There have been quite a few distractions today, so let's get back on discussing the risks now that we are waiting for progress. To avoid irritating others, I will try to say something new each time that is not aimed at any individual in particular and not repeating the same ****.
On the potential reason why we might not be seeing the IDC approval soon, I gathered some thoughts and could offer the following possibilities:
1. Offtake with a SA customer/Biocom required, and
2. Prepayments from offtake customers required.
Number 2. just came to me, because I think be able to make repayments to IDC, which is hundreds of thousands of USD/quarter payable in arrears, MNB needs to have at least 1 of the following 2 things in order:
1*. Roughly 3 months into production, or
2*. Prepayments.
1*. is definitely not happening. 2*. might be a bit of a challenge to get, if the customers know that MNB is in the lower hand and has no negotiation power, which is likely to be the case at the moment (MNB HAS to sell to survive, when customers have the option to buy from MNB or not - import is more expensive yes but that's not as survival-threatening as MNB not being able to sell). It is probably much easier to obtain prepayment when there's a large number of customers vying to buy the product and there isn't enough supply for all. Therefore, MNB now probably finds itself in a very frustrating position where it thinks it is saving Africa but customers don't feel the need to throw in some finance to help the company progress.
I got the following from Wright Legal . Com .au, a WA law firm.
"OFFTAKE PREPAYMENT FINANCING
Producers, particularly those whose product lacks a terminal market to hedge against commodity price risk, may at some time want to look at an offtake prepayment to finance their project.
Essentially, an offtake prepayment arrangement is a loan - the offtaker provides the funding, typically on a secured basis, and that funding is repaid by delivery of product under the offtake agreement. It’s a payment for product in advance. These deals are usually done by a producer whose ability to access senior debt is constrained. Offtake prepayment can also be used in conjunction with senior debt to fill a middle ‘gap’ in the financing caused by a shortage of equity or senior debt. It can also act as a potential sweetener when proposed by an offtaker as part of a competitive tender process. And, in some jurisdictions, there may be tax incentives for a producer in pursuing this form of financing."
So from IDC's POV, it is probably waiting for MNB to fulfill both of these conditions (1. to alleviate concentration risk, 2. for MNB to actually have the money to pay back) before granting it the financing. There's nothing worrying about getting a new offtake from Biocom given that trials have been a success, but for the SA customer, that's a big question mark, simply because we don't know about them. The time it takes to ink a new offtake with Biocom is an unknown but I don't imagine it being a very quick thing to achieve.
Conclusion: the phosphate financing saga is still at a high risk. It may or may not receive the funding from IDC, but at the very least, it seems that MNB has not satisfied all conditions for the fund to be released by IDC.
Disclaimer: all the above are just hypotheses and inferences, and I am not passing any of the above as facts. Non-offensive discussions on these points is welcome and I look forward to having.
