Ann: Government of Mali - Update, page-47

As far as the FFX/LLL discussion, I keep coming across comments where people imply that Mali is somehow shortsighted for not seeing these are two separate companies.

Let's look at it from the perspective of a Malian official.

Your primary dealings are going to be with the Board of the Mali companies that own the mining permits (Morila SA for Morila, LMSA for Goulamina), the Management Team on the ground in Mali of either those companies, and representatives on the ground of either of the ultimate parent companies FFX and LLL.

So you deal with say:

• The in-country representative of FFX, which until March 2023 was its Country Manager. You may even recall the role this Country Manager played in helping FFX get the Goulamina permit approved, and possibly even their role as the Country Manager of Digby Wells who helped FFX get the earlier Goulamina environmental permit. You've developed a good relationship over a long time.
• And the executive at LLL responsible for governmental and other key stakeholder matters in Mali, which is its GM, West Africa.
• And then you might engage with the Chair of the Morila SA Board, given the GM there is quite focused on the day-to-day operational management of the quite active mine.
• And then you might deal with the General Manager of LMSA as they work to negotiate approvals and keep the government updated as they start ramping up
• And you may also have dealt with the Managing Director of Timbuktu Ressources SARL since they took out the permit for Goulamina (the Torokoro permit) and ultimately lodged its transfer over to LMSA as part of the LLL setup

And it turns out all of those people listed above are the same person, Seydou Semega.

Who I'm sure is incredibly capable and does a fantastic job at wearing and balancing all of these responsibilities. But you could be forgiven for picturing a Yes Minister or Clark and Dawe style conversation: "Tell me, how can I help you?" "Wait didn't we just speak about cleaning up Morila?" "No, you spoke with the Morila Chair, I'm Mr Semega , the LMSA GM, I'm not involved with any of that" "Sorry, I thought I was speaking to the Chair of Morila, can you get him for me?" "Yes, Hi I'm Mr Semega, Chair of Morila, how can I help?"

And then maybe you reflect on a journey through recent events.

After a few years of working with FFX and its Mali subsidiaries on getting Goulamina up and running, you hear that Ganfeng is getting involved. Sounds exciting, more investment, more jobs, great!! You hear that they'll want to setup a new JV where Ganfeng puts in some money and customer commitments for half, while there's some ownership restructuring and capital raising going on in Australia around the other half that will be put under a new company, LLL. Makes sense - after all they're having to setup a new single purpose company in Mali anyway (LMSA) so it sort of all feels pretty familiar.

Maybe you're curious enough to look into the details. And it seems of the half that is staying Australian owned under this new LLL company, 20% is staying with FFX, and up to 80% is staying with FFX shareholders - they'll get 70.5% off the bat and then the remaining 9.5% will be give or take whatever is left over for institutional investors in the shortfall depending how many FFX holders take up the pro rata offer to invest more. So pretty much 90-100% owned by the same people, minus anyone else who chips in some extra funding. Fair enough, they did own it all the day before anyway. Looks a bit like a fancy capital raise coupled with a new model that gives everyone a chance to separately trade their interests in either gold or lithium. Again a bit like single purpose companies in Mali. Looks good to me.

FFX keeps announcing good things about Morila. All is looking great. Love working with these guys, look forward to seeing both mines prosper.

So this new company LLL appears. And LLL's Company Secretary, who is also at that time the FFX Company Secretary, gets to announce LLL is happily trading on the Aussie share market after raising extra money to help fund Goulamina. Things look alright for the first 2 days trading - quite a bit lower price than expected from everyone who just chipped more in but these things happen, give it time. The weekend hits. Monday opens up. The same Company Secretary in their FFX role comes out and announces FFX has stopped trading. Hmm, what?

Turns out two of the FFX Board Members resigned after being there about 3 weeks. That's a bit odd, they looked quite good, was looking forward to seeing them in action. The next day the Managing Director resigns too. Huh? The next Monday FFX announces Morila isn't going quite as well as everyone thought and, we learn the day after, sells all of the LLL it can (2.4%) for 65% of the price it paid for it a month or so ago. Hmm, that's out of the blue. Why are they baking in a $7m loss? Why do they even need $13m, that's peanuts based on what we last thought they had? If they were so skint why did they just chip in $20m? By the next Sunday the Chair has resigned as well. Ok, what's going on here? What's changed in the two days since LLL started trading to cause all this? We get an update the next day that apparently all was looking great at Morila in the weekly report reviewed 17 June, but the weekly report reviewed on 24 June didn't look quite as good, and after calling a meeting on Sat 25th for the Board on Sun 26th it was agreed a halt was in order. Well that was sudden.

A few weeks later, at FFX's request, LLL asks if FFX can sell off its remaining 17.6%. No go. The same day it turns out FFX hadn't even paid their ASX listing fees - things must be tight!

But then the next week there's a positive announcement on more gold found at Morila, and a few weeks later a new MD is announced. We also hear Morila is going to produce a whole heap of gold and there's a solid plan. Phew, tight period but must be all good now.

Oh what's that, a plan to recapitalise? More good news surely! Wait, huh, the plan is to effectively sell 56% of the post-raise FFX for $0.06/share in a mix of debt for Morila creditors and capital raise? That price would value FFX at about $160m. Hmm that seems a bit low, what's going on? They still have around $54.5m cash and cash equivalents, and this deal would raise $90m more (plus debt waivers) - so what, even if all of the other FFX assets still valued at that time at $200m+ are suddenly worth nil (what?!), that 17.6% of LLL is now only worth ... *crunches numbers * ... $15.5m!?? So they're valuing LLL, which they recently bought a portion of at 70c a share before selling it again at 45.5c a share, now at 7.4c a share?!? Did someone miss a digit? Is my calculator broken? That would mean LLL overall would be worth only $88m, and with around $72m in the bank and 50% of the JV holding nearly $200m AUD they're saying Goulamina is not only worthless but a net liability? What's going on here??

Then FFX announces that deal has fallen through (phew) and ... it's no longer going to keep funding Morila. What?? Um, you guys are still the major shareholder and your execs still hold the majority of positions on the Morila SA Board? What do you mean you're not funding the mine anymore? A month or so passes (we are advised). The decision is made to "cut ties" and "walk away". The directors, except Semega, quit. So like, are you guys going to clean up like you said you would? What do you mean it's not your problem anymore?

Now we keep getting assured that there's nothing to worry about here, nothing to see here. No link between any problems of the two. In fact nothing to even really worry about with Morila - we'd like to sell it for the benefit of all the other stakeholders, but at the end of the day if we don't we'll still return the rest of the assets. Anyone could do that. What? Sorry, no you can't give the job to someone else. We're really going to need experts at making African deals to stay involved in this one, it's complex stuff: look at how well Lowe has been doing meeting with Mali on all of this stuff. Yes yes, Lowe won't be around any more, we don't quite need the African deal expertise that much, just, you know, you can never be too careful in this business. You wouldn't want something to happen to your shares.