Ann: Kathleen Valley Funding Package, page-250

We know we had cost over-runs that were announced on 29 September.

I refer to my previous post here.... 70400576 I mentioned that banks probably wanted a reasonable component of equity provided in the funding. I wish the price was higher than $1.80, but it is what it is and we couldn't get the amount needed at the right price. The total new equity represents about 10.6% more shares on issue. Actually, I don't think that's bad. We'll have around 2.44bn shares in total I think (current 2.21bn). Total new equity could be $421m including the Share Purchase Plan offer of $45m. I recall when the last SPP was offered there was little funds raised, so I think here the company will not be counting on a full take up of the SPP which would then take us back to the $376m placement shares (including TG for $10.8m) which is sufficient.

One of the possible sources of funding for the cost over-runs was to be from DSO sales which have since become uneconomic in the volatile lithium market, so extra equity and debt has been required. Similarly, banks get nervous when the chemical spot price falls, so these factors were against us in a timing sense.

The debt component is a big number, but that is because we are completely replacing the Ford facility now ($308m including capitalised interest). I should have realised that any new deal with a bank syndicate would require the security over company assets held by Ford to be shared. It appears the company thought it best to refinance the Ford facility, so a big chunk is existing debt refinanced. Then there's a large balance sheet liquidity and over-run facility of $352m(a kind of overdraft which may not need to be spent but is there for insurance), as well as specific contingency of $25m and transaction costs of $26m. Best to refer to slide 16 of the presentation for the sources and application of funds.

My main disappointment is the equity price is a big discount to the takeover price proposed by ALB and indeed the price that Hancock was prepared to pay to buy in. But when ALB withdrew, it must have been apparent that we would struggle and the share price would come under pressure from short sellers. So the management did what they could to finalise all funding now. I expect that in a few months from now it will look like the instos got a bargain, but hopefully some of us retail holders get in at a good price to top up.

Those that sold have done well. There remains the present danger to our independence from Hancock. I actually expect them to make an off market offer to all shareholders at $3.00 after all the new equity has been issued so they can get a bigger stake to get more control. We will cross that bridge if we come to it. On the positive side we now have all the funds we need to go mining and the project powers on.

Regards

DF