KNL – A takeover target?

I’ve spoken with a couple of the larger shareholders and while I’ve been told the board do not share this view, a number of the larger holders believe it to be a very real possibility.

In the coming two to three months KNL will confirm the conversion of the ThyssenKrupp LOI into another binding off-take. The BFS will confirm some already tantalising numbers and they’ll announce funding shortly afterwards, if not with the LOI conversion. KNL, with the exception of SYR are leading the pack in terms of mine development. SYR are in equal position with us, however they don’t have any binding contracts and no bank will fund an industrial product void of clients. Not to mention the nasty work of trying to spate the vanadium from the graphite without damaging flakes.

Why do I think a takeover is a very real prospect? In short, KNL’s clients. China has proven to be a less than trustworthy business partner, that and their graphite industry relies on old world technologies. The Germans, Japanese, Koreans along with the US are leading the way in both development and commercialisation of graphite dependent technologies. History has taught them that building a factory in China will lead to IP theft overnight. China’s history of commercial espionage will ensure they’ll be relegated to the back of the pack. They’ll require graphite, absolutely, but mostly lower grade and quality graphite. Read lower profitability.

Non-Chinese buyers have proven to be rarer than binding off-takes with non-Chinese buyers. (Sorry, I couldn’t resist). It would take a super-pit graphite hopeful at the very least with an eye to diversification to buy-out KNL. No one else has the market capitalisation required, even then, there’s realistically only one logical choice. A script offer wouldn’t be accepted, the company can develop itself, it’ll require a cash offer well over $100m. Why sell a mine with funding without a considerable profit being made?

I believe the LOI conversion and funding announcement may lead to a take-over offer. Whether or not it succeeds, I don’t know. But I believe it’s a very real possibility.

KNL is soon to announce itself (with the LOI conversion and bank funding) as the stand alone head of the pack. The others are already watching.