Ann: WAK - Three Year Offtake Agreement Signed, page-37

According to the Investor Presentation for the recent CR, borrowings as at 31/12/2021 were $21.4m. The sales-side information provided was:

1. The delivered price of kaolin is increasing strongly as shipping costs escalate.
2. The explosive international freight market (particularly US/EU into Asia) has delivered a competitive advantage for WA Kaolin resulting in unprecedented demand for WAK K99 products globally
3. WAK currently in process of allocating remaining annual capacity to ensure key customers can secure world class supply.
4. Execution of export contracts with all existing customers at significantly higher CIF prices.
5. Recent trades of premium grade Kaolin to customers were contracted at a CIF price exceeding expectations.
6. For existing customers who trade FOB, no drop in demand has been experienced despite increasing container shipping prices.

The reason for Point 1 is that kaolin deposits in Asia are being closed because they have been exhausted, and the demand for fibreglass filler has drawn supply away from the filler market as a whole. What is driving fibreglass I do not know, nor need to know, but the automoble sector is probably one reason.

On point 2, the three sources of kaolin imported into South-East Asia are USA, Europe and Brazil, so Australia has a shipping advantage that has increased recently. It is non-availability of containers that is one of the problems, but Australia probably has more container loads coming in than out, so the imbalance favours exported containerised freight.

On point 3, I read a great deal into the words “allocation” and “key customers”. I have been in a situation like this with ostrich leather in the 1960s, and we received telegrams from Japanese buyers requesting supply with riders that stated “price increases are acceptable”.

On Points 4 and 5, CIF is Cost Insurance Freight for the account of WAK, the exporter.

On point 6, freight and insurance is for the account of the buyer in FOB (Free on Board), but that is not deterring orders.

The thrust of my recent posts is that Management should attempt to talk up the SP to get funds in to quicken the pace of building up WAK's ability to supply. Normally I dislike Management focusing on the SP, because I believe they should focus on he business, and let the performance drive the SP, but WAK is in the rare position where talking up the SP would benefit the company – that is if money raised via outstanding options can be put to good use.