Battery company tanks following $22m capital raise

The market made it very clear what it thought of Talga’s (ASX: TLG) $22m capital raising, finalised today, with the graphite-play down -12.45% at noon.

The small cap’s stock was being offered [via an institutional placement] at $1.10, which was a 17% discount to the previous close and 16.2% lower than the 10-day volume weighted average price.

On completion of the institutional placement, which Talga notes was strongly supported by sophisticated, professional and institutional investors, the company’s pro forma cash position before costs at 30 September 2022 is expected to be $27m.

Talga is also planning to raise an additional $10m from retail investors via a share purchase plan (SPP) at the same price as the institutional placement and is understood to have received applications in excess of $50m.

What does Talga do?

To the uninitiated, Talga is building a European battery and advanced materials supply chain, to offer products critical to its customers’ innovation and the shift towards a more sustainable world.

The company is developing green battery anode and advanced materials in northern Sweden and plans to work with the highest-grade graphite resource in the world at its mine and coated anode production facilities, to ensure its part of the battery supply chain is clean, ethical and secure.

Cash burn rate

What may have spooked investors is the current state of Talga’s financials which at the June quarter included negative cashflow of -$9.09m and had $13m cash in the bank, and the company’s cash burn rate.

Given that Talga Group doesn’t currently generate revenue, its cash burn rate is understood to be up by around 160% over the last year.

While yesterday’s raisings clearly eases the situation, the great unknown is how long these funds will last until the company has to go back to the market to raise more, which threatens to further dilute shareholder value.

To put recent spending in context, last year Talga burned through $32m, which is around 9% of the company's market cap ($356m).

Talga plans to use funds raised to advance its:

• European projects Vittangi (engineering, early works and long-lead items), Niska (drilling to expand resources)

• EVA production and trial mine costs, and…

• General working capital and offer costs

Recent developments

Earlier this week Askari Metals (ASX: AS2) struck a deal to acquire the Talga East lithium project in WA’s Pilbara region.

Total consideration for the project consists of $50,000 in cash, as well as $75,000 in shares.

Late September, Talga’s share price rallied by around as much as it fell today (13%) after announcing a non-binding off take term sheet with Sweden-based Automotive Cells Company SE (ACC).

Talga plans to supply ACC with 60,000 tonnes of its flagship lithium-ion battery anode product, Talnode-C over five years.

After today’s fall, Talga’s share price year-to-date has tumbled by around a third from $1.60 to $1.17.

At its peak, early November 2020, Talga was trading as high as $2.15.

Consensus does not cover this stock.

Based on Morningstar’s fair value of $1.81 the stock appears to be undervalued.

Talga Group share price over 12 months.