As much as I want this company to do well I just cannot make...

As much as I want this company to do well I just cannot make sense of the main features of this arrangement with Comet Resources.

The first quandary is their use of cash.

Going on the Q2FY24 quarterly that was released on 15 January, International Graphite burnt about $1.6m for the December quarter, received various government grants and tax incentives of about $1.7m and ended up at 31 December with about $1.5m cash. So in that quarter they were burning about $0.5m a month.

Say they had a similar cash burn this quarter which means they would have had a cash outflow of at least $1.0m.

In the December quarterly they said they expected a $333k instalment under its Financial AssistanceAgreement with the Western AustralianGovernment’s Collie Futures IndustryDevelopment Fund in January. I've not seen anywhere where they say they notify the market of receiving that instalment but let's assume they have. A couple of days ago they gave notification they had received $1.3m in R&D tax incentive. So it seems they have received maybe a bit less than $1.7m in grants and incentives so far this quarter.

With a $1.0m cash outflow, a starting cash holding of $1.5m and a $1.6m cash inflow I reckon the company currently has at most about $2.1m in the kitty. And they're going to lend $1.5m of that to Comet? If that means they have maybe $500k to $600k left that means they have enough dosh for only the next month or so. Not good, and needs to be urgently addressed.

To me, they either are going to pull a cap raise in coming days or they are hoping that one or more government agencies are about to become their sugar daddy. Whichever way they play it this loan to Comet seems to have made their liquidity standing very precarious.

A second puzzle for me is why lend the money at all, why not buy some of Comet's IG6 shares or why not buy into Comet (though, not sure they can legally do that). And with the loan surely they have taken at least a portion of Comet's IG6 shares as collateral. International Graphite have made no attempt to explain their logic and what the benefit is of the loan facility to Comet compared with other options.

A third question as how secure are the board arrangements. I would think there is nothing stopping current shareholders in Comet from either voting their own preferred candidates onto the Board or for them to sell their Comet shares to anyone they like and that new player voting their picks onto the Comet Board. I'm guessing the board arrangement they have set up addresses all those possibilities but again they made no attempt to explain things.

International Graphite needs to come up with at least $12.5m to start building their 4,000 tonnes per annum commercial micronising operation in mid this year. They also need about $5m or $6m - covering maybe four quarters - for working capital. So I'm expecting they will do some form of cap raising for maybe $20m, hopefully starting with non-dilutionary gov grants or highly favourable gov loans and then by issuing a bunch of new shares to cornerstone white knights. Maybe they were told that to have any chance of raising that sort of dosh they had to mitigate the Comet Resources risk. Maybe.

Very crucial time for this little red engine.