Patersons Research note, page-4

Slowly but surely KNL is announcing itself to the market. Brokers are finally picking up on what we’ve all been saying for some time, “We consider the European based off-take partners, ThyssenKrupp in particular, as a significant advantage”. If only the EGT would unmask themselves we’d have further, indisputable evidence of the difference in graphite “our competitors” (which is more a term of endearment than anything) are peddling in comparison to ours.

The fact is KNLs’ graphite isn’t like the others on the market. If it were every other play would have poached the EGT and ThyssenKrupp with whatever it is they claim separates them from the rest. The graphite trading industry is made up of only a handful of businesses, an educated guess can easily narrow the EGT down to a handful of players and what you’re left with is a group of serious companies, ThyssenKrupp-like and bigger.

I think the market has regularly, and mistakenly, overlooked how KNL has approached business. They hand-picked the tenements in Tanzania to avoid environmental, cultural, minimise people displacing and focused on the quality and depth (I cannot overstate the importance of depth on end product [read basket price!]) of the graphite. The other tenements with slightly better grades in Tanzania have one or more of the aforementioned issues. KNL only drilled what they needed to prove the viability of the mine. Keep in mind the “strike remains open in all directions”! Importantly they stopped to avoid wasted funds when they became aware of what they had on their hands. European interest then approached them, not the other way around, knowing the quality they had in the ground.

There’s graphite afoot the world over from Australia to Sweden, and from Sri Lanka to Tanzania. Graphite is actually an extremely common element and this is where KNL comes into its own. Unlike oil, graphite isn’t graphite. Purity, flake size, depth (!), locality, environmental issues (especially in today’s conscious world) etc. are more important than deposit size. The contracts and money speak for themselves.

Those within the industry, the actual users, know and understand this which is why KNL is the only listed graphite company with two, not one, but two legally binding and enforceable off-takes. Say what you will about the other off-takes, legally speaking their agreements are unenforceable.

KNL is not like other plays on the market. They will be a profitable producer long before most finish their drilling announcements. Furthermore they’ve now hit critical mass, Japanese or U.S. interest looking to diversify away from China, which they will, will approach KNL long before anyone else. Why? Quality and Critical mass. Their mine isn’t just a high quality mine, but it’s beyond the point of no return. It will be producing while “our competitors” continue their struggle for the most important factor, clients (read dollars, or in our case, Euros).

KNL isn’t like any of “our competitors”, the money is screaming loud and clear, “KNL is the real deal”. KNL is no longer a speculative buy as the only questions remaining are how much will they be producing (my tip is we’ll see a revision of the initial 44,000 tpa target very soon) and will it be by late 2016 or early 2017?