REG - European Lithium Ltd - Response to ASX Query
European Lithium Ltd
("European Lithium", "EUR" or "the Company")
Response to ASX Query
European Lithium Limited (ASX: EUR, FRA: PF8, VSE: ELI, NEX: EUR) (the "Company") today responded to queries from the Australian Securities Exchange ("ASX"). A copy of the responses can be seen below and the full ASX announcement can be seen at: https://www.asx.com.au/asx/share-price-research/company/EUR
The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014
For further information please contact:
European Lithium Ltd
+61 861 819 792
Tony Sage
NEX Corporate Adviser
+44 207 220 1666
James Joyce
James Sinclair-Ford
Capitalised terms have the meaning given in the letter.
Below are ASX's queries and EUR's responses:
1. Is EUR able to confirm that in the Directors' Opinion the Half Year Accounts:
(a) comply with the relevant Accounting Standards; and
(b) give a true and fair view of EUR's financial performance and position?
Yes.
EUR confirms that in the Director's opinion the Half Year Accounts complied with the relevant Accounting Standards and gave a true and fair view of EUR's financial performance and position.
2. Please explain the basis for and the factors considered by the Directors to satisfy themselves that EUR could continue as a going concern. In answering this question, please comment specifically on what basis EUR's directors satisfied themselves that the $2m drawdown described in the March Quarterly Activities Information and Half Year Accounts would complete.
The factors considered by the Directors were as follows:
1. On 30 December 2019, EUR announced that it had entered into a EUR 7.5m financing facility with a Swiss based sophisticated investor introduced by Helvetican following the execution of a terms sheet. The debt facility was established to allow EUR to complete the DFS at the Wolfsberg Lithium Project in Austria. The 30 December 2019 announcement was approved by Helvetican prior to its release.
2. In February 2020 EUR and its lawyers engaged with Helvetican's lawyers (Allens) to prepare security documentation for the loan, with security to be provided by both EUR and its Austrian subsidiary.
3. Given the delays incurred in receiving funds under the Helvetican facility, the Company approached Winance to make a second drawdown on the Winance convertible note facility (refer to ASX announcement 31 July 2019 and 2019 notice of annual general meeting for terms of this facility). The drawdown for $2m was agreed on or about 28 February 2019 and the formal request delivered to Winance on 4 March 2020 (i.e. prior to the Board approving the 31 December 2019 accounts). EUR issued the Appendix 3B and Cleansing Statement after being told by Winance that the funds had been transferred.
3. Does EUR consider that its level of operations is sufficient to warrant continued quotation of its securities on ASX as required under listing rule 12.1? In answering this question:
3.1 please explain the basis for this conclusion; and
3.2 please comment on the nature of the EUR's current business activities.
Yes.
The principal activity of the Company is lithium exploration at its Wolfsberg Lithium Project located in Austria.
Exploration and evaluation expenditure incurred by the Company in developing the Wolfsberg Lithium Project for the 9 months ended 31 March 2020 totaled approximately $2,597k.
Activities undertaken by the Company in the current financial year mainly relate to the advancement of the Definitive Feasibliity Study (DFS) as well as work undertaken by Dorfner/Anzaplan in completing the metallurgical test work to assess and optimize the process lines, flowsheets and layouts. Further details on the activities are documented in the Half Year Accounts and the March 2020 Quarterly Activities Report.
As reported in the March 2020 Quarterly Activities Report, the Company has temporarily suspended its operations at the Wolfsberg Lithium Project as a result of restrictions imposed due to the COVID-19 pandemic.
The Board also notes that the Company currently has a market capitalisation of approximately $26m.
4. Does EUR consider that the financial condition of EUR is sufficient to warrant continued listing on ASX as required under Listing Rule 12.2? In answering this question, please also explain the basis for this conclusion.
Yes.
As at 31 December 2019, EUR had $35.5 million in Total Assets and $2.73m in Total Liabilities. The Board's view is that the relative size of EUR's liabilities to assets is low. As highlighted in the Half Year Accounts (see note 1 'going concern' on page 11), EUR's ability to continue as a going concern is dependent on raising further capital. Until recently, EUR was continuing to engage in discussion with Winance regarding the convertible loan note facility and timing as to receipt of those funds. Simultaneously and with more focus given the status of the Winance facility, the Board is currently assessing two alternative funding arrangements to allow urgent funding and also to defer certain supplier payments along with the potential conversion of debt to equity. The Company expects to conclude these negotiations shortly and if terms are agreed to announce further funding.
5. If the answer to questions 3 or 4 is "No", please explain what steps EUR has taken, or proposes to take, to warrant continued listing on ASX under the requirements of Listing Rules 12.1 and 12.2.
Not applicable.
6. In relation to the Half Year Accounts, did the Board receive the CFO and CEO declaration, as described in section 4.2 of EUR's Corporate Governance Disclosure, that in the opinion of the CFO and CEO, the financial records of EUR have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of EUR and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively?
Yes.
7. If the answer to Question 6 is 'no', why did the Board not receive the CEO and CFO declaration as described in section 4.2 of EUR's Corporate Governance Disclosure?
Not applicable.
8. What enquiries did the Board make of management to satisfy itself that the financial records of EUR have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of EUR?
Based on the current size of EUR and its operational structure, the Board also effectively represents managements. EUR maintains control to facilitate the preparation of a reliable financial report and the Board had consideration to these controls when making enquiries in the ordinary course of business sin respect to EUR's financial records. This includes the Board obtaining a CEO and CFE declaration as noted in the answer to question 6. In addition to the existing processes in place, the Board amongst other things, sought all relevant financial records and related data, other information and necessary explanations to reasonably confirm that these were property maintained in accordance with the appropriate accounting standards and that the financing records give a true and fair view of the financial position and performance of EUR. In addition, the Boards reviews the reports (addresses to the Board) provided by its external auditors, prior to signing off the Half Year Accounts.
9. Commenting specifically on the material uncertainty related to going concern, does the board consider that EUR has a sound system of risk management and internal control which is operating effectively?
Yes.
10. Commenting specifically on the Facility, what are the material terms relating to the timing and issuance of drawdown notices and timing and obligations to advance funds under the Facility?
In accordance with clause 3.1 of the Facility, on 4 March 2020 EUR delivered a formal request for $2m to Winance. Winance agreed to the request and in accordance with clause 3.2 of the Facility was required to transfer the Subscription Price (as defined in the Facility) by no later than the business day after the request.
Under clause 3.3, EUR was required to issue the notes within 1 business day of receiving the funds.
11. Please separately provide a copy of the Facility to ASX (not for release to market).
A copy of the Facility is attached. I note the agreement is confidential and not to be released.
12. Commenting specifically on the Tranche 2 Announcement, the Appendix 3B, the Cleansing Statement, the April Update, the March 2020 Quarterly Activities Information and the Appendix 5B Information:
12.1 Why have the funds pursuant to the A$2m drawdown referred to in the Tranche 2 Announcement not been received? In answering this question, please provide detail of the communication(s) with Winance.
Subsequent to the release of the March Quarterly Activities Information, the Company received notification from Winance that whilst it had instructed its bank to transfer funds to EUR, the bank had been prevented from doing so.
EUR has advice that WInance is obliged to transfer funds to EUR. However, EUR is reluctant to enforce its rights without first exploring other funding opportunities as it wishes to reserve its relationship with Winance.
12.2 When does EUR expect to receive the funds pursuant to the A$2m drawdown referred to in the Tranche 2 Announcement?
The Company is confident that funding will be received under the Winance facility once the markets stabilize post the impact of the COVID-19 crisis.
12.3 Please confirm whether EUR has issued the Convertible Notes (the subject of the Appendix 3B and Cleansing Statement) in circumstances where it appears that EUR has not received funds pursuant to the drawdown notice referred to in the Tranche 2 Announcement? If the answer to this question is affirmative and EUR has issued the Convertible Notes, please confirm when the Convertible Notes were issued.
EUR issued the Appendix 3B and Cleansing Statement in anticipation of receiving the funds and having been told by Winance that the funds would be transferred. However, as the funds were not received, no Convertible Notes have been issued.
12.4 Given that the Facility Announcement states that further drawdowns under the Facility are subject to prior shareholder approval, does EUR intend on obtaining any shareholder approval for the drawdown referred to in the Tranche 2 Announcement?
EUR intents to obtain shareholder approval to ratify the issue as soon as reasonably practicable and once funds are received.
12.5 What steps does EUR intend to take if the A$2m of funds referred to in the Tranche 2 Announcement are not received by EUR in a timely manner such that EUR can only fund less than 2 quarters (as disclosed in the March 2020 Quarterly Activities Information)?
Given the delays incurred in receiving the funds under the Winance facility, EUR has taken steps to raise further capital from alternative sources and is currently in negotiations with two parties. In addition, the Company is seeking agreement with certain creditors to defer debts and is considering undertaking a rights issue to existing shareholders.
Furthermore, the Company has deferred, and reduced where possible, certain exploration related expenditure and overhead costs.
13. Please confirm that EUR is complying with the Listing Rules and, in particular, Listing Rule 3.1.
EUR confirms that it is in compliance with the Listing Rules, and in particular, Listing Rule 3.1.
14. Please confirm that EUR's responses to the questions above have been authorised and approved under its published continuous disclosure policy or otherwise by its board or an officer of EUR with delegated authority from the board to respond to ASX on disclosure matters.
EUR confirms that the above responses have gone through the required Board approval process.
Regards,
----------------------------------------------
For and on behalf of the EUR Board,
Tony Sage
Non-Executive Chairman
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