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TICKERS: CGM, DNI; DMNKF

Graphite Miner Faces Hurdles but Foresees Strong Market for Product
Contributed Opinion

Source:

Maurice Jackson Maurice Jackson of Proven and Probable discusses the future of DNI Metals with the company's executive chairman.

Maurice Jackson: Today we will share a graphite development company set for production. Joining us for a conversation is Dan Weir, the executive chairman of DNI Metals Inc. (DNI:CSE; DMNKF:OTC).

Mr. Weir, welcome to the show, sir. Delighted to have you back to provide us with a number of updates regarding DNI Metals, which is focused on becoming one of the world's leading graphite producers. Before we begin, Mr. Weir, please introduce DNI Metals and the opportunity the company presents to the market.

Dan Weir: Maurice, in late 2014, DNI Metals conducted research on the value proposition of graphite. We put together a team consisting of engineers, process engineers, mining engineers and geologists with expertise consisting in building four graphite processing plants in Canada [and] Australia, and had operated in graphite mines in Canada and Sri Lanka.

In our analysis we concluded that we wanted to position ourselves to become one of the world's leading graphite producers. Graphite, which has a number of industrial purposes, will be seeing increased demand with electrification of cars, in particular, in lithium-ion batteries. To clarify, as demand increases for more and more lithium-ion batteries, the demand for graphite will increase. Why, 30% of a lithium-ion battery is graphite; by comparison it's only about 2% of a lithium-ion battery that is lithium.

DNI Metals saw the demand curve increasing over the coming years and wanted to position our shareholders to take advantage opportunity before us. China dominates the graphite production in the world, therefore we needed to find a competitive advantage geographically outside of China that would allow us to have low production costs.

Our research determined that we should focus our efforts in Brazil and Madagascar. And the reason why we targeted Brazil and Madagascar is because of their similarities in climate. Both are hot and receive a lot of rainfall, which produces a weathering effect on rocks called a laterite or a saprolite. And really, it's just a fancy word meaning that it's a sandy, clay material that you can just go in with an excavator, dig it up and process out the graphite. In 2015 we acquired a promising graphite project in Madagascar and have since added a second project adjacent to our first property.

Maurice Jackson: And let me ask you, by the way, where are you today?

Dan Weir: I'm back in Canada. I've been home for a few months and like billions of other people in the world, I'm isolating myself here at home.

Maurice Jackson: And can you provide us with an update on the impact that the coronaviruses having in Madagascar?

Dan Weir: I checked this morning. Officially in Madagascar, there's about 39 cases as of this morning. I can assure you I've been to hospitals in Madagascar before and that number is probably a lot higher. They don't have the testing facilities, they don't have the tests. So I'm confident that those numbers are or will be much higher. Madagascar has locked down the country.

What I mean by that is there are no flights in or out of Madagascar. There are no cruise ships allowed to dock in the country—no other boats except for container ships bringing goods and supplies in and out of the country. Everything else is locked down. The schools are shut down. I believe today the government will be institute a curfew. Citizens will be allowed to be out of the house between 5 a.m. and noon, but the rest of the time, you must stay at home and not work outside of that.

This will be quite a challenge because in Madagascar 58% of the population does not have access to clean drinking water, 75% of the population lives in poverty; that's less than $1.90 a day. Maurice, as a comparison your Starbucks coffee this morning probably costs more than that. Or, now that you're stuck at home, the coffee that you make, your instant coffee or whatever else, still probably cost you more than a $1.90 a day. So the other interesting fact is that 75% of the population doesn't have electricity.

So they've got to go out every single day and get food, because they don't have refrigeration. . .they've got all these little markets that people go to, and I've driven through many of those markets and there are thousands and thousands of people all next to each other, all shopping. So what they're going to try and do is contain that as much as possible. But I think you're going to find that it will spread pretty quickly in places like the capital city and some of the other cities.

Even within Madagascar, you're not allowed to leave the cities. They have the military set up [so] you can't leave the capital city. Nobody in or out of the major cities as well. So we're home here in Canada; our management team and all our board are here in Canada isolating themselves. And as of right now, nobody's showing any signs of the coronavirus.

Maurice Jackson: In our last interview we talked about the termination of personnel in Madagascar, environmental permits and Cougar Metals. Beginning with the former, shareholders were informed that DNI terminated its Madagascar team for falsifying government documents and misappropriating funds, and were taking the previous country manager to court. Has a court hearing taken place, and if yes, what was the verdict?

Dan Weir: On February 19, 2020, a trial was held. On March 5, 2020, a judgment and sentencing was released. The formal reports or court documents, we don't have them yet. We were supposed to pick them up a few days ago, but because of the coronavirus, all the courts are locked down. So I'm not sure when exactly we'll get that. So I don't have all the details.

My lawyers, having talked to the prosecutors and the judge afterward, have told us that our previous country manager, Mr. Stephen Gertz, was convicted of fraud, and what that means is that he had misappropriated funds, and he had falsified government documents in relation to the environmental permits. Mr. Gertz had also made all sorts of different claims to the courts about me. One of the things that he went to the courts. . .and said [was] that I had illegally gone and falsified, or made a false declaration, to the police.

Mr. Gertz and his team were terminated on October 15, 2018. At that time, we requested that he return all documents owned or pertaining to DNI and its businesses. We requested that multiple times. Mr. Gertz refused to give us those documents. Therefore, in an attempt to retrieve our documents from Mr. Gertz, DNI Metals, under counsel with prepared documents, went to the police.

The documents were in French and stated that certain documents had been stolen from us. What came out in the trial [is that] Mr. Gertz said, "Well no, these documents haven't been stolen. I have all these documents. Here they are." DNI Metals had requested all documents in Mr. Gertz's possession because some of them were required to file our tax returns. Okay. Mr. Gertz would not return the documents that we needed to file the tax returns. So what we did is, again, at the advice of counsel, we went and prepared a document.

I signed the document, it was taken to the police and registered. It was then we could go to the tax authorities, and the tax authorities could provide us with copies of the proper documents, in order to file the tax returns. Mr. Gertz, during the trial, went to the court and said, "Mr. Weir's lying because I have all the documents. He's lying if he says that they were stolen." Anyways, it's semantics and we are fully confident that the courts will drop all the charges against me in an appeal.

Maurice Jackson: Speaking of permits, what are the last developments regarding the environmental permits on the Vohitsara and the Marafody, respectively?

Dan Weir: I'm happy to announce that we have gotten conditional approval for all of the environmental permits. When we terminated the previous team, they had not filed the documents with the authorities, nor did they pay the proper fees. They did not conduct the public consultations out at the sites with all the different locals. And they also did not do the technical reports properly and did not have the technical meeting at the sites.

To ensure compliance moving forward on our permitting, I had to conduct a thorough investigation and analysis to determine they meet and or exceeded the Minister of Mines' expectations and requirements. And I am happy to convey that applications process has been completed by DNI Metals and is awaiting final approval by the Minister of Mines.

The ONE, or the environmental agency, has conditionally approved all of our permits. The last step is that we need the official title cards for our permits, or for our projects, and that has to come from the Minister of Mines, which signs approval and sends it over to the Registration Office, which will provide us our title cards.

DNI owns two properties in Madagascar. Both of them are PE permits, meaning that they can go into production. The last thing we're waiting for is just the title cards for both of our projects, and it's the transferring of the name from the old owners over to us.

Under Malagasy law, the Registration Office has 45 days to respond. In practice, it has taken a lot longer for a lot of reasons—one being of the aforementioned, from our previous country management teams' fraudulent activities. And there is now a new government, which came into power in January 2019. The new government has put a hold on issuing any documents, any title cards, any licenses.

DNI is having to wait for approval because the new government wants to make some changes to the mining code. They had talked like they were going to make some major changes. I believe that they have backed off on all of that. By June of this year, and you can see it in the press release, we anticipate that they will provide us their final answers on what they want to do.

I personally think what they want to do is—or what will end up happening is—that they will probably increase the royalties they will be receiving. Currently in Madagascar, there is a 2% royalty on a project like ours, and the tax rate in Madagascar is 20%. We were always very happy with that. Just as a comparison, if you're a mining company in Canada, your tax rate is probably somewhere around 24–26%. I think if you're in the United States you would probably be over 30%; don't quote me on that, but I think you'd be well over 30%.

The new government wants to increase the royalty rate from 2% to 4%. We've run that through some of our models and it really doesn't change much. Obviously, we don't want to see any increase in the royalties, but it's not really going to affect us in a material way on the project.

Maurice Jackson: And once you receive the environmental licenses, then it's off to building the pilot production plant. Is that correct?

Dan Weir: Yes, and as we've stated before, it is designed and engineered. So we are ready to go. It's been great working with the environmental offices. They were absolutely amazing to work with. We just need the Mines Minister to sign off, and we're in constant contact. Just so readers are aware, I have people in Madagascar that keep in constant contact with Minister of Mines and the Registration Office. I'm in constant contact with them, and many other people as well.

DNI Metals keeps pushing on them, and we believe that it will come sooner [rather] than later. I know I've been promising that for almost two years. But as I said, we're in the bottom of the ninth and it is all happening.

Maurice Jackson: Let's move on to Cougar Metals NL (CGM:ASX). Are the any developments regarding Cougar Metals that shareholders need to be made aware of?

Dan Weir: Since our last press release, which we put out in December, there's nothing really new. Cougar is currently in default of the agreement, and there are no payments that DNI is required to make at this time. There is nothing further material to comment on this matter at the present.

Maurice Jackson: Switching gears, let's discuss trading. Provide us with some background on why trading halted on the Canadian Stock Exchange (CSE), and what actions have been taken to resolve this matter. And when can we expect to see trading resume?

Dan Weir: In order to run a public company, it's very expensive. It can be somewhere between $100,000 and $200,000 a year by the time you pay audit fees and legal fees, and pay the monthly fees that you have to pay to the exchanges. DNI Metals completed the audited financial statements as of December 31, 2018.

It's all about the money. The auditors also completed their work. The auditors and the audit committee and the board of directors have signed off on them, but the auditors won't sign them yet, until we pay them. So we have their fees outstanding and to release those audited financials, we've had all the other financials—the three other quarters throughout the year—and now we're into the next year to complete the audit financials. We have been working and keeping track of everything, but it's all about having the money to be able to do that.

We're glad we have received verbal confirmation from a number of shareholders who have stated, "Hey, get the permits and we will give you money." We've also been working with the regulators to get a partial revocation order. What that means is that we would be allowed to go out and raise some money here in order to finish off our financial statements, and get the stock up and trading.

So the short answer is, Maurice, I need money in order to get the stock up and trading. I've had many people say to me that they would give us money if we had the permits, so I'm in a Catch-22 situation right now.

Maurice Jackson: Understood. Dan, besides the aforementioned, what are some questions that you're receiving from shareholders, and what is your message to shareholders?

Dan Weir: We know shareholders—the board of directors, myself—we all want to see the stock up and trading. We continue to work on that. We continue to look at all sorts of different options. Right now, with the coronavirus and very low oil prices, the demand for electric cars may trend downward near term. I am still confident that the future is strong for electric cars, and computers and cell phones. But right now it's going to be a little bit up in the air.

The one thing that I'm seeing out here is that a lot of the different graphite mines in China have shut down. The largest graphite mine in the world, which is in Mozambique, has also shut down right now because of the coronavirus. So I think that demand will come back as we get out the other side of this. I can't tell you what oil prices are going to do out here.

I do know that the future is still very strong, [based on] the need for more and more lithium-ion batteries, whether it's for electric cars, or cell phones, computers. I know that we'll be strong, but I can assure you that right now it's going to be some tough times out here in the markets over the next while.

Maurice Jackson: Mr. Weir, for someone [who] wants to get more information on DNI Metals, please share the contact details.

Dan Weir: You can get a hold of me at [email protected].

Maurice Jackson: And as a reminder, DNI Metals is listed on the CSE, symbol DNI; and on the OTC, symbol DMNKF. DNI Metals is a sponsor of Proven and Probable and we are proud shareholders of DNI Metals for the virtues conveyed in today's message.

Before you make your next bullion purchase, make sure you call me. I am a licensed representative for Miles Franklin Precious Metals Investments, where we provide a number of options to expand your precious metals portfolio, from physical delivery, offshore depositories, precious metal IRAs and private blockchain distributed ledger technology. Call me directly at (855) 505-1900 or you may e-mail [email protected].

Finally, we invite you to subscribe to www.provenandprobable.com, where we provide mining insights and bullion sales.

Dan Weir of DNI Metals, thank you for joining us today on Proven and Probable.

Maurice Jackson is the founder of Proven and Probable, a site that aims to enrich its subscribers through education in precious metals and junior mining companies that will enrich the world.

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Disclosure:
1) Maurice Jackson: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: DNI Metals. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: DNI Metals is a sponsor of Proven and Probable. Proven and Probable disclosures are listed below.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
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