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#Trading Halt
Last edited 20 hours ago

ASX-listed battery material supplier NOVONIX is expected to be in front of fund managers on Tuesday, seeking up to $58 million in fresh capital.

Street Talk understands the raising would be strucured as an $18 million placement and a $40 million accelerated non-renounceable entitlement offer and would be fully underwritten.

The offer would be priced at 29¢ a share. NOVONIX shares last traded at 66¢.

Morgans was sole lead manager on the deal.

https://www.afr.com/street-talk/charging-up-novonix-taps-morgans-for-raising-20200526-p54wdz

A lot of people panicking about this news but personally I think it's 100% positive for shareholders. Novonix raised $5M in unsecured loans to build/expand their production facility. To raise $58M more shows management is aware of significantly more demand.

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#Update
Added 2 weeks ago

Novonix (ASX:NVX) develop breakthrough method for making battery materials

Novonix's shares have soared 38.5 per cent this morning and are trading for 45 cents each at 11:06 am AEST.

See link for ASX release:
https://www.asx.com.au/asxpdf/20200515/pdf/44hvlrs73pqlz1.pdf

Disclaimer: I have a position in NVX.

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#Broker/Analyst Views
Added a month ago

07-Apr-2020:  Morgans: Novonix: Breathing room to deliver on the first contract

Highlights:

Breathing room to deliver on the first contract

  • NVX announced that despite a two week closure of its Tennessee manufacturing plant work continues uninterrupted on R&D and its Battery Testing Services (BTS) segment.
  • BTS performed solidly in HY20 with segment revenue increasing by $2m on pcp.
  • NVX is adequately funded in the near term with $5m raised in debt funding.
  • The key focus over the next six months will continue to be manufacturing 500t of battery anode for Samsung under the initial sales contract.
  • We reduce our target price to 82cps but maintain our SPECULATIVE BUY rating.

COVID-19 to cause two week delay to Chattanooga commissioning:  The Governor of Tennessee has issued an order for non-essential services to close which will stop on-site commissioning activity at the Chattanooga battery anode manufacturing facility. NVX says that its staff will work from home to continue with desk-top work in a range of areas including quality assurance, engineering, procurement and marketing.

BTS performing better than we’d hoped:  At the half year result, NVX reported revenue of $2.7m. This is a much better result than we’d assumed (+$1m on our segment forecast). While the BTS segment is unlikely to grow to be a significant cash producing asset it enables engagement with potential customers in the supply chain and helps contribute cash while the battery anode business ramps up. Additionally, BTS also engages key research staff who are critical to NVX’s ongoing R&D program to develop the next generation of battery technology.

Adequately funded to meet first customer demand:  The $5m in debt funds raised in March should be enough for the company to complete commissioning at the Chattanooga plant and build inventory to fulfill its initial customer contract. The battery anode contract with Samsung is for 500t with deliveries commencing in 1H21. On completion of that contract we anticipate NVX will work towards securing longer term orders with potentially increased volume. Expansion will require additional debt and equity though to step up capacity from the currently committed 500tpa plant. It is crucial for NVX to continue to be able to access additional capital as required until it can grow to a sufficient size to be self-funding.

Strong growth theme but still speculative:  NVX has worked hard to get its foot in the door of the electric vehicle supply chain. The initial contract with Samsung and the collaboration with Sanyo show that NVX is becoming a credible industry player and is well positioned for significant growth. While we think the company can deliver on its promises we note that there are significant risks on the road to success. NVX still needs to prove it can reliably deliver its product at higher throughput and that it can scale up its production while keeping both operating and capital expenditure at a profitable level. Weakness in the oil market is likely to make feedstock chemicals cheaper for a while but petcoke prices have been historically volatile. We have also increased our assumption for capital intensity which reduces our target price to 82cps but we retain our SPECULATIVE BUY recommendation.

--- click on link above for more ---

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#Thesis
Last edited a month ago

Management

Exceptional management team led by Philip St Baker - proven track record, energetic, talented, honest with plenty of skin in the game (~40% between management and board).
Board and management possess extensive experience in battery development, resources, advanced materials.

Background

Novonix serves a diverse range of customers around the globe as their anode product is expected to be used in electric vehicles (EV).
Lithium-ion battery will dominate EV industry - they're lighter and have a higher energy capacity.
Not a highly capital-intensive industry but it is highly competitive (think arms race); competitors should narrow down over the next 10 years.
Massive demand for EV in next couple years as EU enforces stricter carbon emissions laws.
Battery costs are declining, it's possible that by 2022 EVs will be cheaper than gas powered cars.
Novonix has an R&D branch at Dalhousie University in Canada and established a company called Puregraphite in Tennessee to develop and manufacture their anode materials.

Their battery testing equipment (BTE), high precision calorimety (HPC) is the best in the world and patent protected - allowing batteries to be tested in a matter of weeks vs 6 weeks - months traditionally.  This accelerates their R&D tenfold.  Their equipment (HPC) allows them to process, build and test their batteries in 2 months, in house, compared to 9 months normally.
They sell this HPC tech (BTE) to major global players - Panasonic, CATL, Samsung, SK Innovations etc. giving them a foot in the door.

R&D
They're sponsoring external research meaning they have first right to IP out of the lab; which includes 12 PhD students working under a Mark O.
In process of filing a 2nd patent for cathode side of batteries (everything mentioned previously is regarding anode) - potential here is to develop a silicon infused graphite as it can hold more capacity (longer battery life).
The Canadian government matches their funding costs.
 

Market

Anode material market is $2B industry but is expected to increase tenfold to $20B in 10 years.
Projections as of mid 2018
2023 - 300kt - $250 - 500M
2030 - 1300kt - $750 - 2000M
*revenue = $10/kg - $20/kg
2 global battery makers have qualified their materials to use in their prodcuts - no other company has announced they've qualified an anode product with a global battery maker.
Additionally, they have several global battery makers testing their product with NDAs in place for their anode materials - first movers.

Battery producers (think Panasonic etc) are expanding rapidly and need more suppliers, more competition and lower prices.

They've developed and proven their product on a small commercial scale and are currently building their own commercial plant which is small but will demonstrate their capability.  They feel they are right at the cusp and are not pumping in lots of capital until they have long-term contracts.

Sales HPC grows at 30% p.a. expect it to continue.  More a strategic opportunity than commercial. 

 

Novonix have a great legacy asset in natural graphite deposit (mine) in Australia.  Looking to bring in experienced mining partner that want to take it forward but have not expanded on this much as to how it might impact the company down the track.


Novonix are not yet profitable but feel they are on the cusp.
Current ratio 1.3
D/E ratio 1.4

Capital Raising
Recently raised funds by taking an unsecured loan with St Baker Innovation Fund for $3.4M as well as management, Philip St Baker and Dr Andrew Liveris also lending $1.75M and $0.934M respectively at an interest rate of 8%.  This is to be used for US manufacturing and working capital. 

“Given the current market conditions, the Company has determined that the loans are the most suitable financing option at this time.”

Debt is a concern but if management is willing to put up their own money for a short-term unsecured loan they must see potential and really believe in the company.

Conclusion
Novonix possesses a competitive advantage with a moat and being first movers.  There is high risk as with any small cap but I feel there are more than enough positives to counter the risk, some of which are a talented, underpaid management team with a proven track record in this space and with skin in game, quick turnaround of the company from obtaining patent/IP to commercial production (3 years), early movers, unique and superior product, R&D department expected to be profitable as well as high quality R&D department, foot in door with global customers.

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#Capital Raise
Added 2 hours ago

EQUITY RAISING TO COMMERCIALISE PUREGRAPHITE, DPMG AND RECAPITALISE BALANCE SHEET

$58.28 million (approximately) capital raising via a proposed institutional placement, accelerated non-renounceable rights issue and strategic placement to St Baker Energy Innovation Fund.
• Issue price of $0.29 per new share:
o a 56.1% discount to the last traded price of NOVONIX shares of $0.66 on 25 May 2020; and
o a 33.5% discount to the theoretical ex-rights price (TERP)1.
• Funds raised will provide capex and working capital to fulfil an initial SAMSUNG supply contract, redeem all outstanding convertible notes and repay loans, facilitate development and commercialization of the DPMG technology for cathode and other million-mile battery innovations, offer costs, and provide general working capital.
• Successful raising will allow NOVONIX to increase production to 2,000 tonnes per annum and be debt free.2
• The successful transaction will simplify the NOVONIX capital structure through the redemption of Convertible Notes and repayment of loans, along with the cancellation of 50% of the Options currently on issue.

In my short time investing this is probably one of the most fair CRs I've seen. Great to see the cancellation of 50% of the options as well.

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#Corporate Update - Covid-19
Added 3 weeks ago

PUREgraphite (USA)
The Shelter in Place orders in Tennessee that commenced on Saturday, 4 April 2020 expired on Friday, 1 May 2020 and businesses have been permitted to reopen on the condition of compliance to specific COVID-19 procedural requirements.

Our PUREgraphite operation in Chattanooga Tennessee reopened on Monday 4 May 2020 and our team has commenced the restart of the anode manufacturing plant. It is expected to take a week to resume production of finished product.

During the four-week COVID-19 shutdown our staff were actively engaged in desk-top work documenting and auditing our operating and quality systems and procedures, along with engineering, procurement, sales and marketing activities. These were all able to be performed remotely from home and through virtual teamworking.

NOVONIX Battery Technology Solutions (BTS) (Canada)

NOVONIX BTS in Canada continues to operate with split shifts, work from home and virtual teamworking arrangements in line with local orders from government agencies relating to COVID-19.

All elements of the BTS business are progressing as planned and we remain on track with all pre-COVID-19 revenue targets for the business.

 

https://www.asx.com.au/asxpdf/20200506/pdf/44hlp7d0pg14sh.pdf

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#Microcap Investment Conference
Added 3 weeks ago

Novonix presentation at the 2019 Australian Microcap Investment Conference 23/10/19

https://www.youtube.com/watch?v=AK3uLKZnjxU

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#Quarterly Activities Report
Added 4 weeks ago

Quarterly Activities ReportJanuary to March 2020

https://www.asx.com.au/asxpdf/20200430/pdf/44hd9gsncbzmk0.pdf

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#Broker/Analyst Views
Added 7 months ago

31-Oct-2019:  Morgans:  Novonix - Time to pause until funding is clearer 

Morgans have a "HOLD" call (previously "SPECULATIVE BUY") on NVX and a 65 cents PT.  NVX closed at 56 cents on Friday (Nov 1).

Main Points:

  • NVX has exhibited strong performance in anticipation of its first customer contract for its synthetic graphite product and is near our target price.
  • The company is forecast to spend $2.7m commissioning its first 500tpa of production capacity this half which will likely mean the company will need to seek funding.
  • Following successful product trials NVX’s synthetic graphite anode material has been approved for use by two major battery manufacturers and second stage trials are underway with other potential customers.
  • We change our rating to HOLD and maintain our 65cps price target.

[click on link above for more]

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