Notes from GM 30/06/2015

Hey all,

Attended the GM today with @hotkiwipav. Andrew and Rob were there with John Conidi in the US on business unrelated to KNL & Grant in Tanzania as always.

I will note straight up that the resolution to issue plan shares to John Park was withdrawn due to his unfortunate and sudden passing. Therefore only the resolutions to issue shares to Andrew, Grant & John Conidi were passed.

I will also note that this meeting was by far the best I have attended (attended both meetings last year) in terms of duration (went on for just over two hours) and information obtained. I am sure @hotkiwipav will be able to verify and add to this post.

Okay so where do I begin..

With Merelani, apparently Andrew has a conference call with Sky Associates later this week so the negotiations between the three parties are still continuing. However they are not holding their breath on an agreement being obtained and I got the feeling that Merelani will become a standalone project after Epanko gets going. We were also advised that there basically isn't any of the old processing plant left and a new plant would most probably need to be built. As discussed previously though the mining lease that is in place is handy.

I will quickly just touch on the 3D printing then get into the meat of the discussions - basically this is on hold until the OZB and 3D group transaction has been finalised. However with John's addition to the board expect this to take off down the track as a value add for the company.

Okay with Epanko, three big ticket items: TK off-take, Mining license & BFS.

We spent quite some time discussing about TK and the off-take. A few things to note: TK are no longer letting company's use their name in MoUs / LoIs that are announced to the market - the fact that KNL have got their name out there previously is a massive bonus. Quickly too I am not sure if people realise (I didn't) but not only the EGT were the ones to contact KNL but also TK - TK also don't know who they EGT are (they are independent however with a few overlapping products).

The off-take with TK has been tweaked in order to fit in with the existing off-take agreement with the EGT, along with certain aspects of the original EGT off-take being tweaked as well due to the availability of import subsidies into Europe. The tweaks that have been made are all in favour of KNL.

We were also told that the European trade organisations have all agreed the terms of the agreement and the off-take is now with TK to be finalised (I will note here that we were not given any specific time frames for finalisation of any matters however they spoke with a lot of confidence and reassured me that things will be unfolding within the next two months pretty rapidly.

They also re-affirmed that TK will be assisting the company with debt finance as previously announced. They are also looking at possibly entering into forward sales with TK once project funding is secured in order to fund general working capital requirements. This will in effect reduce the amount that is required via the project debt and equity finance.

I will take the chance now to state that whilst it is true it has been over 8 months since the LoI was signed TK is not an entity that signs a LoI and walks away. It is basically finalised now and people need to realise that this off-take agreement will definitively be the best off-take agreement you will ever get in the world today.

Some background for people: The superpits who are quoting hundreds of thousands of tonnes per annum into China simply won't happen. China have an export tariff on all graphite except spherical graphite. In order to crack into the Chinese market you would have to be super cost competitive due to this tariff and other reasons and with the company's going around today this won't happen. What is true about China though is that they have a shortage of jumbo flake graphite and KNL are exploring future options of selling jumbo flake graphite into China - not via an off-take agreement but essentially on a spot market trading mechanism.

I will also point out something Andrew said about a meeting they had with a couple Chinese gentlemen in INDABA earlier this year: They sat down at 7:30am and after an hour they liked what KNL had to offer so wanted to enter into a binding off-take agreement whilst also offering to build the plant. At lunch time the agreement was drafted and that night the Chinese wanted KNL to sign the agreement. I questioned Andrew whether he was joking or not and I was advised this legitimately happened. This is point and case about Chinese off-take agreements and their validity.

We were given some great news regarding the mining license - it seems the application was submitted a while ago and the company only yesterday received feedback that essentially everything that KNL needed to do has been ticked off and it is just awaiting a signature from the minister.

With the BFS - they told us it was probably a mistake to announce to the market that they will be receiving the draft study at the end of June. However this is just a normal process in regards to feasibility studies - they only get one shot at releasing the study to the market so they must ensure that everything is spot on. They said it would be unlikely the study would not be issued by the end of July.

A few points regarding the study - the capex looks like it will be inline with the numbers posed in the scoping study. In relation to electricity requirements, they are most likely going to be using gen-sets for the first two years but after then the Tanzanian government will have increased the capacity of the electricity grid and they will be able to run the operation off the grid. We were told that this would reduce the opex by about $100 per tonne which of course is massive. With regards to transport the study is looking at just trucking the ore to the port for the first couple years then looking at using the railway line to the north. These reductions in opex will be factored into the economic model in the study.

That pretty much sums up the three main ticket items of news flow expected within the next couple months.

What Rob also mentioned to us was, in regards to the debt financing is that there are a couple things that could be ticked off prior to the European summer holidays (August) that then could be relayed to the market.

They also discussed the numerous options they have with funding the project, such as using 100% debt (which they conceded was probably too risky), entering into a strategic partnership of which they would not need to issue any further shares. Their number one priority is to minimise dilution so they will explore a great deal of options in order to obtain this objective.

@Heeman your request for additional pictures in upcoming announcements was noted by management.

@prey You posed what has management achieved with all their overseas trips. I think the question should have been asked  as what haven't they achieved lol. They have not only met with potential shareholders / finance partners which will no doubt become valuable after the next couple months but they have met with traders / end users of approximately 90% of current global natural flake graphite demand. They have obtained immeasurable information regarding graphite demand and how others are going about it. A few things to note were that Japan and US traders / end users do not enter into off-take agreements but rather they buy their graphite on a requirements basis i.e. through the spot market. The discussions with the Japanese and US could also potentially lead to strategic partnerships down the track. They also said the only way you will get an off-take agreement is through Europe - of which they are still hunting down more off-take agreements because after all they want to eventually expand the operation to 100ktpa.

With the graphite price and how in the media it was stated that  the price fell by 35% this is definitely not the case for KNL and their discussions with the EGT and TK - KNL are confident in their basket price published and if anything the price may have fallen by 5%. You need to remember that there are a huge range of graphite products out there and therefore of course some may have fallen by this amount (such as fine flake).

With the vacancy of  the chairman position the board are going to meet together for the first time in order to determine and review their options.

I know there is probably things I have missed because it was that engrossing and informative however @hotkiwipav should be able to fill in any gaps.

There literally has never been a better time to become a holder in this company and with the newsflow that is not only expected but will occur over the next couple months I am sure the market will finally catch on to the fact that this company will be in production next year through understanding the current graphite market and latching onto the right strategic partners.