worst supply chain. We made a strategic decision to get into graphite specifically for batteries.
What were you doing at the time?
Gold.
Right, and getting nowhere?
Gold has its ups and downs, definitely in the last few decades it seems to be more not growing but that was the idea, that was the – the great thing, Alan, about getting involved in batteries is that you’re looking at multiple decades of growth and you cannot argue against it because it’s not just consumer driven growth and all cyclical, it’s new growth, it’s a new demand that has to be built and it’s mandated by governments. You’ve got legislation about tailpipe emissions and cleaner cars, you’ve got now like the Californian government is saying you’re not allowed to build or buy an internal combustion engine car by ’26, you’ve got other countries that are doing a similar thing, the UK it’s by 2030. Engines that burn something to make power are sort of being outlawed everywhere and as you replace them with battery powered vehicles you just see there’s decades and decades of increased demand for things like graphite that can go into the battery.
That to us seemed like a real winner and so we searched all over the world, we visited lots of countries, took lots of samples, went down lots of mines and found this really super high grade special deposit in North Sweden where, yes, it is very cold but it was in a place that was very developable, it didn’t seem to have any killer issues and we started working on that. We took a few years to work out the technology of the processing and then a few years to work out the technology of getting the material by building it into an actual battery anode product and we announced those results in 2018. Since then it’s been on a pretty strong upward curve I would say.
You’re going to have to move to Europe, aren’t you, to Sweden or somewhere in Europe. You can’t do this from Collins Street, West Perth, can you?
We’ve been doing it so far. It’s not just all about me, we’ve got 60 staff, 55 of them are over in Europe, so we’ve got a CEO that’s full time in Europe, we’ve got a whole business structure over there. While we will continue to Europify the company, shall we say, so all the growth is there. Yes, we started on the ASX, we’re still here, we do review occasionally going to London or whether we should go to the US, changing listings, but right now the ASX is very functional for us and we raised the money here and we basically invested in building the operations in Sweden, processing plant in Germany and also we’ve got research and development of the products takes place in the UK. There’s some good reasons for those things being where they are as well, there’s quite a lot of grant money or financial help from governments for R&D in the UK and we also get a lot of help with the processing and the engineering of things in what in our case is in former East Germany in Thuringia in Germany.
There’s reasons for doing those things there but eventually everything just shifts up to Sweden where the power is clean and cheap, and you’re closer to the deposit and the people and our workforce there is rapidly growing. For now, it’s working very well.
Mark, it makes me think you’re heading for an exit, that eventually you’ll just sell the European business to perhaps ACC or someone like that.
There’s going to be many opportunities along the way, I think, Alan, but right now it’s still a bit under the radar, I think Talga is under the radar still and I think graphite and anodes, and its role in batteries is still a bit under the radar. I think the ACC is now recognising it and we’ve been working with teams of other companies in batteries and cars that are starting to recognise as well. I think there’s going to be lots of opportunities to work out along the way but we’re nowhere near the value you can see in our study.
Somebody is going to snap you up at some point, surely.
Well it’d be nice to put on a huge amount of value before that happens, of course, but right now we are in the market and I guess everyone is waiting to see offtakes to prove the product, permitting of the project to be completed and how you’re going to finance building the project, how you’re going to do that. We’re addressing those things and really over the next six months all those questions get answered.
The next thing I guess to look for would be making this offtake with ACC binding, right?
Yeah, that’ll be a good one.
And that will be next month, won’t it?
Yeah, the target obviously. Obviously, both companies could also agree if they need more time to delay it but I can tell you that both we and ACC are pushing hard on it to complete it in that timeframe that we’ve stated, both stated. But there’s other things going on, of course, it’s not just about that, there are potential offtakes with other parties, we’ve just had a bunch of banks and financial institutes up at site and the result of that visit will be potentially more developments about the financing of the project. There’s product developments, like a silicon product and some of the other battery materials that we make. We’re really a battery material maker that just happens to own a mine and there’s a huge amount of growth to come across all of the different products we have across the operation at Sweden and potentially down into Germany as well. We’re pretty well positioned for a lot of growth as all of these things mature and become more public.
But you don’t make any battery material, you just make graphite, right?
No, sorry to be negative, Alan, but no.
Carry on.
The graphite has to be highly engineered, so it’s got to be purified, it’s got to be shaped and then it’s got to be coated. There’s only a handful of companies that know how to do that in the world to be honest, that have got the secret recipes and have proven that they can do it to where the actual battery makers can take that product and put it straight in. Actually, these particles are very small, they’re 5 to 15 microns so they’re just a fraction of the width of a hair so they’re ultra-fine powders, finer that talcum powder and to manipulate those into the right shape and give them the right coating it’s a bit more like the pharmaceutical industry and the quality of how you present that material.
That’s quite tricky and that’s the difference between anode and graphite, so in the battery business the graphite is like your raw material, it may be purified, it may be shaped, but you can’t just put that straight into a battery, it has to have a special coating. The coating on it is the secret sauce and the secret technology, and if you’re able to do that then you’re able to sell to groups like ACC who are the actual battery makers. You’ll notice that we didn’t do an offtake agreement with say a mid-tier sort of Japanese training company or something like that, it’s directly with the end user because we make the final active anode product for the battery. That’s why you’re a battery materials group instead of a graphite one.
Right, I see, no problem. Interesting to talk to you, Mark, thank you.
Any time, pleasure. Thanks, Alan.
That was Mark Thompson, the CEO of Talga Group.
Guess, we have a pretty good handle on things as they go. Love to see these types of interviews though, because they show us we are walking forwards with both eyes open. Thx Mark for doing the interview and thx Alfa for doing the journalistic part of it 
