Ann: Quarterly Report - March 2018, page-157

My read is this is a frustrating quarterly, but needs to be read in the context of a bigger play - being a significant upside risk - patience and trusting the process could pay off, big time.

So after my initial 'what the f***k' moments this morning, I'm strapped in, ready for green.

Management has discharged its listing rules / disclosure obligations, and precisely nothing more.   Why?  Why on earth would you close the shutters down about six months ago, and go from proactively engaging the market to almost nothing.  The public communication channels have pretty much dried up.  I've listened to numerous calls, presentations, and read numerous announcements over the years - something changed...

Why would the board and management knowingly take on short term pain if it wasn't in the context of a bigger play unfolding? Today's short term pain is only one part in the changing in posture of info flows btw

Read below for a few hypotheses:

1) The Board and Management are a bunch of clueless muppets out to screw over shareholders on behalf of those with short positions (muahahah you say)  / or hiding something sinister.  Bullshite I say, but makes for a solid shorting story.

Verdict:  large shareholders, with much better access to the board and sector information than us punters haven't materially sold down their shares (in the past few months) or today.  No 605 notices, no 604 notices (hey not even UBS screwed up this time).  If Blackrock (largest asset management firm in the world) and the Norwegian Sovereign Wealth fund starts to move, then Houston, we have a problem.   Major investors held their positions (profiting from shorting is another story).  Trading volumes were within ordinary tolerances today, on the lower side.  No major sell-downs.  

This morning was a great shorting opportunity:  uncertainty, initial disappointment, fear sets in - perfect.  Wondering if this afternoon was an 'oh-shite' moments for the orchestrated shorting - and close out of positions - when morning shakedown smacked a few on the retail side, not the institution side.  A good mate of mine raised the white flag (selling down a enough for house deposit over the past couple of weeks) because he wants to sit on the sideline for a while.   Tomorrow will tell the reset sentiment.  Trading 101: sell the story!!!


2)  Board is evaluating an attempt at an unsolicited acquisition / merger target (Nemaska or FMC) and doesn't want to set a higher price floor on valuation through publication of prices

Verdict:  unlikely, but tantalising option.  T/O 101 - don't reveal all your cards.  Manage expectations.  Why would the Board want a T/O target to know how good their deals are with their customers.  Val expectation from t/o target just ends up being higher. I'd say this is more pertinent to a Nemaska approach given hard-rock.   But FMC is attractive given proximity and public spin-off announcement earlier in the year.

Both Nemaska and FMC are looking at / developing hydroxide conversion. Significant cost synergies here.  Challenge is the finance for these is materially higher than GXY's BS / debt facilities. Could be dual-listing to raise funds specifically for T/O target, or project level finance in  Argentina.   Based on posturing of company, later would seem more within risk tolerance, but challenging for both to be pulled off and opens a whole world of pain if something doesn't go to plan.

3) Defence from T/O threat(s) - turned into a win/win situation

Verdict: possible, a tad more likely, but unlikely to be a cause for Board to play this strategy.  Keep it opaque; very opaque, until you have everything lined up (including SDV and James Bay).  Why?  Makes it harder for a suitor to value you. There's really only one shot here: shoot low and the Board can make a complete mockery of the bid through release of information - Bacchus would love that!  Enter new price floor for share price.  Shareholders win. Ding Ding Ding, shorts get hammered. Shoot high, and well, everyone's a winner - maybe even the shorters through advisory fees or trailing debt finance.  (I'm happy to sell for $12 AUD a share btw.)

Thing playing through my mind is the materiality of Mount Caitlin against the portfolio of assets.  It'll be ~20% of EBIDTA when everything is operational.  So even a misfire of 50% on the val of Mount Caitlin is really only 10% of EV.  Not compelling enough to take the short term pain in my opinion, unless someone, somewhere is willing to discount vals of SDV and James Bay so significantly that the story becomes all about MC. That's why Peter Bacchus is onboard.  Trust the process.

4) Negotiations with off-take and finance partners at SDV are in full flight and Board doesn't want to set a price ceiling or breach confidentiality while negotiating with multiple parties.

Verdict: possible, a tad more likely.   Board/Management could be of the belief that disclosing pricing will set a price ceiling for off-take partners.  Meaning GXY thinks it has the market power to set terms, or it doesn't want to breach confidentiality of terms if the same parties to MC are at the negotiation table. Did GXY do a deal with a converter - cheap spod in exchange for tolling rights?   Who knows how many companies are out and about trying to fish for information on their competitors - particularly in the Asian context, where disclosure is very different to the US / AU.

5) Most likely hypotheses - have you figured it out yet?

Blind Freddy can see what's not being said by GXY and my drivel above....  



Finally, I read a comment on the PLS forum a few years ago - posted by a very excited shareholder after an announcement.  It read:

"I JUST SPODUMENED EVERYWHERE"

That was by far the best lithium-related comment I've read over the years. And, that's my sentiment after calming down and digesting the announcements from today.  Something is brewing.   Trust the process and the heavies on the Board (and Tse).   Fair play to those on the short-gravy train.  Makes sense (Crashman called it). Though the time to be a nervous shorting-nelly is now.

As always, DYOR.