Ann: Quarterly Reports - September 2022, page-54

I finally got around to reading the Annual Report (was on a European Roadtrip). I think we are all disappointed but it is important to isolate the noise and focus on the real negatives and positives. ADN is not the only stock hammered lately.

Without a shadow of doubt, Inflation, Covid, Russia/Ukraine, China have all have had an impact which was not caused by ADN and cannot be controlled by ADN. One could argue Ukraine no longer producing Kaolin is a positive for ADN, but only if you are producing. In reality, this, and inflation, interest rates sucks much liquidity out of the market. Ukraine and Inflation should be a positive in assisting ADN BOAs - although I suspect uncertainty and conservatism may overrule this benefit.

ADN will mine through a scalable starter plant that reflects current BOAs (which could change any day). The DFS remains the end goal – it is still valid, but those timelines will slip. A pilot plant also is being upgraded and the starter plant being designed to be in line with BOAs is a hesitant tick from me. This was not handled well.

ADN is attempting to transform from Explorer into Producer, and it is hard enough for producers nowadays – let alone for those few % that succeed.

There have been promises of BOAs but what we have today is simply not enough. I will take it on face value that many BOAs are under negotiation (ie IMCD) but these must come through within 3 4 5 months. The PEPR could be landing any time between now and Feb, so when this happens we must be ready to proceed to the next step. BOA’s here will be critical so that the Starter (and Pilot) plant will be adjusted accordingly.

So I read and reread the annual and my take out points are as follows (the good, bad and ugly).
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Over the last year or so ADN has achieved numerous milestones, PEPR is in, ML and Land Access all sorted, and they took over MEP/NNT using ADN scrip. They didn’t pay cash, they simply printed shares. Other minor stuff was achieved as well – drilling at Eye Kaolin, resource upgrades, patents. For these alone the company deserves some respect IMO.

Wilkes “The modular nature of the design also allows us to develop the in-house expertise to efficiently build subsequent stages that will enable the delivery of the full potential of the Project as outlined in the DFS. This “self-perform” approach to development is critical to the successful delivery of the Project in the current environment.”

Marsh “The Starter Plant, the design and planning for which is now complete, incorporates the ability to quickly ramp-up processing capacity to satisfy additional commitments in line with customer demand.”

This starter plant is what the name implies - an intermediate starter plant that can grow inline with BOAs, and can be further scaled to some degree with further BOA’s. This reduces the capital requirements, and perhaps avoids share holder dilution. I would like to see metrics, but I also understand that this is a changing balance sheet - the metrics may not impress but they will improve as more BOAs come online. Fixed costs are the problem of course.

HRM is also at a premium and IMCD discussions are ongoing – safety is paramount and this will take time. Interestingly, the Pilot Plant has been supplying IMCD with HRM for further analysis. A trading halt here and IMCD onboard and we will all be dancing in the streets with David Bowie.

What I can’t prove or disprove, is that procurement will NOT take 12 months as advertised by multiples of people. “The procurement process is anticipated to take approximately six to twelve months and include finalising tender documents, placing orders with selected manufacturers, and delivery to site”. Perhaps the glass empty worst case scenario is more prudent, but I would hope this will come in before 12 months.

Some General Notes
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Camel Lake: Nothing is happening

Wudinna: Cobra is close to attaining 75%, Very good Gold grades and Rare Earths. Much here is not fully explored. ADN will realise value here.

Moonta Copper: Progressing slowly but surely. Copper is becoming more valuable – a good tenement to have. Should Copper Bugs predictions occur, this will be worth something concrete.

Drummond Gold: Looks like we will swap this tenement for $250K in shares in yet to be listed Rush Resources Limited IPO of $4m, It’s a small stake but am pleased for this to be off the books, much prefer Silver (and Copper) over Gold. One distraction gone…

Eyre Kaolin: Necessary expenditure is being met. Tick.

Now on to the gut wrenching hard stuff….. Remuneration Andromeda has taken some steps to improve the situation that we were not happy with 12 months ago. There is better disclosure, and NEDs are no longer eligible for shares; they are however forced to have to buy $116K each 5 years, with after tax dollars. This is better, however there is no need to applaud as this is standard industry practice.

Last year Grivas was the most hungry sucking out $167K. Shearer and Grivas are now out.

Executive Directors they are now issued with Short and Long Term incentives, graded on a linear scale once 50% of each target has been met, it doesn’t sit real well but I can argue both sides.If they don’t meet 50% of their targets there will be no equity issued - as it should be. Management should be well rewarded (and vested) but those rewards need to come from concrete milestones that will build shareholder value.

James, Joe, Michael and Timothy will partipicate in the short and long term incentives.Last year James earnt $508K, and Joe sat on $350K (3 days per week). Joe has been more than adequately rewarded with shares for getting the ML in and approved – this was over the top, but more importantly, the ML went in and was approved without hassles, and we believe the PERP meets all requirements – so Joe did do a good job and got paid well as a result.

This year James is sitting on a modest rise, and is the recipient of a modest share package (1.7M options, and 1.1 performance rights) where results will need to be met. This is NOT over the top. Furthermore, a failing share price means the options will be out of the money (worthless), and failing to mine will result in not receiving his performance right. Ranford, Zannes, Anderson with slightly less but similar packages.

Whilst we are digging deep, lets also dispose of the rationale of some masterminds here that Management have been setting up for a takeover by dropping the SP.

48M Unlisted Options expire this month at a strike price of $0.064
20M Unlisted Options expire Mov next year at a strike price of $0.075

Most certainly those 48,000,000 options will expire - WORTHLESS. These were issues to James, Ranford, Shearer.

So if you think ADN is deliberately tanking the Share Price to be Take Over, please do think again – it makes less than ZERO sense.

Lets go on… 14,000,000 performance rights are contingent on ADN mining by December 2023 (12 months from now), a target that may be achievable if PERP gets approved and Long leads are well advanced, but general concensus here is that these performance shares will also not be received.

Performance rights allocated this year have been pushed back to much more achievable target of Jun 2024, however IF only the starter plant limit of 50K is shipped – only 20% will vest. ADN will need to send 55% of theirDFS target Phase 1 in order to achieve 100% performance right (or triple the starter plant). Considering where we are – this is a hard target to achieve, and doing so will surely and justifiable earn them those performance rights.

So, DYOR but I fully support ADN with this restructure, and will be voting for the remuneration, and most certainly not on the Spill.