Reiner,
You got to worry about accepting fixed price contract for nearly half your capacity. Why? Desperate for cash flow?
After all, the whole point of owning a refining facility is to maximise the upside of the margin between raw input and refined output.
This has got me thinking, however, that the mystery transaction may not be to sell one of our resource assets (eg. South America, Canada, or WA), rather to sell the refining plant itself...to Tianqi, or some holding house/bank linked to them. The processing agreement may be bridging agreement until sale terms are agreed.
If Tianqi have need of 8000 tonnes of refining capacity - and with lithium demand increasing in coming years - would it not make sense for them to buy a plant and secure the upside in the margins for themselves?
Such a scenario would also make sense for management and the board whose main interest is not maximising profits for shareholders, but securing ongoing positions for themselves. If GXY were able to sell the Jiangsu plant, and extinguish debt, management could start afresh on exploration adventures in South America funded through lower-risk (for management) equity. This would allow the paychecks to keep flowing. At the moment, with Jiangsu plant still struggling, the chance of bankruptcy remains significant. Management never want to lose their jobs...unless, like our last MD, they have an obscene severance agreement in place.
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Reiner, You got to worry about accepting fixed price contract...
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