How high-cost foreign debt sunk an Australian lithium mining asset

Altura Mining, one of the big hopes of Australia’s nascent lithium mining industry, and part of the vision for Australia to play a key role in the clean energy transition – was placed in the hands of a receiver. It is a story that has its origins three years ago, when the company struggled to get any support from Australian financiers.

On July 28, 2017, with lithium prices running hot, and a rush of activity to develop new lithium mining capacity, Altura mining announced a $US110 million debt deal with US and Switzerland-based investors.

The financing terms provided were over three years, being 14% per annum for 18 months from the date of the Initial Utilisation and 15% per annum thereafter.

The backstory was that Australian banks wouldn’t touch it – lithium was seen as too new, and too risky. 72,644,513 fully paid ordinary AJM shares were given to the loan note holders as part of the financing package.

Down the road, big brother Pilbara Minerals was doing debt deals on similar terms.

The financing package for Altura Mining came on the back of placements, in exchange for offtake agreements, with two Chinese lithium players – J&R Optimum and Lionergy.

Altura had cash in the bank, a debt package to build its mine, but had ceded a material percentage of ownership and control to offshore investors.

Critically, loan note holders would have AJM over a barrel – the loan was secured against all of the companies assets, including project tenements, shares and bank accounts.

On October 26, less than three-and-a-half years later, having worked through technical ramp up challenges to produce consistently at over 80% of nameplate capacity, and with strengthened offtake relationships, Altura Mining went into the hands of receivers.

A more nuanced story will be written, and there will be speculation as to why, after reports of goodwill between creditors and AJM management, receivers have stepped in.

But for me, the story is as simple as glancing at this quarterly report from July 2020. What do we see in the year to date cash flows?

• Interest and other finance costs paid – $15,927,000
• Royalties to Government – $8,776,000

Here we have a globally significant lithium mine, producing commercial volumes reliably, and moving towards cash flow positive quarters despite challenging market conditions, paying out nearly twice on its debt obligations, as it pays back to citizens via the government in royalties.

It is inconceivable to my mind that resources in the ground that belong to all of us, being mined and supplied in the “first innings” of a once in a lifetime mining boom, could benefit foreign entities at twice the rate of our own people.

Not only that, those foreign entities have been benefiting at twice the rate as Australian citizens, with virtually no risk – protected by debt covenants that put the asset in their control, should the debt covenants be breached.

Put another way, the Australian government, via a sovereign wealth fund, could have financed the asset on exactly the same terms, recovering three times the revenue on behalf of Australian citizens than via royalties alone, while ensuring the asset would remain in Australian hands, should trouble strike.

Or, more strategically, it could have lowered repayments in response to temporary market conditions, that deflated lithium prices and squeezed margins on an otherwise commercially robust miner of lithium. Before ramping them up again on the next lithium commodity upswing.

It is the oldest story in the commodity book – those who can ride out the lows will fly on the highs, which is why only the biggest survive.

So in the interests of getting big, and beefing up our share of the once-in-a-lifetime battery metals boom, it is time Australia took a strategic interest via a Sovereign Wealth Fund for battery metal mining.

Can we Dig It? Yes We Can!