I just wanted to start another thread to highlight something that is being lost among the other posts about whether we are moving up or down a cent today. I'll probably still lose the battle of FA v TA in the short term, but it's still fun to keep punching!
KNL has, in it's recent JORC upgrade, DOUBLED it's production target from 20 ktpa to 40 ktpa. In addition, they are discussing potential new off-take deal.
(for a quick digression, for those without the benefit of a long term understanding of this management team, let me state that they are, as a general rule, overly conservative. I wish they weren't quite so much, but they are. They tread cautiously. They do not talk in terms of "maybes", and do not put out what they know they cannot back up. They can go and achieve a bunch of MOUs - as numerous others have done, but if they are unlikely to convert into off-takes on favourable terms to Kibaran, then management just won't do it. For them to put out a new target, and specifically mention they are targeting a new off-take, then their level of confidence in that course is extremely high. Which you'd expect that sort of confidence from the first ASX listed company to achieve a binding graphite off-take agreement.)
Back to the doubling of production target to 40 ktpa. A large portion of the investor/trader market are still being seduced by the large production numbers in other companies, and are in complete ignorance of what it means for their actual cashflow, and ultimately their return on equity (which is the all important thing for us who are putting in equity via our shareholdings).
On our projected net margins, after capital payback, we are going to have annual EBIT that is equivalent to our current market cap. In ways that people might understand a bit better, let me point this out.
KNL is like a house that you can buy for $400,000, and once we are in production and have paid back the capital, will be earning an EBIT of $400,000 pa.
Let's do a quick comparison with the market darling. If SYR achieve their full production target of 220,000 tpa (dubious, but let's assume they do), with their expected margins (and I'm going to be generous here and increase their margin somewhat, based on the met work we know to date on their deposit), then they will be achieving an EBIT that is less than 15% of their current market cap.
SYR is like the house that you can buy for $400,000, and once it's in production and has paid back the capital, will be earning an annual EBIT of $60,000. It's still a very good investment, but if you buy a SYR share at $5 then you won't be earning $5 per share in EBIT in a few years time.
In addition, KNL have already some of their "rent" locked in on "long term lease", and are about to sign another "tenant". By comparison, the other "properties" (referring to other companies, and I'm including almost all of them) have merely had some phone calls to the real estate agent to ask how many bedrooms they have, and a couple of people have put in a non-binding expression of interest that they might be interested in renting the property out at some point in the future, if they can't find anything else better.
If you buy a KNL share at 30c, you will be earning more than 30c EBIT in a few years time, with a portion of that EBIT already locked in. And that's the important impact of the production target being doubled with the JORC upgrade for Epanko. (I haven't even gone into Merelani yet. We'll leave that for after the agreement is announced).
The time to have vision is before the fact when only a few have foresight, not after the fact once everyone knows it as hindsight.
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