Ann: Trading Halt, page-25

You've got the vague outline of it right, but not the details.

A40 mines and produces spodumene concentrate at around 6% lithium oxide content. It sells the concentrate to Burwill, who I believe will produce both lithium hydroxide and lithium carbonate.

The declining spot price that has hit ORE is for "technical" grade (99%) lithium carbonate, not for "battery" grade (>99.5%) lithium carbonate. That 0.5% might not seem big, but it is the reason ORE has been getting $US13500/t while SQM just over the border have been getting $16500/t. The real mystery here is how ORE have managed to keep their pricing up this long, given that technical grade lithium carbonate has plummeted in China all year, due to poor quality product being pumped out domestically.

Somehow ORE have defied gravity up until December to avoid that, but their luck has run out.

The last update SQM gave, they didn't expect their prices to drop in the last quarter. Mid year they were expecting it to happen, but the September quarter update said it hadn't happened yet and they didn't see it being likely. So we won't know for sure if there has been any impact on battery grade prices for awhile (because the market is not transparent) but my bet is that this is an issue for ORE, not any of the battery grade producers.

You're also correct that the "spot" price in China is fairly pointless to pay attention to, as it isn't a true spot price and it represents less than 10%, and possibly less than 5%, of the lithium carbonate market. In terms of market size, lithium carbonate is far larger than lithium hydroxide, but lithium hydroxide is growing much faster.

None of which really impacts A40 right now, given the offtake with Burwill is for a fixed price.

HOWEVER, that brings us to today's trading halt. Given that the wording is about the company's offtake arrangements, rather than about "pending" offtake arrangements, it seems pretty likely this has to do with Burwill.

Possibilities off the top of my head:

- Burwill aren't in a position to take a December shipment and have allowed A40 to sell the cargo to someone else. There doesn't appear to be room left in the schedule for a December shipment now. However, I would be surprised if this would require a trading halt. The existing arrangement allows for A40 to act in that manner, so I don't see a trading halt being necessary.

Here's the current shipping schedule:



- The offtake agreement is being modified to allow A40 to sell to others in a shorter timeframe. If Burwill aren't in a position to take monthly shipments, the 60 day rule is unfair to A40. If you had agreed a shipment for December, for example, Burwill would have until February to get it together, meanwhile concentrate is piling up at the dock and A40 isn't getting paid. Perhaps they are bringing down that period and giving A40 freer reign to go elsewhere? Making it more of a "first right of refusal" deal?

- The offtake agreement is being modified for Burwill to take more on when the fines circuit becomes available. This seems unlikely to me when we haven't even reached monthly shipments yet, but is an outside chance of happening.

- It has nothing to do with Burwill at all and is a finalisation of the tantalum deal HC Starck.



https://www.asx.com.au/asxpdf/20181025/pdf/43zlchp767c74d.pdf

That's all I can think of. Guess we might be waiting a week or so to find out.

Cheers