Attended the meeting and felt I got a few, what I consider decent answers to some of my questions today;
JP started the Q&A section by stating that the market's reaction today was disappointing and also analysts like Macquarie are not fully appreciating how much of a game changer this MOU is by letting them fully explore a plethora of alternatives outside of local market options for the chloride. JP still felt that many of the existing argentine carbonate producers coming online over next 12-18 months are going to need our chloride given likely teething issues on startup of facilities but irrespective this MOU with the Catamarca govt means they can now fully explore all global export market opportunities.
JP felt frustrated that some analysts such as Macquarie who chatted with him post announcement felt the 7 % agreed to effective royalty rate was high. He felt the extra
4 %( above 3 % for carbonate) for what it gives them in terms of market breadth of opportunities in finalising offtakes over the future stages of our project, that the extra paid will more than be paid back to us through additional competitive tension it allows us to tap into rather than feeling like we are being held over a barrel to negotiating only with existing domestic producers. Personally I 100 % agree with JP's take on this. If the Macquarie analyst has that take he needs to go and educate himself on some basic commercial realities of the world and get out spreadsheet land that most of these analysts live in.
- I asked JP does this announcement today help give him leverage to now finalize the offtake/financing deal with Glencore. He answered unequivocally yes, though given Jimenez is in China, fair to say they are looking for a Plan B if required. My read and I could be wrong here is that some of the delays has been associated with some sort of haggling behind the scenes possibly on some key terms. The board of course wont admit that and I am trying to read between the lines of answers to questions. Needless to say there was a strong hint that this either gives them latitude now to close out finance with Glencore on terms slightly more advantageous to Galan or find a Plan B, which is obviously why Jimenez is enroute to China as we speak.
- Second question was when does the four year term start ticking. Answer it is commensurate with our production next year, its not 4 years from now.
- I wont go into the details as I don't wont to put words in JP mouth but fair to say there was a layer of politics to this announcement. I asked JP are we committed to a carbonate plant now long term and moreover one in Catamarca province and moreover perhaps one up on the Puna and given the altitude and that every other operator has had problems with battery grade % from such facilities located at the puna , this is clearly problematic in the long run if such a commitment now exists much less funding this. JP answer was don't read too much detail into such longer term commitments at this stage, things will be negotiated as we progress in the spirit of co-operation. The general gist I got was the differential in royalty rate from 3% to 7 % buys us a lot of latitude as the priority now for state governments under Milei is to exercise a much higher level of fiscal responsibility and hence they are much more keen to secure Revenues within known timeframes then potential revenue from a much more complex products such as BG carbonate that they know with many projects has been repeatedly late. Put differently the changes going on with Milei's rise to power and pushing back onto states the need to find more of their own revenue and to encourage trade, investment and growth has been a key contributor to this decision coming around sooner than perhaps we anticipated. Hence if people have takes like this commits us to do a carbonate plant long term rather then just chloride, or it needs to give the govt entity some form of priority, then I would suggest such interpretations are a bridge to far at this stage.
- JP was also adamant that passage through parliament is afait accompli and expects this to occur at some point over next 6 months.
- I asked the board what is there strategy with the ATM facility, given clearly even its use might still only get them through to July, and its clearly not possible to fully fund Stg 1 with ever more ATM facility style announcements. JP acknowledged the position with respect to finance isnt ideal and they are working at it 100 % as their complete priority now. I asked what happens if we get to July and still no sign of a concluded offtake , does the board accept that it has to slow things down as a legitimate strategy. I was pleased here that the board accepted that if it got to that stage then yes it would need to either find savings or slow construction. I pressed that my concern is diluting existing shareholders into oblivion and he accepted that they are working as hard as they can to prevent further shareholder dilution.
- Finally lets end all this false speculation that was rife on this forum about a slowdown from an extended EIA process due to the Los Pastos environmental issue announced by the local court there some weeks back. We are not effected. I asked is Candelas ( the southern tenements) affected but and the answer was also No, confirmed to JP by the Catamarca govt as our permit pre-exists that ruling, so if we progress drilling there to firm up stage 4 volumes we can proceed as has always been stated. So good news here on this front. Quite clearly too the government is not going to be so dumb as to have one part of it run interference while another part of it is actively trying to get us revenue producing as quickly as possible.
For me the final takeaway and this come through in Jp's answers to our questions very loudly and sincerely is that the Catamarca government clearly wants us to get to production as soon as possible and are genuine to do what is needed to help us to achieve this outcome. So Stg 2 should now be merely an administrative tick the box exercise. Ironically the world of fiscal discipline and spending not exceeding revenues, with Mileu's ascent to power in Argentina, has provided a new found realisation that whatever they can do to get projects commercialised and earning income is not a nice to have anymore but an economic necessity. For someone who hates socialism with a passion as I do this brings me a nice sense of ironic joy
. Knowing the project is supported by the local provincial government in such a strong way , can only help to either finalise either the existing deal with glencore or maybe if they cant finalise this on satisfactory terms to both parties, it should help immensely with finding an alternative. This should put a bottom under the share price bleed we are seeing at the moment.
Personally I felt disappointed over recent months that this position we are in is somewhat self made or self inflicted and clearly nothing is going to move the needle on the share price until finance is sorted and JP and board realise this and I do feel at least there is something now they can hang there hat to help them work their way out of the morass they have dug themselves into . Long way to go but feel better today than I have in some weeks.
