takeover comming?, page-7

The Chinese see their rare earth deposits and battery sector as an industry of national strategic importance. They will do whatever they can to protect it from Japanese and Korean conglomerates who take an equally statist approach to industrial issues.

As such, I see playing 'ball' with the Chinese as the only way to ensure continued access to credit and to orders from local manufacturers. I think management will need to strike a balance between doing business the Chinese way and maximising shareholder returns in the medium-term. Hopefully, the Chinese now have enough 'skin in the game' to ensure everything runs smoothly from here on in (credit and orders for our product).

Put differently, doing things in a way that Australian shareholders would prefer (low leverage, low Chinese government involvement, selling "Australian produced" lithium to Chinese manufacturers at market prices) may not be a viable business model. I am sure management self-interest has driven their approach, but there may be other realities of doing business in China that we are simply not aware of (e.g. the risk of 'informal' market exclusion).

Hopefully, now the Chinese have a much control of GXY as possible without running afoul of the FIRB, we might see smoother progress in orders and revenue from customers (which we somewhat disappointing in the last quarter). Banruptcy risk has also been significantly reduced, thus reducing the risk of a Chinese takeover through default.