Ann: Quarterly Cashflow Report, page-193

Hi Bushmaster, these type of loan notes (I note some holders referring to them as junk bonds) are about as good as this project was likely to get under the circumstances. Project is in a high risk juristriction, has no major institutional support, is attempting to penetrate a market that is small in total (the non anode graphite market), the market also has a total low growth rate, is targeting Chinese juristriction markets and only have binding termsheet agreements with non major players in the market they are targeting. How they expect to penetrate the market and place their product under these circumstances is beyond me.

So an extremely high risk to lend to this project in my humble opinion, we read on here previously of finance not arriving, supposedly because it was rejected due to high interest rate or some sort of control issues, so these were likely convertible bonds. Keep an eye out on any announcement if finance does turn up this time, junk bonds are bad enough but if they are convertible then you really need to start looking at the convertible clauses.

So why do the lender take the risk, well generally its three reasons. The first is the high interest rate and the second is the likely high establishment fees, early repayment fees, loan close fees etc and the third of course is the security they will likely take over all the project assets, including cash and inventories. Now whilst WKT currently has a high market capitalisation , this is largely irrelevant to the bond holders. All they need to do is determine if in a fire sale situation due to some default on the loan they think they can flog the project of to someone's else for at least the amount they are owed, eg loan amount balance plus fees and outstanding interest. Perhaps another Chinese company looking for supply would come to the bond holders rescue. $40m for the whole project already constructed. That's what the bond holders would be considering, in a fire sale is someone else likely to want to buy it cheaply, as I say so they can at least get there money back.

Obviously the greater risk is with holders, generally in a fire sale they get nothing so in total the losses are the full market capitalisation of the company.

So in the event finance arrives, don't think it's a great endorsement of your project (remember your project is seeking junk bonds as others refer to them, that's more a reflection of the project), just think of it as the lenders are comfortable they are going to make a profit out of it or are willing to take that risk anyway to achieve those high profits, remember they will likely be fully secured primary lenders.

Anyway that's all just in my humble opinion as always and I look forward to any announcements on financing, it's been a long time coming, so hopefully this time.