South Star Battery Metals (TSXV:STS) - Graphite Output Restart and Fully-Funded Expansion in Brazil

Tiago Cunha (0:00)

Hi, my name is Tiago Cunha. I'm the CEO of South Star Battery Metals, a graphite producer in Brazil, the new producer of graphite in the Western Hemisphere since the 80s. And we are just turning this company around since we started production back in March this year, and wrapping up quite fast for 5,000 tons capacity for the end of this year.

Matt (0:20)

Tiago, good to meet you. Right, we're going to talk about graphite today, but first of all, let's introduce everyone to you. Tell us a little bit about your background.

Tiago Cunha (0:28)

I am a business, I have a degree in business and master's on economics. I am an investor. I used to run a fund in Brazil close to 500 million dollars. And I've been investing in the space of critical minerals since 2016

My first investment was a very successful one in lithium. Then I went to cobalt, gold as well, and also more recently rare earths, and of course graphite through South Star. I'm not a geologist. I'm not an engineer by formation. But I became a CEO of South Star because this company need a turnaround, a very fast one, because it was almost bankrupt by October last year. I have to step in from an investor to an entering CEO and have been acting as a turnaround CEO since then.

Matt (1:17)

Okay. We'll come on to that in a second. I want to start with Graphite and Brazil first, and then we'll come in to turn around. I like a turnaround story.

Graphite, what was the thesis that you bought into? Why do you think Graphite was the place to put your money?

Tiago Cunha (1:34)

Yeah. Back in 2022, the first investment that I made in South Star, the idea is to have a very short-term producer. The idea was to have a producer back in 2023, and Graphite was almost, I think it is double the size or the weight of lithium inside the batteries. At that time, I was thinking about having Graphite. It was like, if you check all the minerals inside the lithium ion batteries, like cobalt, manganese, lithium, they are always contracting. And Graphite was the only one, despite the fact that it is probably the biggest in terms of weight, it was the one that was actually not having any kind of bump or tailwind. At that time, I realized that maybe to have an investment in Graphite space could be a potential, given it is a short term. But then I realized that there is much more use of Graphite out of the batteries. So today, Graphite is very essential in a number of industrial uses, for example, gaskets, lubricants, and also steelmaking. And it happens that today, China has approximately 80% of the total Graphite produced in the world. And when you think about all the African continent, where China has a very strong foot on it, we can say that there is almost 90%.

So I would say today, Graphite is more than just a battery story, it's more than just an industrial story. It's also the case of supply chain security for a number of uses, including defense materials for the US and the Western hemisphere.

Matt (3:10)

And we've had a few Graphite companies come through in the past seven, eight years.

Hasn't quite worked out for them, seemingly because they're not quite clear on what their business model is, what markets are trying to supply into. When you assess this from a risk perspective, for your own money, so you deeply care about this, I suspect, is what did you see is the biggest sector risks, not necessarily with the company, but sector risks? What would need to go wrong or right for this for you?

Tiago Cunha (3:43)

I really don't think it is just the case of each product faults or characteristics. It is the case of being the last man standing with the Chinese pricing. I mean, this is not for Graphite. This is absolutely all around in terms of critical minerals.

China has been playing a very low level of pricing, trying to cut down and cut off all the competitors around the world.

So, for us to succeed against China, I mean, you must be prepared to a very low level of pricing for a long period of time. So, in the case of South Star, I would say that our own characteristics is very, number one, and most important, very shallow reserves. So, we do have a graphite oxidized surface, meaning that we don't need any underground mining, much cheaper. Number two, we also don't have any rocks within the deformation. Everything is clay material, so there is no need for blasting, for new licensing and difficult trucking around the area. So, those characteristics, I would say, are differentials and this is just geologists.