KNL Strategy ticking all the FA boxes

Without trying to kick someone when they are down, I think the latest announcement from TON is a stark reminder about the importance of getting the FA right.

While no-one likes to lose real or paper money in the declining value of a share, you can at least sleep easier at night when you know that your company is being managed well, and that the FA boxes are being ticked off according to the company's strategy, and that your share price will eventually recover as the niche graphite sector and broader resource sector recover. But for you to have that comfort, your company does genuinely have to be ticking FA boxes, and not just releasing spin and hope. And if your company isn't ticking the FA boxes, then your chances of recovering your capital or making a profit tend to be minimal.

As has been posted before (including by me), we are seeing the unraveling of the strategies employed by a number of other graphite stocks. While the market has started waking up to this much later than I expected, I'd suggest that waking up is indeed what the market is doing.

In my observations and reasoning, I think the following can be safely surmised:

1. The "super-pit" concept is still alive as a hope for some people, but in reality it's unlikely to get off the ground. Even if there was tremendous short term growth in the graphite industry (which I highly doubt), no company is going to go from "explorer" to a 200,000 tpa producer. And boards are bordering on either incompetent or fraudulent by letting their shareholders continue to believe that they can be a viable super-pit. No company has still been able to explain how a non-producing explorer can suddenly/immediately grow to controlling 20%+ of global graphite supply. This is even more ridiculous when you consider that the largest currently producing graphite mine is approx 40,000 tpa capacity (unless I'm mistaken).

2. The chinese agreements are nothing more than fluff, with no intention on the part of the Chinese to do anything concrete. This goes for the off-take announcements as well as the finance announcements. And yet the companies persist with deluding their shareholders right up unto the point where it becomes obvious that the agreement is not going to proceed as originally planned. In some cases (LMB) it actually costs the company money, and it will also cost TON if they go down the path of handing over cash raised from a botched CR to some JV plant in China. In other cases (almost every other company) it costs the companies time as they go down dead ends. Unless I've remembered incorrectly, TON, MNS, and SYR all had ASX releases at some point about how one of their "esteemed" partners on their fluffy MOUs were going to be involved in some way with funding their mines to production. In the case of MNS, the word "binding" was specifically used in their ASX release in relation to funding (it may have been on the other companies too, but I only recall MNS specifically at the moment). Refer MNS announcement 31/3/15 as to how crystal clear they were that they had binding finance, which now they don't have, and suddenly have to do a much higher level of rigor (read: $cost and time) to satisfy a more genuine style of funder. As is now starting to become clear to people, these deals are not worth the paper they are written on, and the term MOU (Memorandum of Understanding) is a misnomer, as none of the boards involved appeared to have any "Understanding" as to what they were getting themselves into.

3. For all the talk about batteries (including by KNL), the reality is that with the exception of a possible Tesla deal, there is no current huge demand for battery graphite TODAY. The most viable off-take buyers that are going to be acceptable to a funder are current industrial users. Not potential battery users, not potential graphene users, but genuine industrial graphite users. Thank you ThysseKrupp!!! Boards that persist in taking their company strategies down this "potential" path are again either incompetent or fraudulent.

4. It should be blindingly obvious to everyone that the vast majority (yes, the majority) of ASX listed graphite companies will never get a mine into production. No analyst anywhere has ever said anything to the contrary. There will be less ASX listed graphite producers (as opposed to explorers) than I have fingers on one hand. And I will still have spare fingers on that hand. I don't know the number of ASX listed graphite companies, but I think I remember someone once saying 31, although that might have included the TSX. If that number is correct, you can immediately draw a line through 25 of them without breaking a sweat, and you can probably halve your remaining shortlist with a bit of rational thinking.

5. Graphite is plentiful in this world. Quality graphite is less plentiful. Quality buyers are even less plentiful. The hard part is not finding graphite, or even working out how to process and purify it. The hard part is finding a genuine buyer for it.

So what is our (KNL's) FA look like?

- Large chinese MOU fluffy buyers No. We have 2 genuine binding, western company off-take agreements. Only one company has signed up 2 MOUs for offtake agreements and been able to convert them into genuine binding off-takes.
- Pretend Chinese financier? No. At this stage, one of the world's largest development (European) banks is involved in our potential financing, supported by an in-principle debt guarantee from the German Government.
- Sub-standard graphite in a massive mother-load of gigantic proportions? No. Quality graphite, near surface, only a small portion of a wider graphite deposit drilled, with sufficient proven resources already for a 20+ year mine, no more money being wasted on drilling a larger resource where there is no point in doing so.
- Misleading or misled and overpriced management? No. Cash burn from our management is low. Admin costs are at the low end of the curve. And our management were wise enough to see Chinese agreements with SOE's for what they were. Ours is one management team that can hold it's head high at having the reasoning and courage to reject an MOU offer from China all that time ago.

Our strategy is sound, and ensures we will be one of the RARE ASX graphite companies that becomes a genuine producer. Our share price will still have it's ups and downs within the graphite market for a little while yet, but at least we can sleep easy knowing it will be getting into production, and we can point to genuine FA boxes being ticked to back up that knowledge. Those FA boxes are ones that no-one else has been able to do yet. Not one. (the exception to the buyer FA box is SYR, which will still get a mine built, because they have loads of cash, but no-one else is going to be able to replicate SYR due to not having the market index listing to help in the raising of $200m).

To my mind, only KNL at this stages qualifies as a genuine "investment". You can choose your trades quickly, but choose your investments wisely.