I met with Shisir (Exec Chairman and significant shareholder) yesterday as flagged. He remains upbeat about the valuation of the assets while acknowledging the current cash constraints the business is operating under as it tries to ramp up production. We discussed the current narrative on the company in the market and my view of their communications which have left room for some ambiguity around the the potential acquisition of TSG and negative accusations about related party transactions. He also acknowledged that the market was looking for more independent governance but the company has been running as lean as possible to utilise cash effectively for the business. I understand that Cristian Dennis stepping down has been on the cards for some time given compliance issues around his firm (Optiva Securities) being the company broker.
Shisir remains very protective of the share capital and clearly hates the idea of equity dilution at any cost let alone current prices and we can only applaud this as too many boards have little regard (or understanding) of per share intrinsic value. The $1m prepayment from customers was achieved through his trusted contacts from years in the graphite business and mgmt continues to bootstrap the business as the Madagascar operations turn cash flow positive. There is the sense that more capital is needed however.
The feedback from other investors (and me) has been to focus on current Madagascar operations to become cash flow positive before focusing on deciding and communicating the priorities from the 3 potential investment opportunities facing the company – further Madagascar capacity expansion, development of the Mozambique assets and downstream asset development/TSG acquisition. The TSG acquisition remains the most difficult as the Indian regulatory process cannot be determined with great certainty, requires investment in the company, and results in UK listing complications around the Poddar family shareholding level in TGR with the issue of shares for TSG.
Shisir is clearly passionate about the business and delivering value for shareholders but is not shy in acknowledging the issues the company is currently dealing with. We aim to continue to engage to help support the company where possible.
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