Magnis are to be congratulated on achieving the conversion of their MOU with their Chinese customer, SINOMA, to a "binding offtake agreement". But what does this really mean? Credit Suisse have put it rather neatly by saying:
"In our view, all offtake agreements are effectively MOUs until they can be executed"
They go on to point out that to be "executed" any agreement requires a formal ore reserve definition, a mining lease from the Mozambique government, a DFS, Environmental permits, and development funding. Yes, the presence of an offtake agreement will probably assist with the last of these, but no bank will lend an ear to a funding request until all of those particular ducks are in a row. Right now, to the best of my knowledge, none of them have been achieved. SYR's experience shows that each of these steps takes significant effort, and usually takes more time than most of us would like or expect.
And MNS do have a few problems. Their global resource is around 5.2% graphite, compared to SYR's 10%+. Power, water and good road access are still issues to be resolved - economically - for a good, profitable project.
So why did SINOMA sign up at this stage? It's worth thinking about. Could there be just a hint of desperation? If so, it would be a distinct positive for a company with the key questions already answered, and scheduled to get into volume production mid 2016 - such as SYR.
Cheers, Prime1
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