First Graphene's Boots are Made for Working

The most recent post “Rolling Along on Graphene” on January 14th outlined efforts to produce high performance automotive tires using graphene.  First Graphene (FGR:  ASX or FGPHF:  OTC/PK) wants to put graphene into ‘tires’ for people in the form of safety footwear.   Based on Australia, the company recently changed its corporate moniker from ‘First Graphite’ to “First Graphene’ as a better fit for its strategy to bring high-value added graphene products to the market. 

First Graphene is still in the mining business with full ownership of graphite resources in Sri Lanka.  The company claims its graphite mine in Sri Lanka yields graphite with 90% purity straight out of the ground.

First Graphene has put its own twist on the exfoliation process typically used to produce graphene.  Its proprietary one-step electrochemical process seems to work with various graphite supplies.  In July 2019, the company purchased another 500 metric tons of graphite concentrate from the Sri Lankan government that is being used to produce graphene.  First Graphene sells its graphene into the world market using the brand name PureGraph and offers three particle sizes to fit customer needs.

All sorts of applications have been considered for graphene and First Graphene has targeted several, including composites, concrete, batteries and fire retardants.  In September 2019, the company won an exclusive license to patented technology for the manufacture of metal oxide decorated graphene materials that can be used in supercapacitors.

However, one application stands out as particularly creative:  material for safety boots.  First Graphene has partnered with Steel Blue, a manufacturer and distributor of work boots headquartered in Australia.  Steel Blue sells its work boots in Europe and North America and has earned a reputation for using innovative materials and designs.

A prototype safety boot has been produced and is currently under trial use in various work environments.   The boots feature soles made from thermoplastic polyurethane infused with graphene.  The high-tech soles improve durability and enhance comfort.  Before being laced onto a worker’s foot, the prototype of testing in a laboratory setting.  A third-party testing laboratory confirmed the prototype meets the typical tests for impact and slip resistance, tear and bonding strength, sole crack resistance, and other performance characteristics required of safety boots.

Investors should take the work boot gambit seriously.  The industrial safety footwear market was valued at $5.4 billion in 2017 and is expected to reach as much as $7.5 billion by 2024.  By then over 310 million pairs of work boots are needed to protect workers in construction, oil and gas, and mining situations.

It is appealing that First Graphene has found a good partner in Blue Steel to tap a large and growing market opportunity.   The duo has more hurdles to scale before getting to market.  In the meantime, First Graphene is selling its PureGraph product line to other developers.  In August 2019, the company inked a new supply agreement for newGen Group,  an Australia-based manufacturer of industrial products.  newGen is buying 3,000 kilograms of PureGraph, increasing its order by one-third compared to its first order last year.  The graphene will be used as an additive material in newGen’s wear liners used in the mining and processing industries.  newGen touts the exceptional tensile strength and abrasion resistance of its liners.

The recent order from newGen is valued at AU$800,000.  It is a welcome contract given that in the fiscal year ending June 2019, the company reported a scant AU$22,771 in total product revenue.  All was not all gloom in the year.  First Graphene scored AU$1.7 million in grant income from the government of Australia that helped support operations.  All in the company reported a net loss of AU$7.0 million.  At this very early stage of technology commercialization it is probably better to look at operating cash usage rather than net income or loss.  First Graphene used AU$5.3 million in cash resources to support operations in the twelve months ending June 2019.  The company had AU$3.7 million in cash in the bank at the end of June 2019, providing a decent nest egg to tide things over until the newGen deliveries are underway and trigger invoices and payments.

Investors could jump to their keyboards for a quick purchase of FGR.  Unfortunately, there still have a few unanswered questions for the good folks ‘down under.’  From the company’s corporate literature we know little of the sustainability of its graphene business model. 

At this early stage of graphene development, we know only that it is an expensive material to process.  First Graphene is understandably guarded about its proprietary electrochemical technology given that competitors as well as investors routinely scan its publicly available documents.  Electrochemical processes require expensive heat and potentially toxic chemicals.  Responsible production is not likely to be low-cost.  Is the company charging a high enough price to cover all costs? 

Does the value that the graphene materials add to the end products in terms of performance enhancement justify the expense of producing the graphene in the first place?  That would justify the capital investors are asked to pony up for FGR shares.  The numbers may eventually support First Graphene’s business model.  However, today we lack the details to invest on fact rather than just hunch!  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.