Epistle number 10 of Ken - Be ready for a read if you are...

Epistle number 10 of Ken - Be ready for a read if you are interested hahaha

The following is only opinion. I have not called David, Yallourn, EPA or Local Government, so if I make emphatic statements, and they are erroneous, please excuse me.

It’s great to hear beneficial critique regarding any announcement. It helps to keep a closer eye on what is being written and conveyed by LMG. Sometimes there are things that can be missed by skim reading and I may have picked up some that were missed?

The following is what I consider being of some concern

December Monthly ProgressReport - 19/01/24
“LMG hascompleted a feasibility study validating its combined hydrometallurgical /thermal reduction process that extracts the metal. Early construction hascommenced on its Stage 1, initial 1,000 tonne per annum magnesium plant with commissioningtargeted for MgO production asat 31 March 2024 and the full magnesium production to commence end of Q2 2024.

Quarterly Activities/Appendix5B Cash Flow Report – 30/01/2024

“Magnesium Oxide (MgO) productionstrategy is on track, allowing LMG to initially prove its patented process andto generate early revenue. Focus will then target completion ofremaining works with magnesiummetal production starting H2.” “The focus is now on interim MgOproduction, with a priority on installing the critical path element, the SprayRoaster. Our target for the first MgO production after March 2024 remains unchanged."

Comment:

The targets have obviously movedand yet the Quarterly Report slides on past trying not to be noticed.

The first MgO production datechanged from the “targeted for MgO production as at 31st of March 2024”, to nowbeing “after March 2024”.

What does after March mean? AfterMarch is an ambiguous and floating target, that could be June, August, etc. “AfterMarch” was never communicated until now, and so the target HAS NOT remainedunchanged and should not have been presented in that way in my opinion.

As has already been pointed out thatthere is a significant schedule shift potential, for the first magnesium metalproduction. To change from Q2 (April, May, June) to H2 (July,August, September, October, November, and December) could be up to 7 monthsdifference or more. I see after March asextremely vague.

Being upfront is the only way totravel. Clear views, realistic schedule moves and honest communication willkeep me tuned in to the changing scenery but Hyperbole is very frustrating.

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Quarterly Activities/Appendix5B Cash Flow Report – 30/01/2024

“The ATO continues to review ourrebate claim and we await a decision to release the amount. This has impactedupon LMG ability to fund the costs to complete the demonstration plant as the agreementwith RnD Funding is that they provide the last $3M of funding when the projectis fully funded through to October 2024.”

“To mitigate this fundingrestriction, LMG completed the $3M equity raising in December 2023. LMG’s cashposition is being monitored to ensure that the progress of the developmentplant is not impacted, and the cash flow is managed till MgO is producedin March 2024.”

Comment:

Honestly find this an incredulousreason for the delay in demonstration plant completion. Some time ago I noticedthe two bites of the cherry with 4.3 million surplus (24/05/2023) and the 3.5million surplus (21/12/2023). Both surpluses from equity raises werespecifically ear-tagged for “Working Capital to Operate” LMG’s demonstrationplant and avoid delays. Both budgets closed and equate to 7.8 millionin equity surplus that should have given a buffer to the delay of the RnD 3million caused by the ATO’s review of LMG’s rebate claim. Yet in the Quarterly Report, “LMG’scash position is being monitored to ensure that the progress of thedevelopment plant is not impacted, and the cash flow is managed till MgO isproduced in March 2024”.

Look at for a cap raise within a few months, Imo.

Here is the 7.8M

Latrobe Magnesium completes$3.06M placement - 21/12/23

“Update on Funding Plan LMG’scurrent budget estimate for its 1,000tpa demonstration plant is $41.7M. As at20 December 2023, LMG has spent $37M on the demonstration plant. The remaining costof $4.7M will be funded as follows:

• Cash in Bank 1.2M

• December Equity Raising 3.0M

• Project Finance still to be drawn 3.0Victorian State Grant 0.5M

• GST 0.5M

• Total 8.2M

“The surplus $3.5M willprovide working capital to operate LMG’s demonstration plant. In addition, LMGundertook this placement to ensure that there was (were) no further delays tothe construction of the demonstration plant and the commissioning of its MgOproduction. The last draw of the $3M of project finance is only capable ofbeing drawn once the ATO has paid the 2023 rebate to LMG’s financier.”

AND

Latrobe Magnesium Completes$4.2M Placement - 24/05/23

"LMG’s current budgetestimate for its 1,000tpa demonstration plant is $41.7M. As at 23 May2023, LMG has spent $18.4M on the demonstration plant. The remaining cost of$23.3M will be funded as follows:

• Cash in Bank plus GST refund 6.4M

• May Equity Raising 4.2M

• Anticipated exercise of warrants 0.4M

• Anticipated exercise of options 4.5M

• Project Finance (being Research &Development Rebates & project finance) still to be drawn 9.0M

• Victorian State Grant 1.0M

• GST 2.1M

Total 27.6

“The surplus $4.3Mwill beused for working capital purposes to operate LMG’s demonstration plant andprovide funding for the Geotech work required to be carried out by GHD on theYallourn landfill. The results of this work will determine the annualproduction size of the expanded plant. The funding will also allow LMG to startthe planning and approval processes for the expanded plant.”

Comment:

Keep in mind the GHD land fillstudy has now been put off until “Post the commencement of Stage 2 (10,000tpaplant). So where is that money saved that was supposed to be covered by part ofthe initial 4.3M in May 23? What am I missing here please? Why is the ship so financially leakythat not only the 7.8M of surplus has ‘up and vanished like a fart inthe wind’ but in addition, the current budget is so tight there are concerns ofmonitoring LMG’s cash position to ensure that the progress of the developmentplant is not impacted? (Also, why is it called a development plant?)

The exact same budget estimate of41.7M for the Demonstration Plant has been stated on the 24/05/23 andnow the 21/12/23. So, what has changed to the degree that a surplus of 7.8M hasvanished?

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Quarterly Activities/Appendix5B Cash Flow Report – 30/01/2024

“Whilst LMG’s focus remains oncompletion of Stage 1, limited planning work has commenced in preparation for ramping up activities on Stage 2 (10,000tpa plant)once the demonstration plant is in operation. In order to speed updevelopment of Stage 2, the project size has initially been set at a productioncapacity of 10,000 tpa of Magnesium metal. LMG believes there is sufficientsupply in the ash being generated, by the time the Yallourn power stationcloses in 2028, for this production capacity for the projected mine life.This negates the need for a resource drilling campaign this year.”

“The work scope for the mine planning stage is beingrevised to incorporate only the work needed to commence the project faster byfocusing on what is needed to get to a final investment decision sooner namelymine scheduling, geotechnical assessment, mining lease determination andrehabilitation planning. LMG will complete the resource determinationwork post commencement of the Stage 2 project. LMG believes this strategy willbring forward financial returns to offset the delays from the Stage 1 project.A more detailed work program will be developed and released in the nextquarterly Update.”

Comment:

Wow, these two paragraphs areloaded with delays and changes.

1. Very little is being done to progress towardsStage 2 (10,000tpa Plant)

2. The GHD study of fly ash availability from Yallournland fill looks like it is on ice. LMG have made a clearcut decision now regardingthe capacity of the Stage 2. The volume is 10,000tpa from existing fly ash,without needing to include the land fill study.

3. The GHS fly ash study will not be commenced thisyear.

4. “The work scope for the mine planning stage isbeing revised to incorporate only the work needed to commence the projectfaster by focusing on what is needed to get to a final investment decision sooner,namely mine scheduling, geotechnical assessment, mining lease determination andrehabilitation planning. LMG will complete the resource determination workpost commencement of the Stage 2project”. As can be seen from this paragraph, the revised work scopedoes not even mention a new fly ash agreement, EPA Permit or DevelopmentApplication for the plant expansion to 10,000tpa.

Compared to –

QUARTERLY ACTIVITIES REPORT - 30June 2023

“Stage 2, 10,000+tpa AustralianCommercial Plant Update”

“LMG is reviewing the proposalreceived from GHD earlier this year for work required on the Yallourn landfill.The scope of work involves several crucial aspects, including:

• Calculating a JORC resource forthe Yallourn landfill after drilling.

• Assessing geotechnicalstability of the landfill to determine the amount of ash that can be extractedin a safe and stable manner.

• Preparing a mine plan; and

• Developing a new minerehabilitation plan.

This comprehensive work isexpected to take approximately 6 months to complete and will commence shortly.”

“Once this work is completed, LMGwill determine the size of its Stage 2 commercial plant. The current plant sizeis set at 10,000tpa, based on the ash supply generated from Yallourn until itsclosure in 2028.”

Comment:

The change in determining thecapacity of the Stage 2 Project is drastically different to what has beenpresented by LMG for a very long time. I consider the way the change has beencommunicated and the reason why, has been very lean in its detail.

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To progress towards the 10,000tpa plant, the 3very significant project predecessors are still mandatory for LMG and will haveto be complete prior to commencing to expand the plant size. EPA and Local Governmenttake their own time to pass the approvals and the delays can be long depending uponcomplexity.

The first predecessor isan amended or supersede agreement with Yallourn for the provision of fly ash.The current agreement is for 3,000tpa (There is a big story behind that3,000tpa). Even though LMG reduced the demonstration plant scale from 3,000tpato 1,000tpa, the agreement for 3,000tpa still stands. LMG have not yetsuperseded the current agreement with one for 10,000tpa. Fairly important Iwould think.


The second predecessor (Iwill give my base understanding and hope I do not mislead)

The second predecessor is anamended or supersede permit from the Environment Protection Authority (EPA). AnEPA permit is a legal requirement for LMG to expand the plant to 10,000tpa. TheEPA will audit an environmental impact study (GHD support on behalf of LMG asbefore). Modified and added controls measure will be required by LMG to addressthe projected scale shortage in the current permit due to the environmentalimpacts of up-scaling.

The EPA’s concern/issue is that achange of LMG’s plant “Scale and Intensity” automatically means there will besome obvious changes to environmental impacts. The EPA audit and inspectionswill determine if the control measures for every environmental impact aresatisfactory or need amendment.

There is some cross over betweenthe EPA and Local Government and changes in forecast production scale, automaticallyentail obtaining permission from entities. The permit system of the EPA issimilar to the required Development Application that LMG will have to submit,again because of a ‘Material Change of Use’, triggered by a ‘change in Scaleand Intensity’.

The third predecessor is asuperseded Local Government development approval.

Development Application for a MaterialChange of Use by LMG is due to a “Change of Use”, from the current Lawful Useof 3,000tpa to the new use of 10,000tpa as new ’Use’ is not exempt developmentor complying Development. To achieve Lawful Use status, a change of usedevelopment application based upon a change of ‘scale and intensity’ must besubmitted to Latrobe Valley Council.

Based upon Land Use Zoning, Localgovernment by-laws, Town Planning Laws and codes, and Environmental ProtectionLaws, the Council will determine if the new ‘Scale and Intensity’, i.e.10,000tpa, will be compliant. Local Government Development approval willconsider, distance from boundaries, run-off to protect water courses from pollutionor erosion, noise levels, dust levels, engineering. Building Certificate is acertificate issued by Council, to have the buildings altered, added to orrebuilt, encroachment, etc.

There is much more to aDevelopment Applications and they can vary slightly from State to State andfrom even different Councils within a State, depending upon Land Use Zoning,associated Local Laws, etc. Regardless of the State or Local Government, LMGare legally obliged to submit a Development Application for the plant expansionand approval must be achieve prior to expansion works commencing.

What exactly is the status of theabove three predecessors. The timing of the 3 changes in agreements, permit anddevelopment approval seem to have been altered drastically.

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Other things I picked up:

“The project will be designed to grow in trains of 10,000 tpacapacity over time as the resource is further proven. This strategy has the advantageof bringing commercial production forward yet allowing flexibility for a futureincrease in production capacity."

Comment:

The Stage two (10,000tpa PLUSplant) has seen a change in expansion strategy. No longer will the plant sizebe determined initially by existing fly ash stock combined with the fly ashlandfill Geotech work by GHD to give a total volume of feedstock for the plant.The plant will be expanded in 10,000tpa increments. I find this change ofalmost modular scaling interesting. For each new phase, all three expansionpredecessors are required as change dictates the full revision of operations.

What the new strategy also meansis that LMG are confident that they could potentially transition from 10,000,to 20,000 and then perhaps 30,000tpa or more. The only reason I see that thestrategy will “bringing commercial production forward” is that they haveskipped the cost of the GHD study for now until they generate sufficient incomeand also because the current financial capacity for the demonstration plant iswalking a tightrope.

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QuarterlyActivities/Appendix 5B Cash Flow Report – 30/01/2024

“LMG is actively engaged indiscussions and moving to the writing phase with a number of various internationalinvestors who have expressed interest in partnering in its Stage 3 project.”

“LMG anticipates third partyparticipation will amount to 45% equity in the project and will also providesignificant magnesium offtake agreements, which will allow LMG to secure debtfunding from government backed institutions. These negotiations have been indiscussion for up to 12 months and have progressed to the writing stage. LMGhas been steadily providing information to partners to demonstrate therobustness of the investment. Delays were unexpectedly experienced due to thenon availability of key partner personnel but non-binding Memorandum ofUnderstandings (MoU’s) with equity partners are now expected to be signed bythe end of the first quarter of 2024.”

Comment:

My memory is pretty good, I thinkLMG have been saying almost exactly that for the last two or more years hahaha.I’ll go and find a few lol.

QUARTERLY ACTIVITIES REPORT - 30September 2023

“LMG is actively engaged indiscussions with a number of international investors who have expressed interestin partnering with LMG in its Stage 3 project. LMG anticipates third partyparticipation will amount to 45% equity in the project and will also providesignificant magnesium offtake agreements, which will allow LMG to secure debtfunding from government backed institutions. These negotiations have been indiscussion for up to 12 months and have been reduced to writing.Non-binding Memorandum of Understandings (MoUs) with equity partners areexpected to be signed by the end of December 2023, if not before.”

QUARTERLY ACTIVITIES REPORT -30June 2023

“LMG is actively engaged indiscussions with various international investors regarding potential joint ventureparticipation in the Stage 3 project. LMG anticipates signing non-bindingMemorandum of Understanding (MoUs) with potential equity partners within the next quarter.

Ok, enough…

Don't get me wrong please, i'm still a very happy chappy.

Just some thoughts.

Regards Ken