Ann: Binding Offtake and US$10M Prepayment Agreements with POSCO, page-28

Of course the company is going to raise money, it’s what’s required to build the project and has been well telegraphed in company presentations for some time.

Debt terms hopefully finalised this month with equity to follow. The equity will center around how much, in what form and who with.

Let’s touch on the debt for a minute, formal offtakes (not MOU’s) are key to help underpin favourable terms from lenders. Other factors which may not be in BKT’s favour could include a bank’s view in Tanz risk and the opaqueness of the graphite market, these two are out of our control and to be frank, what we as BKT shareholders have signed on for. If you don’t like that risk you need to ask yourself why you are a shareholder?

I think drawing reference to HFR is a bit rich. For one you haven’t mentioned the senior bank debt facility of 320mil Euro the company has been able to secure vs stage one capex of 436Mil Euro and secondly the convertible note is equity the company has had to raise, along with their recently botched equity raise at 60c + free options in order to appease debt and potential strategic equity partners, which they are still trying to finalise in order to solve their equity gap. HFR has suffered on many fronts, mainly due to how long it’s taken to secure all permits from the Spanish governments (5 years+) and secondly I think management have poorly managed the equity needs of the business and solving for this over the last year or so, as a result shareholders have suffered.

In terms of the equity, this will come down to the caliber of parties in the data room that want in on BKT and if the company can get that competitive tension flowing, failing that they will work up the list to solve for the equity component required to complete the capex.

This could take the form of any of the following from most dilutive to least for existing shareholders:
- a 1:1 rights issue to existing shareholders at a discount
- a placement and rights issue / SPP at a discount
- a placement to wholesale investors only at a discount
- an equity placement to a strategic partner either at a discount, at the money or premium
- an equity placement to wholesale or a strategic and a sale of the project (not equity in BKT) at the current or a premium look through to the current market cap / NPV being reflected by the share price
- a sale of the project (not equity in BKT) at the current or a premium look through to the current market cap / NPV being reflected by the share price

Funding a project is not a walk in the park, there are many many examples of very poor outcomes delivered by management in order to get a project off the ground, it comes down to a number of factors including the commodity, country risk, offtake agreements (not MOU’s), optionality of the product and the mine itself to extract additional value, the economics of the project, the caliber of the management team, Board, Corporate adviser and the capital markets in general.

I think BKT has many of these in our favour + Macquarie acting as adviser to structure the transaction and formalise the process to achieve the best outcome for shareholders. Yeah sure this has taken time, it always does, but it’s hard to argue the company hasn’t put itself in the best position possibly to achieve a solid outcome for shareholders.

I had picked up a reasonable position post Posco formally coming on Board back in June 2022, lightened a third when price action made the move north of 30c, arguably came back on board early in the placement at 24c, but am yet to reset that full position. The announcement earlier this week was the catalyst I had set in my mind to now make that call to return back to my original position or greater (or if they were able to get Urbix / OEM to stump up for module 2).

Asking myself what form does the equity component take, I run through the options above. I think it’s a very low chance of it being the most dilutive option due to the factors I’ve outlined where Iam going to be asked to stump up a reasonable cheque and double my exposure in order to minimize overall dilution to my position.

I’ve personally taken the view of keeping a quarter of what Iam looking to buy in reserve incase there is an opportunity to acquire more shares when the company solves that final puzzle piece and have accepted the fact that there will be plenty more news / de risking milestones dropped before that time which could result in a much higher share price if and when that equity offer comes.