@Names little it's hard to say for sure whether the underlying pricing formula is different or whether the lower price received was a grade adjustment, or both.
I've seen a bit of discussion around offtake contracts over the past 2 days in light of pls cutting back production. Righfully so people who assumed the contracts were "take or pay" nature have been left stumped by the announcement.
There is a few aspects to this the same people calling for pls to look for other offtakers need to appreciate.
This isnt unusual, i.e. to have a floor price in a contract that is not take or pay.
The floor gives comfort a minimum price will be paid, ASSUMING the offtaker takes the product. A good starting point when doing any modelling / sensitivities.
The risk of offtaker not taking product is assessed and mitigated seperately by looking at their respective buyers, order books AND any vested interest in the supplier (equity stake). We know Gangfeng is right up there with orders and long term supply contracts with globally significant manufacturers, (risk mitigant 1), we know they have the balance sheet to support their obligations and near term expansion plans (risk mitigant 2). Sure they might have requested a reduction in supply of raw material to buy time to ramp up capacity and that might cause working capital strain on PLS, but they did stump up a good amount of cash (risk mitigant 3 - equity stake).
What I am struggling to wrap my head around is why sell up to 49% now when the market is in all sorts of disarray. They are not in a position to be making countercyclical investments. I understand the first mover advantage when the tide turns but looking at things currently I can't see them fetching a fair price. Perhaps the priority is to lock in downstream processing know-how now, before anyone else, and any discount to fv received at sale can be offset by the future benefit of such a partnership. Just musing here
AJM Price at posting:
9.9¢ Sentiment: Hold Disclosure: Held
