Prime1, interesting question, but I think the basket matching...

Prime1, interesting question, but I think the basket matching the market is the wrong question to be asking. No graphite company currently trades into an open spot market (although I have read previously about someone in China wanting to facilitate such a thing, but I think they will struggle for a number of reasons). In my view, the better question is, does the basket match the buyer's requirements? If the answer to that is yes, then you can ignore whether or not the rest of the market is interested, other than as a worst case theoretical exercise in assessing risk.

If there is a market for 10,000 white candles per year currently, and 1,000 red candles pa, and I have a binding agreement to sell 2,000 red candles, the efforts of my board, and my bank, are going to be focused on whether we can deliver 2,000 red candles to the buyer, and whether those candles are of the quality they want, and ultimately whether the buyer has the capacity to pay us for them. Back to my theoretical exercise I mentioned earlier, the bank will assess the risk of the buyer falling over, and me delivering 2,000 red candles into a market that was previously only 1,000 red candles, but this risk can be mitigated by certain things, such as bank guarantees for a couple of years production, or company guarantees from the buyer, if the bank feels they can be relied upon (as an example, they wouldn't take a $1b corporate guarantee from a MNS/KNL/TON/SYR, but they would from a BHP/RIO/etc).

To me, the true value of those off-takes should hit the share price once the funding is unconditionally approved. Why? Because at that stage, the funder has vetted them, and deemed them acceptable (or otherwise) to advance some loan funds, and has satisfied themselves that they can call on a Chinese company. If there is a problem with the off-takes, it will come out during the finance process. If the off-takes are acceptable, and the bank feels comfortable that the buyer will actually pay the money and not weasel out, then they will have done more due diligence on the buyer than anyone else.

Ultimately, all the other questions about uses are a bit academic once you have a locked in, long term buyer. Do I care that my buyer wants to pay me for 2,000 red candles? Do I care what they do with them? No I don't. All I care about is the price. Here is where it gets a bit interesting for MNS. I don't think there is acceptance that they will achieve the optimistic basket they said. Yes, MNS have the largest flake distribution skew of the published graphite juniors. But, they quoted prices of over $2K per tonne, but left out the convenient fact that that is for graphite at higher purity levels than they have. I would like to see the company put a specific number in, agreed to with the buyer. This is where the "market pricing" becomes a bit of a ambiguous clause in off-takes. The company gets to quote for a number of years during construction that they are getting high basket, where in reality the company and buyer know it's likely to be a different (lower) figure. Again, this is where I am incredibly curious about the financing package. The financiers will scrutinise this with a fine tooth comb (as they should, because it's their repayment mechanism). If it passes them, then you'll see a lot more market acceptance.

Regardless of the final numbers though, if the buyers ultimately prove to be locked in, and bankable, and someone approves their funding, then MNS is going to be a good cashflow business at these current levels, even taking account of all the options and future dilution. My sentiment says buy, albeit I mean that in a very, very cautious way at this stage, with a small amount.