Disclosure: South Star Battery Metals Corp. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Price Performance (1-year)
Portfolio Summary
Two graphite projects in the Americas. Santa Cruz is the first new graphite producer in the Americas in over 25 years. The U.S. is a leading importer of graphite
Brazil is the fourth largest graphite producer in the world. STS aims to establish a vertically integrated battery-graphite plant in the U.S., sourcing 100,000 tpy of flake graphite from its mines in Brazil and Alabama, to produce 61,800 tpy of high-value products, such as battery anode materials
Santa Cruz Graphite Project, Brazil (100% ownership)
STS commenced phase one production in Q4-2024, 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. Located just 1.3 km from a paved highway, and 270 km from a port, with power, gas, and water within 5 km
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
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
A 2020 PFS, based on a 12-year mine life, returned an AT-NPV5% of US$81M, using US$1,287/t graphite vs the spot price of US$1k/t for large flake graphite (93%-95% Cg
We estimate that phase one production of 12 Kt/year could generate US$12M in revenue. We expect the company to start reporting revenue this quarter
We will provide our full-year revenue and earnings forecasts once the Q1 financials are published
STS is planning a 4,000-5,000 m resource expansion drill program, followed by a feasibility study in late 2025.
Located on the Alabama Graphite Belt. This project includes a past producing graphite mine, grading 3%-5% Cg (medium grades). Management aims to commence production in 2027
The PEA was based on a vertically integrated battery-graphite plant in the U.S., producing 61,800 tpy of high-value products over a 19-year project life. This plant will source 50,000 tpy of concentrates from BamaStar, and 25,000 tpy from Santa Cruz, as feedstock. The project will encompass:
Resources increased 108% to 1.08 Mt, while the average grade decreased 14%. We believe the impact of higher tonnage more than offsets the decline in grades
Assuming an EV consumes 75 kg of graphite, STS’ plant should support 1M EVs per year
The PEA returned an AT-NPV8% of US$1.6B, and a high AT-IRR of 27%. Product prices used in the study range from US$800/t for fine flake, to US$10,500/t for anode materials, consistent with current price
Management plans to complete a feasibility study by late 2026. The U.S. Department of Defense has agreed to fund US$3.2M towards the study, which is estimated to cost US$9-US$14M over 18 months.
Upcoming Catalysts
Multiple near-term catalysts
Financials
Source: FRC / Company
FRC Valuation
Our DCF valuation on BamaStar (introduced in this report) is $0.74/share
For conservatism, we have not factored in potential upside from value-added products, and have modeled the mine to produce and sell only concentrates, similar to Santa Cruz
We are not making any material changes to our valuation on Santa Cruz
Following the inclusion of our DCF valuation on BamaStar, our fair value estimate for STS has risen from $1.47 to $1.91/share
We are reiterating our BUY rating, and adjusting our fair value estimate from $1.47 to $1.91/share. STS has made significant progress, commencing production at Santa Cruz, and delivering a robust PEA for BamaStar. The company is well-positioned to capitalize on the growing demand for battery-grade graphite, particularly in the U.S.
Risks
We are maintaining our risk rating of 5 (Highly Speculative)
We believe the company is exposed to the following key risks (not exhaustive):
