I attended the 2016 Annual General Meeting in York Street, Sydney today. I am a mid-level retail investor with no other ties to or professional relationship with the company. What follows is my good faith summary of today's proceedings. As usual I ask readers to note the following disclaimers:
- Nothing in the following post constitutes official company information. For clarification and authoritative advice regarding anything arising from today's AGM, contact the company direct.
- Nothing in the post constitutes investment advice in any form. Please re-visit the HC TOU on this matter.
- What follows is based on my hand-written notes and my memory, to the best of my ability. Where quotes are nominally indicated (italics and ' '), the words should be regarded as accurate only with regard to the speaker’s intent and general tone, rather than any guaranteed verbatim transcription. (See disclaimer 1.)
- As usual I invite - actively encourage - all other AGM attendees to add their comments in the thread, particularly if/where they think I have made mistakes of emphasis, misunderstood matters, got facts plain wrong and/or missed or failed to properly convey important points. I am as fallible as anyone and very happy to be corrected - we are doing this pretty close to real time and as such, the more hands on deck, the more accurate we’ll eventually make the thread.
- Finally, may I make a bit of a plea to fellow genuine holders, based on the (slightly sooky and self-important) fact that I'm making an effort here to help keep those who can't get to meetings as informed as I can (because it's ultimately in every stock holder's interest to have a well-informed, rational shareholder brethren-hood, right?). As you'll see, today's meeting has clarified a few points (for example, on purity issues and resettlement progress) that have, over the last few months, been subject to some tedious, shabby, distracting sniping by non-holders with blatant agendas, often based on their holding of rival stocks. All I would ask is this: please consider just putting them on ignore, rather than engaging with their sucker-punching. There are very well-informed non-holders who make sceptical comments here to very useful and welcome effect. But frankly, the last few months in which we’ve suffered a rolling parade of low-post ‘new guys’ playing the same old tedious games has become a serious disincentive to even reading HC, let along contributing. If we all just put these tyre-kickers on ignore, the quality of discussions will, in my view, return. Just my two bobs’ worth, anyway.
Righto. Strap in for a longy, breth, I love nuthin’ if not the sound of me own voice…best to read this summary in conjunction with today’s AGM Presentation, also posted, and the resolution voting results, ditto.
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The AGM was held on Level 2 of the York Street Convention Centre. Shareholder attendance was again excellent, by my count a shade over 100. Chairman Frank Poullas (FP) opened the meeting at 10:00 and began with an apology from Director Peter Tsegas, unable to make it from Tanzania. FP then introduced the following: from the Board, fellow directors (Colin) ‘Cobb’ Johnstone (CJ), Johann Jooste-Jacobs (JJJ) and Len Eldridge (LE); from management, CEO Dr Frank Houllis (FH) and in-house battery consultant Dr Shailesh Upreti (SU). Also present was Gareth Few from BDO, our auditor.
FP went through some formalities IAW AGM requirements, summarising the preparatory Notice of Meeting as prior issued and outlining the voting procedures. He formally presented the Director’s, Financial and Auditor’s Reports, and invited Shareholder Questions (SHQ) on those reports. There being none he proceeded to the 10 resolutions that constituted the bulk of the day’s Official Business, in turn reiterating each Resolution, indicating to attendees the tallied proxy vote, inviting SHQ’s, and then conducting the vote. The 10 resolutions were all duly carried with very solid, to near-unanimous, support (refer to the separate Announcement for detailed break-downs). SH applause greeted the addition of new Board members CJ and LE.
There were two SHQ’s during the course of the Resolutions, With regard to R 5 (Unlisted Options to Directors), SHQ asked if the two new directors (CJ & LE) might be given a few minutes to address shareholders prior to an in-the-money options vote, to which FP suggested that opportunity would best wait to the informal part of the day. And with regard to R 10 (Approval to issue Options to Consultants), the SHQ was regarding the attachment of Performance Criteria to the issuance, to which FP replied that the vote was to authorise the Board a nominal (ie future) capacity for such issue only – there was no such issuance planned as yet, it was just to give the Board that…well, option!
With the resolutions all passed, FP noted the formal part of the day completed, and closed the meeting at 1022.
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In keeping with past practice FP then suggested that the interests of SH would be best served by an informal working through of the most up-to-date Company to-market information, that being the AGM Presentation issued today, and he handed over to LE to kick off the process of working through the relevant slides/pages of that. LE began by acknowledging the generally well-informed level of shareholder engagement in the company’s strategy and the intent/status of the project, and (as had FP) noted that he thus didn’t intend to start right from square one. What he would present was, in specifics and in general focus, an indication to SH of ‘what/how we’ve been talking to institutional investors over the last 2 to 3 months’. He noted his conviction that our graphite potentially represents an ‘
industry leading asset’, while briefly re-iterating the last 12 months developments: BFS, power supply agreement, near-finalised ports agreement, near-complete landowner settlement, well-advanced offtake negotiations, increasingly refined and vigorous end-user/battery testing, including on commercial scales, and the evolution of Board expertise.
From a corporate viewpoint and given his extensive experience in African mining, LE noted that what excited and attracted him to this
‘shovel-ready project’ included the ease of access of Nachu to infrastructure and supply chains, the political and commercial stability in Tanzania (especially compared to other African plays), the advantageous local geography (‘…
the topography is not particularly challenging…’) and the
‘locked away’ Mining Lease Agreement/fiscal arrangements, putting Magnis into a ‘
really strong [corporate] position to access battery markets over the next 2-3 years..’
On those markets, LE spoke about what he regards as the ‘differentiated [graphite market] strategies’, those being the old steelmaking market, and the still-nascent but rapidly evolving battery marketplace. In the latter he noted the key role in market competitiveness terms of resource purity/concentration achievability (as opposed to a metric like grade), saying that ‘
if you’re going to be in the battery graphite market, you want high purity of graphite, low contaminants..’ It’s these qualities of our graphite and the processing advantages they that allow that lead to the Magnis’s uniquely high projected margins (rather than the self-serving use of dubiously high basket prices, etc). As the project cranks up, LE noted that economies-of-scale and chain refinements would likely see the margins grow. He said that clearly the side-stepping of the currently dominant Chinese supply chain, with its expensive and environmentally prohibitive chemical and thermal processing steps built into the existing industry metric/costing, would see a rapid evolution of the space. He cited several of the reports incorporated in the AGM Presentation - from Deutsch Bank, Goldman Sachs, and particularly VW – to explain how market disruptions such as that approaching graphite often saw players right across sectors over-estimate short-term ‘new demand’ levels, but seriously under-estimate the long-term increase. The impact of EV’s is where the huge growth will very soon occur, in a battery space currently still dominated (%-wise) by smart devices. Regarding the long-term game and EV battery graphite, he noted how BMP had recently significantly upgraded its EV uptake projections, and particularly focussed on VW and its current projections (20-25% of sales EV’s by 2025, representing around 10% of the total market – and later in the day FP noted that, according to internal sources, VW might soon significantly upgrade that projection). Le noted that while Tesla’s cars might well remain a relatively (market %) small-volume sporty/luxury EV component, ‘
…when a company like VW starts to project and plan for those kinds of numbers, it’s pretty well impossible for the likes of BMW and Mercedes etc not to follow..”
LE said that this coming market evolution in EV’s will take the Nachu project into production. While the very high end flake (>500 microns) market is very lucrative, it’s also smallish, and it will be as hi-tech battery feedstock that our graphite underpins the project.
LE finished with a brief reiteration of what we know about the Nachu resource – exceptional flake size and purity – and made some general comparisons with a few peers, and the suitability or otherwise of their variously reported resources as battery feedstock. ending by noting simply that ‘…it’s not about saying we’ve got a ‘better’ project than theirs. It’s more a case of others having resources/projects that are not set up to access the new battery markets as we believe ours is.’
For what it’s worth, breth, for someone who has only fairly recently joined the Board LE seems very thoroughly across this company’s corporate strategy and its resource. I also found his general manner compelling, and I think he will be a first-rate addition to the company at this stage of the project.
At this point LE, via F, handed over to SU, for a more detailed outline of the technical advances of the last 12 months.
SU started by stating that, in his experience ‘…15, 16 years working in the lithium ion battery space, it’s clear that magnis graphite has a unique feature…it’s definitely a unique product..’ He ran though the numbers (see p17), citing (for example)
the R (Bragg) quiotent = .964 as a quantitative and qualitative marker of purity (‘…proving that purities are not within the system/matrix…’. (In other words, for the non-holding down-ramping, 1 + 1 = 2, got it? It’s called ‘measurable, observable science’. Sorry, breth, pardon my snark).
SU went on in exactly the same precise way. He noted the rigour of the analysis and testing that he personally has been doing on our core product over the last 12 months: ‘…we looked for and now know where the impurities are located, what they are, how much there is…we applied scientific understanding, and we found some silicon, some aluminium, on the surfaces, not between the graphite layers.’ This, SU, says, is definitive for our resource, because it is impurities within layers that demand the chemical and thermal treating to eradicate, as is the case with all Chinese graphite. SU then talked about the other characteristic of our graphite, the flake size. He noted that the lack of the requirement for thermal/chemical treatment to get to high purity also meant that the spherical graphite yield ratios were markedly better. While the Chinese yield typically was 3 tonnes feedstock:1 tonne spheroid (about 33%), our yield was closer to 70%. SU broke down the supply chain implications of our resrouce’s unique qualities like this:
1 – Fewer number of steps in processing (from ore to 99.9%)
2 – Fewer variables in the process/supply chain
3 – lower cost and higher reliability/reproducibility/batch consistency
He cited the Tesla example: with 7000 cells in their batteries, all it took was a handful of cells to suffer from inconsistency, to degrade the whole battery performance. He noted that there was a wide variety of end-user requirements and qualification test requirements across markets, and the way we were approaching out testing was with a view to being able to accommodate/integrate with as many, at the technical level, as possible.
At this point a SHQ sought clarification re: purity issues, asking about the silicon, aluminium, and ridding our G of it enroute to 99.2, and 99.9 %, as well as any/the other impurities.
SU explained how there are ‘friendly’ and unfriendly’ impurities. A ‘friendly’ impurity, like silicon, is less of a functional problem than an ‘unfriendly’ impurity (such as Aluminium), which must be eradicated or it can cause heat fire malfunction etc. FP stepped in to explain that in our G case, because the impurities are on the surface, and because of our large flake size, we have been able to evolve a purely ‘mechanical’ process, with a few milling process options for eradicating impurities. Some is eradicated by a process of ‘breaking off’ during milling/flotation, and our process can also use sizing.
A SHQ asked about the distinctions in US, European and Chinese end-user requirements (which SU had briefly touched on earlier)
SU explained that the distinctions he’d mentioned were ‘deep technical’ ones, often quite complex nuances in density, cut, anode shaping, engineering - often driven in turn by different end-user cathode demands, in different market spheres, with different engineering and industrial realities etc. SU said that in our testing ‘..we are focusing on an [end-user requirement] window..’
SHQ: Can You tell us a bit about our cycle testing experience/approach?
SU started obliquely, by noting a misconception he had seen taking hold in general discussions in the space, which was about the functional equivalence/relative merits of natural and synthetic graphite. (I think this is pertinent to the stuff bandied about recently about a supposedly ‘prudent’ end-user ‘demand’ for synthetic (as a known quality), and the Samsung Note7 debacle). SU made the point that provided the spherical treatment is good, there is no inherent difference between equivalent quality synthetic and natural…EXCEPT, he made clear, in terms of cycle-life durability. “…Treating with hydrochloric acid, you’ll definitely impact the structure, and thus the cycle life durability [of synthetic]…’. (That difference, and of course, the cost and environmental impact…)
SU (perhaps LE here) also noted, re: our testing, that it takes time. A 6000 cycle test can take upwards of 12 months. SU also noted that the majority of the company’s now testing publish coin cell data only. We have gone well beyond this, into various commercial applications, including testing on 18650 batteries (for which, SU later said, final testing may soon be complete and data published.)
At this point, FP asked for more SHQ. If I mention yours, please add to my summary with amplifications/corrections in the threads. (Cheers – I am starting to run out of steam!
SHQ: The ‘Big One’ – what’s the story on off-takes? Can you give us a sense of where they are at.
FP started with the usual disclaimers about discretion, noting also that ‘…we are playing in a space where pre-production contracts just don’t happen.’ He said that the huge edge our product offers (especially the China by-pass) is a real advantage, but these things ‘are to a degree not in our control’. He couldn’t go into details about who we are speaking with, but we are ‘getting closer’, and ‘making very good progress’.
SHQ: Are you talking to US, European and/or Chinese players?
Can’t go into detail, FP repeated, but noted that ‘we are focussing outside China’.
SHQ: Given the earlier technical details, and the especially the apparent evolution of unique processing and testing approaches, is Magnis becoming as much an ‘IP’ company/concern, as a mining one?
LE responded by acknowledging that, in a sense, sure, the new graphite market (with all the inherent IP-related implications) is indeed ‘being created before our eyes’. He agreed that we think we have a unique product/process, but did re-iterate that ‘…our core proposition remains as a mining project, that is, as a miner/supplier of low-cost, high-quality battery product…’
SHQ: Would the Board consider (in order to facilitate some early cash-flow) seeking a market for 99.2% purity (that is, head of mine) graphite?
LE noted that ‘…if we were a Copper miner, for example, then absolutely, yes we would take an approach like that. ‘ However, he said that there’s no real market as such for 99.2 % graphite, that we see the project as feedstock into the coming battery market and that’ll remain our focus.
SHQ supplementary asked whether a pilot plant might be a (early cash flow) option.
FH jumped in to note that in fact we have a degree of strategic flexibility regarding ‘…where, exactly, we integrate our product into any given end-users supply/production chain…’ He said the company’s strategic approach is to maximise our capacity to mesh in with a user, at as broad of range of ‘drop in’ points as is feasible. ‘It’s all an ongoing discussion’.
SHQ: About Sinoma contract (and by implication, Sinosteel)
FP said they still stand, but they were deals done on the basis of around 94-96% concentrate. Frank said we do have an opt-out option in both; that at present we aren’t able to exercise them, but potentially we could in future.
SHQ: If we sign contracts tomorrow, what sort of timeline are we looking at to production?
FP said about 14 months. He noted that today’s updated presentation has an adjusted off-take aim-point of by-end-of this quarter.
SHQ: Question on Vanadium
SU noted that Vanadium is ‘not good’ with graphite batteries. It has to be eradicated ‘…if you have it, you’ve got to clean it, with toxic acids…’ He said, and FH repeated, that our graphite does have tiny quantities of Vanadium, but at 5 ppm, it is way outside the limits of any battery-functional significance.
SHQ: Apart from graphite is there any potential competitor battery material on the horizon? Mentioned titanium dioxide.
SU said that titanium dioxide (with only 50% graphite content) is a ‘low capacity’ material, although it has a has a longer life. You don’t want your car to have lower battery capacity, and it doesn’t need to have the kind of much longer life this can ofer. On silicon, SU said it was one of the candidates but that even if it took hold (not for 5-10 years at least), it would still only likely replace 15-20 % of a by-then existing dominant graphite-battery market.
SHQ Returning to off-takes for another bite at the cherry…? C’mon FP, chuck us a bone…is there anything else the Board might do?
FP wasn’t playing! We are just ‘ticking off boxes with each potential end-user, who all have different requirements, different qualification processes, etc…’
SHQ on timelines: even if we sign an offtake shortly, will the rapidly changing space/technical improvements mean that there’ll be a discrepancy in our overall production capacity (240 ktpa) and demand, which will be fledgling to start with. Is a better option to start modestly, particularly in terms of attracting funding confidence from banks?
FP noted that we aren’t necessarily only relying on banks, there are a variety of options. Perhaps more likely a mix of debt/equity…we will keep considering all our funding/scale options, including further upscaling, not down-scaling, because…’we seriou8sly think there is a huge boom coming…’
SHQ: Has anyone potential end-user completed end-use testing?
FP: ‘I’m not going to go into it.’
SHQ: Noting that the Apple car (think?) is supposedly on ‘go slow’, what/if any implications can be extrapolated regarding the space generally?
FH (FP?) noting that there’s a huge amount of jostling and shuffling going on in the EV/battery/graphite space, lots of announcements, commentary, projections, hype, ho9t air, etc. (It was here that he noted the VW source, re: upscaling their projections…)
SHQ: Question regarding performance data on the Tesla battery he mentioned earlier
SU suggested that data might be ready topubilsh shortly, although LE noted that cycle testing needs to be completed first and when it is, data will be published.
SHQ: Requesting an update on the landowner resettlement process,
FP thanked the questioner and said it was a good question. He said that it is now ‘…pretty much done. We are waiting on the last government sign-offs and as soon as we gwet that, we will make an announcement.’ He described how complex, thorough and extensive it has been. The affected area is about 30 km north-south, x 10 km across. Every single holding, and every single tree on it – for which the government has a separate compo price – had to be included and collated. FP says that at its peak, our company employed 200 Tanzanians in the task of helping us secure their own better future fairly and inclusively. It was a monumental effort and a tribute to how seriously we take our corporate responsibilities. This is a genuine potential life-changing partnership between us and Tanzanians, and to those of you here on HC who have spent the last six months endlessly ramping up groundless rubbish about our alleged ‘troubles’ with the locals over this, I have one message: stick it.
On that note, FP declared the question time complete, and we all skedaddled for tea and bickies.
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What more to say? Well, sorry I missed the close of biz, I see we’ve taken a flogging, though I doubt much would have stopped that. In the absence of any Shazam! Unveiling of offies or finance we were always going to take a dip.
What I took from the AGM was yet more encouragement that our management is on top of this exquisitely. There's a growing resolve and an impressive accumulation of expertise across all areas. I remain seriously happy to be a part of this venture.
SP volatility? Those who are anxious about it - and about sales contracts, funding,
deadtimelines, about the endless jostling in this space - and couldn’t be there to see the reality today...would do well to take a step back and think about what we’re engaged in here. It's serious, it's real, and it's as exciting as buggery. This company is not simply starting a new operation in an existing marketplace, which is always an exercise in balls-to-the-wall capitalist & corporate will, resolute strategic focus and managerial deftness, and steadfast bloody-mindedness anyway. We’re doing so in a fundamentally new – which means currently non-existent - sector. To think's it's going to be a one-way investment walk in the green is to not understand speculative mining. This is the real deal and real deals are rare, and sometimes bumpy, because they have to deal with and in the real world. Only fantasies and delusions play out seamlessly.
Everything I saw today remains consistent with an unbeatable product, first-rate management, a sound strategy and an ever-increasing level of quiet confidence. Could not be happier with today's AGM.
Cheers all. Thanks for the space HC as ever, and I re-stress the disclaimers – not company info, not investment advice, not guaranteed literal quotes (though pretty accurate), DYOR, contact the company if in doubt, and…do as
@Stealth reminded us this week: always put kith and kin before money! Please add corrections, comments, clarifications and additional points.
Finally: do excuse the crap prose, syntex, typos and blah. Just not the time to properly proof/edit.
Off for a soak in the sauna with the grrrls and bois, breth.
PS: ’73 – you keep standing me up!!!
Tease...
(20min delay)