I attended the EGM today regarding the divestment of uranium assets IAW with the issued short form prospectus. I'm a mid-level retail investor in MNS with no other ties to it. The following post represents my good faith summary of the events.
The following disclaimers are stressed:
1. Nothing in the post is official company information. Contact MNS secretary for any such information.
2. Nothing in the post represent investment advice in any form. DYOR.
3. Quotes where indicated are based on my memory and hand-written notes only. They are representative of the intent of the phrases spoken to the best of my memory and recording speed, but may not be verbatim.
4. If you attended, please do contribute rebuttals, corrections and/or alternative analyses if you think they are warranted and useful. I can't possibly claim to post at the length and detail I do without recognizing that getting stuff wrong is always a risk, especially when things turn technical - so I encourage the principle that multiple inputs can only help correct any of the more egregious ones!
5. Once again, this is quite a long post, so thanks to HC for the space. The prose may not be very elegant or typo-free, too. I haven't had time to edit it. 'Scuse.
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Part 1 - Formal EGM(Uranium Divestment)
Meeting was again held in York Street Convention Centre, Sydney. Attended by about 45-50 shareholders this time. From the Board, Chairman Frank Poullas, Director Johann Joost-Jacobs and company secretary Doug Richardson, with Peter Tsegas sending apologies from Tanzania via Frank P. From management was CEO Frank Houllis. Also present were reps from Link Financial Services and BDO, our auditors.
Frank P opened the meeting at 10:04 with a welcome and introduction of those present above. He briefly re-iterated the purpose of the EGM, and ran through the voting/poll procedures. He read the resolution as per the contents of the Short Form Prospectus (the Pro-rata in speci distribution), and then presented the proxy votes as they stood:
For: 85% Open: 9.4 % Against: 4.1 %
The attendance poll being open, Frank P reminded attendees to mark and submit their ballots, and the Link Services rep collected them. Frank P advised that full results would be available later in the day**, then indicated that the formal business of the day was concluded and so declared the EGM closed, at 10:08.
**See other post for full results, resolution now formally carried.
Part 2 - MNS progress update
Frank P followed the EGM by announcing that having everyone together was a good chance for an informal update of the company. This took the form of a doubly-Frank (geddit) Poullas-Houllis page-by-page run-through of the current Investor Presentation, issued post-BFS. This was quite a technical affair in places and Frank Houllis spoke often; I’ll use FP or FH as relevant, and refer to the relevant page too, so my addition/summary of their comments are easier to follow.
Investment roadshow/Magnis & Nachu Project (p3)
FP began by briefly reiterating the over-view on p3, while remarking that the team was in Perth last week introducing what he called the current Investor ‘Roadshow’ to ‘brokers and instos’ in Perth, the first time we’d been in Perth and the first outing with the post-BFS investment pitch. FP said that this week we’ll be talking to brokers/instos in Sydney, and next week it will be Melbourne. FP made some general positive remarks about the BFS, and said he and FH would return in more depth to those numbers and their technical origins directly.
Board and Management (P. 5)
First, FP spoke on the familiar theme of how the make-up of the board, particularly the presence of FH and Rod Chittendon, with their hands-on technical experience, had from the start been a crucial strategic/management value-adder, one which is now paying off as the graphite market approaches fundamental disruption and a whole new marketplace emerges. Along with Peter Tsegas’s in-country presence, the whole point of the new high-end graphite demand pivots on tailoring product = and its processes - to end-user requirements. FP said that ‘we believe we have the ideal team in place to cover all aspects.”
Shareholder Question (SQ): invited a comment regarding Stephen Hunt’s departure since the AGM.
FP agreed that we all wished Stephen Hunt well; that he was simply presented with a professional offer that was very attractive; that good friendship remained; and that the Board didn’t regard there as any impact going forward.
Compelling BFS Results (p. 7)
FP noted the summary of BFS results, calling them ‘strong, to say the least’. He said that the key metrics are underpinned by basket price inputs which in turn derive from the exceptional purity and flake size characteristics of our resource. These give rise to ‘numbers that are unmatched in the marketplace’, and that ‘we’re producing something that’s completely different to our peers.’
Outstanding margin dynamics (p.8)
FP spent a few minutes on some peer comparison, in order to clarify why our BFS margins are so favorable. He acknowledged that our resource is far from the highest grade, sitting well below the likes of Syrah, Triton, Kibaran and others, but stressed that grade isn’t the key parameter. The unmatchable high margins in our BFS pivot on the nature of the graphite, and FP invited FH to amplify this.
Simple Geology (p.9)
FH explains that at the value-heart of our resource are some singular geological intrusions that essentially enabled our graphite to ‘cook’ longer during formation; and that this longer ‘cooking’ time has an end result not dissimilar to synthetically-produced graphite: purer graphite, fewer interstitial (interlayer) impuries, larger flakes. Essentially, the resource we are mainly focusing on (F block) ‘got lucky’ in geological terms, and mother nature has done for free a great deal of what (as FP/FH detailed later) currently costs anywhere between seven and twenty thousand dollars a ton to do industrially. (This is an over-simplification, but the key take-away is fully understanding that these BFS margins and metrics derive from intrinsic resource qualities, not quantities.
Having said that, FH also stressed that stringent and conservatively-applied JORC, drilling and assaying parameters and standards necessarily tend to give low-case numbers as far as size goes, too: FH said that ‘our geologist says that there’s probably double the amount there [in F]’.
Resources and Reserves/High Quality, High Value Deposit (p 10,11)
At this point FP stepped back in to make some comments on resources and grades, pointing out the key slide ‘High Quality, High Value’. He said that we are relaxed about having an inferior grade to others and aren’t trying to hide the fact, because of our marked purity and flake size advantage. He pointed out what it meant, reminding us that traditionally to get above 98% purity, the only marketing/supply channel option has been to ‘go via China’, where the purification industry/economy-of-scales have become entrenched. Yet a defining component of the disruptive change the global graphite space was facing would be a break-away from this existing dominance, or supply route imperative. End-users everywhere are keen to bypass China, and FP pointed out that because ‘we’re able to produce purity of greater than 98% without that chemical purification process’, we have a product that can. He noted that sometimes he hears people express the view that China might simply ‘flood the market’ to defend their hegemony, but noted ‘How can they flood the market when we will be the lowest cost producer?’
And this point FH explained how there are essentially now two graphite markets : the traditional commodity market, targeted at low-end uses which are slowly declining in price (refractories). Typically, FH said, when price starts to decline, suppliers seek to value-add, usually through purification. But this process added around $1000 a ton, which (repeating FP’s point) we can simply bypass. What this does is unlock a fundamentally different, and growth, graphite market. FH said ‘We’re in a little bit of a different space to all our peers’. FP added: “Our peers still rely on traditional graphite markets. We are targeting high-end, new markets – because we can.”
Conventional Mining (p12) and Process and Metallurgy (p13)
FH spoke about the tenements. Block F is our focus because it has the best crystals (those intrusions), so this our start point for establishing a supply. He noted, for example, that Block J has a higher grade and will eventually ‘come into contention’. But Block F was the premium; he noted in passing, for example, that with just a ‘spherical step’ the crystals can be nudged from 99.2 to 99.8 %. Re” metallurgy, FH explained that we have now accumulated an exceptionally broad and through degree of metallurgical testing. We have observed consistent, uniform results right across it and this gives us – and end-users – great confidence going forward. FH noted that the difference with our testing was that it has been developed in conjuction with the end-users; the same applies to the battery testing we have had conducted. As FH said, you can make nano-graphite out of any lump of carbon, but what matters is the cost and the carbon footprint. So all our testing and metallurgy has been done with a practical end-use view in mind. The keys are ‘Less steps, economical and lower footprint’. In all our testing to date, FH, ourt end-users have not complaints.
SQ: On bulk testing, and the supposed ‘absence’ of it in our metallurgy. FH spoke about the inadequacies and potential misleading results of (so-called) bulk testing, where the large ore sample you select can give you ‘no idea’ of the deposit or its end-use suitability. The ‘drill core is always the best for testing’. He said that simply ‘taking a bulk sample does not de-risk it; what matters is achieving consistency, and having done thatm, scaling it up.” Our testing has done both. We’ve never had any compaints from end-users.
SH: Is there much rock over the resource?
FH noted that the resource is sitting pretty close to the surface; there are some rocky outcrops, and some dips, fairly shallow. FH said the strip ratio has come down from the PFS (from about 2.2 to 1.5), mostly because of the way the procedures play out.
Exceptional Purity and Flake Size (p14) Product streams/pricing (p15) FP said ‘with all the pricing in the BFS, we’ve gone for conservative end expectations’, plus the 10% discounn. He ran through the distribution streams/pricing profile, weighted toward Jumbo, at which point:
SQ: We have gone for our ‘worst’ product as dominating our product stream??
The question referred (tongue-in-cheekish) to the Jumbo-battery feedstock skew (the latter representing the largest chunk) component of our projected 240ktpa output. FH noted that ‘what we are doing is targeting Jumbo (battery feedstock) where the volumes are. We are seeking to deal with high volumes now.’ FH noted that with the rarer products (the Super Jumbo) the market volumes are small, 500-1000 ton a year and ‘we are not going to go chasing 500 tons a year’. That comes ‘when we’re in production’. He pointed out that for now ‘we are trying to establish a supply chain’.
SQ: There was a question on synthetic graphite currently used in the highest-end apps
FP noted that currently the Super Jumbo demand (aerospace, military etc) of around 50,000 tons a year was met mostly (48,000 tons) by synthetic graphite, which can cost currently anywhere from $7000-$20000 a ton to produce, depending on the end-use specifications. He said that with around $2000/ton of extra processing, however, we can ‘hit’ the necessary specification levels or similar in some of those cases. In a later similar question, FH expanded, noting that where it takes about 7000 kW to produce synthetic currently, our product at worst demands about half that energy input, and we can also get similar end specs (with qualifications) using only about 1/7 the energy…this is where the cost win lies in the upper-end uses.
SQ A hypothetical about Elon Tusk, how might he regard the MNS product assuming he is contemplating how to make his product greener
Neither Frank was overly drawn; FH did say that ‘product is the issue, the end product is what will matter to someone like him: qualifying what he’s locking himself into.’ FH added simply: And that’s what we are focusing on. ‘That’s exactly what we are focusing on.’ He said that we have found some excellent battery people in the United States, and that what they are doing for us in terms of end-use testing, and ‘value-adding’ in terms of marketability, is ‘unbelievable’. ‘We’re are talking about – right now - demonstrating we can meet end-use specifications, scaling up samples for distribution, and so on.” S
Q: Are some potential end-users already making batteries with our product, for end-use testing? |
FH: yes, they are.
SQ: On offtakes – timeframes?
FH: Was hesitant to put anything in concrete, but put things in context by saying that whereas generally assessing a BFS may be a 3-6 month proposition, people have been indicating shorter timeframes, a matter of months. At some point FP noted the key driver was really securing western offtakes; what is key is the sales agreements, and pricing mechanisms in them, and so on. Bit more on funding later..
SQ: Next generation of batteries: concern about silicon era gazzumping graphite?
FH simply noted that the next generation of technology will involve Graphite-Silicon anyway, with around 80% of the former (the silicon reduces overheating issues apparently), so we are safeguarded in any case against such a shift. He said the qualifying period for that kind of technological change is at minimum three years anyway. Any shift into silicon components will grow our market.
SQ: Question on the time line slippage?
FP noted that what modest slippage as has occurred to date is just the result of finance sliding. He reckons that – in comparison to say, the lithium market – there is still yet to be much of a dislocating shift in the graphite space, but that very soon a lot of these companies with their big demands coming online are ‘simply going to have to go out and make deals.’ And that: ‘Somethings got to change soon, dramatically...’
FH asked rhetorically if there was a window that we might miss – when, say, a Tesla might be compelled to make a deal with someone a bit ahead of us – and answered himself by saying: no. That every day there are new announcements: VW, Apple car, Toyota, and so on…”We’re only at the beginning of this space. The window’s going to stay open for as long time…
SQ on Financial institution interest/engagement in general
FP: ' Things are well-progressed in terms of interaction.' And later FP noted: 'essentially financiers are waiting on offtakes – western offtakes.' FH: 'Because graphite is opaque, there’s no spot price, banks are going to try to de-risk. It really is going to come down to sales price. Banks have made it clear that they need offtakes, and they need pricing mechanisms in those offtakes.'
SQ: Re: additional remaining 60,000 tons available, if western users want more, will we be reducing the Chinese offtakes to acocmodate?
In essence, yes. Both Franks noted that the general approach is to reduce Chinese off-takes if/as needed, should western users seek greater engagement. There are mechanisms for doing this. FP: ' We want to be in a growth market ' [ie not an old, declining commodity one]. 'We want to make more money'.
Basket Price sensitivity (p18)/Offtake (p19)
FH: “ We think our base case is reserved – Numbers are mind-blowing.'
FP: Once we start getting some of the (western offtake) deals, we think the market will take notice of MNS in a big way.’
Infrastructure and Logistics/CAPEX OPEX/Tanzania
FP ran briefly through the last few pages of the Roadshow Investor Presentation, noting a few more going-forwardy things – for example, there will be some announcements soon about storage facilities procured at Mtawa port; about bore water drilling completion; about grid power (as opposed to gen) making it to the site soon, and so on. FP reminded us of the MDA and SML advantages, and noted that while there’s been some talk about the places of an increase in Tanzania in corporate tax, our terms are locked tight in. On EPC/planning etc there was a good discussion about Sedgemann’s tendency to over-engineer projects - they are tooling up an EPC proposal (own expense) for a potential piece of the action - with FH assuring us we were very involved in all aspects of planning, and were on top of this. Other commenters can amplify on this in the comments (I am running out of time, coherence and energy!)
FP finished on the graphite project update with the summary as per Summary P25. And then:
Final SQ: Uranium and UAL – the way ahead
The last topic covered – raised by a SQ - was on ULA, and again I might let others run with this discussion in more depth in the threads. In essence:
1. The new company kicks off life pretty close to picking up another project, one with extensive history of drilling (in the seventies), which would become the primary project.
2. This will help get UAL listed quicker.
3. UAL looking at a 'compliance' listing (it's quicker, avoids a full float, etc).
4. However it does require $3,000,000 @ minimum .20 a share.
5. We have been/new Board will continue dealing with Chinese Uranium space players who are keen to not only mine U in Africa but also build reactors there. (!)
6. FP regards it as ‘quite exciting’, and a pity for MNS not to be still involved...but ‘the main reason we have divested is that basically our potential graphite end-users said if you’ve still got those lumps of uranium we ain’t signing anything...
Which I might a tad illuminatin' in itself, eh breth. FP reckons that - hopefully - UAL might get a listing within 3-6 months. So watch this space, and GLTA(greenglowing)H!
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Breth, soz about the bitsy nature of this one. Bit all over the shop – it was a pretty technical meeting, so there’ll be lots of gaps and disjoints, and - as I stress - quite possibly some stuff that needs some hefty correction/clarification. So do expand the discussions as you see fit if you were there, there's no doubt plenty of stuff I didn't have time to flesh out.
I hope everyone takes this post in the good faith it’s intended. And please take the disclaimers seriously:
1. Not company info
2. Not investment advice.
3. Quotes not verbatim.
4. Additional input please!
For your consideration anyway, cheery holders and grumpy sceptics all, with a big happy grin from me at least. Overall, for me it was yet another terrific meeting, further confirmation that if anyone can make it in this chaotic, still-forming new mining space, then it's our tremendous team, and our utterly unique resource.
Good luck to all, best regards. And have at the comments box, fellow attendees. Cheers HC.
(20min delay)