Well, what a shocker from the Tanzanian government! With many of the graphite companies in Tanzania struggling to find finance, their share prices already low, and a lack of interest from the big investors, this was not news that any of them, Volt, and even us investors, wanted to hear!
The full impact of the legislation is still to be determined but it is very clear that the news has not been well received in the market!
BKT took a huge hit today when it came off suspension, but with only 16 trades. At one stage the sp was 60% down, but it finished 25% down. The long term affect on the company is a drop in profits of at least 20% from what BKT has envisaged.
BKT has written a very easy to read and detailed statement about the impacts on the legislation on the company. It is much more detailed than what Volt has presented. It is very much worth reading for those who wish to understand the impacts of the new Tanzanian legislation of the graphite companies!
BKT has highlighted a number of the new legislation proposals that will affect the company, its potential profits, its ability to seek finance, and its ability to attract large investors.
The following statement is used a number of times in BKT's report for a number of the specific proposals: "This will impact Company valuation and the ability of the project to attract investment capital."
Then the next proposal: "This will impact Company valuation and the ability of the project to attract investment capital." etc.
The Tanzanian government also retains the right to purchase up to 50% of any of the companies' stock!
MNS has highlighted the uncertainty surrounding the new legislation and have posted: "The new mining regulations are to be released, and until such time, a high level of uncertainty and speculation remains within the Tanzanian mining framework." MNS are in suspension until 28th July.
So, we already have at least one stockbroker putting a sell recommendation on one graphite company. And the full impact of the new legislation on the companies is yet to be determined. It is anticipated that obtaining finance to develop the mines of all of the graphite companies will become harder to obtain and big investors will be more wary. Not good news!
Of course all these graphite companies can do is take the hit to their margins and profits and continue their operations, albeit in a much more difficult situation. BKT have a projection that legislation as it stands will mean at least a 20% hit to their projected profits. That still leaves the mining operation very profitable, as long as the price of graphite remains high.
Poor old Volt, struggling for finance and struggling for off take agreements. Not the best time for SH to be in China seeking both! But it is not all doom and gloom. The demand for graphite is ever increasing as the battery boom is still only just beginning. The demand for graphite from 2020 to 2025 will be massive! Perhaps we should be looking at VRC's sp in those years instead of focusing on a 6 to 12 month outlook??
VRC's sp is holding at around 2.8c but can it continue to hold there amidst all this uncertainty and with finance still being an issue??? It is expected to take 3 months for the new Tanzanian legislation to become law, so the uncertainty will remain for a while yet. Risk takers might find some bargain prices? What good news is out there to push VRC's sp to higher levels? Not much that I can see in the short term!
Volt remains a highly speculative stock working in very uncertain times in Tanzania. Conservative investors would not go near the stock, but ..... for those willing to take a risk, the upside could be very high. VRC may have the potential to get back to a sp of 15c that it once obtained, if ...... all goes well. However, that price may need to be adjusted to 12c now, taking into consideration the new government taxes of around 20%!! (lol)
So, around these prices is VRC a bargain? Is VRC a buy? Should we be looking more at VRC's sp in 2020 rather than now? Each individual investor must determine their position on the stock, but without doubt it is a risky stock, and just maybe there are other stocks that have similar potential without so much risk??
However, I like the Volt story and I bought a small bundle of shares today, but I am still on the lookout for other stocks to offset my exposure to risk. Please assess your own risk exposure and stance on VRC. Wishing all investors a lot of luck in these very trying times!
My opinions only.
Jean-Claude Killy 1942: "To win you have to risk loss."
(copy and paste this link to read BKT’s very good assessment of the situation!)
