Welcome to a new Rare Triples analysis. Last week, we looked at...

Welcome to a new Rare Triples analysis. Last week, we looked at Core Lithium, which is one of Australia's newest lithium producers. In keeping with this theme, this week we will be looking at another lithium developer-turned-producer who has also benefited from the sector's uplift, transforming itself into a leading Canadian lithium concentrate producer. The journey hasn't been a simple one; however, the company executed numerous M&A deals to scale the wider business while ensuring that enough capital was raised to support the plans.Let's dive in and examine whether Sayona Mining (ASX:SYA) is a rare 'Triple Threat.'

Threat #1 - Setting goals
Setting goals offers investors clarity into the management's strategy to grow the company and deliver shareholder value. Therefore, it also allows us to understand the impact of bad news and how that changes the risk profile of our investment. Ensuring a company is capable of setting goals and regularly informing shareholders of their progress is, therefore, valuable. For companies like Sayona, setting goals is even more important, as the fast-moving nature of mine development can quickly change the value proposition for shareholders. Therefore, it is worth assessing whether management has accountability at heart when setting goals. To gauge this quality, we begin by looking at the goals outlined on 4th October 2021, which was the first investor presentation (link) released since the acquisition of North American Lithium assets and Moblan. The deck only outlined goals in rough detail and doesn't appear to be as specific as some other companies. See our case study on Core Lithium for a comparison. There are only 4 key tasks outlined. Let's examine whether they have been met and if not, whether there was a statement as to why. As we can see, the NAL permitting and commissioning were both delayed, yet the company provided regular updates to keep shareholders informed of the progress. With these activities, it is very difficult to estimate the required time accurately, so all we can hope for is continued follow-up by the company. Good job, Sayona. Unfortunately, the goals set for Authier appear to have disappeared from the radar without any mention. Furthermore, the company completed a large amount of drilling and resource upgrades, yet somehow omitted much of this from the initial goal list. Because of this, we do not see Sayona's goal-setting ability as first class, and there remains room for improvement in informing shareholders when priorities change and in being more specific with overall goals.

Threat #2 - Director on-market buying
Understanding whether directors have been net purchasers or sellers of the stock can give investors an indication of where insiders expect the future share price to go. Although this isn't a definitive signal, a large quantity of selling should be a cause for concern, as it may imply that the peak share price has already passed. After all, insiders such as directors have a better gauge on the underlying business and are likely to time their buying and selling better than external investors.For Sayona, the directors have been very active in the market. See a list of trades grouped by directors below.Allan Buckler28/7/2023: Purchased 10,000,000 shares via option conversion for $1,500,000 (link)12/09/2022: Sold 7,000,000 shares for $2,522,042 (link)5/4/2022: Sold 9,101,063 shares for $2,916,040 (link)James Brown28/7/2023: Purchased 10,000,000 shares for $1,500,000 via option conversion (link)6/4/2022: Purchase 757,094 shares for $22,713 via option conversion (link)Paul Crawford28/7/2023: Purchased 20,000,000 shares for $3,000,000 via option conversion (link)19/7/2023: Purchased 555,556 shares for $100,000 (link)19/7/2023: Sold 9,349,942 shares for $1,681,617 (link)16/12/2022: Purchased 275,000 shares for $55,000 (link)30/5/2022: Purchased 893,895 shares for $23,692 via option conversion (link)1/6/2022: Purchased 3,155,000 shares for $609,082 (link)19/4/2022: Sold 4,000,500 shares for $1,470,560 (link)6/4/2022: Purchased 14,949,186 shares for $322,240 via option conversion (link)23/3/2022: Sold 4,200,000 shares for $788,229 (link)16/11/2021: Sold 2,500,000 shares for $400,000 (link)1/11/2021: Sold 1,000,000 shares for $145,000 (link)Brett Lynch19/7/2023: Purchased 555,556 shares for $100,000 (link)26/4/2023: Sold 4,578,000 shares for $892,509 (link)28/4/2023: Purchased 30,642,999 shares for $612,500 via option conversion (link)23/11/2022: Sold 410,954 shares for $9,227 (link)25/11/2022: Purchased 2,000,000 shares for $80,000 (link)28/6/2022: Sold 4,070,000 shares for $617,975 (link)1/7/2022: Purchased 14,534,885 shares for $436,047 via option conversion (link)31/5/2022: Sold 570,000 shares for $125,082 (link)6/6/2022: Sold 600,000 shares for $104,984 (link)23/12/2021: Sold 8,632,629 shares for $1,048,894 (link)1/12/2021: Purchased 2,000,000 shares for $60,000 via option conversion (link)1/11/2021: Purchased 3,030,118 shares for $439,367 (link)22/10/2021: Sold 2,850,000 shares for $449,700 (link)As we can see, Sayona directors have been frequent traders of their stock with plenty of buying, selling, and option conversions. If we aggregate some of the figures, we can see that these four directors have collectively made 29 trades during this 2-year period, with:13 sales totalling 57,863,088 shares for $13,026,85916 purchases totalling 114,349,289 shares for $9,005,641As we can see, the number of shares purchased is double the sales, yet the directors have taken more money off the table. This is because the average sale price of $0.23 is much higher than the average purchase price of $0.08. This dynamic stems from the large number of options directors acquired before the share price jump, allowing them to purchase more stock at very low prices while being able to sell at much higher market prices. Although the directors have taken a significant amount of cash off the table, they have also demonstrated conviction by continuing to purchase stock at higher prices. Furthermore, these directors have maintained significant holdings in the business and do not appear to be looking for a complete exit. As such, we do not consider this to be a red flag, but the quantity of selling means this is not a rare "threat" either.

Threat #3 - Equal capital raise access
Capital raises are never a great experience for shareholders. There is immediate ownership dilution that is usually followed by a steep drop in the share price. But for many growth companies, this is a necessary event. Usually, companies have the choice to raise from external investors via a placement, which can be done quickly, or choose a slower but more equitable share purchase plan or rights issue to involve shareholders. The best structure is, therefore, to use both mechanisms. Leverage the advantages of a placement to attract external money, while offering shareholders an opportunity to participate via an SPP/EO. At the very least, shareholders do not get disadvantaged and have the option to purchase shares to avoid dilution. Sayona has been an active participant in the capital markets. The company has conducted a total of 4 capital raises since NAL was acquired (excluding 1 Canadian FTS transaction). Let's have a look at whether these have been managed equally.Capital raises:12 July 2021: $45m placement + $5m SPP at $0.075 per share (link)4 October 2021: $100m placement + 1:35 rights issue at $0.145 per share (link)27 May 2022: $190m placement at $0.18 per share (link)26 May 2023: $200m placement at $0.18 per share (link)Across these four transactions, Sayona has raised a total of $580.5m, including SPP and rights issue subscriptions. It is worth noting that shareholders only had the opportunity to participate in half of these transactions. This 50% access rate is not ideal as it doesn't give shareholders an opportunity to avoid dilution or purchase discounted stock without brokerage. We can examine the dilution effect below:As we can see, the earlier two capital raises allowed this hypothetical investor to roughly maintain their ownership in Sayona. However, in the last two raises (which consisted of the largest two placements), ownership was quickly diluted due to the lack of participation equality. This is not ideal and shows that the company disadvantaged existing shareholders.What could Sayona do better? While acknowledging that shareholder offers create uncertainty of funds and potential share price overhang, it is a necessary tool given the company's large retail shareholder base. It would be unfair not to consider the value of this cohort and prioritize external investors at their expense. This dynamic could have been addressed by using a placement to raise the minimum level of funds required to grow and then conducting a small entitlement offer with the ability for shareholders to oversubscribe. This way, certainty of funds is achieved while allowing shareholders to protect their ownership percentage.

Our Final Takeaway
Sayona is one of the few lithium producers who have quickly transitioned into a producer to leverage the sky high lithium prices. Although examining the company against these three threats above is not exhaustive, the insight we can derive here gives us a unique perspective on the company and how they treat shareholders. It is clear that there are no red flags across any of these measurements, yet none have been managed well enough to be considered a “threat”. The company can improve further by setting more detailed/comprehensive goals and also consider shareholder access equality more consistently in any future capital raises.Because of these considerations, we do not classify Sayona Mining to be a rare “Triple Threat”.