The demise of graphite play Triton Resources was as swift as it was unexpected.
On Tuesday, Perth-based Triton released an upbeat assessment of its plans for 2016. The tone was positive — after all, here was a company sitting on the biggest deposit in the world in one of the few commodities enjoying any real macro-momentum.
By Thursday, however, Triton was in administration, leaving investors demanding answers about just how a company with no significant debt and no obvious signs of trouble could wind up in such a situation so quickly.
Only weeks earlier, Triton had raised $4 million in fresh equity — less than the $11m it had originally set out to raise, but an amount that seemed sufficient to take care of its outstanding bills.
The rapid demise of Triton — worth almost $200m less than a year ago — has raised fresh questions about the boom in graphite and the merits of the numerous juniors that have flocked to the sector in recent years.
Far East Capital chairman Warwick Grigor, a veteran of Australia’s junior resources industry who has watched the evolution of the graphite sector closely, told The Weekend Australian there was a serious shortage of real experience in graphite at both executive and investor level.
“We did have a bubble in graphite stocks and the graphite sector is full of the blind leading the blind,” he said.
Mr Grigor is a key backer of First Graphite, which has a small but high-grade graphite deposit in Sri Lanka, and has invested in Sweden-focused graphene play Talga Resources.
While companies such as Triton and sector leader Syrah Resources, which has a market capitalisation of more than $1 billion, have identified huge graphite deposits in Mozambique, Mr Grigor says it is quality rather than size that matters most.
“If all the African graphite stuff came on stream, the world wouldn’t be able to absorb the supply,” he says. “There are some good companies out there, but every week I have a new company coming along asking me to look at their new graphite play. They’re everywhere.”
In the case of Triton, it appears the company may have paid a price for focusing on size above all else.
Drilling out a massive resource such as that at its Balama North project in Mozambique is a costly exercise and meant much of the latest equity-raising had to go straight to paying off trade creditors.
But it may have also blinded Triton to the shift in the market towards so-called “jumbo” and “superjumbo” flake graphite. The larger the flake size, the better suited the graphite is to the revolutionary electric-car and home- energy-storage battery applications that have driven excited investors into the graphite sector.
Triton appeared to acknowledge that shift in market appetite in its announcement on Tuesday. While the company said it was “well poised to advance … towards production as soon as possible”, it said it was shifting focus away from Balama North towards its Ancuabe project. Ancuabe is smaller but hosts larger graphite flakes.
Stephen Hunt, the executive chairman of Mozambi Resources, noted that larger graphite flakes such as those found at his company’s Tanzanian projects were selling for around $US2500 ($3395) a tonne compared to just $US700 a tonne for smaller flakes.
“We’re getting a lot of support from both the market and potential customers from the fact that we’ve got very large jumbo- and superjumbo-sized flake graphite,” he said.
The companies with smaller flakes faced a battle with established Chinese graphite producers that dominated that end of the market, he said. “The Chinese dominate that space and will continue to dominate. It’s going to be really hard for anyone else to enter that market,” he said.
While shareholders of Triton are understandably fretting about whether they will ever salvage anything from their investment, there is a school of thought that the administration could be a short-term, albeit dramatic, measure to put the company on a fresh footing.
Triton changed CEO suddenly last year just before the equity-raising when it removed the incumbent Brad Boyle.
Given Triton doesn’t appear to have any secured creditors, moving into administration could be a way of flushing out any contingent liabilities, dealing with them and then starting afresh with new management and new priorities. Mr Boyle is one of those with plenty at stake in the Triton administration, given he was due to collect about three quarters of a $600,000 payout in March 2015.
Former director Alan Jenks, who resigned from the board in mid-February citing ill health, remains the biggest single shareholder in Triton despite having sold off about $400,000 in shares in the weeks since his resignation.
Veteran executive Rod Baxter lasted only two weeks on the Triton board before quitting citing a change in commitments.
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TON Price at posting:
6.1¢ Sentiment: None Disclosure: Held
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