With JBJ refusing to accept further shipments, Alita bearing fixed cash costs and a weakening spot market for lithium ore weighing down the price and Alita’s sales volume, the company’s ‘failure was inevitable’, according to KordaMentha
SINGAPORE (Dec 13): The directors of Australian lithium miner Alita Resources, which is under administration, may have breached their duties, according to the company’s administrator KordaMentha in its report released by Alita on Dec 11.
KordaMentha was appointed Alita’s administrator in August after the miner received a notice of default from creditors. Three months earlier on May 26, the miner’s offtaker, Jiangxi Bao Jiang Lithium Industrial (JBJ), told Alita it wanted to stop accepting shipments of lithium ore from Alita’s Bald Hill mine in Western Australia.
JBJ cited a “force majeure” (natural, catastrophic) event on May 18, 2019 at its processing plant as the reason, but Alita disputed it. While negotiations went on between the parties in the following months, two more lithium shipments were made but with a portion of the payments deferred.
On June 14, Joanne Turner, wife of Alita’s executive director Mark Turner, sold 500,000 Alita shares worth A$81,250 ($75,963). The sale was disclosed on June 19. This may be seen as a breach of directors’ duties through the misuse of position and information. “We are continuing to investigate the disposal,” states KordaMentha in its report.
Alita had two offtake agreements with JBJ, which is a joint venture between Hong Kong-listed Burwill Holdings and a China company engaged in lithium battery production. The agreements were first signed in April 2017 and were subsequently amended. Under the latest agreement, JBJ is supposed to buy between 80,000 and 100,000 tonnes of lithium concentrate from Alita in 2019. Depending on the purity level, JBJ would pay between US$680 and US$1,080 per tonne.
In January 2019, the offtake agreements became non-exclusive. In other words, Alita was free to find other buyers. It also meant JBJ did not see the need to buy all the lithium from Alita.
According to the administrator, throughout 2019, Alita attempted to find other longterm buyers. The company was in talks with an unnamed large Asian corporation and an unnamed trading company. It also made a trial shipment to an unnamed Japanese company, but all these did not materialise into long-term offtake agreements.
Back then, Alita was incurring fixed running costs of some A$20 million per month. The bulk of it was payment to four mining contractors that were hired to operate various aspects of the mining business — SMS, Cape, Primero Group and Qube. They have all been demobilised from the site.
With JBJ refusing to accept further shipments, Alita bearing fixed cash costs and a weakening spot market for lithium ore weighing down the price and Alita’s sales volume, the company’s “failure was inevitable”, notes the administrator.
In its report, KordaMentha published Alita’s monthly income statements. Between December 2018 and June 2019, there was only one profitable month, April, when the company made A$817,000 on revenue of A$8.32 million. Losses for other months ranged between A$445,000 in January 2019 and A$29.184 million last December. In June 2019, when revenue could no longer be booked as shipments to JBJ had halted, Alita was A$12.4 million in the red.
Meanwhile, current liabilities increased from A$36.9 million as at April 30, 2019 to A$87 million as at June 30, 2019. Since then, Alita is likely to owe an additional A$43 million to contractors and employees because of prior contractual commitments. “It is apparent from the Group’s financial statements that only a substantial capital injection and turnaround in trading activities would have enabled the group to continue in operation,” the administrator states.
Alita’s woes are caused by the general slump in the global lithium market after the Chinese government stopped subsidising electric vehicles in June this year. Lithium is a key component in batteries for electric vehicles. Lithium prices have halved since 2018, as miners from Chile to Australia ramp up production to meet demand from China.
China has cut the subsidy for electric cars, which could go up to RMB50,000 ($9,600) per car, by half. In October, for example, the number of electric vehicles sold in the country was 45.6% lower y-o-y. The government is mulling further cuts to the subsidy, Bloomberg reported last month.
Alita, whose SGX-quoted shares have been suspended since Aug 14, is not the only company in trouble. Burwill’s shares have also been suspended since August. Bangkok Bank Public Co, one of its creditors, has filed a winding-up petition.
Of Alita’s 68 employees previously, all but seven have been terminated by the receivers and administrators — including managing director Mark Calderwood, who was sacked on Sept 25. A creditors’ meeting has been called for Dec 17 in Perth.
