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Hi-tech Ilion faces up to its Waterloo

By Nick Stride

Friday 11th June 2004

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"We're on the cusp of success but we're also on the cusp of failure."

For the 50-odd shareholders in lithium-battery materials-maker Ilion Technology who turned out for Wednesday's annual meeting, that was about as good a guide as they got to whether their investment would be worth something next year, or nothing.

The directors, pre-tech-wreck millionaire Murray Haszard, who owns 53% of the company, and Australia's Graham Brand, told shareholders frankly that, if the company didn't make its sales targets by Christmas, it would be dead.

They estimate the company will break even with production of 10 tonnes of lithium carbonate a month.

The company's position remains precarious.

Sales revenue for 2003 was just $905,000 while operating expenses were $3.9 million, down from $8.4 million in 2002.

A bottom-line loss of $2.7 million cut shareholders' funds to just $96,668.

Haszard told the 50-odd shareholders gathered in Auckland that the company would rely for funding until the end of the year on sales of its 650,000 shares in Lithium Technology Corporation.

Ilion was "well short of cash flow breakeven" but he remained optimistic it would get there, "if not this year, in the first few months of next."

One reason was a huge jump in the price of cobalt, which competes with lithium in the manufacture of batteries.

Over the past year cobalt had climbed from $US10 a pound to $US27. Lithium was also inherently safer.

Some Japanese companies had started offering products similar to Ilion's, he said. But it could be argued that the net effect was positive.

The fact other companies were recognising lithium's advantages sent a good signal, although Japanese customers tended to buy from Japanese suppliers where they could.

Hot off the press was news the South Korean government was backing an initiative to give Korean companies an incentive not to buy Japanese.

While Japan represented 92% of the lithium-battery market in 2000, Korea was expected to rise to 28% next year, Haszard said.

And that market had grown from $US2 billion in 2001 to $US3.5 billion last year, a 30% annual growth rate.

Manufacturing costs were falling steadily and technology was improving, allowing lithium batteries to be used in a greater range of applications, such as power tools.

Ilion had experienced an "unfortunate and embarrassing" problem during the year when two Korean customers had reported its cathode material had emitted gas during testing, due to a previously undetected impurity.

The problem, hopefully the last major technological obstacle, had now been fixed.

Feedback from 3M, Ilion's partner in a co-operative agreement, had been increasingly bullish and the agreement had been extended from June to the end of the year.

Haszard said the board and management were reluctant to go back to shareholders for more cash until the company was cashflow positive.

"The reality is that sales are going to take off in the next six months, or they're not," he said.

"If they do take off we'll be able to get funding for the company relatively easily."

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