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A40

Why Alliance Mineral Assets Has Been De-listed?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Alliance Mineral Assets (ASX: A40) has entered voluntary administration after being unable to meet its monthly cash burn. The business was struggling with cash burn and was a high cost lithium producer in production phase. This is an important lesson for investors about high cost producers, particularly those in industries with very volatile underlying commodity prices. While Lithium has been around for a long time, the sudden increase in demand from producers of electric car batteries put the commodity price in unchartered territory, making it hard to discern what the cycle would look like.

Aliance Mineral - been delisted
Alliance Mineral Assets has recently entered voluntary administration (Credit: Alliance Mineral Assets)

When the cycle surprised on the downside, as many cycles often do, several companies found themselves in positions where they were making losses. A40 was one of them, but the problem is that mines cannot just be shut down overnight, since there is a cost in keeping them operational. Against a hefty share price decline, the company struggled to raise capital to fund its operations and ended up being in a position where it was unable to meet its liabilities.

Korda Mentha has been appointed as the administrator and will complete the process of winding up the company’s assets. While past financial statements reveal that the company has much more in assets than liabilities, financial statements are prepared as though the company’s operations will continue (these companies are known as “going concerns). When a company is not a going concern, it’s asset values could be very different, and this is particularly true of intellectual property. Plant, property and equipment is the largest asset of the business and could decline in value markedly if no one wants to buy the lithium mine, since the selling price may be very different to the cost of the mine. This is because it will be difficult to find a buyer, since the profitability of the mine has turned and was what made the company bankrupt in the first place.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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