The slow death of Magnis Energy shows plenty wrong with the ASX

Over many years, the EV play has shown nothing but contempt for shareholders, most of them small investors. In its inaction, so too has the market operator.

Kylar LoussikianDeputy editor - Business

Apr 16, 2024 – 5.00am

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Magnis Energy Technologies has been producing commercial quantities of the most cutting-edge electric vehicle batteries for one year, eight months and two days. At least, that’s what it says on the ASX.

The rivers of gold from the company’s New York plant have been such a success that Magnis Energy shares were last changing hands at 4.2¢, down from 48¢ in 2022.

And that’s when they were trading at all – in December.

The rise of electric vehicles has captured the imagination of investors. One company that rode that wave was Magnis Energy – after it went into the uranium and graphite sectors. AP

With a market capitalisation that once stretched to more than $700 million, Magnis Energy is surely one of the most embarrassing entries in a long list of ASX mistakes. Over the last five years – perhaps longer – it has shown nothing but contempt for shareholders, most of them small investors. In its inaction, so too has the market operator.

Magnis listed on the ASX in 2005 – at 20¢ per share – as a Tanzanian uranium exploration play known as Uranex. After almost a decade, and no success, it changed its name to Magnis Energy and promptly announced a promising graphite discovery in Tanzania. Uranium was off the cards.

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A year later, in 2017, it entered the electric vehicle batteries market, striking deals to build factories near Binghamton, New York, and in Townsville, Queensland. By 2018, it was working on plans to “fast track” the Townsville plant and made “significant progress” in New York. A $1 billion sales contract for New York followed in 2021 and by 2022 Magnis Energy was telling investors that “commercial production has commenced”.

It would have come as some surprise to investors, presumably, when Magnis Energy shares entered a trading halt on December 6 and never exited. Finally, in March, the ASX disclosed a lengthy exchange of letters dating back to January where it repeatedly raised queries about the company’s forecasts and disclosures to the market.

Bizarre responses

It is a shame that the ASX waited until Magnis Energy was essentially out of money. Its latest financial disclosure shows Magnis had $532,000 in available funding, or less than a month of cash available. How does it intend to raise further cash? It is in “final stage discussions regarding additional capital from the debt and equity markets”. Good luck.

The ASX and its compliance function have been well aware of Magnis Energy and its propensity to inflate its achievements. Before the company stopped trading in December, the market operator had issued nine letters in five years questioning Magnis Energy’s forecasts and disclosures. It had declined to take any action.

In one of the more bizarre responses, Magnis Energy told the ASX – in response to queries in late 2021 – that one of its biggest customers was “involved in the oil and gas, renewable energy and technology sectors with operations in Asia, Africa and Europe”. Sukh Energy, registered in India and the United Kingdom, would apparently deliver up to 9 per cent of the battery factory’s revenues, Magnis Energy told the ASX.

Actually, the company said it would be making annual revenues of $530.4 million from the New York factory this year, a figure that would grow to $1.8 billion in 2027. Beyond belief, of course, except perhaps to the ASX compliance team. For the record, The Australian Financial Review reported in October that Sukh had once again disclosed that it had almost no revenues of its own in the past financial year.

Then there was the even more bizarre. The Australian reported in that same year that Magnis Energy had “engaged alleged drug-smuggling kingpin Hakan Arif to act as an agent for the company in Turkey”, according to former senior employees. (Arif, known as “Little Hux”, was arrested by Turkish authorities late last year.)

At the time, Magnis Energy told investors it had “retained Queen’s Counsel and senior lawyers to represent it in proceedings arising from the assertions and imputations in this article and from recent defamatory articles including from the same author and newspaper and will bring proceedings against any republication of these false assertions”. So far, 869 days later, this has not come to pass.

Documents redacted

In that time, the Australian Securities and Investments Commission has begun its own investigations into Magnis Energy, which the regulator disclosed at a parliamentary hearing last year. It also attempted to engage with the ASX about the company, according to documents obtained under freedom of information laws. The success, or otherwise, of that engagement is not known because the documents are redacted.

What is known is how the ASX felt about having to hand over any documents to the Financial Review about their discussions with ASIC. “ASX has described in its submissions the detrimental effect it believes disclosure would have on its business affairs,” the regulator’s lawyers wrote in response to the request.

“ASX has submitted that if the documents were disclosed, it would likely act as a powerful disincentive against engaging with ASIC proactively and in a detailed way.” Because properly engaging with the regulator is apparently optional.

Of course, investors should be responsible for their own bad calls. The ASX is not there to prevent a poorly performing investment upsetting shareholder returns. But the bare minimum should surely be keeping the flow of information accurate – and not just when there’s little road left to go. The ASX has a responsibility to refer suspicions to ASIC. In this case, we will likely never know whether this actually occurred.

The market operator often says it is not the regulator – and has a limited ability to act. Apparently not, when, in this instance, it has kept Magnis Energy from trading for months. Of course, investors need to be able to exit their holdings, and that would be part of the ASX’s considerations in this matter. Why now? That remains unknown – and the ASX declined to respond to questions, once again claiming it is unable to.

“ASX takes seriously its role to oversee the compliance of entities listed on the exchange with its listing rules,” a spokesman said on Monday.

“As a market operator, our focus is to keep trading interruptions to a minimum and ensuring that the market is appropriately informed. As part of its role, ASX regularly engages with ASIC to share information on matters that may require further investigation by ASIC in its capacity as the corporate regulator.

“It is not appropriate for ASX to publicly disclose specific information relating to matters that may be confidential or subject to an investigation by ASIC.”