Tylemahos, good posts, and thanks for putting them up, although...

Tylemahos, good posts, and thanks for putting them up, although I have to disagree with them.

Firstly, bankers will fund anything, if it makes them money, if it's legal (sometimes when it's not), and it's relatively safe (although in retrospect many things aren't as safe as they appeared at the time). To my "makes them money" comment, you can add the rider that it doesn't cost them any money, such as a reputation hit (witness the number of institutions backing away from polluting and environmentally degrading industries). The idea that banks will not fund a graphite mine, but will fund an iron ore mine, is incorrect. It's conceptually the same thing to a bank. (I should add that I use the word bank/funder interchangeably. I'm referring to a large institution in the business of lending). What they do is assess the upfront cost they are funding, work out the expected cashflow, and see if there is sufficient margin for them to achieve repayment. This is why off-takes are so important.

There aren't many private people who would fund a $56m capex for a mine. For any of the ASX graphite companies to succeed, they are going to need debt. That debt is going to come from a mix of investors (at a CR) and a bank. It's why, when KNL announced their first binding off-take, they made the comment that the off-take was negotiated in consultation with a potential funder. Why? To make sure that various enforceability clauses are to their (funder's) satisfaction.

Think of it like this. A property developer who wants to build a tower of 200 units in the city, has 40% equity, but has no presales, is not going to get funded from a big bank or institution. A property developer who has less equity (say 30%), and sufficient presales to cover the debt, will get that loan from those very same institutions. This is where we are with off-takes in the graphite (or any mining) space. (note one exception to this is those institutions that decide to fund a deal by taking a share of equity for the higher risk they are taking, which is a whole other possibility).

And I also strongly disagree with your comment about the comparison between binding off-takes and MOUs/LOIs. There is a world of difference in bankability, and that's why every single graphite company is pursuing them, and talks about obtaining binding off-takes. They wouldn't be pursuing them if they were all worthless. I agree with you that they can be null or void if they are contracted for a specific thing (such as 94%) but their processing can only achieve 90%, but that's not a fault of the contract. It's a fault of the process flowchart, or management, or deposit peculiarities, or something like that. Yes, in such a situation, the contract becomes unfulfilled, but that's no different to you buying an off-the-plan apartment, and the developer trying to deliver you a one bedroom on the first floor when your contract was clearly for a 2 bedroom on the 10th floor. In such as situation, the contract is cancelled, and you would only pay for what you actually contracted for. That's where the bank needs to assess management, and the deposit, and make sure that management's claims that they will deliver the required purity or flake distribution are able to be relied upon with some degree of comfort.

Jaded, I'm looking forward to the MNS announcement. If they can convert their MOU to binding, they will be the first to do so for that size of contract, and will be the first ASX company to do so with a Chinese entity (I'm not counting the LMB non-arms length fiasco). I hope it comes off, because it would indicate the attractiveness of Tanzanian graphite, and if they can achieve that before SYR could achieve a notable off-take, then it will speak volumes. As usual, the devil will be in the detail.