- Shareholders of failed lithium miner Alita Resources (A40) will be walking away from the company empty-handed
- Alita went under in 2019 after its offtake partner had to stop receiving orders in May
- According to an expert's report, the company was likely insolvent by June but continued to trade
- The report found Alita now has more debt than the value of its remaining assets
- As such, shares in the company have no value
- When they were frozen in August, shares were worth 8.2 cents each
Shareholders of Alita Resources (A40) are preparing to walk away from the failed lithium miner with empty pockets.
In an announcement to shareholders late Tuesday afternoon, the collapsed company shared a report from expert advisory firm KordaMentha, who was appointed as Alita's administrator.
Essentially, the report found that Alita's debts exceed the value of its remaining assets — meaning the company's shares are worthless.
"KordaMentha has concluded in its report that the company’s shares have nil value as the group’s total indebtedness exceeds the value of the group’s remaining assets."Alita Resources, Sharehoder update, January 2020
KordaMentha's report found Alita had debt ranging between $86.86 million and $110.66 million, but assets worth only between $43.24 million and $69.61 million. As such, those still holding shares in the company won't see a dollar from them.
Things at Alita's Bald Hill project turned south in May 2019 when offtake partner JBJ — a joint venture between Jiangxi and Burwill Holdings — stopped receiving shipments from Alita.
The companies had previously signed the supply agreements, but in May JBJ claimed a forced majeure event, meaning unforeseen circumstances had arisen which stopped it from being able to fulfil its obligations under the contract.
While this, of course, is beyond Alita's control, Alita then continued to operate as if everything was fine. The KordaMentha report suggests it was not.
In fact, KordaMentha said Alita's failure was "inevitable" without JBJ taking shipments. JBJ's withdrawal meant Alita could no longer afford to keep producing under its existing cost structure. Nor could the company adjust this structure quickly enough, sell into an alternative market, or terminate long-term contracts it had signed under the impression it would have a longstanding offtake partner.
KordaMentha found that Alita may have been insolvent from June onwards, despite continuing to trade.
As such, KordaMentha launched an investigation into the potential insolvent trading among other concerns, including preferential payments, uncommercial loans, under-priced sale of assets, and breaches of directors' duties.
The duty breaches included the selling off of 500,000 shares for $81,250 in mid-June by director Mark Turner's wife.
Alita's shares were frozen in August at 8.2 cents each.
Fellow ASX-listed Galaxy Resources was in the running to recapitalise the company but pulled out in early December, paving the way for China Hydrogen Energy's deed of company arrangement (DoCA) proposal to go ahead.