In November 2017, GXY reported that we had binding offtake agreements with multiple parties for 5 years, totalling 200,000 TPA. They did mention that delivery was on a +/- 10% basis, meaning the minimum contractually agreed amount is 180,000 TPA.
The 2019 half year report advised that 44,630t has been sold, and from the recent shipping data I think it’s been established that 59,500t has been shipped in Q3. So it appears that we’ve sold a total of 104,130t at the end of Q3.
In order to meet the low end of guidance (180-210k), it appears that GXY needs to ship 75,870t in Q4. This would be a record quarter just to hit minimum guidance.
I’m sceptical that we’ll ship 75k plus this quarter, so naturally I’m interested in what this means for the offtaker/s that have failed to meet their binding contractual obligations? Surely GXY would have a release clause, financial penalty, etc? If an offtaker fails to meet their obligations, I would prefer GXY marketed this spod to a new offtaker, preferably outside of China.
I think that our complete reliance on Chinese offtakers is a huge weakness, as there appears to be no floor on the price (note SH’s recent comments about meeting the market on price in Q4). I know that this a terrible time to try and find a buyer for excess spod, but surely it can’t be much worse then whatever we’re contracted to at the moment.
It seems that the binding offtakes are one-sided, where we are contractually obliged to provide the spod, but our offtakers do whatever they want. I envy the WES/SQM position of having offtakes with LG Chem, Mitsui and Tesla. We value the geographic diversity of our resources, but fail to apply the same logic to our offtakes.
If things continue to head south with the US/China trade war, this will prove to be a massive vulnerability. I very much hope that when these contracts expire in December 2022 we look to diversify by securing offtakes in Europe, Japan, Korea and hopefully the US.
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