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dakook

1,842 Posts.

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29/03/15

10:13

Post #: 14999735
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Originally posted by ozpolarbear ↑

Like I mentioned before, I am a long term follower of TON but only recently commented on TON. Below is a thread I started on March 7 mainly from view point of longer term investors (just my 2nd comment on TON – so I’m definitely no upramper) as I thought the difference in valuation was too much to ignore.

http://hotcopper.com.au/threads/ton-one-of-best-long-term-investments.2472069/?post_id=14877254

I’ve been trying to see where things can go from here. So I’ll try to give an update below on some of the points that I raised over the last couple of weeks.

1) Market capitalization –

On March 6, SYR reached its peak (for now) of 4.72. SYR’s Mkt cap was closer to 0.8 billion. Since then, the price has dropped to 3.68 or around $1.04 lower (fall of 22% in past 3 weeks). At that time, TON’s price was languishing at 15.5 cents and dropped a little more in the following days, before shooting over the last week. The difference in market caps of the 2 companies was around 15-16 times on March 6, with TON around 50 million, when I made my original FA. The difference is now around 6 times –a massive change over 3 weeks from 18 to 6.

March 28 update - I don’t know what will happen over the short term, as if one is not a long termer on TON, then there is always a temptation to book in profits.

From the point of view of longer termers – I doubt that long termers are going to accept anything less than an equal seat at the graphite table and a paltry valuation of 100 million for what could be the next BHP/RIO of graphite.
There is still no logical reason for TON to be valued 6 times less than its closest peer.

Keeping it very simple - For me, the fact that our peer was valued at 16 times that of TON, without any logical reason was enough of a reason to support TON, considering that they are based in the same area, and there was only a timing difference with SYR being slightly ahead. Such a valuation of TON and SYR thus seemed to be assuming that that TON will never make it to production which just never made sense to me, and I believe that any investor, including institutional investors would eventually start to question their diversification strategy at some point of time, start to support TON, and thus ensure TON's funding and eventual production, which in turn ensures a massive re-rating in the time to come.

2) Sequence for future -
I’ve mentioned before that a very simplistic sequence for the future as I see it is as follows –

a) TON gets institutional support

b) Properly funded TON eventually makes it to production

c) Market cap comes in line with its peer.

d) TON eventually has a market cap of several billions by 2020 (Too early to talk about now, but I’ll try to do a brief write up on this in the coming weeks if TON price keeps soaring multiples from here)

March 28 update -
I can’t be sure but It seems that point 1 of institutional support might really be happening right now. If this is the case, then sky is the limit for TON

3) Institutional support

Since, I mentioned institutional support, I’ll head straight to that as that IMHO is one of the most important points.

I mentioned last weekend that at the end of the day, it is the institutions which call the shots. If they decide to get into TON, TON will go up. But If I was an institutional investor, then I would definitely consider TON as great and highly leveraged (much more to the positive than negative) exposure within the graphite sector.

I mentioned that I don’t have clue whether TON will rise 100% or lose 90% on Monday (March 23) and this week, but as mentioned earlier, on pure FA analysis, TON still remains a buy even if goes down to 10c, 5c or 1c.

Major support from just 1 institutional player can change the face of TON completely. Long term investors can hope that we have the support of a few of them, including big global players, along the way

March 28 update - I can’t be sure but like I mentioned earlier, it seems that insto support might really be happening right now. While I agree that good news like expandable graphite and offtake agreements can cause the price to soar, a game changer IMHO for now is institutional support, as that will ensure proper funding to TON, so that it can make it to production. This frees up energy for TON management to concentrate on other very important things like off takes.
I won't dispute however that it can also be argued that securing off takes frees up management energy to market TON to instos and hence securing off takes is the most important thing, as that will also make it easier to market to instos. I leave both options to the management and trust that they know what they are doing.

Instos are the players who decide what will and won’t go up.Over the last few weeks, I’ve been trying to see the scene from the point of view of instos. If I was in charge of investment decisions on behalf of an insto, then supporting underdog TON at a market cap of 50 million was a no brainer, due to the massive positive leverage. At 100 million, it still has massive positive leverage over its nearest peer, if one is a longer term graphite bull

If I was in charge of investment decisions on behalf of an insto, at any level, it would be great to support TON all the way to production and become a star in my organization, for identifying a multi bagger, in the medium term.

If I was in charge of investment decisions on behalf of an insto, at any level, it would be great to support TON all the way to production, offtakes, marketing and become a star in my organization, for identifying the next BHP/RIO of graphite.
I might be getting ahead of myself over here but surely institutional FOMO (fear of missing out) also exists although FOMO is more often talked and joked about in retail terms.There are human beings making decisions there too, and they have the same dreams, hopes and fears as the rest of us.Also there could be different instos all looking at TON as a good investment.

Please note that while nothing of what I mentioned above might be happening, it is good to at least have in mind the possibilities for TON if that is really happening.

4) Risk and diversification

My Old point - It seems that TON’s market price has been hammered all along, while SYR’s has been soaring all along on a belief that only SYR would get to production and TON won’t. Was this behavior rational as a graphite investor and is this safe, diversified investing? If TON just makes it to production, we should be up several multiples from here

March 28 update – Has this been happening over the last week? Have the institutions diversified their portfolio, and will they continue to do so? Massive difference in valuation between the 2 companies from 18 times to 6 times suggests that this could be a possibility

5) Volume

TON has had a sensational rise last week and all on very high volume. During the day, there have been sudden huge purchases, and it is hard to imagine that the hand of one or more instos was not behind it. SYR on the other hand continues to fall on above average volume.

Could this be a sign of something bigger, and the market and more importantly the instos finally waking up to the sleeping giant TON? It is interesting that some of the highest volume of the day, for TON, on Friday too was on rising prices, with volume tapering a bit with the falls towards the end of the day. Some selling was to be expected considering the huge rise during the week, and the fact that it was the weekend. Still TON ended up on a high while its peer ended up with a fall of the same percentage of around 3%

6) Future funding

I’ve mentioned many times earlier that this is one of the biggest concerns of TON bears right now, as they fear equity dilution through capital raisings. As with all explorers, the main question asked is whether we will actually get to production. From that perspective, can the price go lower? Of course, it can. If TON has to resort to capital raising, then there could be dilution. But what if it first goes to 2AUD and then has a capital raising at 1.8. I pointed out this issue of capital raising in my earlier analyses too, and we saw that if the institutions decide to support TON, then no price is a resistance, and all resistance levels can and will get blown off.

March 28 update – If price really has institutional backing, then I doubt that they are in for pennies. If instos are backing the share price, then there is a strong chance that they might take price much, much higher before any thoughts of any capital raising.

7) Recent news about expandable graphite –

I mentioned before that I did not pay much attention to it. If instos decided to support TON, then that news could have been used as an excuse for the massive buying. I'm definitely happy with the news, nonetheless

8) Recent rumours about off takes-

I see some comments that Brad is in China, and this could be news about potential off takes. IMHO, we should not get our hopes up too much and put pressure on the management. Management has good skin in the game and definitely know their job, and they shall do everything that has to be done at the right time. If the news is indeed true, and if instos have been supporting TON recently, then that could be used as an excuse to make the price truly soar

9) SYR and TON as equals in longer term

I mentioned that personally, I have nothing against SYR but the difference was too huge to ignore. I mentioned that think SYR is a great company with great long term prospects. Simple logic would dictate that for the ratio to normalize either SYR must go down or TON must go up. Ideally, I would like to see both companies prosper. Ideally, I hope that both of them make it to production and merge somewhere down the line in a merger of equals, and become the BHP or RIO of graphite – the undisputed king of graphite. Due to the proximity of location, TON and SYR investors would forever be at each other’s throats, if there is any real or perceived difference in valuation, and I hope that investors and management see the benefits of merger somewhere down the line. Presently, the difference in valuation is too huge to ignore.

March 28 update – I stand by my earlier comment. I think SYR is a great company, but TON and SYR are like Rafael Nadal and Roger Federer . They will always be spoken of in the same sentence. The recent price divergence makes this obvious. TON management and TON long term investors will never accept anything less than an equal seat at the graphite table. Due to proximity of location, there could be tremendous synergies in costs, marketing, meeting customer requirements, meeting local, social and political obligations, etc. over a longer term if TON and SYR see each other as friends rather than foes. As a TON investor, I don’t even mind the combined company being called Syrton resources , so long as TON gets its due respect and market valuation.

I think the first hurdle to be crossed for TON is having a far more equitable market cap ratio vs its peer, and if instos are supporting TON, then that is very likely

10) Conclusion –

All the above is IMHO only. Please do your own research. I’m not just saying this to cover myself but also thinking from your point of view. Remember that one’s perspective changes drastically from point of day trader, short termer and longer termer. Remember also that everyone feels that they are right (same applies to me), and blind reliance on anyone (including me) is a recipe for disaster, as we are all trying to figure out what other people may or may not do, while actual action can be quite chaotic.

Even as longer termer, I’ve mentioned before that I’m very bearish on the global economy and expect an eventual sell off in anything and everything, and companies without proper funding might have troubles if we have another 2008 style liquidity crunch.

I stand by my earlier analysis that TON was and is undervalued compared to its peer, and for me that is the biggest positive for TON. We cannot praise TON’s peer and put down TON in the same breath. It is institutional investors who will decide where this will and won’t go. If I see this from the point of instos, TON could one of the best medium and longer term investments, and even major insto FOMO could kick in at some point of time. If instos back TON all the way, TON can make it to production, and should easily match its nearest peer over time, with regards to market cap.

Good luck to all and have a great weekend.

Expand

With respect to all of the excellent posts and posters on this thread, I think this post is the best in have read.
Well done OzPolarBear!
Brilliant summary.

TON Price at posting: 33.5¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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Last 0.6¢		Change 0.000(0.00%)		Mkt cap ! $9.410M

Open	High	Low	Value	Volume
0.6¢	0.6¢	0.6¢	$6K	1M

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No.	Vol.	Price($)
10	4418561	0.4¢

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Price($)	Vol.	No.
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No.	Vol.	Price($)
1	1000000	0.006
10	4418561	0.004
10	4794816	0.003
5	3050000	0.002
4	6100000	0.001

Price($)	Vol.	No.
0.006	1337672	5
0.007	937799	5
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0.009	781579	2
0.010	1500000	1

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