Shareholders of Alita Resources seek answers amid 'forced takeover'

Singapore

SHAREHOLDERS of Alita Resources, formerly Alliance Mineral Assets, will see their investments go to zero, as Chinese interests seize control of the insolvent lithium miner.

But many questions have been left unaddressed as the Singapore-listed firm moves quickly to cut shareholders out of the picture - and some of these shareholders are mounting an effort to oppose the process.

One big question is whether Alita's board of directors may have breached continuous-disclosure requirements in the months before the firm ran out of cash.

Alita shares have been suspended from trading since last August, after a collapse in prices for the battery commodity forced the firm to default on a A$40 million (S$38 million) loan from its secured lenders.

Alita mines lithium at the Bald Hill site in Australia. In June and July, its one and only offtake partner, Jiangxi Bao Jiang Lithium Industrial or JBJ, claimed a force majeure event and stopped taking shipments.

This was a key factor behind Alita's failure, a report would later find.

But shareholders who attended an extraordinary general meeting (EGM) convened by Alita to approve a share placement on July 11 last year said they were left in the dark about this.

Kelvin Lim, a shareholder, told The Business Times: "During the EGM, the issue of missed recent monthly shipments was raised, but we were told that JBJ was expected to take delivery in the second half of the year and meet the contracted quantity for 2019. There was no mention of anything amiss." The shareholders had walked away, expecting offtake agreements with new customers to be signed soon.

In fact, Alita may have been insolvent from June 2019, wrote administrators from KordaMentha in a report released in December.

"The lack of revenue in June 2019 due to there being no shipments being made to JBJ led to a significant net loss in June 2019 of A$12.4 million. This is compared to the average loss of A$2.5 million from January to May 2019," wrote the advisory and investment firm.

Meanwhile, Alita continued to incur relatively fixed costs of A$20 million per month, and its management's cash flow forecasts at the time indicated negative cash by December 2019. KordaMentha said: "Failure was inevitable."

Shareholders told BT that, on looking back, some aspects of the EGM made them feel uneasy. For instance, Resolution No. 10 asked shareholders to approve the giving of benefits or "leaving entitlements" to managers and executives who leave the company.

"When we questioned this, the board said it was market practice," said a shareholder who declined to be named.

Alita managing director Mark Calderwood and the rest of the board soon resigned after appointing KordaMentha as voluntary administrators.

KordaMentha is now investigating the sale of 500,000 shares for A$81,250 by the wife of executive director Mark Turner on June 14.

A further probe into breaches of general directors' duties and disclosure requirements is warranted, it wrote. "To the extent inadequate disclosure constitutes misleading conduct, it may be a breach of Section 1041H (civil) or Section 1309 (criminal) of Australia's Corporations Act."

Hidden value?

Currently, Alita is pursuing a restructuring in Australia, after accepting a binding A$70 million loan facility from China Hydrogen Energy (CHE). Little is known about CHE, except that it is a special-purpose vehicle for a Chinese party.

CHE has put forward a Deed of Company Arrangement (DoCA) to acquire Alita's assets; an application has been made in the Australian court to transfer 100 per cent of the shares in Alita Resources to a related entity of CHE for nil consideration.

Under Section 444GA of Australia's Corporations Act, such a transfer is allowed if the court is satisfied that it does not unfairly prejudice the interests of shareholders.

The argument goes that if the shares have no value - which is the case as KordaMentha estimates that Alita's total debt of A$96 million materially exceeds its total asset value of A$56 million - then divesting the shares for nil consideration does not constitute prejudice to shareholders.

But some shareholders disagree.

They cite what Alita's executives have told them many times before - that only a tiny fraction of Bald Hill's 769 sq km of tenements have been explored, so there is significant potential for further reserve upgrades and extension of mine-life.

Shareholder Teo Luan Boo said: "Many of us invested in Alita Resources because Bald Hill has a huge potential for large amounts of lithium in the ground. Only 0.23 per cent of the 769 sq km area - larger than the island of Singapore - has been drill-tested for lithium."

Mr Teo also cited some industry reports that lithium prices have bottomed out, though KordaMentha's December report was more bearish. It cited Benchmark Mineral Intelligence's forecast price for lithium, which is between US$550 per tonne in 2020 to US$725 per tonne in 2026, as the market remains oversupplied.

"Based on the company's current cost structure of producing (lithium-containing) spodumene at US$880 a tonne, the company (would be operating) at a loss," KordaMentha wrote.

Singapore shareholders who wish to oppose the Section 444GA application must enter an appearance in the Australian court by Feb 6.

Mr Teo says he has the backing of about 100 shareholders in Singapore and Australia, who are pooling funds to appoint and work with an Australian lawyer to oppose the "forced takeover" of their shares by CHE.

He said: "We are losing our money to complicated corporate actions from parties that obviously recognise the huge potentials of Bald Hill. We have to put up a fight to oppose this totally unacceptable transfer of our shares without our agreement."

His plan involves searching for white knights and raising capital to help redeem the CHE loan.

But time is not on their side, said the first shareholder who declined to be named: "It's not that nobody is interested, but since the DoCA has been signed, people are not willing to commit funds."

Alex Turnbull, whose hedge fund Keshik Capital had explored making a distressed investment in Alita before CHE swooped in, told BT: "The area's value really depends on what you think long-term spodumene prices are, as with most mining assets... But the mine management and corporate governance was exceptionally bad."