Howdy All!Don't get distracted by WKT. I'm surprised the market...

Howdy All!

Don't get distracted by WKT. I'm surprised the market is falling for their aggressive, high-risk approach of commencing early works before funding.

Yes, there's that pesky little issue of project funding, and in the graphite space, it's not trivial, as history is proving: I saw some data recently that the cumulative time graphite hopefuls who have completed DFS have been waiting for project funding is over 35 years!! Doesn’t this tell you the degree of difficulty in financing graphite projects?

And I’ve seen WKT's IM for what they are planning. Apart form being extremely poorly written, and an unconventional, risky approach, they've omitted one little detail: Tanzania govt still not approving projects? Hands up who would be throwing money at starting construction in a political vacuum.

And it's hard to see WKT's approach to raising funds will work: they’re going to need ~20 parties putting in US$2M each - effort wise that's like 20 separate capital raisings. Very challenging...keep that figure of 35yrs in mind. Then there will be the conversion pricing mechanism which will likely be at a ~30% discount to the market price (not today’s price, prevailing when the note holder elects to convert). So even if they’re successful raising the funding, this is how it will likely play out:

• US$40m raised in 20 x $2m tranches from convertible notes at probably 15-20% coupon and conversion at note holder’s election to equity at 30% discount to price.
• They’re only raising US$40m and no mention of working capital, fees for the party assisting them to raise the note, WKT corporate costs until cash flow positive etc etc etc, they are certain to run out of money during construction. This is the worst time to run out and they’ll be raising at a huge discount to today’s price. Enter the conversion at extremely dilutive prices. So effectively 100% equity funded at extremely dilutive prices.
• They haven't factored in or even mentioned in the risks that they’re planning a Chinese company to do a Build Own Operate on the plant which without the controls on safety standards, will likely kill someone.
• Oh and it doesn’t factor in that the Tanzanian government will not allow a Chinese company to bring in all their people with the current local content push.

So there are a million risks to WKT. Whilst some retail punters might buy them up to $100m, I'd be surprise if they are not disappointed.

GPX is the only funded new graphite project in the world, and all it needs is the green light from TZ govt, which I understand is warming up. I'm much more comfortable with GPX's risk profile than WKT's.