Support level breached?, page-66

Thanks Jackarooz.

I will add something to your point about BB saying "no to MOUs". There is a lot of water to cross under the bridge for a binding off-take, with many "back and forths" between the various legal eagles. While not impossible, it's unlikely to have a binding off-take just turn up unannounced on a company's doorstep. Most genuine buyers want inspections of the site, samples sent, testing done, legal terms satisfied, and due diligence undertaken on the bonafides of the company (i.e. do they have a tenement, do they have a likely chance of getting the mining license, are their environmental hurdles, etc). As a general rule, both parties would want to have some level of confidence in the other party, and hence an MOU or LOI is usually undertaken first, which stipulates the broad terms of what each party is trying to achieve, with relevant things like annual production, price mechanisms, purity, etc. It would be unusual (but not unheard of) for a buyer to take all that information and be granted access to a data room with the relevant product specs, all on a hand-shake between the buyer and the seller. While an MOU or LOI is usually non binding, there can often be a clause stating that the parties intend to be bound contractually, and the non-binding document itself is still worth more than a handshake. It's also important as it stipulates the broad terms. Just imagine going through with a binding off-take, only to find out at the very end of the process that the buyer actually only wanted 1 ktpa of product, not 51 ktpa. I'm being a bit ridiculous in my example just to make the point that an MOU would have clarified between the parties a lot of the initial detail (even if that detail isn't made public). The buyers often want this too, as they know that by tooling their machines to take a unique graphite deposit, they are essentially "partners" in the mine, with a significant say in how the processing gets done, and they are not just buyers lining up to take an "off the shelf" bag of graphite.

I will also add that when lots of external people/consultants become involved, it's also very difficult to keep that sort of stuff secret, and directors could find themselves with a "please explain" if they spend 6 months working up a binding off-take, without having informed the market they were finalising a deal with a buyer, even though half the market already knew from some back channels (such as someone close to BB who happens to know that BB is on site in Moz, doing site inspections with a large buyer).

The term MOU has gotten a bad connotation in some circles, but it is not inherently a bad thing, nor something to be feared, if it is a genuine stepping stone to the binding agreement. The bad reputation of the current MOU's in the marketplace is that the majority of them don't seem to be converting into binding agreements. And that's not a fault of the MOU itself, but a fault of the selection of the type of buyer (i.e. were they genuine to start with, were the terms realistic, did the Chinese just sign them up to get a good look at the mechanics of the deposit, etc).

I'm looking forward to hearing what BB and the team do in relation to the sales.