SINGAPORE (June 24): In the last few years, Alliance Mineral -Assets has largely attracted attention for all the wrong reasons. In particular, the lithium miner was engulfed by a shareholder dispute that escalated into a lawsuit. Even though the dispute was eventually settled out of court, the company continued to be loss-making, laden with debt and yet to produce a significant amount of lithium. But things could be turning around for AMA, following a merger of equals with Australian Securities Exchange (ASX)-listed Tawana Resources.
On Dec 14, AMA fully acquired Tawana via a scheme of arrangement. Both companies jointly own and operate the Bald Hill mining concession in Perth, Australia via the joint-venture (JV) company, Lithco No 2.
Under the scheme of arrangement, eligible Tawana shareholders were allotted and issued one new AMA share for every Tawana share held. This amounted to about 635.9 million new AMA shares. As a result, AMA and Tawana shareholders owned about 51% and 49%, respectively, of the merged entity.
The merger also led to the formation of a new board and appointment of senior managers. Mark Calderwood, who was CEO of Tawana, was appointed managing director and CEO of the enlarged AMA. The other new board members are independent non-executive chairman Mark Turner; independent non-executive directors Robert Vassie and Geoffrey McNamara; and non-executive directors Vicki Xie and Chan Ming Fai. Joshua Ong Kian Guan, who was part of the previous board, remained as independent non-executive director.
Speaking to The Edge Singapore, Calderwood says the move to merge AMA and Tawana was a “logical” step. This is because having a 50:50 JV was “difficult” given that they were small entities co-owning the rights to one mining concession, and did not own rights to any other significant mining concession. “Decisions [can be made] a lot easier with one board instead of two,” he says in a recent interview, after a meeting with investors. “[Hence], investors would prefer one bigger company with one asset.”
Why didn’t AMA or Tawana pursue an acquisition of the other? “We [Tawana] could do a takeover. But there is a lot of time involved in that, especially for compliance issues. [In comparison], a merger of equals was the easiest way to do [it],” says Calderwood.
Leaving the past behind
AMA was founded by its previous CEO Tjandra Pramoko and his wife, former executive director Simone Suen. The company listed on Singapore Exchange in July 2014 and started out mining for tantalum at the Bald Hill area in Western Australia’s Eastern Goldfields. Just as the drop in tantalum prices since 2016 undermined Bald Hill’s viability, the company discovered a higher-than-expected concentration of lithium within the concession. As a result, AMA repositioned itself as a lithium miner instead.
In 2017, Pramoko and Suen got into a dispute with an early backer of AMA. The couple had taken a A$7 million loan from a local financier named Jonathan Lim Keng Hock to acquire a mining concession in Australia that is now owned by AMA. Lim understood that he would be entitled to half of the business. As such, he took legal action to obtain what he believed to be his rightful share of AMA. The case went to arbitration and a settlement was eventually reached during the year.
However, the execution of the settlement did not go smoothly. An investment vehicle owned by Pramoko and Suen, called Living Waters Mining (Australia), transferred 46.1 million shares in AMA to Lim. However, Lim did not receive the A$7 million by the May 31, 2017 deadline. That resulted in the seizure of a further 72.3 million AMA shares from LWMA on June 30. Of this, 32.3 million shares were sold to make good the A$7 million, and the remainder of the shares were returned to LWMA.
Pramoko also later failed to pay the $5.5 million due to Lim from the “put and strike” clause of the settlement agreement, which prompted further legal proceedings. In a Jan 18, 2018 filing, AMA said LWMA had agreed on Jan 12 to sell 19 million shares at an undisclosed price to a “private investor”. A filing on Jan 31 showed that on Jan 30, Asdew Acquisitions, an investment vehicle of former stockbroker Alan Wang, bought the shares for just 30 cents each — a hefty 26.8% discount to AMA’s Jan 12 closing price of 41 cents. Proceeds from the sale were used to settle Pramoko’s debt with Lim.
In March 2018, Pramoko and Suen were given the boot. According to the company then, the “majority” of AMA’s board had lost confidence in Pramoko, and “substantial shareholders and key business partners” no longer wanted to deal with AMA if Pramoko remained as CEO. The board also noted that Pramoko had “attracted a series of personal litigation” resulting from unfulfilled promises. “These have raised questions of integrity,” the company stated in a filing with SGX.
Describing these events as “colourful”, Calderwood is glad that they are now in the rear-view mirror. He says the new board is “functional” and “gets on constructively”, owing to the collective experience of its members. “I’m actually quite happy with the board,” he says. “Now that all of that is past, we will get some plain sailing and build the company up through 2019.”
“We have a good corporate structure in place where the executive directors or executives can’t dominate the board,” he adds. “The way the board is structured now is, ‘If I misbehave, I will be at the door’. It is as simple as that.”
Expanding facility, moving downstream
Calderwood says his focus is to ramp up the production of lithium. AMA only started production of lithium early last year. In the quarter ended March, the company recorded production of 38,291 wet metric tonnes of lithium concentrate grading 6.1% Li2O. This was up 68% from the December 2018 quarter as a result of improved throughput, recovery and grade.
Calderwood says the company is now upgrading its processing plant to increase production. This includes improvements to the fines circuit design and proposed upgrades to the existing circuits. The company aims to achieve a combined throughput of 300 and recovery of 72% to 80%.
To fund the expansion and other initiatives at Bald Hill mine, AMA placed out shares to ASX-listed Galaxy Resources and Weier Antriebe und Energietechnik on May 15. The former, which also mines lithium, is one of the largest mining companies in Australia. The latter is a wholly-owned subsidiary of China state-owned and Shenzhen-listed Jiangxi Special Electric Motor Co (Jiangte).
Galaxy Resources subscribed to 112.5 million shares at 20 Australian cents each. Weier, on the other hand, subscribed to 50 million shares at the same price, but is subject to shareholder approval. Both placements amount to total gross proceeds of A$32.5 million ($30.5 million). Upon the completion of both placement exercises, Galaxy Resources would emerge as the largest shareholder of AMA with an 11.83% stake, followed by Weier with a 9.08% stake.
Hong Kong-listed Burwill Holdings’ stake would be reduced to 6.34% from 7.15% previously. The investment holding company, which engages in the steel trading and lithium businesses, co-owns Jiangxi Bao Jiang Lithium Industrial with Jiangte. JBJLIL is the offtake partner of AMA.
Calderwood is also taking AMA downstream. On April 26, the company entered into a non-binding memorandum of understanding with Jiangte to produce and sell battery-grade lithium hydroxide. This will be conducted via a 50:50 JV.
He says a downstream business would help improve the company’s bottom line. This is because lithium hydroxide, which is used to manufacture batteries for electric vehicles, commands a premium over lithium carbonate, which is sold at lower prices.
“We would end up with a better return on spodumene than just selling spodumene [alone],” he says. Spodumene is unrefined lithium ore.
Meanwhile, the company improved its balance sheet by consolidating its debt facilities into a simplified structure, and at a lower average interest rate, earlier this year. It repaid a A$13 million loan facility, which had a higher interest repayment, using the remaining A$20 million drawdown of its A$40 million funding package secured from a consortium of lenders led by Tribeca Investment Partners. AMA said it would use the remaining funds for its recovery and throughput optimisation project and general working capital purposes.
For the 15-month period ended March 31, 2019, the enlarged AMA recorded revenue of A$72.6 million. The company did not record any revenue in the 12-month period ended Dec 31, 2017. It registered a wider net loss of A$51.4 million in the 15-month period compared with A$8.1 million in the 12-month period. As at March 31, 2019, AMA had a net debt position of about A$25.3 million. The difference in reporting periods is due to the different financial year ends of AMA and Tawana. Going forward, the enlarged AMA will have a financial year end of June 30.
Calderwood says he recognises the challenge of turning around AMA and managing differing shareholder interests. The merger has resulted in the company having two listings: on the SGX and ASX. “The Australian market is more focused on mine life. [On the other hand], people in Singapore are more focused on revenue,” he says.
Still, Calderwood is confident the company will be profitable and have “fairly strong” cash flows next year. “This year is still a building year,” he says.
