Alita equity holders win the right to fight for fair value as the price of lithium soars
The messy battle for lithium miner Alita is nearing an end after the Supreme Court ruled equity holders can fight for the right to a share in its value.
The Supreme Court has ruled equity holders in Alita Resources – which failed in 2019 when lithium prices plummeted – can fight for the right to a share in its value now that lithium prices have increased 10-fold and the equity value of the company has risen from zero to an estimated $1.5bn.
Justice Jenni Hill agreed that there had been “undue delays” in completing the deed of company administration (DOCA), which had first been signed and agreed by debt holder Austroid Resources and the administrator McGrathNicol about three years ago.
Tuesday’s decision is just the latest twist in a bizarre case that’s seen questions raised about who is really trying to take control of one of Bald Hill – one of nation’s only in-production lithium mines – and why it’s locked into a long-term contract to sell its product to China at significantly below market rates.
“This is a step in the right direction,” said Leon Zwier, Canaccord’s lawyer from Arnold Bloch Leibler. The matter will now be heard before the court.
The man at the centre of the ownership battle is Mike Que, whose mainland China based father Que Wenbin owns Sichuan Western Resources – which Morningstar describes as a conglomerate with mining interests, along with the development and manufacture of “lithium-ion battery materials and related batteries products” and “new energy” cars.
Back in 2019, China Hydrogen Energy (CHEL) bought the debt in Alita when the company failed, and made an application to the Foreign Investment Review Board to take control, but withdrew in April 2020 when then treasurer Josh Frydenberg indicated he may move to block the deal.
Cayman Islands-registered CHEL, then sold the debt to US-registered Austroid, with both companies sharing Mike Que as a registered director. He is also a director at Alita subsidiary Lithco, which runs the Bald Hill mine, currently subject to routine inquiries by the West Australian government for selling its lithium for 70 per cent below market rates to China.
A spokeswoman for Alita said last week that neither Mike Que nor his father have any lithium refinery interests and do not know where the lithium from Bald Hill goes once it is shipped to an agent in Hong Kong.
Tuesday’s Western Australia Supreme Court decision means that Alita equity holders, led by Canaccord, can now seek to have the DOCA extinguished and the company liquidated, which means equity and debt holders can realise value from the company.
For Austroid this will be a bitter blow. After all, it was Mike Que’s CHEL and then Austroid that stepped in and purchased the debt in an open bidding process when lithium prices were low and no one else wanted to enter a bidding war.
“Austroid remains focused on satisfying all remaining conditions precedent to allow the DOCA to be effectuated,” an Austroid spokesman said after the Honourable Justice Hill made her decision.
Perhaps because of its failure to complete the deal, Austroid last week took the rare step to fire the administrator McGrathNicol and replace them with KPMG.
McGrathNicol would not respond to requests for comment.
The reason Austroid has been unable to complete its DOCA is because it has failed to get approval from Canberra’s Foreign Investment Review Board, which was a condition that had a 12 month sunset date in the DOCA, along with needing approval from the Australia and Singapore stock exchanges where Alita was once listed.
Now the lithium price has boomed again and FIRB’s lack of decision has meant it cannot formalise its ownership of the company.
Mike Que has now been waiting for than two years – as the lithium price has boomed again – for permission from the FIRB to formalise its ownership of the company.
Lithium concentrate has since surged to more than $US6000 a tonne, significantly above the $US800-$US1500 rate sighted in the Lithco contract – with other Australian miners reaping massive profits on the back of shortages of the material.
Lithium is the highly-coveted resource used to make batteries needed to electrify the world. China stepped in early to seize control of much of this critical supply chain and build the refining capabilities needed to make batteries, leaving the West scrambling to catch up.
If he succeeds and getting control of Alita through Austroid Resources, Mike Que will have picked the company up for as little as $250m including debt and restarting costs.
Bald Hill is set to export as much as 150,000 tonnes of lithium concentrate this year at a price of about US$300m, according to documents sighted by The Australian, which would be worth more than US$1.1bn at current market prices.
But ahead of its return to production last year, the company locked in a sales deal with a Hong Kong-registered company that requires it to sell its output and ship it directly to China at a vast discount to current market prices – delivering windfall profits for the buyer, but leaving the Australian mine running on only wafer-thin margins.
Tenement records held by the WA mines department show that CHEL retains a mortgage over the Bald Hill mining and exploration tenements. The mortgage was registered in early 2020 and remains in place, the records show.