Ann: Restructure of Lithium Offtake Agreements, page-187

hello Haplo,

Specifics for me on the last announcement.

The announcement itself. CEO had stated that they had problems getting ships in winter, hence nothing in Sept moved. This was going to be sorted . As I stated in the last half, no point producing it if goods are not being shipped and I pointed out the commercial terms were weak imo as it allowed the offtaker to drag out taking shipments which became evident in the DEc Qtr. IMO there is no way they didn't know there was a problem in Sept as others shipped and it immediately looked like there was a problem to me, this offtake issue seems has been proven unfortunately correct by this announcement with the offtake unable to take delivery and the agreement being redone.

This serious delay in cashflow is dangerous imo when they took out an expensive last minute loan from Tribeca and handed them the keys to the entire business as security. No way imo they weren't talking to offtaker prior to the suspension, so I don't like the disclosures of the CEO and his credibility with me was shot.

Whilst the exclusivity of the new offtake was removed and the payment held in off , the fact the offtaker is not in a financial position to meet their obligations and is also a large shareholder is a huge risk imo. Similar situation to AJM, offtake ran into trouble, and they had to renegotiate and find new players and there is a huge overhang on the stock. I think the same pressure from an offtaker who cant complete obligations and that is way down on their investment is a real risk.

Then of course there is production. I stated a while ago that production fell off a cliff in September. The monthly average in Sept compared to JULY and AUG saw a mammoth drop. The company explained this away saying problems with mining, but it would be fixed in last qtr of 2018.

I wrote to the company and sought clarification about the drop in production in Sept and was told it would be fixed in DEC qtr and that basically the ore was stockpiled ready for processing. Clearly this did not happen in OCT NOV or DEC as the monthly production averages are pretty much the same. And imo they are too low to support ongoing production, drilling and liabilities without more capital

The company reduced forward guidance and this announcement showed they missed their own lowered guidance, as stated monthly averages are about the same as September which was terrible and not specifically seen unless you reconciled the JULY AUG update to the Sept Qtrly..

That's 4 months of very poor production despite assurance to quickly improve in DEc QTr
This situation together with only shipping 4 times in the half is a problem for capital imo, it also makes them look weak to potential customers and more likely to take lower terms.

IF the offtaker said they couldn't complete and demand according to the CEO is so high, why then would they take lowered prices? They should have cancelled the agreement, got paid 1.5 M and the balance would have been deferred 12 months anyway, if demand is so high and a40 had what was , or would become the only unspoken for product in OZ, I would have expected a high price/ ton from a new offtaker or number of offtakers are the market is so hot not a lowered one.

The announcement said nothing about TA, its been a year whilst CEO negotiates and the sudden TA transactions at the beginning of October highlights problem with cashflow imo. One year and still nothing complete and now the company has a lot of financial obligations, lost its price and most of its offtaker.

This info makes me believe that the company will need another capital raising as cashflow will be very disappointing from operations, and the merger costs are high.

Tribeca have full security and expensive loan outstanding and are a big shareholder. Because of the balls up with the ASx listing, CEO agreed to loans and to give security to a big shareholder, but if I'm not mistaken a40 cant raise any further capital without speaking with Tribeca first......Any mention of needing capital and tribeca would just get ahead of the raising - imo it was bad to have given security and this term away, but again I blame CEO for not knowing what was required to list on ASX when he put together this merger of equals, to have only seemingly discovered this last minute and then be forced to take such terms demonstrated to me whilst he could recover the situation, the price was high.

To be frank, its great he discovered how to get the place working, but imo he isn't needed any more, his actions have been somewhat a commercial disaster. Spun off Cowan to nothingness and took money from TAW, took an incredible long time to do a simple merger, lowered and missed his own forecasts, signed up a offtaker who has been proven poor, now accepted lower prices despite claiming the market demand would be strong and gave away full security and borrowed at credit card rates because after 3/4 of a year he didn't know the ASX requirements and was forced to borrow last minute. And after all that he misses his own lowered guidance, ships only twice a quarter .

Another issue is this idea that talks are advance for the balance of the product not taken VS CEO statements that apart from what a40 have left most OZ production is spoken for. IF that was the case and there was so much demand, why would you lock in a price with an offtaker, you would auction the unsold surplus off each month an take advantage of big prices I would have thought. Or easily found an offtaker willing to pay more than what you were getting when the offtaker affectively ran into financial trouble

The improved fines circuit which they borrowed 15 M from Tribeca for and have been talking about since end of the Sept Qtr, which was supposed to be easy and quick is now expected to be up end of Sept 2019.
Again this says to me that with little being shipped in the last Half, and no improvement from the Average of Sept production, cashflow will be negative and capital will be seriously strained. Management have
grossly over under delivered imo.

It was good to see that in thirteen days of JAN they were producing at a daily rate which would meet their new guidance, however with only a small amount being agreed to be shipped, stockpiling product is costly when company is operating on expensive credit. Until they work out production
(which appears has not improved in 4 months according to the announcement) and rapidly ship I think there is a bigger drain on capital and that it will need to be replenished soon.

This drain on capital also makes it difficult to allocate money for drilling to improve the LOM on paper anytime soon.

Anyway rant over, probably repeated my notes a few times. I saw it as way to many misses and errors and if I was Tribeca with full security, given that I know the production and shipping is way off, id be selling down my equity.

So a sting of reasons for me, hence I decided to take it on the chin.

Time will tell, genuinely hope things can change, my $XXX,XXX.42 loss , zero sum alpha game, someone elses gain.