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Interesting view but I really don't think it's...

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chispas

97 Posts.

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27/02/24

11:07

Post #: 72615424
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Originally posted by Alejandro1: ↑

Could be a plan to push BSE into desperation by the new government. They may wait until existing cash generation is well and truly exhausted before pushing us into the corner to either offer them a bribe or renegotiate more favourable fiscal terms. I hope I am wrong as I hold a sizeable position from ~$0.19, but all our financials are laid bare. It is also true that other local pressures for development and income generation along with geo-political games and BSE relational/discussions (largely hinges on effectiveness of BSE management to establish relationships) could counteract the financial sieging temptation.

In the spirit of devils advocate. If I were in the shoes of the newly elected government, I would wait until the end of this year to simply see how far I can push these negotiations to extract more funds out of BSE. BSE management is likely pushing a hard line when they know they have profitable operations in their pocket. Now what happens when they don't at the end of 2024? Will desperation set it?

I do not think the government will nationalize the asset as some have mentioned, not only because of western funding, but because the government does not have the skills needed to develop and extract value from it. Stealing and on selling the asset to the Chinese would obliterate any shred of credibility that the continent has as a place of business, especially Madagascar. China would also ask, "if they can do it to them, what's to say they wont do it to us?", it would be economic suicide and could see retaliatory investment by some disgruntled investors/businesses to fund a coup and scream for heads to roll! The public sentiment toward companies like BSE is not, IMO, inflamed enough to give political body adequate public support needed.

I honestly will not hold my breath for commencement of FID process this year. On the other hand, risk of falling mineral sands prices could incentivize the government to negotiate sooner rather than later, as higher current prices reflect what you have to work with in the negotiation room. Future extrapolations are largely done on what is in front of one. BSE will say prices of product will be lower for longer, government will argue it will be higher for longer and so distance between numbers asked for by either side will show a gap.

Let us hope that cash balance will allow us to outlast the siege! The government has enormous funds and influence to outlast a small company like ours in these negotiations. Will they have exhausted themselves and how much do they really need royalties from this project? Also, completion date and expected first royalty payment is far out enough to see another election come about before current government sees any revenue from it! So, they have little incentive to act unless they are forced to act.

I earnestly hope that BSE talks to those who have the most to gain from this rather than to those who have little to gain. That is, the local peoples have much to gain and the government little. BSE should be campaigning to the citizenry who in turn pressure their elected officials to act! Then, even after all this FID might be a no! Id say that possible likelihood of a no would be weighing heavy on some large holders. Nothing is certain. But if any similarity and economics of scale apply to this as they did to Kwale and mineral sand prices hold, then we are in business! FID will hinge in part on the outcome of fiscal terms negotiated.

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Interesting view but I really don't think it's rational to think that the government's interests are served by playing hard ball. BSE is an extremely well equipped and professional operator with a lengthy history of success in Africa. BSE is core to the government's aspiration to bring jobs and security to the region, thereby enabling the elected government to create prosperity for the people, and foster greater political support for the status quo. There's no upside to pushing BSE into a corner. They definitely want the royalties from the project, but more importantly, Rajolina wants the recognition and political validation. The timing of the next election might be very well suited to the development of Toliara, as Rajolina will have something to demonstrate to the community as a boon. If it all goes the way of the Chinese, which I deeply doubt, Rajolina would have signed the death warrant to his political career, considering how much money the World Bank has coffed up. Keep in mind Rio, EVG, and others are operating in Madagascar free from Chinese meddling, so I don't really rate the possibility.

BSE Price at posting: 10.5¢ Sentiment: Hold Disclosure: Held
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