I would like to start by saying that I think today's webinar was generally positive. I also think that it is unlikely that JFE Shoji would allow an announcement of this nature to be released unless they have a genuine intention to go ahead with some form of funding agreement.
What is not clear to me, is whether this is simply a high level "Heads of Agreement" as indicated in the ASX announcement, or an agreement where significant amounts of detail have been agreed and just need to have the lawyers to put the handshakes into a legal document.
For example, JFE will provide funding for the DFS. But what is the nature of that funding. Is it a loan? Is interest payable? When does the loan need to be repaid? Or is it simply an amount to be paid so that JFE get the offtake. I am thinking the latter because the announcement states "JFE has the right to convert the value of its offtake agreement into a participating interest in the Razorback Project or MGT, at the election of JFE". However, the announcement also says that "Subject to agreement between JFE and MGT on the terms of such a conversion". That implies that may not be agreed and could be as simple as converting the offtake to a fixed percentage of equity or JV participation, or a more complex method of calculating that percentage based on values at a future point in time.
At around the 15:50 minute mark of today's presentation, Tim says:
"JFE Shovi is the company that we have signed the agreement with. It’s an agreement that is underpinned by a transaction that has already been negotiated and it is only subject to binding definitive agreements, nothing else. That’s why its non-binding at this stage because we haven’t got the full form contracts written up. That will take a few months and then it will be binding."
The phase I have highlighted in bold indicates that all the detail has been negotiated, and its just the lawyers needing to do their part.
However, at around the 17:55 minute mark, Tim says:
"This heads of agreement is underpinned by a transaction as I mentioned in my update. That transaction has been negotiated over some time. The final points of the negotiations, which are still commercial in confidence at this point, will be thrashed out and then be embedded in a set out long form definitive documents which we are calling the definitive agreement. So that’s the only reason that its non-binding at this stage because those long form documents have not yet been agreed and signed."
The points I have bold from this section, could mean that there are detailed parts of the agreement may not yet have been fully negotiated and agreed.
I would like to think that a lot of detail has been agreed in order for JFE Shoji to be comfortable in releasing their name. Japanese culture could mean that it would be embarrassing for them to walk away after their name has been released. Another indication to me that the most of the detail has been agreed is that this is the first capital raise that I am aware of where all directors and senior management are participating in the capital raise. However, I think shareholders and potential shareholders need to be aware that it is not clear how much of the JFE funding arrangement has been agreed.
It was mentioned that the detailed agreements could take a few months. This is not an indication to me that there is still a lot to be negotiated. This is because any draft or version of the agreement will go from MGT's lawyers, to MGTs Board, back to MGT's lawyers, then to JFEs lawyers then to JFE's board, then back to JFE's lawyers, the MGT's lawyers etc.. And I would expect there to be a number of draft versions of such an agreement for the lawyers to become comfortable with all of the terms in what Tim is calling the Definitive Agreement.
Watching with interest from over the fence.
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