Ann: Partially Underwritten Non-Renounceable Entitlement Offer, page-221

1) Summary

I passed a brief summary last night on the CR and will elaborate more today on some points
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-186?post_id=16384774

2) Sell off from 32.5

We all know that TON was being sold off on each good news in recent past, as it kept falling half cent each day. It might make more sense now as instos would have had a better idea of the capital raising to come. In all fairness, GMP also warned us of the same in their recent broker report which explains the sharper falls since then.

So it does look like TON thought that share price would rise to 40 or 50 with all the good news that was due to come, and they would then do a CR, but sadly it did not work out that way.

At the end of the day, instos are mainly concerned with making money. Many of us TONNers (me included) speak of how TON needs to get insto support and perhaps the exceptional support that SYR has received has distorted our thinking a bit. The fact is that 99% of the time, instos look for the best deal for them and if they felt that TON was due to a capital raise, then obviously it would be sold off, which it was.

3) Cash management

I touched on this topic yesterday and spoke of how important I feel it is. In my recent comments also, just before the trading halt for the capital raise, I’ve shown that how from the start, this has been one of the main issues for me
http://hotcopper.com.au/threads/ton-chart.2578170/page-214?post_id=16311694

Going forward too, TON must take all issues of funding, cash and debt management very seriously. I cannot highlight this enough and speak from my experience of following shares across several sectors like oil, iron, gold, oil, etc.

Check my macro analysis on iron, oil where I specifically warned of issues of capital raising. I posted my oil macro analysis on just 5 energy stocks few months back and one of them (a large cap stock) is in the news now for a huge fall, related to capital raising

This is of top importance going forward too. I’m pleased to see that TON is not doing anything crazy like attempting to sell 300,000 tonnes with no offtakes. So, I take it that TON is taking debt (eventual) management seriously.

I’ve also talked before of macro issues in time to come,as I believe that we will end up having one of the worst financial crises in history in time to come. Is TON going to prepare itself to have an adequate cash buffer for contingencies? TON needs to look at this issue too going forward.

I see a lot of very silly concerns being raised on our forum, but for me cash management is one of the main critical ones worth focusing on. For that reason, I mentioned it as my first concern in my very first analysis half year back. I also mentioned it as one of the main factors for all graphite companies in the event of a price crash in coming years due to oversupply as some people fear.
http://hotcopper.com.au/threads/graphite-oversupply-leading-to-price-crash.2550716/?post_id=15609422

I simply can’t highlight the importance of proper cash management enough, and therefore keep repeating it. Funding and Cash management (and debt management later on in coming years) IMO will determine TON’s success or failure. This must be taken seriously

@After03 has raised a point below on safeguards to be in place before handing over cash to YXGC. This is a very important point and TON needs to take it seriously too. I’ve mentioned long ago in April-May that we need to learn from the lessons of Lamboo. This does not mean that we adopt a negative mindset but as @After03 mentioned, we have to have some safeguards about our cash
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-216?post_id=16388819

I can't help but notice that SYR has scored very well on 2 of my main concerns (insto support and funding) and kudos to them for that.

5) Proactive investors article
http://www.*.com.au/companies/news/...ets-11m-for-graphite-in-mozambique-65559.html
Article originally forwarded by @Londoner earlier yesterday

As Proactive said, our recent announcement on resource firms the project’s status as the largest known high-grade flake graphite-vanadium deposit in the world. Of course, a lot of silly concerns were raised recently which tried to suggest otherwise, which I addressed yesterday.

There is a lot of other stuff discussed by Proactive that I won’t go into today, as we’ve already discussed the fundamentals and top quality resource many times

As Proactive said,
“The ambitious funding drive by Triton underlines the company’s confidence in its Mozambican graphite assets and in the market’s understanding of their strategic importance.

This is well illustrated by a $4 million underwriting commitment from a commodities-focused investment banking firm.

Graphite concentrates at both Nicanda Hill and Triton’s Ancuabe project s have achieved the highest levels of quality and purity without the need for chemical leaching, thus reducing the overall production costs and increasing TMG product options.” – extracts from the article

6) Brief Details of offer
1 share for every 5 shares held as on Nov 27 for 15 cents per share
Amount to be raised before cost = 11,296,483 (before costs)
1 free option for every 2 shares subscribed
(So if you have 500 shares by Nov 27, you can apply for 100 shares and would also get 50 free options)

Options exercisable at 20 cents and expiring on March 16 2017
75,309,885 shares to be issued if fully subscribed (in that case options would be 37,654,943 or half of that)
GMP underwriting to tune of 4 million AUD
Prospectus to be lodged around Nov 23 and despatched to us in Dec
Funds raised for P66 resource, Ancuabe resource, more comprehensive DFS, China JV factory and working cap.

7) Price fall to move in line with offer price
Price as expected has moved close to offer price. Obviously anyone familiar with the stock market would understand that but newbies might be a little shocked with yesterday’s price change. So, I’m just highlighting that fall is in line with the share price being offered.

Last share price was 18.5 cents and offer price was 15 cents. – a 16% discount. Not entirely bad. A 10% discount is normally considered very good; so 16% for a larger cap raise is not that bad. TONners are hurting a little more since the recent fall from around 26 c or so was quite swift.

8) Market cap (very important point for me)

Let us work out the market cap and diluted market cap.
If new shares are fully subscribed, then we have 75,309,885 new shares and 37,654,943 new options as explained earlier

We also have the recent 7.5 new performance rights. Keep in mind that although they are called “performance rights” which causes some anger among some shareholders, they are mostly in lieu of cash remuneration and actually save us money as I explained recently
http://hotcopper.com.au/threads/performance-rights.2629817/page-15?post_id=16304451

So new shares would be 451,859,307 which would give a market cap of just AUD 67.8 million when new shares are issued
Taking into account old options, new options from this offer and performance rights, we have (37,654,943+7,500,000+36,164,146) = 81,319,089
I just input figures quickly; so please cross check everyone in case I went wrong.

I note also from app 3B that performance rights seem to have declined by 2 million. This might be the 2 million of Michael Brady that might not have vested as I thought was the case and mentioned in my recent analysis of performance rights (not too sure, though)

So maximum no of new potential shares eventually would be (451,859,307+81,319,089)= 533,178,396
Diluted market cap would be AUD 79,976,759.4 which is less than AUD 80 million
Compare this with diluted market caps of around AUD 200 million for 1 super pit and something like AUD 800 million or more for the other super pit.
What does this prove – it proves that even after this big dilution, we still have massive upside in the time to come and our massive peer undervaluation and potential upside still remains so long as we continue on the same track and try to manage our cash well.

9) Various opinions
There were many opinions by many people on Thursday. Here are some below which I agree with (extracts from their comments mentioned below with links). The fact is that it was needed to move forward. Also, this could be positive in time to come as no insto would ordinarily commit anything if they did not believe of some chance of profit. Of course, there is a risk of some sharp fluctuations as always.

a) Comments by @Rat1973 – Delay upto Nov 27^th could be so that shareholders buy now and some special news comes in 2 weeks, leaving doors open for further news flow – Ancuabe, GK, Deutsche Bank, etc. If things don’t eventuate, then things might get tougher
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-176?post_id=16383667

b) Comments by @saverio - Chat with TON. Might not need CR for 7 months. 1 step back and 2 steps forward
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-183?post_id=16384455

c) Comments by @Bobsa – “Maybe the board want to clear the register of those in for a quick buck. Maybe the long lead time for the record date is to allow some institutions to gain a low entry, and some free options and hopefully inject some long term stability.
If I was a FM, I would be seeing this as an amazing entry point into a company with tier 1 assets and a likely short, medium and long term horizon of positive news flow.
I'll be buying over the next week, will take up my full rights and expect positive news to come prior to the closing of the SPP.”
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-180?post_id=16384278

d) Comments by @whisky49 -This will be a challenge for Management, the board and shareholders being small and under funded with a very good stable of graphite prospects is never going to be easy ....
http://hotcopper.com.au/threads/ann...lement-offer.2637200/page-63?post_id=16378134
http://hotcopper.com.au/threads/seminal-moment-in-tons-history.2637555/page-8?post_id=16382175

“there is one thing worse than a CR and its accompanied dilution and that is no CR and running out of cash, that is not an option . It's unfortunate ,frustrating and eventually inevitable that it had to come from a low share price but the options were to wait and potentially have it from an even lower share price....thems the breaks..we simply can't stop moving forward and as one can't predict the timing of any offtake deal or other relevant event, it can't be planned around”
http://hotcopper.com.au/threads/triton-fundamentals.2638020/page-2?post_id=16385764

@insaf – Instos could pump up later. Very good short to medium term pros and cons by insaf
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-181?post_id=16384347

@toohug01 – Very detailed and excellent narration of call with Brad
http://hotcopper.com.au/threads/ann...ement-offer.2637200/page-133?post_id=16381355

10) Webcast
Here is the webcast on the cap raise. Some key points mentioned below (please hear the whole thing yourself to confirm if any extracts are incorrect).
http://www.brrmedia.com/event/140709
http://hotcopper.com.au/threads/ann-triton-minerals-webcast.2638103/?post_id=16385975

0:30 Fulfill number of short and longer term objectives. First is to get China JV operational and create revenue stream

0:50 If all goes well, revenue stream by mid 2016

1:00 We’ll use it for project funding going forward. Not reliant on depressed equity market

1:30 Improves ability to get debt finance as banks and instos get more confidence with our revenue stream

1:50 Vertical integration leads to Internal supply demand for our graphite, independent of general graphite market

1:57 working with GK to get Ancuabe operational, and if possible further revenue stream

2:20 Long period of suspension recently as we went through number of options

2:48 Road show coming up with Deutsche Bank in Sydney and Melbourne and in London with other instos

3:18 Making sure we continue to push forward

3:25 Not happy with share price but it is what it is and have to work with what we got

8:10 We don’t want to duplicate DFS. Costs around 5-6 million dollars.

8:45 instead of duplication whole process again, looking to broader scope of DFS to include P66, Ancuabe and vertical integration

9:10 Gold, oil and iron are all depressed among other resources. Banks and instos would all want DFS to gauge risk. DFS is Standard process

10:03 Exceptional projects and quality

10:28 20 year offtake, JV and strategic alliances with market leading partners and avenue to revenue. DFS just next step to developing primary project Nicanda. Steps to China and Ancuabe JVs are logical steps forward. Incremental and staged. Small steps first and then build up

11:35 Money we raise will help us move forward, be self sufficient and not reliant on equity market

12:00 2 options – We can sit and wait for this to pass (probably worst in 25 years in resource sector) or keep pushing forward. Push forward into production, dividends etc.

11) Conclusion –

I’ve changed my sentiment to Held and None for this comment as it is important that each person analyse thoroughly what to do and take their own decision.

This CR is painful no doubt and mainly because it is at a low price. I don’t mind any CR so long as it is taking us to the next level. AS both BB and @whisky49 suggested, we either move forward and grow (short term pain for long term gain) or we perish. This needs to be done, and it won’t be the last one either.

At first glance, this does seem to be a very good entry point. I can understand many shareholders weary of putting in more money though. I myself am weary of putting in more money though I believe in the long term fundamentals, and have not taken a decision myself. Again, the concern on many shareholders’ minds is what if we have our customary spike later on and come back to earth. All very valid points and it is important to decide hard before taking any step as it is your hard earned money at stake, and your decision.

The main key for me is our very low market cap, despite our exceptional resource. Diluted Market cap after all shares and options, etc. at 15 cents is just AUD 80 million compared to peers having 3 times and 10 times that valuation. So, the CR is fully okay from that angle, and I'm even okay with more CR's down the line.

This seems a good entry point now for some cornerstone investors to step in. BB and co must aggressively sell TON in the next few weeks to instos

Cash and insto support - top priorities as always