I attended the AGM this morning in Sydney. I am a moderate level retail investor in this company with no other ties to it. What follows is my good faith summary of the agenda. I will begin by stressing the following disclaimers:
1. Nothing in this post constitutes official company information. For clarification of any such matters the company itself should be contacted directly.
2. This post is based on handwritten notes and my memory. Where direct quotes are noted, they should be regarded only as true to the intent of the statement to the best of my recall - they may not be word-perfect citations.
3. Nothing in this post represents investment advice in any form.
4. I strongly invite other attendees to add to the comments section below, to correct, clarify or expand on any points I raise, fill in gaps, etc, particularly where I may have got facts or emphases wrong.
5. Apologies for the length and any typos. I'm in a CBD internet cafe using a Chinese keyboard!
AGM was held on Level 2 of the York Conference and Convention Centre in York Street Sydney at 10 am. Shareholder attendance was excellent, at about 60-70. Director and AGM chair Frank Poullas acknowledged at one point the excellent turnout, commending what he regards as an engaged and informed SH base, suggesting that for a company of this MC the turnout must 'represent a record'. Attending from the Board were Frank, Stephen Hunt, Johann Jacobs and Peter Tsegas; from management CEO Frank Houllis, along with the team from Tanzania: Rod Chittenden (Head of Ops), Brent Laws (Manager Exploration), Godwin Nyela (Corporate Affairs) and Leah Mafwela (Community Liaisin). Special guest from Tanzania was The Honorable Dr ______, recently re-elected member of the Tanzanian government. Also present was Mr Scott Jarrett from auditor Ernst & Young.
Meeting was opened by Frank P at 10:03, and he began by asking Stephen Hunt to conduct the business of the day. Stephen H welcomed all, and particularly the team and guests from from Tanzania, introducing them to SH.
He ran through the rules of voting for the resolutions, and then conducted the voting on each of the resolutions. All resolutions were passed without query from the floor, near-unanimously 96-98% affirmative (including proxies). There were no questions regarding the director's, financial or auditor's reports. Warm applause greeted the re-election of Frank Poullas as director and the formal addition of Peter Tsegas to the company, an addition echoed personally by Stephen H.
All business and resolutions were declared concluded at 10:24. Frank P then advised the meeting that rather than simply present a standard regurgitation (or pre-gurgitation) of the Company Presentation that would be available to SH in any case, he suggested/intended that the proceedings would better serve SH if they were in the form of an informal collective recounting of the last twelve months' developments, and a substantial Q & A. He began by a quick recap of the past year's highlights, noting the key developments and the terrific achievement by the Tanzanian team in particular they represented: JORC-PFS-Off-Takes x 2 - FT sheet (Sinoma) - various regulatory approvals. He singled out Rod C and Peter T and the Tanzanian team for their tremendous achievements, then invited Stephen H to speak on the state of play of the two offtakes/term sheet.
Stephen H reiterated the terms of the two offtakes/FT sheet (unchanged), and on the Sinoma FT sheet agreement Stephen H noted that the company remained in 'ongoing discussions' with them re finance, that MNS was currently 'looking at all our options', noting 'Sinoma being one of them'. On SINOSTEEL he noted that, with that company building its own battery plant currently, it remained 'very keen to be involved with us'. Stephen H noted the recent 'news' about Sinosteel, for example speculation about its going-forward solvency, but then articulated the Board's view that we 'don't see that there's any major problem', their assessment tha 'central government will step in there...' if needed, and that at this stage the Board remains 'very confident' that Sinoma will become and remain a 'very strong partner for a long time to come'.
Stephen H then spoke about other off-take options that were being pursued, that the company is continuing to 'progress other potential customers', 'particularly in the west', that would 'hopefully come to fruition in the next few months'. These focused on the 'hi tech' applications, since our product was 'suited to those very demanding specifications'.
At this point Frank P stepped in and spoke in detail about the high quality of the graphite in the tenement, noting (as he did many times) that the numbers were what makes the MNS graphite a unique product. ('The numbers speak for themselves.') He cited the high levels of purity (with minimal processing) and large flake size retention, and the repeatability and consistency of the end product, saying 'end users are seeing properties they've simply never seen before'. He invited Frank Houllis to run through the technical side in more detail (noting how well-balanced the management and Board expertise was across all aspects of the sector).
Frank H summarised the years' and recent work with experienced sector end-users, pointing out that the company approach was to engage directly with such users as a fundamental part of the strategic approach to plant planning and engineering. The MNS philosophy is to 'ensure our plant produces exactly what the end users want'. To that end he said that management had 'brought in experts from the battery space' to engage directly in product and process assessment; that we were 'getting a lot of traction' with end-users, that we were considering the whole range of users as supply chain options, from users of essentially raw material to those who wanted to simply 'drop (ready-to-use product) into their existing production'. Frank H stressed that the quality of the raw product and the ease of processing meant that we regard our product as authentically 'disruptive to the graphite market', that we are working to be in a position to 'supply large volume at (much) cheaper price', both financially and in terms of carbon footprint. He noted that our product/process can supply synthetic-quality natural graphite in equal volumes at around half the current price.
Frank P re-iterated this point and again highligfhted the advantage of having technical expertise in the form of Rod C and Frank H, who are happy and able to 'get their hands dirty' at the technical level. He said 'It's one thing to have a great resource, but another altogether to actually dig it out of the ground and sell it.' Having people who 'know the technical side so intimately' makes the Board feel we 'have all the bases covered'.
Q and A At this point Frank invited questions from SH. I will paraphrase the Q and the A. Others please add/expand to them in comments below (especially if it was your question, since I may not do it full justice as you recall it).
SH Question: What can you tell us about the 'Western options/potential clients' for new offtakes, particularly what sort of volume?
A: Frank P was naturally circumspect about naming names - at another point of the meeting he explicitly pre-empted any talk/questions about 'Tesla' etc), but in response he spoke at length more generally about spare capacity/potential for more/less output and offtakes. He noted that the current plan is for 250,000 tons capacity, leaving 70,000 'spare' tons of product to offer. adding that, given the increased interest in product in recent years, he 'doesn't think there's going to be an issue even if someone (offtake) falls over'.
SH Q: Regarding the cost of the plant build, what will additional cost be in the event of output expansion to meet extra offftakes?
A:Frank P noted that the PFS was done at 180,000 tons, but that the BFS (currently underway) was being done assuming 250,000 tons/y. He noted however that the various processing numbers/assumptions since the PFS had also been refined to some degree, and Rod C added that in any case the original numbers were conservative (in terms of grind fineness etc), which meant that the additional cost of overall upping output was in incremental terms reduced. Frank H (I think) added that the design philosophy of the plant is modular, adding to scaling up being a relatively cost-efficient process.
SHQ: Would Peter Tsegas and the Tanzanian team comment on the recent election and what it means for the company?
Peter Tsegas remarked that the election was a very good and stable one for the country and the company. He said that the only uncertainty in Tanzania, being in Zanzibar, was of little impact to the mainland stability. He congratulated in particular The Honorable Dr______, recently re-elected to the government, and invited him to speak to SH. (Please accept my apologies for missing the name, and I wasn't able to clarify afterwards...can HC please fill in?) The Honourable Dr spoke highly of the company, noting how pleasing it was to see MNS working towards in-country value-adding and jobs and infrastructure provision. He assured us 'we were in good hands' in Tanzania, that the government would continue to be pro-development of natural resources. He then handed over to Godwin Hyela, our Corporate Affairs manager, who echoes those setiments. He pointed out that currently natural resources represent only 3% of GDP, that the new government is looking at greatly expanding this. He noted that currently most of this 3% simply represents raw material being shipped overseas, and that what was so pleasing about MNS was that for the first time, a mine would be developed based on the philosophy of in-country processing, local skills development, jobs, and infrastructure improvement. He said that we were in a 'good safe place', and that 'not only will SH get their dues, but ALSO the country and the local communities would get theirs'. Godwin spoke with great eloquence and, for me, this section was the highlight of the AGM. I've never felt prouder to be an investor in a speculative venture. I think the vibe in the room was likewise. This is what capitalism can do when it gets a good team in place...but forgive my sentimentality, brethren!).
SHQ: A timely direct question about future timelines brought us nicely back to earth.
A: Frank P was direct but cautious in response. He said the current priorities, or 'milestones' to be achieved, were, obviously, 'securing our financing' and obtaining 'offtakes in the west, or other areas'. He said he was confident the 'next few months' would see progress in these areas. He re-iterated that this not-with-standing the over-arching strategic priority was seeing this mine, this company into production. The Board is 'not interested in selling this company', it wants to 'get into production as soon as possible'.
SHQ:Is there a timeline, or an idea there-of, for financing?
A: Frank P responded that there is an inherent degree of uncertainty in these negotiations, that it could happen literally in a month's time', or 'it could be some time after the BFS (currently underway)'. He thought that the BFS would be completed around the end of January or early February, and that obviously that would be significant in terms of financial interest. He reapted that production aim of 1st Qtr 2017 remained valid.
SHQ: Question on the Sinoma 90:10 finance terms sheet, re: the 10 % options (debt/SP/etc/?)
A:Frank P noted that the 10% represented 'a small amount' in the grand scheme of thigns, and that MNS already 'has financiers who are interested', in terms of that 10% (ie presuming Sinoma got on board). He expanded by saying that there were 'large banks, EPC's, various others...' all 'interested in a slice of the pie', again, with 'getting Sinoma to the table' being the game-changer there. He made it clear that raising the 10% was not regarded by the Board as a major problem - again, assuming Sinoma got on board. And he announced that in a couple of weeks, he is going to China to meet with the Chairman of Sinoma. He added that the 'beauty of Sinoma' as a partner was that they are currently building a cement plant in-country, so as well as the sector/supply chain expertise and existing dominance, they also bring real in-country nouse. They would be in many ways 'the perfect partner' for MNS, that 'so hopefully it will work out'.
SHQ: Follow-up, what did the Board think was the (if any) 'delay' re: Sinoma in coming on board?
Of the two or three options the questioner proposed, Frank P agreed that it was just 'normal State-owned enterprise delays' - the lethargy/inertia of non-private companies, the complex communications structure inherent in such a large conglomerate, where the different sections take time to communicate ('there's a lot of things to put together'). Frank P repeated that going 'to the top' (his meeting the Sinoma chairman in two weeks) would hopeful focus all the disparate strands and 'spur things on'.
SHQ: Question about the build timeline once finance secured.
Frank P (perhaps Rod C) suggested that 12-14 months to production after finance secured was the aim.
SHQ:About the eventual selling price of the MNS product.
Frank P noted that various aspects of the resource/processing had been refined since the PFS pricing assumptions, conservative in any case. He agreed that very potentially the eventual actual basket price will increase. He re-iterated the sector rareness of Super Jumbo - which = 11% of our resource - pointing out that only a few thousand tons of Super Jumbo are currently produced/sold. He said the shortfall of demand for such quality graphite was for now made up by using synthetic graphite, which of course we will be able to produce/replace with a natural version at HALF the cost. He noted again how keeen certain companies were to get hold of high quality graphite that could boast a low carbon footprint ie minimal processing (ie ours!).
SHQ: At this point a general question was asked about other Graphite copanies.
A: As you would expect Frank P and the Board were impeccably professional and circumspect about sector peers, with Frank P name checking Triton once in passing, and only to illustrate his key point: that where once the game was all about resource size ('Triton, with the largest resource...'), now it is clearly about flake size ('...is now, of course, concentrating on those areas of its large resource that may yield large flake size...').
SHQ: A follow-on question/discussion point about cost advantage of natural graphite cf. synthetic, with emphasis on if/how limited we were in our resource size (given demand)
A: Frank P simply said 'There's a lot of resource there' before inviting Exploration Manager Brent Laws to expand. He said that 'Yep, there'ss alot fo resource there', pointing out that even just the current sector (on which JORC based) could if need be be expanded 2-3 times, and that we have 'other areas we can look at, too'. He felt confident that if demand/financial circumstances warranted it, there'd be little difficulty in extending mine life to 50+, even 100 years. Frank P continued with another note about the sheer quality of the raw resource, pointing out that to date, it takes about 3 tons of (Chinese) graphite to produce 1 ton of psherical (battery) graphite, whereas 1.5 ton of our raw material has the same yield. He added: "We're looking at disrupting the graphite market, because we have a product that CAN disrupt it..."
At this point Frank H added that as far as sector peer resource claims go, there was often little or no transparency. he said that claims of similar high purity to ours were often not supported by details on 'how they got there', wher-as, he said, our philosophy was 100% transparency. "There are not smoke and mirrors with us', he said.
SHQ: Question on marketing to date, in particular to/interest shown by instos?
A: Frank P noted that in the last placement there were a few US instos who came on board, in small amounts, but being part of larger groups, offering great potential for larger chomps going forward. He noted that interest in general has really grown in the last 4 or 5 months.
SHQ: What is the budget for the BFS?
A: Frank P said it was about $1 million, addding that there aree some drilling costs associated with this. He said that the last CR will cover this easily. Rod C then added that a fair bit of the BFS work has in any case been completed, as part of the on-going planning/engineering/resource refinement pre-production.
SHQ: Follow-on question on state-of-play of that engineering/planning
A:Frank P said that it was pretty much all done, he thought, then handed over to Rod C. Rod noted that it was 'pretty close to being done'. He said there was some geotech work to be completed, along with Tails Dam design work, and refining the water management plan. He said that water 'won't be a problem, there's plenty of water', but getting the management of it optimum was key. They are also 'fiddling with the plant layout', at present specifically the mills location - there are roads between villages that can't be closed/must be moved a bit etc. Rod reckons that the core work will be done mid/end of Jan, along with the last of the tech drawings/plans (about 1/3 done so far) required for the BFS...thence the BFS shuld be forthcoming, say early Feb.
That completed the Q and A. Frank P then thanked everyone for their attendance again, and declared the AGM closed at 1110.
*****
Brethren, a few last observations. (Super looooong post alrady).
Firstly, I'd be very grateful, if someone can advisse me of the name of our Honourable and very welcome Tanzanian government guest. I feeel mortified that I missed it. Very impolite.
Second, I haven't been in an AGM with such a quietly confident air of purpose in along time. Frank P was poised, relaxed, supremely across the brief and very, very reassuring. This is a director who knows his stuff, and knows that this stufff is very, very good. The same applies to the Board and teh management. The breadth of expertise and experience on show today was bloody marvellous. You felt like you were in a room of serious, grown-up mining professionals who know exactly what they have to do, and are going about it with methodological, steely professionalism.
Last point: the same applies to the room full of Magnis brethren. To me - and I am I admit a bit of a sentimental twit about this side of investing - there was an expectant, good humored buzz. When the Tanzanians spoke about the importance of this project to the future of the country...well. Let's just say making a buck has never felt so damned righteous.
Thanks for wading through this long post. Forgive the typos and the occcasionally bumpy prose. Let me re-iterate the disclaimers (see above), especially:
a) quotes are only as best I can recall, NOT necessarily verbatim;
b) anyone else who attended please add comments/corrections/different takes;
c) NOT official company info; if in doubt seek clarification from MNS direct.
And, of course, GLATH and DYOR. All the best, breth. Thanks for the space as usual, HC. Now it's definitely back to the sauna and the girls for me..
(20min delay)