Interesting commentary...BB have you heard any updates on current offtake negotiations?
I had a catch up with a few ex colleagues (Wood Mac/CRU) just an hour ago over lunch and intense discussions suggested that a successful deal would more than likely look like the following:
1. Offtake party to provide the capex funding, probably more than the required $3m for PCI;
2. A small equity stake in CKA to align interests, risks and reward/payoff;
3. A business structure whereby the achievement of production milestones could see them sharing further in the coal price upside.
I think if you look back at the Renjian deal and why it fell over there are a few key things that CKA's management likely learnt from that - Renjian wanted a sizeable discount which in effect meant they were sharing in none of the risk (river, production, volume shortfalls) and capturing the lion's share of the upside, and Cokal held all the contractual obligation risks (non-delivery of contracted volumes, volumes below requirements, would see them solely liable).
CKA are now being smart about how to approach negotiations, i.e. sweeten the offer by giving them an equity interest through a small raising to align them with shareholder interests; allow them to share in the risks and rewards by implementing some form of sharing in the upside; and in return, asking for a larger initial investment. For an investment fund, or a trading house with cash, this adequately compensates the level of inherent risks with the project - essentially allowing them to have significant participation and achieve the investment returns of miner in a bullish met coal market without having to incur any of the initial exploration risks or risks involved in arriving at economic feasibility studies.
