Interesting stats about KNL, page-42

Heeman,

1. To me, it's not curious at all that SYR had to appoint a sales and marketing manager (although I seem to recall that someone was in a similar type role at SYR over 12 months ago, unless I was mistaken). IMO, their (Chinese) agreements are suspect, and they have to go out and find some genuine ones, which means smaller volumes and more agreements, hence more management time. SYR have started to wake up to this via that appointment, and their recent Marubeni off-take of "only" 20 ktpa (I highlight "only" because they would have - and did - laugh at off-takes of that size a couple of years ago). The part I am curious about is how they spend their $200m that they raised. Knowing in all likelihood that they won't sell out their planned production in advance, and that their Chinese deals are next to worthless, does their BoD still approve the spending of all of the money on the originally planned massive super-pit facility, or do they suddenly change tack and build a smaller facility, and keep a massive amount in reserve to help their cashflow when they inevitably can't sell even their (likely) soon-to-be reduced nameplate production. My guess is, with the advent of some naive but risk averse instos on their register, that they build a smaller name-plate facility, but I'm very curious to see who wins that debate internally in SYR.

2. The main reason for my post is to add some comment (from an ex banker/financier) about debt. Firstly, I disagree that debt is bad. Bad debt can be (and usually is) bad, but good debt is usually good. In personal terms, funding overseas trips or regular nights at expensive restaurants on personal loans and credit cards is generally "bad" debt, but obtaining an appropriately leveraged investment loan where the returns on that investment materially outweigh the costs of that investment, is better termed "good debt". If debt was bad, we should all be saving up cash to buy our houses outright.

Secondly, people on other threads with throwaway lines like "can't be debt serviced effectively by their small production" are generally people who haven't actually understood the numbers, and are pretending to sound like they've done research on the metrics when they actually haven't. While banks may (and do) get future market movements wrong in whatever industry they are lending to, they do usually ensure that the debt can be serviced based on the current financial metrics that are in place today (with some buffer). So if a 2-bit poster on another thread is going to understand more about the debt servicing ability of KNL than say KfW or Nedbank, then my suggestion is you do the opposite of what that poster is ramping for, because they are kidding themselves.

Hypocritically, there are a few posts that have stated or alluded to the fact that SYR has raised 100% equity, and is somehow a "better" investment because it will have no debt. There are a number of stupid elements to this, which I've addressed in previous posts (such as, why wouldn't you use debt at sub 10% to maximise your ROE when you have all of your forward production sold, rather than diluting your returns to 100% raise via equity). But perhaps the most amusing and hypocritical one against the SYR model is that SYR themselves were actually seeking debt finance. It's in the corporate presentations in 2014 and 2015 (GANT charts clearly show their financing timeframes), and on 29 May 2015 their feasibility study and corporate update presentation clearly states "Financing discussions are well advanced". I even recall the usual rampers on SYR threads stating that due to their market cap, and the "strength" of their off-takes and close relationship with China, that they were going to be able to 100% debt fund their mine. And, of course, they all pointed out how much better that would be financially for the shareholders. And, of course, they were right - it would have been a better ROE, if only they could actually raise any genuine debt. As the months passed, they came to the realisation that they couldn't raise any debt from a genuine (Western) financier, and that no Chinese SOE was going to come to the party and arrange any Chinese debt. So they had to alter course, and all of a sudden they pretended a 100% equity raise was always what they were going to do.

It's in black and white in their history that they were chasing finance for the mine, and it shouldn't be too hard to come to the conclusion as to why management suddenly changed strategy between May and August of 2015, when they did a capital raise. (as per another previous post, I actually do take my hat off to SYR management for their CR though. They raised $211m from instos and shareholders who would rather have a lower ROE by a 100% raise for project construction, and the management would have had some serious explaining to do about their debt prospects if they hadn't raised those funds when they did). Of course, all SYR management have done is kick the can down the road, because at some point they are going to have to answer why they built such a massive nameplate production when they can't even sell it all, but that's a little while away for them yet.

So don't let the throwaway lines from other posters fool you. SYR couldn't raise debt, and MNS already has one debt announcement that is being shelved even though it was announced to the ASX as being "binding", so suddenly some posters think debt is bad. It's not, and in our case, it's a good thing. Barring a catastrophic collapse in graphite pricing, our debt servicing will be easily manageable from our likely fully-sold first year production, and the fact we are obtaining cheap debt is a godsend to existing holders that will turbocharge our returns on a per share basis, and the resultant ROE easily beats SYR and MNS on a per share basis.



IMO
IMHO
DYOR
LOL
LMAO

(I got moderated on a technicality on a recent MNS thread, so thought for a laugh I'd stick this disclaimer on my thread. I'd be interested to know just how much those disclaimers "saved" some people from investing in TON)

PS SYR's announcement last year for Asmet reminded me that they took 2-3 tonnes for their sampling purposes. Admittedly, they were only ever going to use it for lower value product (i.e. not batteries), but it should highlight just how serious Sojitz are in KNL's product and how much testing they want to do on the production process.