BSM 11.1% 0.8¢ bass metals ltd

Hi guys,Here are some takeaways/answers/comments/insights...

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    Hi guys,
    Here are some takeaways/answers/comments/insights grabbed from mydiscussion with management. I re-arranged / edited the discussion in ahypothetical Q/A format / different points-topics for easier reading.

    Point 1 (on slow progress) :

    Question :

    It has been a tough H2 2018 / H1 2019, amiddisappointing financials and unexpected technical issues affecting bothquantity and quality of the final product and therefore burning cash, delayingsales, revenue and profitability to unknown horizons and putting the future ofthe company in jeopardy.

    Comment :

    While all mining operations in jurisdictions like ourshas its challenges, especially during the ramp up phase of an expandedprocessing facility, we saw the H2 2018 as highly successful, hitting nameplateproduction in terms of feed rates and wet tonnes as an outstanding achievement.We acknowledged (and announced prior to the quarterly report) H1/2019 has begunwith some significant issues, amongst them more than expected rainfall, but arepleased to have been able to address these non-systemic issues and move intothe next quarter with great confidence. In fact, we have seen significantimprovement across the board for April and maintain our guidance of 1300 wettonnes, as announced.

    Point 2 (on execution ofStage1 - cash position) :

    Question :

    There is a sentiment/perception from investors(reflected in the share price) of poor unexpected disappointing execution ofstage1 (which turned out that it won't pay the bills) and the uncertainty/risksurrounding the financing of stage2 and even the near term - medium termsolvency of the company.

    Comment :

    We thank investors for holding their faith in thecompany and the team. We have all worked very hard in trying conditions todeliver value to our investors. For instance, our CEO has a great deal of hisnet wealth invested personally in the company and he could attest that there is nobody working harder or is more motivated than him and the team.

    We are 100% solvent with circa $3.3m in cash andreceivables as announced and will be in the medium term. There is nothing that weare aware of that even slightly suggests a hint of insolvency. So, with all duerespect we strongly dispute this as an outlandish inaccuracy.

    We are always happy to talk with our investors whodirectly approach the Company and ask informed questions. We invite our investorsand those on hotcopper to please do so at any time.

    Point 3 (on commissioning / rampingup / nameplate) :

    Question :

    Did we achieve 6000tpa nameplate ? if so then why only1300 tonnes forecasted for Q2 2019 instead of 1500 tonnes ?

    Comment :

    We can reaffirm we are running at nameplate feedrates, i.e. how much material we can feed the plant. The nameplate of theprocess plant has consistently been the feed rate, as far back as 2018 innearly all of our announcements. We are still ramping to full production of6000tpa concentrate as this includes drying, screening and logistics. These areramping up, on the basis of the process plant’s ramp up, the falling dominoeffect if you will. We have been successful in this regard, while in paralleldeveloping sales and a diversified customer base.

    Question :

    Is it true that most mines take only 6-9 months toreach steady state production, if so why it took much longer for graphmada graphitemine ?

    Comment :

    This is clearly not an informed statement and not oneby an industry professional. Our CEO have a 25 years in mining and exploration experiencefrom the ground up, having started as a driller and operator. And he couldattest that the average project generation period is 7 years and the averageramp up is 18 months to 2 years. The person who made this statement shouldunderstand that these timelines only suit investors not traders.

    Point 4 : (on buying aproducing asset in Madagascar)

    Question :

    When the company bought the project from Stratmin whyit didnt took the time and the necessary capital to finance and establish adefinitive feasibility study (DFS) before starting the refurbishment of themine (stage1) ? Why the company bought an asset in production difficulties /pilot scale status instead of buying an exploration asset and start fromscratch ? Isnt this strategy risky ?

    Comment :

    Isn’t that the opportunity to buy an asset whichpreviously sold for 60m for only 6m? Warren Buffett and other astute successfulinvestors would believe so.

    You don’t see the daily graphite price on the LME.This is why we brought the operation and not an exploration asset. We werebuying the processing knowledge and market relationships first and foremost, ina good jurisdiction known as the benchmark in the graphite industry (Madagascar).The asset has a great deal of upside, and significantly less risk, as thosewith undeveloped, large capital expenditure assets in Tanzania have come todiscover.

    Anyone can put a picture in a presentation of anelectrical vehicle and claim to be the world’s biggest producer, but can theyclaim to be the highest revenue per tonne producer in the world – no theycan’t, not without large flake size concentrates, which we are the marketleaders in.

    Regarding the risk of our strategy to buy an assetalready in production, its the opposite. We have significantly reduced therisk, from resource to operations to logistics and market.

    Point 5 : (on what miningcompanies do)

    Question :

    This is a question quoted from a poster on hotcopper: "allalong, I have been pointing out that BSM is not doing what a 'normal' miningcompany would do in this situation. The normal chain of events is as I saidabove; define an ore body, test your ore, devise a process route, test it atbench and pilot scale, make an estimate of the costs ahead of time, get thefunding in place and all permitting, go find customers, and then go intoproduction."

    Comment :

    That is exactly what BSM did, refer to the followingannouncements :

    Tests confirmGraphite Concentrates as Industry Benchmark

    Test confirmIndustry Leading Expandability for Graphmada

    ExcellentLithium-ion battery feedstock test results

    Bass signs SalesMOU for 50% of Stage1 Production

    Bass signs SalesAgreement for 50% of Stage 1 Production

    GraphmadaGraphite Mine begins Recommissioning

    Bass completesprocess dry commissioning at Graphmada

    Bass deliversfully Recomissioned Large Flake Graphite Mine

    Bass continuessuccessful commercial ramp up at Graphmada

    Bass achievesNameplate Production at Graphmada

    Bass achievesfirst concentrate sales from Record Production

    Bass exceedsGraphite Forecast Sales from Graphmada

    Bass completesCapital Raising for Expansion and Drilling

    Bass progressesExpansion at Graphmada

    Bass continuesGrowth in sales and export of Graphite

    Bass secures 20year landholder agreements at Graphmada

    Bass finalisestransformational transaction to save $10m

    Point 6 : (on defining resourcesprior to mining)

    Question :

    Did BSM start mining blindly an undefined resource ?

    Comment :

    Wrong, we are currently mining an Indicated Resource.We purchased the mine with a resource and drilled an inferred and indicatedresource prior to recommissioning the mine. Read the following announcements :

    Bass achievesexploration success with Andapa discovery

    Oustanding Assayresults confirmed for Andapa discovery

    ExtensiveGraphite mineralisation at Mahefedok deposit

    Maiden Resourcefor Mahefedok Deposit

    Bass commencesdrilling Mahela Deposit at Graphmada

    Highlyencouraging Mahela Auger Results

    Bass progressesexploration at Graphmada Graphite Mine

    Question :

    Why then the recent difficulties with ore dilution despitegeologically defined resources ?

    Comment :

    It means we changed the way we were mining the orebody to minimize dilution and we’ve seen positive results as stated in theannouncement. There is always inherent geological risk in any deposit. The factthat we could realize what needed to be done to rectify the head grade drop isa testament to the team.

    Point 7 : (on flow sheet /technical studies prior to mining)

    Question :

    Did the company devise the processing route / flowsheet based on technical information/studies before committing to stage1 or did it go blindly at it ?

    Comment :

    Of course the company did that, again the followingannouncements answer these questions :

    Outstanding HighGrade Concentrate Results from Mahefedok

    Bass achievesexcellent concentrate optimisation results

    Bass commencesStudy for an Expandable Graphite Plant

    Question :

    Did the company commit to refurbishing the processingplant with no idea of the total capital cost ? does the company use wisely itsfinancial resources ?

    Comment :

    Wrong – we were slightly less on budgeted capitalspend.

    Regarding the efficient use of financial resources, whywould our CEO waste his own money on this project as he put a large componentof his net wealth into the Company? He has bought shares on market. And did soagain only the other day. He is the most concerned about the efficient use ofthe company resources.

    Point 8 : (on stage2strategy / producer status)

    Question :

    Do you have a strategy for stage 2 ? Why did you buythe dozer and the new trucks ?

    Comment :

    We have consistently stated our strategy for Stage 2including reporting all activities completed and planned.

    The dozer is for maintaining roads and pushing waste.We used a rental prior to the purchase and have substantially reduced ouroperating costs by doing so. We brought 2 trucks only recently and have seen asignificant increase in utilization. Prior to that we had a contractor withpoor utilization.

    Question :

    A question from a hotcopper poster : "I mean,this is a strategy based, IMHO, on being "a producer" versus a"profitable miner". They sacrificed financial and operationaldiscipline in order to put out, as per this presentation, a graph showingthemselves as a producer and their competitors mostly as "explorer /developers". This strategy aims to capture a meaningless profile thatinvestors love, but which doesn't actually mean much."

    Comment :

    We have never sacrificed financial and operationaldiscipline. We are a producer that’s a fact. And the only one of four listedproducers in the world and the only listed producer with our flake sizedistribution.

    We have a plan for Stage 2 which we have beendeveloping and will be released to the market when finalized. That hasn’tstopped us from making smart decisions along the way which add value to currentoperations and prepare us well for Stage 2.

    It’s a ramp up operation in only the third quarter ofproduction. We plan to operate for >20 years. we have commenced diamonddrilling at Mahefedok and about to move to Mahela, all while we continue toauger drill our assets.

    Hope that helped,

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