Morella Corp Ltd (ALTAF)

[tikotiko]

More bad news from Australia and China. A40 just entered voluntary administration and will likely be taken over by GXY for peanuts. PLS is having trouble selling product and expanding, plus it is possibly looking at another CR due to low cash. Ganfeng’s latest results were quite poor. Despite of all the recent good work by Altura, the sector’s bad news are affecting all lithium players. Altura is no exception with the SP currently over 10% down in Australia, ouch...

Altura is certainly in a better position than A40 and PLS, but it must keep playing its cards well and very carefully, especially due to the current debt and low cash. First, Altura needs to keep increasing production and shipping while reducing costs. It also helps that Altura’s high quality spodumene is being noticed. However, I think that the low cash may force Altura to do another CR this year, unless we ship at least 45k to 50k tons in Q4 and beyond (Q3 expected at around 38k tons according to the company). Perhaps the company could consider using 5k to 10k tons per quarter from the current stockpile to increase shipping, while always keeping a healthy stockpile for the time when lithium prices improve.

Even more important would be for Altura to make a decisive move to reduce debt through a JV with ShanShan or others as part of stage 2. Debt is Altura’s Achilles heel and it must be reduced soon. Luckily for us, we have safeguards by means of 4 separate off takers, a solid partner in Shan Shan and a BOD with plenty of skin in the game. As such, I think that the sharks will first attack PLS and others, which may give Altura the time to deal with the debt and low cash. My understanding is that Altura’s current loan does not permit pre-payments of principal or other changes until next month. I hope we will get an announcement about this soon.

ALTURA LONG