The Company provides the following by way of additional material to the market in respect of the resumption of trading in the Company’s securities on the ASX.
Background to Suspension
The Company’s auditors issued a disclaimer opinion in relation to the carrying value of the Company’s assets in the financial statements for the year ended 30 June 2020. This was released to the market on 1 October 2020 and trading in the Company’s securities was suspended from 2 October 2020.
At the time, the ASX informed the Company that trading in its securities on the ASX would be reinstated once it had “fixed the disclaimer opinion.”
The Company’s filed its 2021 Half Yearly Financial Statements as required in March 2021 without any audit disclaimer or qualification.
The Company thereupon requested the lifting of the suspension of trading in its securities. The ASX informed the Company that, notwithstanding the unqualified audit review opinion, its initial view was that it considered the Company to be dormant and that its current scale of operations did not meet the requirements for listing.
Specifically, the ASX has raised the following concerns:
- The Company has been listed since 2014 and had not commenced commercial production;
- The Company has been “dormant” since the publication of the results of its definitive feasibility study and the update to its certified Reserves and Resources statement in December 2019;
- The Company’s spending has only been of a corporate and administrative nature; and
- The Uley 2 project may not be of a nature and/or scale that qualifies it for listing on the ASX.
The Company views these statements as materially misstating the Company’s circumstances. In respect of the Company’s former activities from the date of its initial listing in 2014:
- The Company’s securities commenced trading in January 2014 (as a result of its initial public offering as Valence Industries Limited) until its securities were suspended from quotation in November 2015. The Company was placed into voluntary administration in July 2016;
- The Company commenced commercial production in late 2014 utilising Uley 1 stockpiles and the refurbished Uley pilot plant; and
- The Company prequalified its products with the major refractory Companies throughout Europe in 2014 and early 2015.
The Company is perplexed at the ASX’s observation, albeit of a preliminary nature, regarding the nature and scale of Uley 2. In particular, the Board notes that:
- The first stage alone of Uley 2’s large flake reserves represents approximately 4 years of global supply and its wholly owned Mikkira resource represents one of the world’s largest natural flake graphite resource;
- Uley 2 is the only fully permitted large flake graphite project in Australia;
- Uley flake remains the only Australian listed company and one of the very few globally outside of China that has a record of producing refractory and broader thermal management grade products for the major European refractory manufacturers and prequalified its products with these manufacturers; and
- It is the only large flake graphite company that has direct exposure to both the electric vehicle market and the renewables (including electricity networks) market by virtue of its exclusive relationship with Sunlands Co.
In respect of the Company’s activities under the current management:
- The current management did not have control of the Company until it was formally handed over to them by the Administrators on the completion of the reconstruction in September 2018 at which time its securities resumed trading;
- From September 2018 until December 2019 the Company completed all technical work associated with the definitive feasibility study for the Uley 2 project including;-
For the period March 2020 to March 2021, the expenditure included within the Company’s lodged financial statements (excluding corporate administration) was as detailed below:
- the issue of JORC 2012 Metallurgical Testwork Results in June 2019;
- the issue of an updated JORC 2012 Mineral Resource Estimate in July 2019; and
- the issue of a JORC 2012 Mining Study and Ore Reserves Estimate in December 2019.
|Exploration and evaluation of project assets:
|Research and Development project (includes $46,500 disclosed as staff costs):
|Sales and marketing activities (part of administration and corporate costs):
|Project Expenditure since 1 March 2020 to 31 March 2021
In November 2019 it entered into a technical and commercial memorandum of understanding with The Sunlands Co. Pty Ltd (Sunlands MOU). The Sunlands MOU was renewed in September 2020 following extensive negotiations. Under the MOU the Company is the exclusive supplier to Sunlands subject to final agreement in respect of binding offtake arrangements;
Further and pursuant to the terms of the Sunlands MOU, the Company commenced an extensive research and development program to support the supply of specialised products to Sunlands. This work is ongoing and was the subject of an application for a grant under the Federal Government’s Modern Manufacturing Initiative in April 2021;
Despite the impact of COVID-19, including very limited access to the Uley site, the Company:-
- continued exploration activities on EL6224 which was renewed (for 1 year) during
the period and the preparation of a further major/extended renewal application (due in a few months) which necessitated the preparation of longer-term exploration plans;
- continued its sales and marketing efforts throughout this period resulting in the resumption of testwork of Uley product by major European manufacturers;
- maintained necessary site works including of its TSF assets; and
- maintained several financier enquiries and due diligence programs regarding funding for the Uley 2 project.
On this basis the Board considers the ASX’s views regarding “insufficient activity” difficult to reconcile. Moreover, the Board is disappointed with the failure to recognise the Company’s exceptional achievements in the face of unprecedented and uncoordinated Australian State and global restrictions on travel. The Company’s technical resources predominantly reside outside South Australia and its mine engineer was precluded from leaving the United Kingdom until early 2021.
The Company has made submissions in respect of the above. An extract from the submissions is extracted and set out in the Appendix.