Deme's Thoughts on Bryce Crocker's Crux Investor Interview.
Let me preface this by saying that the following is my interpretation of Bryce’s comments in the Crux Investor interview. I appreciate that others may hold a different interpretation. And I welcome constructive feedback on my comments or any comments as they pertain to the interview or Jervois Global.
Firstly, well done to Matty from Crux Investor for putting some tough questions to Bryce. He certainly deserves to face some heat. After all, a share price falling from A$1.02 on 19 April 2022 to 4.8c in August 2023 - represents a mind-boggling 95% capital destruction - the worst (by far & as an investor) in my 30 years of investing.
0 - 10 minutes.
Straight off the bat, Bryce brings up macro and China, management having “dusted 50 mill of our own money”. In other words, we have destroyed your money along with our own, so we understand how you feel. Well, thanks for that.
"We're angry, disappointed, but eager to recover the share price". Fairly standard fare.
“There's nothing wrong with the portfolio of assets we have” Agreed.
Acknowledges balance sheet issues. “We’ve been honest with ourselves - there have been missteps in management”. Has nothing to do with honesty. It is simply acknowledging facts. I’m not gunna thank him for being candid and telling us what we already know to be true - they effed up - simple as that. If your wife catches you bumping bellies with some other smoking hot tenderonie and has proof - you don’t retort “Well, at least I admitted to cheating”. It dilutes the remorse. And he spends more time banging on about macro, etc - than admitting that his own cobalt bullishness & refusal to respect risk are the two main culprits in terms of their SP collapse.
Matty was bang on “At the end of the day, you still need to deliver on your portfolio of international assets”. And his pertinent question “Have you looked at the risk mitigation factors required to have multiple assets in multiple jurisdictions in a A$150m company?”. Bryce starts off by trying to justify their previous leverage when capped at a billion dollar valuation - but admits they "haven’t been quick enough to adjust the balance sheet - at a lower equity valuation". No sh##, Sherlock.
He goes on "We still own 100% of our assets, we have unencumbered off-take, have tools at our disposal. We don’t have the balance sheet to bring all of these assets into production by ourselves independently”. I swear that last sentence is a cut 'n paste of what I recently texted him via moby. So, here is an admission of their strategic change. It is refreshing to finally hear them admit what we have known for some time now. “I’m not sure of what percentage we will own to get to a self-sustaining position. We need partners. That is what we are focussed on now”. Instead of any follow up as to how these negotiations are progressing, he moves on to discuss revenue and costs.
This focus on revenue all the time and ignoring free cash flow is clearly Bryce's red herring attempt to bamboozle investors. No one looks solely at revenue numbers. EBITDA margin is what he coveneniently ignores. I’ve noticed that in multiple presentations now (NB: He later acknowledges this).
After breaking these down, he says "You have to generate more cash than you spend”. The golden rule of running a business has finally dawned on him. Jolly good.
“We’re conscious of further dilution”. You’ve got to be kidding - given the extent to which they have blown up the capital structure of the business over the past 3-4 years. And their lies re: being fully funded (end of 2022) and repeated assurances re: not going to dilute - then diluting. He simply cannot be trusted.
“We’ve had inbound interest on each of the assets - strong, good inbound interest”. Where are the deals then, Bryce?
“Do I believe we will own 100% of each of the assets in 12 months time - absolutely not. It’s certainly conceivable that we’ll own 100% of 1 or 2 or more - or 1-2”. What? Which is it, Bryce? Contradiction 1.
Finally admitted misjudgment about risk management - cobalt price fall, one operating asset, capital cost overrun in Idaho, deleveraging of the Mercuria facility in Finland (which they linked to the cobalt price in the first place) etc. So, a perfect storm of events occurred simultaneously and the captain of the ship wasn’t completely prepared for it. Added to which, he had the cheek to put his hand out for performance rights at the recent AGM. You can’t make this stuff up. Reward me for fixing the mistakes I made - instead of actually - reward me for doing a stellar job.
Finally admits “high revenue, small EBITDA”.
Matty said “Brazil production in 2026”. FFS - was that a mistake or something Bryce had slipped to him offscreen? It had better be early 2025.
10-20 minutes.
The somewhat contrite Bryce earlier is replaced by the true Bryce. He is relaxed now. In a groove. Guard down. Let's dig in.
Matty asks Bryce the following: “What would you have done differently? Would you have made such a big bet on one commodity? Bryce spoke to two learnings. He acknowledged a previous comment he made re: not raising capital when the SP was high - just because he could (I recall that comment at the time & cringed). Should have raised at $1 to protect the balance sheet (first learning). Instead - they raised after the SP had collapsed. This reeks of inexperience. I’ve been investing in mining for a very long time and all the best managers raise money after a SP has bolted. It is CEO 101 stuff. Once again, his hubris and arrogance caught him out. He shouldn’t have made such a comment in an earlier interview re: not raising money at higher prices. Was stupid to say that - but he wanted to grandstand. Bryce is a classic show off.
Bryce admitted that they are a “long way away from coming back to equity markets”. Yeah - coz you’ve been told to eff off. Reality is, though, when you do the numbers - they are almost certainly coming back to equity markets again next year. No matter how I calculate it - it is only a matter of when not if. And he can’t be trusted after saying the same thing last year and being caught out by financial/balance sheet realities. "The way we look at risk is going to be different (second learning)".
In any other company, such an extensive list of mistakes would have resulted in changes. All I can conclude is that he couldn’t foresee any of this stuff. It speaks to his inexperience as a CEO in running a business. Bryce has been learning on the job and we have suffered as a result of his OJT (on the job training). Appalling - given how much he continuously talks them up.
On this point - this is where I have been caught out somewhat. Given their extensive history as commodity traders, I felt they had unique insider knowledge as to the true state of commodity markets - different from doom and gloom mining article writers. I constantly spoke with Bryce about this and he ensured me that the situation wasn’t as bad as was being written about, etc. And I naively believed/trusted him. He fooled me and many others - and didn’t fool a few others - who were more cautious.
“We are looking at OEM order tender requirements and they are too big for us to satisfy from our existing capacity”. Well, hurry up and announce a deal with an OEM to fund Kokkola’s expansion in exchange for a fixed share of the expanded capacity. Had they operated this asset efficiently after picking it up - they could have perhaps used FCF to fund that expansion themselves. Not now. The muppets dropped the ball by stockpiling cobalt at exorbitant prices because they failed to renegotiate the legacy contracts before picking the asset up.
SMP - talks this asset up. Talks up nickel. “Will derisk the group”. Agreed - but on the proviso that there are no capital overruns during the refurb stage, that they source nickel at appropriate times/prices, etc. Historical precedent isn't on their side.
Matty asks him about potential Board changes. Matty talks about the market being the real humbler. You will never hear a CEO say I humbly apologise. I need to learn greater humility. Recognising and admitting one’s flaws isn’t easy - especially for someone with a massive ego like Bryce. To be a better CEO, he needs to deconstruct the massive house his ego has built. I am still yet to see that and it greatly concerns me.
Naturally, Bryce defends his Board and bangs on about their quality, experience, etc. To wit, “The quality of the people we have within both management and the Board is disproportionate to the size of the company. And I firmly believe that”. This is an astonishing remark given the 95% capital destruction - and admittance of zero risk management and capital management skills. A competent management team and Board simply do not make the breath of rookie mistakes this mob have and in such a short space of time. I suspect the Board haven’t been critiquing Bryce’s performance closely enough and have just given him carte blanche for far too long. I suspect the Board now understands this and will reign him in a lot more. He handballs some of the blame by talking about hands on directors.
Bryce needs to shut up about Xstrata, Glencore and their backgrounds, etc. He bangs on about it in every single interview. It means jack sh## when you have performed so poorly. And such acumen is irrelevant given the differences of working in corporate ecosystems of gargantuan trading companies and speccy junior mining minnows. Some skills are transferable, but it is more nuanced than that.
Bryce thinks their numero uno mistake was the capital overrun at the ICO. I disagree. I think their biggest mistakes have been their bullishness over cobalt (not recognising its volatility until very recently) and failing to apply risk and capital management initiatives to mitigate potential risks which eventuated.
Admitted an extensive review process had been completed. Some lackeys were sacrificed due to Idaho. “The way that the Board is looking at providing oversight is going to be different in Brazil than it was in the United States”. So, the Board are full of guns, but they provided little oversight (were they asleep?) when the company was trying to bring their flagship asset online? Extraordinary.
20 minutes - 30 minutes
Matty: “Were you too aggressive, too confident?” Good question by Matty re: executives not used to capital constraints in Glencore, etc. "Do you believe you have the people to go from here to where you think you will be in 12 months?" Bryce rolls out his fav “constructively impatient” expression. Goes on about the quality of the team being robust, strong, etc. Hey - I love my Bombers in the AFL, but that would be like Brad Scott saying the team were premiership quality after being slaughtered by the Giants to the tune of 21 goals last week. It is laughable to call yourselves guns when you have stuffed it up so monumentally. “I just wanna pass off risk” (cringe). That is how I am looking at the business now”. My team have failed, so I wanna pass of the risk we introduced to someone else. Once again, how does Bryce endear himself to potential partners with comments like this? Talk about showing someone your weakened hand. What happened to the master bluffer? He then tries to cover this up by talking about adding value - “it’s not just dollars”.
Now what?
Bryce: “Sell! We don’t give anything away. We’re traders”. Bryce is still clinging on to “not being that much of a different company”. Hang on - what has he just been talking about for 20 minutes? “We are still gunna get to the start line. But - we aren’t going to own 100% of each of the assets”. We need to work with partners to get there”. Didn’t answer Matty’s question about AussieSuper and other institutions and their view of this strategic change. Matty follows up with a classic question re: “Will they want to come in and replace your team?”
Bryce: “The level of credibility we have is extremely strong”. Really? Not according to those I speak with. I said to Bryce only recently that their credibility had taken a hit regardless of whether he refuses to acknowledge that or not. The proof is in the pudding - that being the share price. “When we go through Washington DC - the access we are getting to the White House & agencies is different to major mining groups - who don’t have the same access as Jervois does”. OMFG - the arrogance!!!
“I’m not coming through here cap in hand. They (USG) said wait - we can help you. I said - there is money available through private markets. We are just going to go ahead and do it and you’ll have a cobalt mine a year ahead of when you otherwise would have”. This is a startling admission by Bryce of having spurned public help to fit in with his ideology of "private capital - that governments shouldn't displace private capital”. I mentioned this on Wednesday to a fellow investor I met in Tokyo for lunch. The real truth here, in my view, is that they couldn’t wait any longer for public help to fund the ICO - so they went to markets & took on the crazy Nordic bond. He lost patience, went it alone, effed it up and now needs the same public help they couldn’t wait on years ago. Embarrassingly bad. The worst thing about this is that representatives of the USG have referenced some companies needing less of their help than others - due to being able to raise capital themselves. Bryce has created that perception - when the truth is that he is now desperate for USG help. My concern is whether he has actually conveyed this to the USG. "Um, you know that help you offered us a while ago, well - yeah - we sorta need it now". His pride may be interfering here. I just don't know.
"OEMs - a lot of respect from car makers" - offers no proof of that. "Relationships in Japan, Europe and U.S. are extremely strong. There is a disconnect between where we are as a company in terms of equity markets and the level of access and respect where we operate”. Ah, OK. The credibility you were referencing was customer credibility. Who gives a damn about us shareholders, eh? Bryce once again forgetting his role as the custodian of our capital.
Goes on to diss his peers - "have never produced battery grade sulphate". Yeah, well, said peers have market caps much higher than Jervois' and they are still in the development, pre-revenue stage. What do you have to say about that, Bryce?
Complains about customers not paying for ESG. ESG has a price. “You are more expensive than the Chinese” according to his customers. He is pushing a hard sell on the ESG - but western supply chains are still ambivalent about it all - outside of political rhetoric. Concerning.
30 minutes - 55 minutes.
"Ride through the trough of market sentiment - Chinese driven". It contradicts what he is saying about a divergent market in the future.
Matty asks Bryce about their current negotiating power. Why potential partners shouldn't just "beat themdown" like Bryce has previously boasted doing in a former life. Bryce admits that "Many of the inbounds we’ve had over the last 6 months - particularly those before we did the 50m capital raise in June/July - were predicated on a perceived weakness on our part”. Yet another contradiction of his earlier comment that the inbound interest they had received on all of their assets had been "strong". Or are we to believe that he meant a new flood of strong inbound interest has come in after the raise (meaning in the last few weeks)? All we know for certain is that they clearly received some low-ball offers by opportunistic players.
Bringing the bond holders in on to the equity side was clearly smart and should be acknowledged. The bond holders have equity-like exposure.
Back to talking about a 12-month runway. Almost a repeat of what he said at the end of 2022 after the last monstrous raise. "We have a lot options - own 100% of our assets, we haven’t signed strategic LT off-takes. We have tools available to minimise value leakage that we would obtain from some of these initiatives”. Wait - you mentioned the need for deals - what are you saying now? And minimise what? 95% of the value has gushed out (not leaked) already, Bryce. And you now need to explore these very same value leakage initiatives AFTER value has vanished. We are entering clown world type responses now.
Idaho - "out of our control".
SMP - "not predicated on a macro event". Be careful with that, Bryce. "We have term sheets through that would allow us to restart SMP on 100% debt tomorrow, but we need to derisk the company”. Clearly need a partner. Good to hear.
“Do I wanna own 100% of Idaho, 100% of Finland and a very low % of the SMP - perhaps not”.
“Having a suite of options in late 2023 where we can decide what’s the right portfolio for the company moving forward. I’m actually agnostic. It just depends on what the offers look like, once they’ve firmed up, once they’ve come in. I think it is inconceivable that we own 100% of the assets. The only way we can own 100% of the assets is if cobalt goes on a tear”. This mini rant is confusing. He seems to be leaving that door ajar - while saying they need partners, etc. He prolly thinks the recent raise has given them time to decide, while not realising that they are running down cash and weakening their position the longer it drags out. He clearly still believes that cobalt is going to run hard again - as that is what he goes on to say. Still talks about cobalt going on a tear and maintaining optionality for investors for when this happens. “IT WILL HAPPEN”. It looks to me like they are simply stalling for time & magically hoping for some sorta cobalt price recovery. It isn't happening for 2-3 years IMO - until demand starts to exceed supply.
Matty realising this - mentions their current debt obligations. Talks about balancing a tidy balance sheet with portfolio risk. Asks about moving out of the cobalt space. Bryce says that they "are not moving out of cobalt - but may reduce that as a % of their portfolio. Need to get to the starting line. Have a sustainable business".
"The only way we are going to fix the perception that the company isn’t coming back to the market to fund the portfolio is by announcing deals. Just saying that we are gunna do it - isn’t gunna fix it. We need to demonstrate that we are going to fix it. The first step is fixing Finland. Next - business development. Investors wanna see concrete evidence of a partnership. Value-accretive deals. Only going to occur by us delivering those transactions”. This was his strongest point across 55 minutes except when he says “We are not going to sign off-takes” - eh?
Bags the mess of lithium off-takes with OEMs - "just for press releases". Stop bagging others and focus on your own mess, Bryce. He can be super immature at times. I suspect this started in his childhood.
“We’ve adopted a balanced approach. It is not necessarily a popular approach. Many of your readers are complaining that we haven’t signed those sort of contracts”. Had you signed an off-take in late 2021 when I was suggesting it - instead of being greedy and not wanting to cap the upside - you wouldn’t have needed to raise twice since then, perhaps?
Aussie Super - "decade long support". Honestly, Jervois would have gone under without this support. It cannot be underestimated how critical this support has been and continues to be. If I were AS, I would be appointing my own director to the Board. If anyone from AS is reading this, please feel free to reach out to me. I'll keep them honest.
The interview ends with Matty asking Bryce whether they are "fully funded to get these agreements over the line by the end of the year?" Bryce laughs and dodges the question.
Conclusion.
1. I think the sheer number of mistakes made by Bryce and Co have been too extensive and damaging - and that there needs to be some proper accountability for these.
2. I think they know the way forward (deals) - but are hedging their bets that things will magically improve and mean they won’t be forced to sell down parts of their assets - but need to maintain the narrative that deals are being worked on and will get done. Bryce has been telling people for almost 12 months now that he is working on deals - yet none have materialised. He is stalling as long as possible. I think he will ultimately need to get some deals done to save his own bacon. And I suspect he only has till the end of 2023/early 2024 to close on them.
3. Bryce lacks the character traits and negotiating skills necessary to close win-win deals. He hasn’t reigned in his arrogance - and although he is somewhat contrite - deep down he blames external events for what has happened to the company - rather than owning his appalling performance as CEO. New blood is needed to rebuild market trust. Fewer visionary, big picture thinkers and more managers who understand and (more importantly) respect capital management.
4. How long will the market continue to fund them and what will be the consequences of this in terms of additional debt and/or dilution?
One final point.
I don't mean to come across as being excessively negative.
My criticisms aren’t meant to be interpreted that I am throwing in the towel.
I’m not.
I’ve just lost all trust in Bruce. I don’t believe a thing he says. Nor does the market. He seems to understand that the market perceives them as being too risky - but his contradictions confirm (to me) that perhaps he truly doesn’t get it (just yet).
He is a clever man & has the gift of the **. I’m seeing cracks in his persona now.
(20min delay)
