Sarytogan Graphite Ltd Limited


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Investment Memo: Sarytogan Graphite Ltd (ASX:SGA) - LIVE

Opened: 22-Jul-2022

Shares Held at Open: 4,802,500

What does SGA do?

Sarytogan Graphite (ASX:SGA) holds 100% of a huge graphite project in Kazakhstan, strategically located between Europe and China.

SGA has the highest grade graphite resource of any ASX listed graphite company. It is also the second largest contained graphite resource on the ASX.

What is the macro theme?

Graphite is a critical raw material used in the manufacturing process for lithium-ion batteries - it cannot be substituted in battery anodes.

The battery market is rapidly growing, with graphite demand expected to be five times greater than current levels by 2050.

Consequently graphite is now listed as a “critical mineral” in the US, EU, India, Japan and Australia.

[new] Our long term bet

(NOTE: This is what we think the ultimate success scenario looks like for this particular Investment over the long term (5+ years). There is a lot of work to be done by the company to get to this outcome and obvious risks to which need to be considered, some of which we list below).

Given this graphite project’s strategic location in between China and Europe, we hope that if SGA proves out the size and economic extractability of the resource, it will generate interest from major mining companies, leading to a takeover of SGA for $1 billion+.

Why did we invest in SGA?

Highest grade graphite resource on the ASX

SGA’s graphite project has an inferred JORC Resource of 209Mt at a grade of 28.5% TGC (total graphite content) for 60Mt contained graphite. This makes it the highest grade graphite project on the ASX.

Second largest graphite resource on the ASX

The project’s 60Mt of contained graphite resource ranks second only to graphite producer Syrah Resources (capped at $880M).

Low market valuation relative to its graphite peers

Based on its inferred 60Mt contained graphite resource, SGA currently trades with an enterprise value/tonne of contained graphite resource of $0.74/tonne. This compares with graphite major Syrah Resources which trades at $5.19/tonne and graphite developer Renascor which trades at $48.37/tonne. We expect this gap to close as SGA’s market cap rises with upgrades to the classification of its resource and progresses to mine development studies. (Note: the EV/contained graphite (A$/tonne) calculations are based on closing prices as at 21 July 2022).

Project located in Kazakhstan - an established mining jurisdiction between EU and China

Kazakhstan’s mining legislation is based on Western Australia’s mining code. The country is the biggest producer of uranium in the world producing ~45% of global supply in 2021. Companies like Chevron and Exxon Mobil own and operate projects in-country. Kazakhstan’s unique location also presents itself as a future supplier of battery metals to downstream users in Europe and China.

Tight capital structure

There are only 132 million shares currently on issue. 54% of SGA’s shares are escrowed (mostly for two years from the IPO date). This includes the 39% held by founder and Technical Director Dr Waldemar Mueller. There is therefore a limited number of shares available in the event that there is increased demand - we think the SGA capital structure is leveraged to growth.

Extensive Kazakhstan experience and expertise

Technical Director and major shareholder (owning 39%) Dr Waldemar Mueller brings extensive in-country relationships to SGA. This is a big positive for an ASX listed company operating in Kazakhstan. We think Dr Mueller will be able to navigate doing business here, and given his large shareholding, is incentivised to deliver success for SGA shareholders.

What do we expect SGA to deliver in 2022?

Objective #1: Complete metallurgical testwork

  • We want to see SGA determine the flake size distribution of its graphite resource. This is the first step in identifying the types of products that SGA’s graphite may be suitable for and any feasibility studies.
  • We also want to see SGA make progress with respect to its metallurgical processing flowsheet.


Determine flake size distribution

Metallurgical testwork results

Objective #2: Increase confidence in the resource - upgrade JORC resource from inferred to indicated

  • The goal of SGA’s current drill program is to upgrade its graphite resource from the inferred category to the indicated/measured categories.
  • Given the already large size of SGA’s deposit, drilling that increases size is less important than upgrading the JORC resource from the inferred category into the indicated and measured categories.

Bull case = Total contained graphite >20mt in the “indicated” resource classification.
Base case = Total contained graphite 15-20mt in the “indicated” resource classification.
Bear case = Total contained graphite <15mt in the “indicated” resource classification.


Infill and extensional drilling program starts

Drill results

JORC resource update/upgrade commissioned

JORC resource update/upgrade completed

Objective #3: Commence Scoping Study on project economics and feasibility

  • Commence scoping and feasibility studies on its project. We think this will likely be in the form of a “Scoping Study” in the first instance.
  • The results of objectives #1 and #2 will constitute key inputs into any feasibility and economic study.


Begin preliminary economic assessments

Objective #4: Progress offtake discussions

  • Demonstrate the capabilities of producing concentrate to saleable specifications.
  • Make progress in marketing discussions with potential offtakers.


Commence discussions with potential offtake partners

What could go wrong?

Metallurgical testwork risk

With a massive JORC resource in place, SGA needs to work through the metallurgical testwork to determine whether its graphite can be produced into economically recoverable graphite. SGA is yet to determine the flake size distribution of its JORC resource, which could have implications on product suitability. Testwork could show that the graphite can not be produced economically or that the flake sizes are not suitable for its various use cases.

Exploration risk

SGA’s current JORC resource sits 100% in the “inferred” category — the lowest JORC resource confidence level. Drilling will increase the data available to upgrade the resource from inferred to indicated or measured and then to mineral reserves. As with all exploration, there is always risk that a drilling program fails to deliver the required intercepts for the resource to be upgraded.

Commodity price risk

The outlook for graphite pricing remains positive in the near term, but as with all commodities, the price is volatile. Graphite is an opaque early stage market. New graphite supply may come online and therefore demand may be lower than anticipated. A projected 74% of future graphite demand is forecast to come from EVs, presenting a high technology concentration risk that could impact on graphite pricing.

Funding risk

The funds raised in the IPO are expected to cover two years of operations. Given SGA has no revenue and is still progressing its project towards development, it is likely to be reliant on capital markets for future financing rounds. Once these funds are exhausted SGA may need to raise capital which would dilute existing holders.

Sovereign risk

Kazakhstan’s legal system is less developed than some more established jurisdictions, resulting in higher sovereign risk including in obtaining all required permits and approvals. Kazakhstan borders both Russia and China and so any geopolitical escalations in the region could have spillover effects on Kazakhstan. We also note the civil unrest in Kazakhstan earlier in the year which could reappear at any stage in the future.

What is our investment plan?

Our plan is to hold the majority of our position in SGA for 3 to 5 years in the hope of an acquisition by a major mining company after the project is de-risked (see “our long term bet” above).

Over the next 12 months we will apply our de-risking strategy for early stage companies. We may look to sell 20% of our holding if the company delivers on one or more of the above objectives and the share price materially re-rates.

Summary of our hold periods, See our internal holding policy here.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,802,500 SGA shares and 1,466,250 SGA options, the Company’s staff own 50,000 SGA shares and 12,500 options at the time of publishing this article. The Company has been engaged by SGA to share our commentary on the progress of our Investment in SGA over time.

Next Investors Investment Milestones

Initial Entry Price: @ 16.3c
🔲 Top Slice
🔲 Free Carry
🔲 Take Profit
🔲 Price increases 300% from initial entry
🔲 Price increases 500% from initial entry
🔲 Price increases 1000% from initial entry
🔲 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years

Companies of interest at IMARC conference

ASX:SGA Nov 02, 2022 Announcement

We’re at IMARC (International Mining and Resources Conference) where over 450 mining leaders and resource experts have descended on Sydney - and it all kicks off today. Organisers anticipate over 7000 attendees will visit the expo over the next 3 days.

Majors such as BHP, Rio Tinto, Glencore and Newcrest are presenting, alongside a host of juniors and industry professionals.

We are particularly interested in hearing from a few of our Investments on the programme. Today, AuKing Mining (ASX:AKN) will be presenting at 12:50pm fresh off its acquisition deal for uranium assets in Tanzania. Following this, Sarytogan Graphite (ASX: SGA) enteris the Mining Pitch Battle at 1:10pm amongst a panel of institutional funds.

We will also catch up at the conference with management from Latin Resources, European Lithium, Los Cerros and Titan Minerals.

Critical minerals quickly becoming a priority in the EU

Sep 20, 2022

Macro: Commodities

Readers who follow our Investment Portfolios will know that we have been making strategic Investments in commodities that have made critical minerals lists for the EU, USA, Japan, India and Australia.

These minerals are considered critical to the digitisation and decarbonisation macro thematic and include lithium, graphite, cobalt, nickel and PGE’s, to name a few.

Over the weekend, the following speech from the president of the European Commission, Ursula von der Leyen, gave a speech announcing that the EU would look to pass a “European Critical Minerals Act”.

The aim is to avoid the position Europe finds itself in with oil and gas, where it relies on a single trading partner like Russia.

The act would see the EU put in place:

  1. Agreements with partners like Chile, New Zealand, Mexico, India and Australia for the supply of critical minerals.
  2. Identification of strategic projects across all along the supply chain from mine sites to processing/refining projects.
  3. The act would also see the setting up of strategic reserves of these critical minerals.

All of this bodes well for our Investments across commodities identified as “critical minerals” giving these projects strategic importance on the world stage.

To see a list of all the critical minerals in the Australian Critical Minerals strategy document, check out the following link.

Here is a snippet from that speech:

Graphite drilling ramps up with second rig on site

ASX:SGA Sep 05, 2022 Announcement

Investment Memo: SGA IM-2022
Objective 1: Complete metallurgical testwork
Objective 2: Increase confidence in the resource - upgrade JORC resource from inferred to indicated

Sarytogan Graphite (ASX:SGA) has accelerated drilling operations at its graphite project in Central Kazakhstan with a second drill rig now on site.

Adding a second rig will help the company meet the objectives of its current 4,000m diamond drill program by the end of the year, which involves drilling across all mineralised areas including into areas where coarser flakes are anticipated.

It is hoped that once completed, the drilling program will contribute to a meaningful resource upgrade — one of the key objectives that we want to see SGA achieve this year, as outlined in our SGA Investment Memo.

SGA is releasing drilling results to the ASX in regular batches as they become available. The first batch from the Central Graphite Zone, which included multiple thick and high grade intercepts, was reported on 15 August 2022.

At that time, SGA said that metallurgical testwork was also underway which will help clarify the flake size distribution of the graphite resource — another of our key objectives for SGA.

The second batch of results is expected later this month and will include results from holes drilled outside of the project’s current JORC mineral resource estimate area (209Mt @ 28.5% TGC Inferred Mineral Resource).

Managing Director Sean Gregory commented on how easy it has been to add additional personnel and equipment in Kazakhstan, which he said is a testament to SGA’s strong in-country relationships and the maturity of the Kazakhstan mining industry.

Multiple thick & high grade graphite intercepts

ASX:SGA Aug 15, 2022 Announcement

Investment Memo: SGA IM-2022
Objective 1: Increase confidence in the resource - upgrade JORC resource from inferred to indicated
Milestone 1: Drill results
Risk 1: Exploration risk

Our graphite exploration Investment Sarytogan Graphite Ltd (ASX: SGA) has reported multiple thick and high grade assay results from its first round of drilling at the Sarytogan Graphite Deposit in Central Kazakhstan.

SGA also reported that it has drilled holes outside of the project’s current JORC mineral resource estimate area — graphite mineralisation has been logged here and assays are pending for these holes. We are very interested to see these assays and any graphite mineralisation hit outside of the existing resource area.

Today’s announcement follows our site visit to the project in Kazakhstan last week. You can read about that in our weekend update here: Kazakhstan site visit - first impressions.

Drill rig and support equipment at the Central Graphite Zone:

Drill rig and support equipment at the Central Graphite Zone, Sarytogan Graphite Deposit.

SGA today reported that five of the first seven diamond drill holes from the Central Graphite Zone displayed broad thicknesses of high-grade graphite mineralisation, with grades of up to 41.5% TGC recorded in places.

The results include multiple thicker and higher-grade results than the historical information that was used to estimate the current JORC Mineral Resource of 209Mt @ 28.5% TGC (Inferred) in the same area and have the potential to significantly expand the already giant resource.

To date, 13 holes for 1,297m have been drilled from the ongoing 4,000m program with assays pending for six of these holes.

First High-Grade Graphite Drill Core from the 2022 Program; grading 38% TGC in this interval:

First High-Grade Graphite Drill Core from the 2022 Program; grading 38% TGC in this interval

Drilling is continuing to the north-east of the Central Graphite Zone, and holes have been drilled outside of the current resource estimate area. Graphite mineralisation has been logged in these holes and assays are pending.

What’s next?

SGA’s next steps include ongoing diamond drilling, metallurgical test-work and a revised Mineral Resource in Q1 2023.

We were impressed with today’s assay results, as was SGA Managing Director Sean Gregory who said the results were “outstanding” and “exceeded expectations”, and we are keen to see the drilling results from outside of the existing resource area.

But given that SGA already has a large high grade mineral resource estimate (the second largest on the ASX), we are most interested in seeing the results of metallurgical testwork and for SGA to determine the flake size distribution of its graphite resource.

SGA reports that this met test-work is now underway and will include further flotation, sintering and leaching. An understanding of the flake size distribution is key to knowing the types of products that SGA’s graphite may be suitable for and therefore, the price it could command.

Today’s announcement follows our site visit to the project in Kazakhstan last week. You can read about that in our weekend update here: Kazakhstan site visit - first impressions.

Diamond drilling program ongoing in Kazakhstan

ASX:SGA Jul 25, 2022 Announcement

Investment Memo: SGA IM-2022
Objective 1: Complete metallurgical testwork
Objective 2: Increase confidence in the resource - upgrade JORC resource from inferred to indicated

The first piece of newsflow from our latest Portfolio addition came in this morning, with our graphite Investment Sarytogan Graphite (ASX: SGA), releasing an operations update on its current drilling program.

As of 22 July 2022, the company had completed ~25% of the ~4,000m of diamond drilling planned at its graphite project in Kazakhstan.

The drilling program has four main objectives:

  1. Drilling inside the “central graphite zone” - This will expand on the 2021 drilling program, which was primarily focused on the “north graphite zone”.

  2. Test for extensions outside of its current JORC resource - Some of the current drilling will look to extend the size of SGA’s deposit. This could potentially lead to an increase in the size of its JORC resource.

  3. To use diamond drillcore samples for metallurgical testing - The goal is to obtain high quality drillcore samples so SGA can complete the processing testwork. (Objective #1 from our 2022 SGA Investment Memo).

  4. To upgrade the JORC resource into the indicated classification - The aim is to increase the confidence level of SGA’s giant 60mt contained graphite JORC resource. The more drilling data SGA gathers the more of its giant inferred resource can be upgraded into an indicated classification. (Objective #2 from our 2022 SGA Investment Memo).

Next for this round of drilling:

SGA expects to release the drilling results progressively, with the first batch of results expected later this quarter.

Immediately after the resource update, we expect to see SGA put out an updated JORC resource. We want to see as much of the resource upgraded into the indicated classification as possible.

We also expect to see the company put out updates from its ongoing Metallurgical testwork.

Noosa Mining Investor Conference round-up

Jul 22, 2022

Macro: Commodities

Spanning three days on the pristine Sunshine Coast of Queensland, the Noosa Mining Investor Conference kicked off its 12th year on Wednesday. Attracting a diverse and large spread of corporates, brokers, retail and institutional investors, this year’s event featured over 60 companies presenting and over 1,000 people in attendance, all hosted within the coastal town's Peppers Resort.

At the event, we caught up with a number of executives from our Investment companies (including AKN, AOU, BPM and PFE) as well as companies of interest, either as potential additions to one of our Portfolios, or to gain expert insight to macro and regional headwinds impacting the markets.

The conference is held in the ideal location to mix work with pleasure, and meet a host of CEOs of ASX juniors. Each day ends with a short ‘business at the bar’ session that quickly morphs into talking tactics about where to eat and drink. On Thursday and Friday nights, many head to the Noosa Surf Club for its networking sessions, enjoying its glassed indoor area and open deck to the beach.

We look forward to providing updates on companies we met with down the road.

China considering US$1.1 trillion infrastructure stimulus

Jul 15, 2022

Macro: Commodities

China plans to make up to US$1.1 trillion in financing available for infrastructure spending, which we think will increase commodity demand. Read the following Bloomberg article for details.

Read the full article here.

Below are our key takeaways:

  • China is making 7.2 trillion yuan ($1.1 trillion) in funds available for infrastructure spending.
  • According to Citigroup, infrastructure investment in 2022 is likely to rise by 7.7% versus 2021.
  • President Xi Jinping has called for an “all out” effort to increase infrastructure spending this year to fuel economic growth and meet a GDP growth target of around 5.5%.

The Bloomberg article touches on the impacts of China’s COVID induced lockdowns on the domestic economy.

With economic growth tipped to slow, the Chinese government is getting ready to lean on fiscal stimulus through infrastructure investment to spur economic growth.

We think this type of fiscal stimulus is likely to become a common theme in China and the West, with macro themes like decarbonisation requiring massive CAPEX.

This infrastructure spending forms part of our “commodities supercycle” investment thesis, where we see increased fiscal stimulus and CAPEX investment spurring higher demand for commodities already facing supply shortages.

China considering US$220Bn in infrastructure stimulus

Jul 08, 2022

Macro: Commodities

The following Bloomberg article highlights China’s plan to spend up to US$220 billion to spur economic growth through infrastructure spending.

All of this new infrastructure will require more commodities.

Read the full article here.

Below are our key takeaways:

  • China’s Ministry of Finance is considering US$220 billion of infrastructure funding aimed at shoring up the country’s beleaguered economy.

  • The funding is to be brought forward from next year’s quota, marking the first time the issuance has been brought forward due to concerns around the dire state of the world’s second largest economy.

  • The funding would primarily be used on infrastructure spending to boost an economy hit by Covid lockdowns and a housing downturn.

  • Commodities rallied in European trading hours following the news, with copper moving 3.6% higher on the London Metal Exchange.

For over two years, we have been writing about an upcoming commodities supercycle brought about by infrastructure spending, following decades of underinvestment in the “real economy”.

All this investment in the “real economy” requires raw materials, which is why we think the macro backdrop for commodities over the next decade is strong.

The Bloomberg article highlights the readiness of the Chinese government to lean on fiscal stimulus to spur economic growth at a time when the Chinese economy is slowing down.

Generally, governments would try to respond to slowdowns in economic growth by cutting interest rates. With this tool exhausted after the COVID pandemic, we think infrastructure spending will become the new policy of choice for governments worldwide.

Again, this infrastructure spending will increase demand for commodities which we expect will take commodity prices higher.

VW CEO breaks down batteries and supply chain issues

Jul 08, 2022

Macro: Commodities

The following Bloomberg article showcases the moves major carmaker Volkswagen is making in the batteries industry.

Read the full article here.

Below are our key takeaways:

  • VW is pressing forward with investments along its battery supply chain, commencing construction at a new cell factory in Salzgitter, Germany, one of five facilities in Europe under the carmaker’s PowerCo subsidiary.
  • Salzgitter is home to VW’s main motor factory, and it is where the company last year opened an $80 million facility to research, develop and test EV batteries.
  • Roughly $2 billion will be invested in the new cell factory, where production is scheduled to begin in 2025.
  • VW expects its battery business to generate €20 billion in revenue by the end of this decade.
  • VW CEO Herbert Diess said, “We are invested in some startups and we are looking forward to a joint venture together with Bosch for the machine tools and equipment for those plants, so we’re really gearing up to become one of the bigger battery cell producers”.

The news is just another sign that downstream investment in battery supply chains is showing no signs of slowing down.

VW is one of the world's largest carmakers and is heavily investing in downstream production capacity. It expects this part of its business to generate over €20 billion in revenues by the end of the decade.

This is a situation where investment in midstream/downstream (manufacturing/battery industry) is far ahead of upstream investment (mining), this leads to the supply/demand imbalances for the raw materials required to produce batteries only becoming worse.

The imbalance comes from the timing of these mega projects. Building a downstream / midstream facility could take 1-4 years whereas it takes around 7 years on average to bring a new resource discovery into the production stage.

As a result, we think that raw materials prices will remain high for at least the next decade whilst the mining industry catches up to demand.