Ann: WGX: Westgold Lithium Option Deal with Triton Minerals, page-268

I’m mentioning a few more points and will try to keep them different from those already mentioned in my comment (quoted) few days back. Many of these points have already been raised by other commenters (and due credit to all who posted some great comments). So I’m just summarizing a lot of what I’ve read and many agree, along with some other thoughts of mine.

1/ Crazy dilution

I just want to illustrate how crazy this dilution is

As per recent Appendix 3B, we have 768,864,149 shares AFTER the recent capital raise and had 657,804,633 shares just before the recent capital raise.
https://hotcopper.com.au/threads/ann-appendix-3b.3901061/

We are planning to issue 357 million shares to WGX. In other words, we are planning to issue new shares equivalent to more than 46% of current shares and more than 54% of shares just prior to recent capital shares. When you see it from that perspective, even 31% seems mild.

Our neighbours are building a great graphite company with focus on just 1 core asset and have 297,022,766 shares as per their app 3B. Such incredible focus and timely capital raises. Hats off to their management who have done a terrific job.
https://hotcopper.com.au/threads/ann-appendix-3b.3925865/

We are considering issuing new shares like Santa distributes candy. The sheer dilution is mind boggling, and we have not even reached the stage where we will have additional dilution for funding Ancuabe/Nicanda etc.

2/ Potential loss of control of company

@jackarooz raises a good point of potential eventual loss of control of company. This is beyond dilution but allows hidden and unknown shareholders to possibly acquire control of our company in time. This is very critical.

3/ No marketing of Nicanda hill and Vanadium; so why lithium now?

Our entire focus last year was Ancuabe. I fully understand the reasons for that and support that.
But I’ve mentioned many times that Nicanda should at least have gotten some marketing. Same applies for our vanadium, which we don’t even talk about. So we have great existing assets which are not talked about and now are thinking of getting new exploration assets for which we are issuing 50% additional shares. This does not make sense.

4/ Market capitalization determines worth

Many shareholders understand the concept but I just want to highlight in case any don’t. Worth of a company is often determined by market capitalization (shares * market price). I’ve often seeing people comparing our share price (7 or 10 cents) with for eg. our neighbour’s of around 4.5 AUD etc. but the correct comparison is market capitalization (Shares * share price). Diluted market capitalization which also takes into account options too (besides shares), is a better comparison but I’m keeping it simple here.

If we issue new shares to WGX, our total shares would be 1.1 billion vs current 768 million vs 657 million just prior to recent capital raise. So at current 11 cents a share, market cap is AUD 124 million (with WGX shares) vs AUD 85 million (with current shares) vs AUD 72 million if we had not even had recent capital raise.

To put it in further perspective, I remember our market cap sinking to some nonsensical AUD 25 million when it was around 5-6 cents just prior to VA. If this WGX deal goes through, market cap would be 5 times more (AUD 124 million) while share price has only around doubled since then (from 5-6 cents to current 11 cents).

So understand that any upside is substantially capped by issue of new shares, including much more to come for funding later on.

5/ 1/3 rd of company vs 30 million

I mentioned in earlier comment that I’m more concerned about new 357 million shares to be issued / 50% new shares / 31% control of company, rather than the AUD 30 million valuation issues. My reasoning is that I don’t know whether recent rise was due to this announcement.
Eg. if we were issuing 357 million shares at a capital raise of current 11 cents, we would get AUD 40 million dollars of cash which would solve a lot of liquidity problems. Alternatively, if one assumes that we would get to 30 cents on the lithium hype, then 357 million shares would be worth AUD 143 million. So it is hard to assign a value to those 357 million shares.

6/ Timing and lack of information

There could be several positives of this announcement due to lithium hype. Share price could be hit or could soar on hype and both possibilities would not be surprising. Many believe that TON should be given a chance to give more information. I fully agree and I mentioned the same.

However there are 1-2 points which cannot be disputed. There is a glaring lack of information in the announcement. You don’t just announce that you’re giving away 1/3 of your company (which has world class assets) for some unknown tenements . You don’t do this when shareholders are kept hanging for 4 days just after trading hours. Most importantly, I’m amazed that this was pulled off at Christmas time where everyone is relaxing and being merry while we are left wondering what is going to happen.
Quite a poor show and disrespect to shareholders!

7/ Funding related dilution

I mentioned a week or so ago in my DFS analysis that dilution would be a big risk going forward. I was referring to funding (for Ancuabe) related dilution. Then when the media interview of PC came where he mentioned that they are planning to get 85% debt, I immediately passed a comment that this was great news. Now we have potential 357 million dilution for lithium. Understand that it is going to take a lot more dilution to even get the lithium off the ground as it is going to need cash of course. At this rate, if we are going to get Ancuabe, Nicanda, Nicanda west and lithium off the ground, our market cap will probably be in 1 billion in the coming years with 10 billion shares issued but our share price will still just be 10 cents. I’m exaggerating here but you get the picture!

8/ WGX shareholders dumping / impact on share price now and in 2018

Note that several WGX shareholders could simply dump their shares en masse post Feb 2018 once new shares are issued. Share price could fall bad then.
The logic is somewhat similar to capital raisings but different in some ways. I mentioned at the time of the recent capital raising that one reason share price often hangs around to the same price of capital raised is that existing shareholders could simply dump their shares at higher price and get new ones at cheaper price in capital raise. Some TONners (even diehard TONners) did do exactly that and sold with the small spike at 8c, since they already had right to purchase at 7c, and were guaranteed the small profit margin. Understand now that WGX shareholders would be getting TON shares free (cost of AUD nil) and there is nothing to stop them dumping en masse for some quick profits.
Also even if Shandong is diluted now, they too can purchase later on if the share price is lower, and could get their original shareholding back.
Do we really need so many new shares where shareholders are getting an immediate profit?

9/ TON on radar of DTT and STT

Time for some good news now -

TON has appeared on DTT volume breakout scan
https://hotcopper.com.au/threads/da...arket-lounge.3929828/page-45?post_id=29844491

TON has appeared on DTT 10% in 3 day scan
https://hotcopper.com.au/threads/da...arket-lounge.3929828/page-44?post_id=29844473

TON is on the STT radar as a “Christmas present”
https://hotcopper.com.au/threads/sh...ge-22-26-dec.3929798/page-15?post_id=29842976

All this put together with the fact that we are close to 1 year high and highest since around 2 years, along with lithium hype, there could also be a possibility that this announcement will surprise and be taken well by market. Hopefully PC will come out with additional info ASAP explaining in great detail what they were thinking.

10/ Conclusions

I’ve mentioned several pros and cons some days back because I always like to see the entire picture before rushing into a decision, and some again but just in case my main conclusion was not clear, it is a resounding NO BASED ON CURRENT INFORMATION AVAILABLE.

I say “based on current information” because there surely would be more to come in time, and maybe there might be some positive, and lots to add. But to be entirely honest, even if they come up with some detailed information explaining why it is good, I’m quite strongly against it right now. The dilution (and potential eventual loss of control of company as @jackarooz mentioned) simply does not seem worth it.

But still hoping for the best and understand again that this is just an "option and possibility" right now and nothing is finalized. TON can simply move on from this decision , accept their mistake (if it was one) and focus on our core graphite assets again.

Hope everyone is having as merry a Christmas as we possibly can. Thanks TON!