Most people on this forum feel management have done a stellar job but got caught off guard by external forces, pushing them onto the legal path we're currently treading. I have a different opinion. My father was a geologist through and through; his passion lay in the meticulous work of core sampling, deciphering climate change patterns, and unravelling the timelines of past ice ages. However, when faced with fast-paced shifts, his analytical mind found it difficult to accept and adapt to change. During AVZ's early stages, when lithium prices remained low but stable, having a geologist like Nigel in charge seemed logical. However, as the lithium market spiralled into chaos, with prices skyrocketing from $450/t to $6,300/t, it became evident that we needed a CEO seasoned in navigating turbulent waters. We required someone who could adeptly manage relationships, tackle the unpredictability of rapid change, and steer the company through choppy waters. Geologists have their niche skills, but being a CEO is about more than just knowing your rocks. It's about having a full range of talents – from forward-thinking strategies to smooth communication, handling shareholders ‘expectations, being a team player, and navigating tricky business relationships. In my opinion, Nigel hasn't shown much in the way of these attributes. In regard to the Dathimor dispute, to get a better grasp of the mindset and expectations at that time, take a quick look at this 30-second segment from an interview I clipped with Nigel in mid-2020. VIDEO From this video, it's clear that Nigel anticipated lithium ore prices to climb from $450 per tonne to $700 per tonne. As he candidly expressed, this outlook was quite optimistic. However, fast forward just over two years from that point, and the reality is astonishing—the price skyrocketed to $6,300 per tonne. This sudden surge sent the sector into absolute madness, highlighting the critical need for adaptability in such a rapidly changing environment. The crucial point to consider is that these were not ordinary times; they were chaotic, with unprecedented fluctuations in the market. In such turbulent circumstances, it was imperative to take these factors into account when negotiating with Dathomir. If the roles were reversed and AVZ was the one selling the 15% stake, it's highly probable that they would have sought to renegotiate the terms given the astronomical market increases. In my view, the handling of the Dathimor deal was an absolute blunder and played a significant role in leading us into this mess in the first place. Dathomir timeline: On the 23rd of June2019 and the 16th of September 2020, when both SPAs were executed, AVZ's marketcapitalization stood at around 200 million. It seemed evident that bothDathomir and AVZ deemed 30 million (US 20M) a reasonable sum for a 15% stake inDathcom at that time. In the ensuing three-plus months after the execution of the 10% SPA on September 16, 2020, until January 4, 2021, AVZ's market capitalization soared from 210 million to 710 million, buoyed by positive announcements and the increasing price of lithium spodumene. It is reasonable to infer that Dathomir initiated negotiations with AVZ around this time to revise the price for the 15% stake in Dathcom. As indicated inAVZ's announcement “Update to Dathomir Dispute”released on the 2/11/23, AVZ stated: “ Subsequently,Dathomir asserted that the purchase prices under the 2019 SPA and 2020 SPAshould be re-assessed. Dathomir had no right to seek a reassessment of thepurchase prices”
AVZ refusal to negotiate probably prompted Dathomir to send a letter cancelling both SPAs inMay 2021.
AVZ seemingly disregarded the cancellation correspondence, perhaps banking on resolving the matter in court later. From my view, this approach was the beginning of management accepting that litigation was going to part of their strategy. Three months later, AVZ settled the outstanding balance of the SPAs and publicly announced the completion of the acquisition from Dathomir. Subsequently, 20 million was returned by Dathomir to AVZ just 9 days later on August 24th.Meanwhile, AVZ executed the share agreement transferring the 15% stake from Dathomir to AVZI. Comments
I find it perplexing why management chose to completely disregard Dathomir's request for renegotiation, leading to the subsequent cancellation of the SPAs. When the final SPA agreement was inked in September 2020, both the lithium price and AVZ's market capitalization had remained stable for several years. Neitherparty could have foreseen the explosive growth that occurred just a few months later, hence the absence of pre-conditions in the SPAs.
Even Nigel's expectations, as evidenced in the video clip above, hovered around the $700/t mark. Nobody anticipated the skyrocketing prices. AVZ had only paid 5%, and if they had settled the total SPA amount upfront, Dathomir would have had no grounds for negotiation. Imagine selling a car: the buyer pays you a 5% deposit and promises to pay the balance upon collection in three months. Over that period, the car's value triples. Would you not renegotiate with the buyer orcancel the deal? It's a natural response.
If Dathomir had requested an additional 20 million and AVZ had approached the market, explaining the extraordinary circumstances and the need to revaluate the deal's fairness, the market would likely have understood. The 75 million placement was oversubscribed by 20 million, so raising funds was not an issue. Ho wever, instead of acknowledging the changing circumstances and engaging in transparent communication, AVZ chose a different approach, effectively burying their heads in the sand and leading us down the path of litigation. The cancellation of the mining license, attributed in part to the fallout among Dathcom shareholders, underscores the amateurish handling of the situation by AVZ.
Had they been forthright and informed the market about the need to revaluate the purchase price for the 15% of Dathcom, things might have turned out differently. But now, the situation is far from fine, and it may never recover.
