Tirupati Graphite’s Problem Is Everyone Else

Trade Tirupati Graphite Shares Your Capital Is At Risk
Tim Worstall
Updated: 31 Jan 2022

Key points:

Tirupati Graphite (LON: TGR) shares are down 5% since we mentioned them last week. The thing is that their work at the Sahamamy graphite mine in Madagascar continues to go to plan. They’ve been able to get their ordered equipment for the mine expansion to arrive. This isn’t a given thing what with the current shipping chaos. They’re commissioning further expansion as well – there’s little that looks wrong here.

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Tirupati Graphite does seem to be just getting on with things. This isn’t a given for small mining companies, Tirupati is mining graphite seemingly successfully. There is this series of hoops that a small mining company needs to go through. Have we found something that is even worth mining? Is it possible to finance what has been found? If we get through those then it’s possible to think that it’s all gravy from there but there is still one more consideration to take into account.

Tirupalti’s success or not in graphite mining is going to be crucially influenced by what all of the world’s other graphite mariners do. Even, what all the potential graphite miners do. The big tell of this being from Tirupati themselves: “to increase total production capacity in Madagascar to 84,000 tpa by end 2024; believed to represent c.5-7% of current global demand.”

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This is a vital point about any activity in minor metals or elements. Clearly, it’s obvious, the EV revolution is going to increase, is increasing, the demand for graphite globally. As with lanthanum, cobalt and lithium it’s one of the essential minerals that makes the whole battery-powered car idea work. But simply an increase in demand isn’t enough to ensure the profitability of a materials supplier. What also matters is how much is supply going to expand given that increase in demand? It is, as all the textbooks say, the balance of those two which determines the price.

With some minerals, this doesn’t matter so much. A new small gold mine changes global supply in such a minor fashion that we can essentially ignore that effect upon sales price. It might move by cents per ounce but not more than that. So much of the global gold market is in fact recycled material that unless someone finds another Witwatersrand out there then new production just isn’t going to move the price dial.

This isn’t true or many of the minor metals. Think back to 2010 when China decided to limit rare earths exports. The price boom led to both Lynas and Molycorp being able to expand and restart (respectively) production. That cratered global prices as just those two new suppliers more than covered the absent supply from China. We can also see much the same in lithium, there was an investment boom in 2013 and some of those mines financed then have already gone bust. Any one of those new lithium mines would have been fine, but all of them?
This could happen in the graphite world, it might well not/ Which is what causes an uncertainty about Tirupati. Not whether Tirupati itself is doing just fine, but how many other people are also prospecting for, opening up, graphite mines? If the one mine is 5 to 7% of global demand then we don’t need too many other new mines to then crater the price again, do we?

This isn’t a definitive problem but it is something we need to keep in mind in small markets. Even with a good deposit, effective management, and so on, we still need to worry about what everyone else is doing too.

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