Danehill, HC exists to debate the various aspects. Saying your...

Danehill, HC exists to debate the various aspects. Saying your views are reflected by your holdings and not by comments on a website would indicate that you don't believe in posting, ever.

Regardless, I have a view as to why I am ignoring the supply agreement/off-take with LMB, and I say this as a previous shareholder of LMB. I am more than happy for you to disagree with me, but my view has reasoning behind it, and I'm happy to state why (I didn't want to go in depth in every company above in my initial post, which was already quite lengthy, but I'm happy to do so now to discuss if anyone else has counter views they wish to state, as you did).

This is the direct quote from LMB on the ASX release on the 7th August (you mentioned 9th Aug, but I assume you refer to this one)

Under the terms of the Supply Agreement, Lamboo and CRR have agreed:
• Lamboo will supply 50,000 tpa of flake graphite concentrate grading at least 90% TGC;
• Pricing set by mutually-agreed prices for high quality purity flake graphite;
• Supply of graphite concentrate to commence at least one month from commencement of
production; and
• The initial term of the Supply Agreement is from commencement of production to 31
December 2018.

My points to this are:

- A number of LMB posters have made the comment that LMB still has offtakes (plural) for $2,000 pt. This is plainly wrong. The first off-take with Hengda is unlikely to be in force any longer, and the second, as per the LMB announcement above, notes the price is "mutually agreed".
- Further to that, the agreement is for 90% TGC. At this stage, the majority of the buyers (and the pricing rates) are looking for 94%-97% TGC. Prices for an 85%-90% TGC requirement are going to be up to 30% cheaper than the current prices noted by Stormcrow. So, LMB supplying a TGC in the low 90s is not going to be at the levels of price that are currently quoted. I'd suggest that this basket will get well under $1,000 per tonne. This agrees with the assessment from Patersons that their basket would be $810 per tonne if 100% saleable, and $410 per tonne if they can only sell the 75+ microns.
- The initial term of the supply agreement is from commencement of production (which is when?) to 31 Dec 2018. We are talking a couple of years of sales, at low margin, if any.

My additional take on this is that if this is a genuine second off-take, then it's at a level that provides too small a margin to obtain funding, with too short a guaranteed supply period, and LMB are right back to where they started from. This is an agreement that can perhaps complement a genuine arms-length offtake at a higher price, but cannot build or sustain a mine by itself.

I will also add that the LMB scoping study only made serious economic sense by putting in an unrealistic price of $2,000 per tonne for sales. This scoping study was released on the 24/6, only 6 days after the release of the binding off-take of 18/6, and 3 weeks before the release of the now defunct merger on the 7/7. The dates are all a bit "managed". In particular, the scoping study would look a lot less profitable once the flake distribution and lower TGC were taken into account in the sales prices. Further, with a deposit at average grade of less than 5% (refer the same scoping study announcement), I would suggest that their opex costs are going to rise from the $483 per tonne that they estimate. Regardless, keep the $483 per tonne cost, and offset that against the realistic basket price, and LMB's economics are looking extremely shaky.

I'm more than happy to hear any counter views, but I haven't as yet seen anything official yet from the company that would give me grounds for confidence that they will obtain funding and make it into production. In fact, their recent debacle has given me grounds for a lack of confidence. I do note that they have stated (2/12) that they will be updating scoping studies in coming weeks, and I look forward to reading them, particularly if they have genuine pricing for sales in there, as opposed to "optimistic" pricing.

This is also why I push the point repeatedly for other investors, genuine arms-length off-takes with good margins are mandatory to get into production, because no-one will get funding without them. If you want to be producing in 2016, then you need to have JORC out now, and be in the process of finalising off-takes, so that funding can be sought and found in first half of 2015, to then allow enough time to actually build the mine plant itself (or put it into place). Anyone not achieving signed, binding off-takes for sufficient volume at their respective mines within the next few months, will be highly unlikely to achieve funding in time to make a mine and be producing in 2016. Perhaps late 2016, but more likely they will go into 2017 and beyond. By that stage, the current graphite buyers will have secured their non-Chinese graphite sources, and any latecomer mines will be banking solely on new graphite markets with explosive demand for EVs and such. Here is where KNL is ticking the FA boxes by ticking of the milestones to becoming a producer. With the exception of SYR and VXL, there aren't many other companies that can say that and genuinely mean it.