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Price Performance (1-year)
Advancing two graphite projects in the Americas towards production. The U.S. is a leading importer of graphite
Brazil is the fourth largest graphite producer in the world
STS has completed construction and development activities, and aims to start phase one production next month, targeting 12 Ktpa of natural flake graphite.
Located in one of the most active graphite producing regions in the world, with a track record of over 70 years of production
Excellent infrastructure in place - 1.3 km from a paved highway; power, gas, and water within 5 km; 270 km from a port
A mid-sized/relatively low-grade resource; however, resources are shallow and open-pittable, implying relatively low OPEX
In addition, there is no need for crushing or blasting, and the strip ratio is relatively low
We believe another major advantage is that 63% of resources are large flake; the type used for anode materials in EV batteries
As resources remain open along strike, and at depth, we believe there is potential for resource expansion; note that 95% of the project area remains untested. The 2020 PFS was based on a 12-year mine life
Relatively low initial CAPEX and OPEX. AT-NPV5% of US$81M, and a high AT-IRR of 35%, using US$1,287/t graphite vs the spot price of US$1k/t for large flake graphite (93%-95% Cg)
The company is set to begin phase one production next month. Additionally, STS is planning a 4,000-5,000 m resource expansion drill program, followed by a feasibility study, in 2025.
Fully permitted. A historic producer, grading 3%-5% Cg (medium grades). Located on the Alabama Graphite Belt
Open-pit resources. Relative to Santa Cruz, BamaStar has higher tonnage, but similar grades. The deposit remains open in multiple directions
Since our previous report, STS has completed an infill/resource expansion drill program (totaling 15 holes/1,900 m), and additional metallurgical tests, in preparation for an upcoming PEA.
All holes intersected material graphite intercepts of up to 3.34% Cg. Drilling has revealed a deeper mineralized zone beneath the previously identified area; while it is too early to quantify the potential upside, we believe this discovery will positively impact the upcoming resource update and PEA
Metallurgical tests yielded concentrate grades of up to 99.5% Cg, with relatively high recoveries
STS is considering the option of mining oxide and transitional materials before processing fresh ore, with the aim of potentially reducing initial CAPEX and OPEX. Management plans to complete the PEA next month, and initiate a feasibility study in Q4. The U.S. Department of Defense has offered to fund approximately 50% of the feasibility study, or US$3.2M, which is expected to take about 18 months.
Aiming to complete a PEA next month
Multiple near-term catalysts
Strong cash position
Can raise up $0.5M from in-the-money options and warrants
STS is trading at $34/t (previously $29/t) vs the sector average of $23/t (previously $30/t)
Given that STS is a near-term producer, and more advanced than most other juniors on our list, with a higher percentage of large flake graphite, we believe STS should trade at a significant premium
Our revised valuation on Santa Cruz is $1.16/share, down from $1.72/share, due to share dilution since our previous report, partially offset by the higher present value of future cash flows as the project nears production
Using a sum-of-parts valuation, we are arriving at a revised fair value estimate of $1.47/share (previously $2.01/share
We are reiterating our BUY rating, and adjusting our fair value estimate from $2.01 to $1.47/share. Upon commencing production, STS will become the second publicly traded junior flake graphite producer in North America.
We are continuing to assign a risk rating of 5 (Highly Speculative)
We believe the company is exposed to the following key risks (not exhaustive):
