Roth Capital Partners analyst Joe Reagor has identified the potential of Graphite One (TSXV:GPH, OTCQB:GPHOF) as a vertically integrated graphite supplier in the United States, initiating coverage with a Buy rating and CA$2.25 per share price target.
Graphite One is a Canada-based company focused on producing anode material for the lithium-ion electric vehicle battery market and energy storage systems.
The company owns the Graphite Creek project in Alaska, which was recently named the largest known graphite resource in the United States by the USGS. With management realizing the importance of being “more than a mining company,” Graphite One’s long-term plan is to design and construct a graphite anode manufacturing facility in Washington State and a future battery recycling facility.
The company also has government support backing its long-term goals, says Reagor, adding, “We believe that having local, state, and federal support for mining projects in the U.S. has a significant impact on the permitting process.”
“All of these factors give us confidence that the Graphite Creek project is important to the U.S. and Alaskan governments,” he added.
Reagor’s report comes as GPH prepares to release its pre-feasibility study for the Graphite Creek project, which Roth Capital Partners anticipates will be completed by the end of Q2 2022. Reagor believes that the PFS, once released, “will provide a significantly clearer picture of the potential value of GPH’s project and should serve as a significant catalyst for the company.”
Graphite One’s year-end financial highlights for 2021 include $6.4 million in cash and $6.5 million in debt (including leases). Reagor projects that the company will need to raise $25 million during 2022 and an additional $40 million in 2023-2024 to fund the construction costs associated with the Graphite Creek project.
A portion of this future funding is expected to come from the exercise of existing warrants, says Reagor, with the company ending 2021 with 30.5 million warrants outstanding at an average exercise price of $1.07.
Reagor assigned a $315.4 million valuation to the Graphite Creek project which, adjusted for the $0.1 million in net debt at the end of 2021, brings the total valuation of the project to $315.3 million. Overall, the report forecasted a strong outlook for GPH in 2022, with Reagor stating that he believes that the above funding analysis is a conservative valuation of the company’s assets given the upcoming release of the PFS. Once the PFS is released, Roth expects to revisit its valuation of the company.
Graphite One’s stock price reached a YTD high of $1.97 per share in April, but has since taken a loss and is currently trading at $1.34 per share.
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