Regulatory approval facilitates growth; H1 results
Graphene Manufacturing Group (GMG) has a proprietary manufacturing process for producing high-quality graphene at scale from natural gas (methane). Important regulatory challenges have been cleared already in 2023. In February, the company announced that it had gained full approval from the Australian Industrial Chemicals Introduction Scheme (AICIS) which will allow greater volume of production and sales of GMG’s core products. This covers all of GMG’s current market products including Thermal XR coatings, its internal combustion products and, importantly, the GMG's core development of its innovative batteries.
Additionally, GMG has gained regulatory and council approval for scale manufacturing of its batteries at its current site in Brisbane. To date, GMG had been operating under a research and development license, but this approval will allow GMG to increase battery manufacturing capacity at scale.
GMG's innovative electrode technology, licensed from the University of Queensland (UoQ), enables GMG to modify its pure graphene to make advanced graphene + aluminum (G+AL) batteries. G+AL batteries are not yet commercial, but as the remaining regulatory, technical, and scale-up challenges are resolved, G+AL could have a massive market opportunity given its core technical advantages over dominant lithium technologies.
The regulatory milestones now achieved are important stages in GMG's growth plan for the company's greatest market opportunity with G+AL batteries. If G+AL is proven to be competitive with lithium, it could substitute for many mobile and transport applications. However, lithium batteries are well-established with falling prices. A further G+AL application could be as renewable energy storage where cheaper materials, rapid recharging cycles, long battery life and robust, safe chemistry are big potential advantages.
Graphene battery and products approved
In H1FY23 (to 31 December 2022), sales were A$89.4k plus an R&D tax credit of A$142k. Cash on 31 December 2022 was A$12.6mln (30 June 2022 A$12.3mln). This followed the Q2FY22 bought placing of 2.1mln units of one share plus a warrant (exercisable at C$3.35) for C$2.75 each. This raised A$6.3mln gross in total. Transaction costs were A$0.8mln. Share warrants worth just under A$1mln were exercised giving a net cash flow, after leases, of A$6.3mln. In H1FY23, operating costs were A$5.5mln with net cash flow of A$5.4mln after A$107k of customer receipts and tax credits. This indicates that GMG has over 12 months of funding.
In Q1FY23, GMG closed the deal to acquire Thermal-XR (which produces graphene coatings). This cost A$1mln in cash plus A$1mln in shares. The acquisition is expected by management to add a growing revenue stream. This will depend on gaining major orders from manufacturers.
In FY22, revenues were A$54.5k, down from A$246k in FY21 and the loss was A$11.8mln. However, the reported loss included A$4.4mln of non-cash adjustments on warrants. The FY22 operating loss was A$6.6mln.
Financials
Year end Dec 31 · 2021 · 2022
Revenue (A$-000's) · 246 · 55
Operating Profit (AUD$, 000's) · (3,349) · (6,568)
Cash(AUD$, 000's) · 3,400 · 12,300
GMG manufactures graphene by heating methane to very high temperatures (obviously, without oxygen). This dissociates methane molecules into a plasma to give pure carbon, deposited as graphene, and hydrogen gas, which can be captured. If the methane is pure, high-quality graphene results. This is a valuable raw material. The graphene can then be further processed for use in batteries, Exhibit 1.
High-quality graphene
Exhibit 1 - GMG graphene manufacturing and use
Source: GMG
Management’s core focus is on the commercialization of its G+AL coin cell and pouch cell batteries. The final approval from AICIS is an important step in the G+AL development and commercialization roadmap. Even though the batteries will undoubtedly need further development and approval to international battery standards, the approval does allow GMG to manufacture up to 10 tonnes of graphene powder per year, and also allows the sale of batteries direct to consumers rather than merely to the professional market. While further environmental and production ratios apply to GMG products according to this approval, it is an important step towards scale for GMG's core battery technology.
It also allows the company’s other graphene products such as Thermal XR and G Lubricant to be sold at a greater scale to industrial customers in Australia and select other countries where extra approval is not needed. Recent UoQ research shows that a Thermal XR coating increases heat transmission by 15% compared to uncoated aluminum so reducing energy use in applications like air conditioning. This will add revenues and contribute cash while core battery technology moves into scaled-up manufacturing.
Manufacturing approval and cash-add products
Exhibit 2 - Prototype pouch cell batteries
Source: GMG investor presentation
In-house development and manufacturing
The Battery Development Centre (BDC) produces both coin cells and pouch cells on a small research scale. Regulatory and council approval means GMG can grow this facility to manufacturing scale.
The use of much cheaper aluminum for G+AL batteries will be an advantage, but it will take some time for GMG to reduce manufacturing costs through scale effects. GMG continues to work on the commissioning and production of the first working G+AL pouch cells. The in-house development, manufacture, and testing of G+AL batteries in the BDG allows GMG to accelerate development, focus on commercialization opportunities, and scale its graphene manufacturing capacity.
Table 1 - GMG profit and loss statement
Source: GMG FY22 annual report
Table 2 - GMG balance sheet
Source: GMG FY22 annual report
Table 3 - GMG cash flow
Source: GMG FY22 annual report