My 2c on SQZG and road ahead

Hi guys,
I gave my first glance quick understanding earlier today and will now try to present my best understand of today’s developments in better detail. Note that as always, my comments and mainly from longer term angle, and I don’t pay much attention to shorter term movements. Note obviously that today’s announcement is LOI and obviously SQZG need to satisfactorily complete their DD for everything to go through.

1) Funding – Risk management point 1  - I’ve mentioned earlier many times that funding is one of the most important points. I said yesterday that I'd rate funding very highly and I definitely do. Triton has managed to secure funding of 200 million US$ which is very creditable. This is exactly what I was hoping for and IMHO, one of TON's biggest issues is out of the way. One of the biggest risks for all explorers is funding as lack of funding often means that they will never make it into production. This risk has now been addressed. IMHO, there has to be some give and take. Maybe, we could have gotten  a better deal or maybe not, but if I’m looking at things from a longer term risk management issue, then this is one of the best announcements till date, as it ensures that we get the ball rolling

2) No crushing debt burden in future –Risk management point 2 – I’m again looking at how this deal ensures that there is no crushing debt burden for future. One of the major risks for all companies at any stage of their life cycle is debt management. Companies that do not manage their debt effectively eventually collapse under the weight of their debt and end up in admin or liquidation. I also mentioned earlier that I have certain overall global macro concerns in the years to come which could include a liquidity crunch for all companies. TON has now addressed this issue very well. I’ll explain further – Careful reading of the announcement indicates that there are more sales besides the 10 year contract. Note that the term of the loan is maximum 5 years. Note that offake agreement starts after the debt is paid. Note that there are more sales while the debt agreement is in force albeit at a good price to SQZG – 875 USD and upto 200,000 tonnes of graphite. One year of these sales would mean revenue of 175 million USD, and so on till the debt is repaid. This is a win-win for both TON and SQZG as it gives us more revenue and them a good price, all in the meantime ensuring that debt will eventually get repaid comfortably. And the fun finally starts once the debt is repaid with a huge 10 year offtake.

3) Cornerstone investor – Risk management point 3 – While I agree that dilution is not the best scenario, I always mentioned that I’m hoping for a cornerstone investor. SQZG has indicated that it is keen to get on board as an investor, funder, customer, etc. and we might just have a cornerstone investor on board, folks. This could in the long run be even better than having an insto as a cornerstone investor as SQZG’s interests are aligned with us from many angles. One the things I loved about management is that they have skin in the game and their interests are aligned with ours. I’m happy that this could also apply to our major customer now. Hopefully, we can also have cornerstone instos in future who I hope will see the great value TON offers.

4) Floor price – Just like the YXGC offtake, we have a floor price here too. This is a major positive in the case of a collapse in graphite prices. I’ve explained this in my analysis of the YXGC offtake agreement. Note that the minimum contract revenue is 1.5 billion USD and this takes into account the minimum or floor price. Actual price is likely to be much higher.

5) Key wordings from announcement – I’ll copy and paste 3 paras which I found interesting in today’s announcement -

Point 1 – “The Company’s focus is to rapidly develop the TMG projects into production and maintain a secure revenue stream to create genuine long term value for Triton’s shareholders, the execution of this LOI is another key milestone in achieving this goal”

Point 2 – “Successful finalisation of definitive agreements that may result from the LOI will secure full funding for the Nicanda Hill deposit, together with a 10 year 200,000 tonnes off-take of Nicanda Hill TMG concentrate. In such a case, Triton anticipates that many of the key development milestones at the Nicanda Hill will be expedited and the expected large-scale commercial graphite production may be achieved earlier than originally scheduled. This would allow Triton to establish and secure a substantial and expanding market presence ahead of many other peer companies in the graphite sector.”

Point 3 – “The signing of this LOI demonstrates the strategic importance of graphite-based technologies and global growth potential of the graphite material market into which Triton is well positioned to supply.”

"Go into production, maintain secure revenue stream, full funding for Nicanda, expedite key milestones, production earlier than originally scheduled, establish and secure a substantial and expanding market presence ahead of peers, global growth potential of the graphite material market into which Triton is well positioned to supply" – These are some of the key points I gained from above. This deal is a strategic deal folks, and the sum of the individual parts of this deal is multiples higher than benefits of each individual deal. BB and team are clearly looking much ahead, and this deal is just a stepping stone on to greater things to come.

6) Negative comments – As expected, we had our fair share of critics as usual. I’ve actually written 1-2 points on negative comments, downramping vs upramping debate, etc. in the past and it has helped me personally to be very cool and relaxed today as someone with a longer time frame. I hope people read those comments of mine, which might explain the negative comments to some extent.

7) SQZG a Solid company -  SQZG would be a good cornerstone investor IMHO. Please read the end of the investment – Around 1000 staff, lots of branches, listed Chinese company and TON with assistance of independent advisors has already done their DD on SQZG

8) Share price dump – One the biggest headaches in the past for TON was the “sell the fact” phenomenon. To a certain extent, it might have been the case today too. But this is now of zero concern to long term investors. It might have been of some importance in the past due to the fact that capital raise was always due to come later and this is dependent on share price. But we are in a unique position now with SQZG getting on board as a potential cornerstone investor.

9) Revenue – There is a lot of revenue due for the coming years. Let us take a quick look. Note that the amounts took into account floor price and not actual value. Current price when I saw an article recently was around 1500 USD. I think I've linked that article in an earlier comment.  Let us assume that we sell to YXGC at 1500 and to SQZG at 1400 (mentioned in LOI that there would be some discount to market price).Let us assume AUD vs conversion rate at a conservative 0.75 rate

So we have 100,000 tonnes * 1500 or 150 million USD which gives us 200 million AUD per year sales to YXGC

And we have 200,000 tonnes *1400 or 280 million USD which gives us an additional 373 million AUD per year sales to SQZG.

We thus have 573 million AUD per year revenue, and we are just getting started folks. Do the math. Of course, the discount to SQZG is still to be finalised. Imagine if graphite ever goes into a bubble with tech developments.

10) DT vs STT vs long term – I’ve mentioned it before and will mention it again. Please decide at the start whether you are entering as DT, STT or long term as dynamics change completely. I haven’t a clue about short term price fluctuations but today’s announcement is possibly the best one to date IMHO from longer term angle. Like I said earlier today, I don't think long termers are concerned with today’s price. Importantly, there has been much less frenzy today. I think inexperienced traders have burnt their fingers badly in the previous spikes and probably kept out completely today. This is all good for TON in longer run, with less volatility and spreads, and more solidity, as value investors step on board.

11) BB factor – I mentioned it today morning that people who have not met Brad underestimate his charisma, likeability and ability to influence people. In what was supposed to be a limited market, he has already secured some huge agreements, and in just 1 month, and I don't this is the end, but just the start. BB and management are one of our greatest assets and maybe even a bigger asset than our massive deposit

12) Plant design and future – Great point today by @dixi normass  below
http://hotcopper.com.au/threads/ann...icanda-hill.2502678/page-175?post_id=15163630

It is great to see people like dixi take the initiative and call BB to address queries. Dixi notes that after the initial scaling up the plant design output would be greater then 400 000 T/A. Please also read subsequent points by Dixi which indicate that it could be 500,000 but the line was not clear. In any case, it is just further reassurance that management has given due thought to further expansion and further offtakes

13) Further demand from SQZG – Great point by @Milanese68 below

http://hotcopper.com.au/threads/ann...icanda-hill.2502678/page-235?post_id=15164825

Again great to see holders call BB, and Milanese rightly advises everyone to call BB to address their queries. Milanese pointed out a great point that SQZG wanted to go ahead with 400,000 tonnes per year but BB scaled it back to 200,000 tonnes as a starting point. “Starting point” is a key word here folks. Like I mentioned earlier, this deal is a stepping stone onto greater things in future. I trust BB to properly assess the risks vs benefits of expansion and make the best decisions that will benefit us all in the time to come. Milanese rightly points out that this shows how serious SQZG are as customers.

14) SYR up  - SYR has quietly moved up some 30 c in the past 2 sessions. If there is some good news for SYR, I welcome it, and treat it as good news for the sector.SYR could also be up due to TON's good news and it is inevitable that TON will soon lead to lead the industry sentiment jointly with SYR or separately.

Like I’ve mentioned in the past, I see SYR’s market cap as our first major target and IMHO, once the market caps have more parity, I feel that investors in the coming years will eventually see the benefits of a merger. This is obviously some years ahead and may or may not happen, but I see tremendous synergies and great things that could happen for a combined company. In  any case, congrats in advance to any SYR shareholders if some good news is coming your way.

15) Peer’s hands tied up – Having praised our peer, I must now point out what could be one of their major mistakes. I pointed this out earlier too in my upramping vs downramping comment. Our peer might have made a major mistake of tying their own hands up for 3 years and agreeing not to sell to any other customer. In the meantime, TON has the ability to simply race ahead and soak up all the demand in the graphite industry.

16) Equity agreement with SQZG-  TON will be issuing shares at a minimum of 50c which is above the current price. So this is a decent price for both parties. TON has a lot of flexibility in allotting the shares – up to 100 million (and not necessarily 100 million), shares to be issues in multiple (3 or more) tranches, SQZG would hold less than 20% equity holding of TON at any time, TON to decide value and amount issued each time, etc. So we have some guaranteed funding at a good price. This means that shares could also be issued at 1$ or 1.5$ or anything. I guess it just depends on how much TON needs the funds. SQZG holding less than 20% could mean much less dilution than we anticipate. I’ll leave BB to decide the best possible options of equity vs debt, etc.I'm just happy that we have both equity and debt funding and lots of options.

17) Huge graphite market – I mentioned earlier that BB has managed to pull 2 rabbits (elephant sized rabbits) out of the hat when people are saying that the graphite market is small. Imagine if graphite ever goes into a bubble in the years to come, and just think what BB will manage to achieve then. The YXGC and SQZG deals show that there could be much more to come in the following years and TON’s market leading deposit can set the tone of the entire industry. These deals are a great indication of the future of the industry and TON’s massive role in the years to come.

18) SQZG comments on TON – Please read the announcement folks. They consider Triton as the premier future developer and producer, TON as the industry leader and believe that they are aligning their company with TON in a strategic long term relationship. This is a glowing tribute and IMHO with this deal, TON is now truly the market leader

19) Strategic long term relationship – It is fascinating to see how TON has gone about its 2 major offtakes. While other graphite companies have looked for customers, TON has looked for strategic long term relationships. While other companies have sold graphite, TON has sold the story. This ties in with what I’ve mentioned about BB before, and his ability to influence people.

20) Conclusion – What more can I say guys? No elaborate conclusion from me today. I'm exhausted with all that typing and not typing anymore for the rest of today

Facts speak for themselves,and people are free to buy or sell as they choose. If it falls, then it just means that we are moving on to stronger hands.  Like I said earlier today, with all due respect to our peer, we have hit far more goal posts in every respect and are better in almost each and every respect. Our market cap should reflect this in the time to come. I don’t have a clue about short term price fluctuations but on pure fundamentals, TON could be a long term absolute gem.