Ann: Quarterly Cashflow Report, page-30

Decent production quarter for AJM but the companyis still bleeding cash. I have no investment position long or short in ASXlisted lithium miners, but I am interested in the dynamics of the industry. Itis however obvious from this forum that many investors are completely fixatedon the growth in EV’s /battery power & as a consequence religiously believe that lithiummining companies cannot fail. I am not disputing or discussing the growth inEV’s, but the lithium market is relatively small, there is plenty of lithium inthe world & resources/reserves are increasing much faster than lithium consumptionin EV’s. Investors in ASX listed hard rock lithium miners are investing in arelatively simple concept. The companies will only make money if they can selllithium concentrates produced for more than it costs to produce them. CurrentlyASX listed spodumene producers PLS, AJM & GXY are losing money at theirrespective operations. Put simply current prices received for spodumeneconcentrate don’t cover the costs (including operating, sustaining capex &exploration etc) of mining, processing & transportation to market. Thelithium producers I have mentioned have been hit by a combination of factorswhich have resulted in falling margins, margins which are currently negative.These factors are numerous & include metal recovery rates below forecast,high impurity levels in concentrate, relatively low grade ore bodies(incomparison to Talison Lithium Pty Ltd Greenbushes mine), a falling price forlithium products (still in progress) & customers deferring the delivery ofconcentrate. It is possible that some producers will be rescued by corporateactivity eg WES offering an exorbitant price for KDM, but in the absence ofthis I believe that shareholders of AJM,PLS & GXY have further pain coming.Cash low levels in some cases will likely reduce to a point where equityraisings or a corporate rescue are necessary. Ask yourselves this simplequestion, if this was such a good business to be in, why would PLS have toborrow money (US$100m bond) at a 12% interest rate in the current low interestenvironment. The risks are sizeable & in my view while the initial investors/promotersin these companies made very good money, the current shareholders caught in theheadlights of the EV revolution are in the midst of a rude awakening.