Shares in lithium battery developer Novonix Ltd (ASX: NVX) finished in a trading halt yesterday after the company released its half-year results and also announced a proposed capital raising.
At the current price of $3.29, Novonix shares have returned more than 200% since December last year.
Why is Novonix raising capital?
Much of the hype surrounding Novonix recently has been the result of its announced partnership with Harper International. The partnership will support the development of new high-efficiency furnace technology for lithium-ion battery synthetic graphite material.
Under the agreement which will supply Samsung SDI, production will be ramped up to produce more than 2,000 tons per year using the new technology from Harper.
The required capital expenditure will partly be funded by the proceeds from the equity offering announced today, which will raise roughly $115 million through institutional and sophisticated investors.
The offer price has been set at $2.90 per share, representing an 11.9% discount to Novonix’s last closing price of $3.29.
Following the completion of the institutional placement, Novonix will also offer a non-underwritten share purchase plan to shareholders.
Additionally, subject to shareholder approval, the company will conduct placements of new shares to a select number of Novonix’s directors which will raise another ~$16.45 million.
The proceeds will be put towards increasing the scale of production for its Anode materials partnership to 10,000 tonnes per year, funding additional R&D in cathode and other battery technologies, and providing financial flexibility for potential international expansion.
Management commentary
Novonix’s Chairman, Tony Bellas, said: “The company remains well positioned as the only qualified producer in North America of high grade anode material suitable for lithium ion batteries for EVs and ESS. Importantly, the company is continuing to strengthen its position with key relationships across the industry such as Harper International to develop next generation furnace technology systems”.
My take
Novonix is undoubtedly an exciting growth story, but in an esoteric industry such as this, I find it hard to get a solid understanding of the technology.
Its market capitalisation of $1.1 billion seems fairly large for a company that just burnt through $12 million in cash in the last year with just $2 million in revenue. But then again, the valuation is about the future growth story, which seems to be a large opportunity if the company can execute its strategy well.
According to its Anode Materials phased growth plan, the company will ideally be producing roughly 150,000 tonnes in phase 3, which will be between 2026 and 2030. This would provide the production volume equivalent to 2.7 million electric vehicles per year – suddenly, the $1 billion market cap doesn’t seem too big based on a comparison such as this.
If you’re interested in learning more about the battery technology industry, check out this podcast episode which dives into the ACDC ETF and the industry more broadly:
https://www.rask.com.au/2021/02/22/ep-95-inside-the-acdc-etf-a-deep-dive-with-kanish-chugh/
