Recently I’ve stumbled across two promising (although early stage) companies that I’m keeping a close eye on. Let’s take a look.

The penny stock reinventing copper

It’s no secret that the UK and other nations are undergoing a technological shift to eliminate carbon emissions by 2030. This transition is undoubtedly going to be a resource-intensive process. And one metal that has proven to be essential in many green energy technologies is copper.

Copper has some very favourable thermal and electrical conductive properties. The problem is, it’s exceptionally dense, making it quite heavy. Historically, this problem was simply something engineering companies just had to deal with. But thanks to the latest innovations from Tirupati Graphite (LSE:TGR), that may no longer be the case at some point soon.

The company is mainly a graphite producer. However, according to a story published by The Daily Telegraph, its scientists successfully synthesised a new aluminium-graphite composite. This composite not only has similar conductive properties to copper but is also significantly lighter, potentially making it a viable substitute. Needless to say, if this material proves to meet expectations, the company could be on the verge of some explosive growth for many years to come.

However, as exciting as the breakthrough is for this penny stock, there are still plenty of unknowns. The material is still firmly within its testing phase and has yet to prove itself an economically viable project. In other words, this may never turn into the profitable source of income investors are hoping for. That’s why I’m watching from the sidelines for now.

Turning helium into cash

When someone thinks about helium gas, often their first thought will likely be squeaky voices. However, it has several practical uses. For example, hospital MRI machines, optical fibre manufacturing and spaceflight technology.

Helium is the second-most abundant substance in the universe. Yet it’s quite difficult for businesses to get their hands on it. Economically viable helium deposits on Earth are actually quite rare. Most of the helium gas available today is collected as a by-product of the oil industry. But it looks like Helium One (LSE:HE1) might soon change that.

The penny stock is an exploration company with the land rights to an area estimated to contain up to 138bn cubic feet of high-quality helium gas. The project, is called Rukwa and the firm has recently begun drilling down to begin wireline logging tests. These experiments will check the existence and concentration of any potential helium reservoirs. Should these results be positive, the company may be on the verge of seeing some explosive growth later this year.

Unfortunately, the opposite is also true. Helium One is a pre-revenue business that has already invested a considerable amount of capital in Rukwa. And so, if the quantity or quality of the helium gas turns out to be below expectations, then this penny stock may stay a penny stock for a long time. So for now, it’s also saying on my watchlist.

Graphite and Graphene

Tirupati Graphite is a young company. It was incorporated in 2017 and listed on the London Stock Exchange in December 2020. It mines flake graphite at two sites in Madagascar. High purity and specialised flake graphite processing facilities are being developed in India. There is also the Tirupati Graphene and Mintech Research Centre (TGMRC), again located in India, 

Tirupati Graphite shipped 1,206 tons of flake graphite from Madagascar for £793,577 of revenue in 2020. With a cost of sales of £411,899, graphite mining returned a gross profit of £381,678 and a gross margin of 48% in 2020. Revenues have grown at an annual rate of 432% since 2018. Administrative expenses have grown at 46%. Assuming margins remain steady and sales continue to ramp up faster than administrative expenses, Tirupati should start turning an operating profit in the medium term.

The graphite and related products market is expected to grow significantly through this decade, both in volume and price. Tirupati Graphite plans to ramp up to 81,000 and 24,000 tpa of graphite flake and processed graphite, respectively, in the medium term. This sounds achievable, but getting there will require money. Tirupati raised £10m of equity in April 2021 and has tapped the debt markets. But, it’s burning through something like £1m to £3m of cash every year. So, unless it can generate some operational cash flows, further equity and debt raises will be required to fulfil its medium-term plans.

Tirupati Graphite share price rises

The Tirupati Graphite share price surge of last week followed a report in The Telegraph that TGMRC has developed a novel aluminium-graphene (Al-Gr) composite. Graphene has been called a wonder material. However, very few applications have followed its 2004 discovery. But its use in wiring has been explored, and this is what this Al-Gr composite is attracting attention for. So far, only about 200 grams of the stuff has been produced, but it’s said to be almost as conductive as copper, yet at least 3.2 times as dense and mechanically stronger.

Replacing copper wiring in aircraft and cars with Al-Gr would deliver substantial savings in weight. Better fuel efficiency could be one perk and loading more cargo on board would be another. Rolls-Royce, the FTSE 100 aerospace giant, is apparently already engaged in preliminary discussions. It’s talking about the material’s potential in wiring and other structural operations.

Tirupati Graphite’s Al-Gr composite could well be groundbreaking. But at the moment, so little is known. Can commercial volumes of Al-Gr be produced? Can it be formed into wires? How much will this cost? The Tirupati Graphite stock price was 145p at Tuesday’s close, up from 50.5p in December. But too many questions remain unanswered, and I need more clarity. The share price is too high for me, so I won’t be buying the company in my Stocks and Shares ISA right now.

A revolutionary product

Tirupati Graphite mines and processes natural flake graphite in Madagascar and conducts hi-tech graphite processing in India. Its operation in India is focusing on manufacturing zero-chemical graphene. Best of all, Al-Gr Composite is a scalable solution that could revolutionise manufacturing.

The company already makes money mining for graphite in Madagascar, but this new Al-Gr Composite invention has investors really excited.

That’s because Tirupati has reportedly been in talks with FTSE 100 company Rolls-Royce (LSE:RR). Tirupati’s Al-Gr Composite could replace the copper in thermal, power, and propulsion systems, ensuring lighter-weight aircraft. Less weight leads to increased fuel efficiency, which saves the company money. So, it could potentially appeal to many aircraft manufacturers.

Reducing weight in tech is a common goal, and if workable, this Al-Gr Composite could find demand coming from many industries desperate to reduce their carbon footprint. For instance, electric vehicles, aerospace, space, shipping, and satellite technologies. In fact, pretty much anything that uses copper wires and cables in motors.

The Al-Gr Composite is also more efficient at increasing conductivity, both thermal and electrical. Therefore, it can be used in heat exchangers, heat sinks, and even solar water heaters.

In fact, Shishir Poddar, CEO of Tirupati Graphite, referenced a recent McKinsey report stating graphene can make batteries and solar cells significantly more efficient.

Rising share price

Tirupati Graphite launched on the London Stock Exchange via IPO in December. Since then, its share price has risen 152%. It now has a £113m market cap. However, there’s no doubt this share carries risk. It’s new to the public markets, it operates in emerging market jurisdictions, and it’s making a product that’s yet to prove itself.

Nevertheless, the company has high hopes with its sights set on increasing its Madagascan capacity to 30,000 tpa by Q1 2022, up from 3,000 tpa at IPO.

The Tirupati share price has already risen sharply in the past week, so it may be in for extreme volatility in the weeks ahead. However, as a speculative investment, I’m tempted to get on board and add Tirupati Graphite shares to my Stocks and Shares ISA. I think anything offering a clear solution in the shift to a green economy shows massive potential and makes for an attractive investment opportunity.

Tirupati in talks with Rolls-Royce

Another key question now is: does this news make Rolls-Royce any more attractive as a long-term investment? Rolls-Royce has racked up an eye-watering level of debt since the pandemic hit. Its market cap is approaching £9bn while its debt is almost £7.5bn. Therefore, I think any way it can find to reduce costs will be warmly welcomed.

The Rolls-Royce share price has been extremely volatile, and its future uncertain. That still stands, although its outlook very much depends on economies reopening and flights resuming.

I think Rolls-Royce will survive, and it has been streamlining in recent months. If it can stay on target to reduce costs and resume generating revenue, its share price could soar again. As a result, I’m tempted to gradually buy shares in Rolls-Royce with a long time horizon in mind.

What’s going on with the TGR share price?

Tirupati Graphite, as the name suggests, is a graphite producer. It operates two mining and processing facilities across Madagascar called Sahamamy and Vatomina. Collectively these sites produce around 3,000 tonnes of high-quality (96% purity) graphite flake each year, with an additional 9,000-tonne capacity expected to be added in Q2 2021. It is also worth noting that the management team is planning on expanding this capacity to 84,000 tonnes by 2024.

Graphite has several practical uses, especially in green energy technology. But while the rapid expansion of its production capabilities is impressive, they don’t appear to be the driving force behind the recent growth in the TGR share price. So, what happened?

A story had been published in The Daily Telegraph announcing that Tirupati’s research division had successfully synthesised a new aluminium-graphite composite. This material is stronger than aluminium and significantly more conductive, making it a potential substitute for copper in thermal, power, and propulsion systems.

This may actually be a ground-breaking achievement. Copper has many attractive qualities. However, it has two distinct disadvantages — its cost and, more importantly, its weight. Copper is an incredibly dense material. And so, if this new composite proves to be a viable alternative to the metal, the weight savings for aircraft, electric vehicles, and turbines could be considerable. This, in turn, may lead to a significant boost in efficiency, reducing operational costs as well as the environmental impact these technologies have.

With that in mind, seeing the TGR share price explode on the announcement is understandable to me.

The risks to consider

As exciting as this achievement is, there is still a long road ahead. The new composite material still requires extensive product testing before it can be entered into circulation. Tirupati’s management team have begun collaborating with leading industrial end-users, including Rolls-Royce. But it may be quite sometime before any large-scale manufacturing begins – maybe even years.

Until that time, the company remains firmly reliant on its graphene mining and production business. However, worldwide adoption of this material remains slow. Consequently, in its 2020 financial year, the firm only generated total revenue of around £790,000. By comparison, based on today’s TGR share price, the company’s market capitalisation now stands at about £105m. Needless to say, that’s quite a lofty valuation, especially for an unprofitable business.

The bottom line

As an ex-aerospace engineer, the prospect of a lightweight copper alternative material with similar conductive properties is fascinating. But as an investor, I can’t ignore that the TGR share price looks heavily inflated by investor expectations. Therefore, I’ll be keeping Tirupati on my watch list until more information is released surrounding its product tests.