Mr. Martin Perez de Solay reports

JUNE 2022 QUARTERLY ACTIVITIES REPORT

Allkem Ltd. has provided an update on its global lithium portfolio, business activities and financial position (1) as at June 30, 2022.

Highlights

Operations:

• Mount Cattlin achieved record financial year production of 193,563 dry metric tonnes (dmt) of spodumene concentrate in fiscal 2022.
• In the June quarter, 24,845 dmt of spodumene concentrate were produced, and 37,837 dmt were shipped, generating record revenue of $188.9-million (U.S.) with a gross cash margin of 84 per cent based on cost of production and average pricing of $4,992 (U.S.) per dmt CIF for SC 5.4 per cent.
• Customer demand in the spodumene market remains robust, and spodumene concentrate pricing in the September quarter is expected to be higher than the June quarter.
• Annual production at the Olaroz lithium facility (2) reached a new record of 12,863 tonnes of lithium carbonate for fiscal 2022, 47 per cent of which was battery-grade material in line with targets.
• During the quarter, production and sales of lithium carbonate were 3,445 tonnes and 3,440 tonnes, respectively. This generated record revenue of approximately $141-million (U.S.) with a gross cash margin of 90 per cent based on average pricing of $41,033 (U.S.) per tonne FOB (3) (45 per cent battery-grade lithium carbonate).
• The lithium carbonate sales price for the September quarter is expected to remain similar to that of the June quarter.

Development projects:

• Olaroz Stage 2 reached 88-per-cent completion with first production expected in late second half calendar year 2022. Total Allkem resources at the Olaroz and immediately adjacent Cauchari basins are now 22.5 million tonnes LCE in all resource categories, making it one of the largest lithium resources in the world.
• At Naraha, plant commissioning activities including water testing have been undertaken, and first production is expected by late September.
• The first pond at Sal de Vida (SDV) Stage 1 is complete and filled with brine. Construction of the first two strings of ponds has reached 32-per-cent completion with first production expected in second half calendar year 2023. During the quarter, the SDV development plan was restated with a 40-per-cent increase in production to 45,000 tonnes per year in two stages. A 10-per-cent increase in the resource to 6.85 Mt LCE has also been defined.
• At James Bay, the clarification process for the ESIA (environmental and social impact assessment) continues at both provincial and federal levels in conjunction with the Cree Nation.

Financials and corporate:

• Strong operating performance and high sales prices have delivered record group revenue (4) for the quarter of approximately $337-million (U.S.) and a group gross operating cash margin (1) of approximately $292-million (U.S.) (approximately 67 Australian cents per share for the June quarter).
• Group revenue for fiscal 2022 (including Mount Cattlin from the merger date, Aug. 25, 2021) was $762-million (U.S.), and group gross operating cash margin for the same period was approximately $594-million (U.S.) (excluding corporate and other non-operating costs).
• At June 30, group cash (5) was $663.2-million (U.S.), an increase of $213.1-million (U.S.) from March 31, 2022.
• Strong cash flow and a robust balance sheet are expected to finance delivery of an aggressive growth strategy to increase production threefold by 2026 and to maintain 10-per-cent market share. The increase in production will be underpinned by the forecast growth in demand needed for the transition to electric vehicles.
• The business is entering a period of significant growth with Olaroz Stage 2 and Naraha to begin production later this year, Sal de Vida to commence production in 2023, and James Bay in 2024.
• Three new senior executives have joined the business in project development, sustainability and sales/marketing to support delivery of the growth strategy.

Sustainability

In June, Allkem became a constituent company in the FTSE4Good Index Series. The FTSE4Good is designed to identify companies that demonstrate strong environmental, social and governance (ESG) practices measured against globally recognized standards.

Allkem also achieved the highest available comprehensive rating in the Australian Council of Superannuation Investors (ACSI) annual detailed assessment of ESG reporting in ASX200 companies. This rating acknowledges continuing reporting of material ESG risks and mitigation strategies, and transparency in reporting targets and performance. Established in 2001, ACSI provides a strong, collective voice on ESG issues on behalf of its members, including 29 Australian and international asset owners and institutional investors managing more than $1-trillion in assets.

The respectful workplace behaviour program was rolled out to all Australian-based personnel, including all employees and contractors at the Mount Cattlin operation. In partnership with Allkem's employee assistance provider, 17 workshops have been conducted covering areas such as psychosocial hazards, sexual harassment, discrimination and bullying.

Safety performance

Allkem achieved its best results since the merger with a total recordable injury frequency rate of 2.6 recorded at the end of the June quarter, a 23-per-cent improvement from the prior quarter and a lost-time injury frequency rate of 1.0 for the rolling 12 months. Two separate recordable injuries occurred during the quarter at the Mount Cattlin operations. Both contractor employees have fully recovered and returned to work, and investigations have been completed with corrective actions implemented.

There was an increase in reported significant potential incidents at operations over the quarter, indicating reporting maturity and improving recognition of near-miss events as serious incidents. A critical control management program was implemented at Mount Cattlin, and Sales de Jujuy continued the implementation of a behavioural-based safety module.

COVID-19 response

COVID-19 cases impacted the Mount Cattlin mine site over the quarter with the peak caseload of the Omicron variant in Western Australia occurring in May. Contractors and personnel followed site biosecurity protocols, which were updated in line with government recommendations.

Biosecurity protocols across the global operations remained in place, and the impact of COVID-19 diminished proportionally to those countries' case numbers.

Community and shared-value program

Allkem is committed to regularly engaging with community stakeholders across all operations and providing positive and lasting benefits to the communities it works with.

The shared value team in Argentina provides long-term value to the local communities through initiatives based on five pillars: empowerment, transparency, education, health, and local production and natural resources. Community engagement and consultation continue at each project. Initiatives continued during the quarter, including education around the construction of the Sal de Vida project and technical and leadership training in both textiles and plumbing.

The James Bay project is also maintaining regular engagement with community stakeholders as part of the environmental and social impact assessment and impact and benefit agreement (IBA) process, with the ultimate objective to ensure long-term benefits to the communities. Various consultations are organized with the Cree communities (Eastmain, Waskaganish and Waswanipi) and the community special group (school board, Apatisiiwin skill development) to support training of local community members who want to work at the project and the Wabannutao Eeyou Development Corp. of Eastmain to discuss potential partnership and business development opportunities.

Operations

Mount Cattlin

Spodumene concentrate

Ravensthorpe, Western Australia

Production

During the June quarter, 24,845 dmt of spodumene concentrate were produced at 5.3-per-cent-Li2O grade and within customer specifications, which contributed to record-breaking financial year production of 193,563 dmt averaging 5.6-per-cent-Li2O grade.

Mining activities focused on transitioning the source of ore from the 2NE pit to the 2NW pit, where prestripping work continues. Recovery of approximately 42 per cent was lower quarter on quarter (QoQ) due to increased processing of stockpiled ore that contains basalt; however, average fiscal 2022 recovery of approximately 56 per cent was in line with full-year guidance. Additional laser ore sorters have been installed to lower basalt content and improve plant performance. Magnetic separators will be operational by the end of the quarter, which will further improve basalt separation from ore feed.

Mining capacity will be increased by the end of August from 750,000 to one million bank cubic metres per month with mobilization of larger trucks/excavator by the current contractor and the addition of third party mining services. This will provide flexibility and further options to ensure delivery of budgeted mining volumes. These initiatives will assist and enable a ramp-up in ore production sourced from the 2NW pit from the end of the September quarter to achieve full-year guidance.

Sales and financial performance

A total of 37,837 dmt of spodumene concentrate were shipped during the quarter at an average grade of 5.4 per cent Li2O, generating revenue of $188.9-million (U.S.) at an average realized sales price of $4,992 (U.S.) per tonne CIF.

Cost and margins

The FOB cash cost of production for the quarter was $803 (U.S.) per tonne, which resulted in a gross cash margin for the quarter of 84 per cent or $4,189 (U.S.) per tonne (approximately $159-million (U.S.)). Cash costs were higher QoQ due to lower production volumes, lower recovery and increased stripping ratio; however, fiscal 2022 cash cost of $401 (U.S.) per tonne was in line with full-year guidance.

Fiscal 2023 production and sales outlook

Forecast spodumene production for fiscal 2023 is approximately 160,000 to 170,000 tonnes per year.

Customer demand in the spodumene market remains robust, and spodumene concentrate pricing in the September quarter is expected to be higher than the June quarter.

Costs in fiscal 2023 will be higher than fiscal 2022 due to the continuing development of the 2NW pit, lower production volumes, higher strip ratio, the decrease of ore grades from 1.24 per cent in fiscal 2022 to 0.93/0.94 per cent and associated lower recoveries. Ore grades in fiscal 2024 are expected to be 1.17 per cent. Costs also remain high due to the continuing impact of COVID-19 in Western Australia and the competition for skilled labour. Work force retention programs are being developed to mitigate the impact of employee turnover.

Resource extension drilling

Allkem commenced a three-phase resource extension program in mid-April of 147 holes for 32,685 metres of reverse circulation (RC) drilling with the aim of a multiyear mine life extension.

Drilling in the first two phases will target the immediate extension to mine life at depth. The first phase is aimed to convert 3.2 million tonnes of inferred to indicated resource category, and the second phase will test two pegmatite lenses along strike and at depth in conjunction with a scoping study to evaluate either the open-cut or underground development of potential resource extensions.

As of June 30, 37 holes and 8,690 metres of drilling had been completed, and an update on results will be provided later in the September quarter. The current drilling program is expected to be complete toward the end of calendar year 2022.

Olaroz lithium facility

Lithium carbonate

Jujuy province, Argentina

Production

Production for the June quarter was 3,445 tonnes, up 4 per cent from 3,300 tonnes in the previous corresponding period (PCP). Battery-grade lithium carbonate production for the quarter was 45 per cent.

Sales and financial performance

Quarterly product sales of 3,440 tonnes of lithium carbonate included 45 per cent of battery grade, in line with customer requirements. The sales volume was up 35 per cent from the PCP and up 9 per cent QoQ.

Total sales revenue of approximately $141-million (U.S.) was up 64 per cent QoQ and up 553 per cent from the PCP. The average price received was up 51 per cent QoQ to $41,033 (U.S.) per tonne on an FOB (2) basis, reflecting the very strong market conditions.

Cost and margins

Cash cost of goods sold for the quarter was $4,301 (U.S.) per tonne with higher energy, labour and reagent costs in addition to Argentine inflation (approximately 17.3 per cent) outrunning currency devaluation (approximately 12.8 per cent) over the quarter. Gross cash margin for the quarter was 90 per cent or $36,732 (U.S.) per tonne.

Lithium carbonate pricing

The lithium carbonate sales price for the September quarter is expected to remain similar to the June quarter.

Stage 2 expansion

Construction of the Olaroz Stage 2 lithium facility is progressing well. Commissioning of individual project modules is continuing as they are completed. First production is expected in late second half calendar year 2022.

By the end of June, 2022, overall physical progress is approximately 88 per cent. Twelve of 15 wells are now operating, and the remaining three wells are scheduled for completion in July. Evaporation ponds are complete and commissioned. Lime plant No. 3 is in the final stages of precommissioning with start-up scheduled for the end of July. Lime plant No. 4 is expected to be complete by September. Soda ash facilities reached 88-per-cent completion with the plant expected to be commissioning in September. Carbonation plant works progressed further and will be completed in the December quarter.

Borax Argentina

Boron minerals

Salta-Jujuy province, Argentina

Sales in fourth quarter fiscal 2022 were up strongly to 15,185 tonnes of boron minerals and refined products, which represent a quarterly increase of 25 per cent and an increase of 36 per cent from the PCP. Total sales revenue was up 24 per cent QoQ and up 66 per cent from the PCP with higher sales volume. Average realized price fell 1 per cent QoQ due to a change in the sales mix but was up 22 per cent PCP.

Development projects

Naraha

Lithium hydroxide

Naraha, Japan

Construction of the Naraha lithium hydroxide plant in Japan is complete, and commissioning activities continue. Water testing has already been completed, as preparation for plant start-up is under way. First production is expected late September with minor delays being experienced due to travel and visa restrictions for commissioning personnel, and extended testing following the previously reported earthquake damage from March 16.

Sal de Vida

Lithium carbonate

Catamarca province, Argentina

Sal de Vida is designed to produce 45,000 tonnes per year of predominantly battery-grade lithium carbonate through an evaporation and processing operation at the Salar del Hombre Muerto site. Development is being undertaken in two stages with Stage 1 targeting a 15,000-tonne-per-year production capacity and Stage 2 an additional 30,000 tonnes per year.

Project execution

Construction of the first two strings of ponds for Stage 1 has now reached approximately 32-per-cent completion with the first pond now completed and filled with brine. Project execution in second half calendar year 2022 will focus on commissioning the first string of operational ponds, commencing construction of the carbonation plant and progressing toward operational readiness.

Camp expansion has progressed with additional beds installed and procurement for an additional 300 beds to increase the total capacity to 900.

Procurement for other long-lead items and the tendering process for a 30-per-cent photovoltaic energy solution have also advanced. Further engineering and permitting continue for the third string of ponds, which reflects the increased production capacity of Stage 1.

The Stage 1 schedule is targeting first production in second half calendar year 2023 with brine evaporation occurring during plant construction, allowing evaporated brine to feed the plant once commissioned.

It is proposed that once the commissioning of Stage 1 commences, the development of Stage 2 will occur sequentially.

James Bay

Spodumene concentrate

Quebec, Canada

James Bay is designed to produce approximately 320,000 tonnes per year of spodumene concentrate through a mine and concentrator utilizing hydro power over a project life of 19 years.

Project execution

Allkem is targeting construction activities to commence in first quarter calendar year 2023 with commissioning in late first half calendar year 2024. To achieve these milestones, key focus areas for calendar year 2022 include:

• Further engineering activities to finalize design, equipment and plant configuration;
• Procurement of equipment, temporary installations and key contracts;
• Provision of budget and detailed planning to allow construction to commence on time;
• Development of sustaining initiatives for local stakeholders;
• Progression of the ESIA, IBA and regulatory approvals.

Detailed engineering progressed alongside procurement activities during the quarter, including awarding key equipment packages (temporary camps, primary substation and process equipment).

The clarification process for the ESIA continues at both provincial and federal levels in conjunction with the Cree Nation government despite the lengthy strike of Quebec government engineers during the quarter. Efforts were made to minimize the impact of the Quebec engineer strike on the clarification process, and meetings with both the provincial and federal government are planned in July to review the information provided.

Lithium market

Demand

Demand for lithium chemicals and spodumene concentrate remained strong during the quarter, despite temporary COVID-19 lockdowns experienced in China and associated supply chain disruptions.

Electric vehicle (EV) sales for the June, 2022, quarter were estimated at approximately 2.2 million units, up approximately 50 per cent compared with the PCP. EV sales in China alone were estimated at approximately 1.3 million units during the quarter, representing an approximately 90-per-cent increase from the PCP.

Demand for lithium chemicals in China within the battery supply chain saw a soft start in the June quarter due to lockdowns but subsequently bounced back strongly from May onward. EV battery installation volumes were estimated at approximately 52 gigawatt-hours during the quarter compared with approximately 29 gigawatt-hours PCP and in line with the March, 2022, quarter.

Dominance of LFP battery formats (lithium, iron and phosphate) continued in the Chinese domestic market during the June, 2022, quarter, representing approximately 55 per cent of battery chemistries.

Spot prices for lithium carbonate and hydroxide in China reduced by approximately 8 per cent and approximately 5 per cent, respectively, during the June quarter from all-time-high prices in March, 2022, in response to the slowdown of activities associated with temporary lockdowns. Outside of China, spot prices for lithium chemicals continued to rally, reaching parity with Chinese prices. Spodumene concentrate spot prices registered record highs, increasing more than 50 per cent QoQ, further reinforcing the tightness in the supply chain.

Contracted prices for lithium carbonate and spodumene were gradually adjusted up to reflect tight market conditions.

Supply

Estimated lithium chemical production in China was up by more than 20 per cent QoQ due to increased supply of mineral feedstock from local sources with improved weather conditions and higher spodumene concentrate imports from Australia.

Spodumene concentrate volumes shipped to China from Australia during the quarter were 50 per cent higher QoQ with brownfield expansions and restart of idled capacity. This incremental spodumene volume will mostly be consumed during second half calendar year 2022 and is expected to boost utilization rates of lithium chemical plants in China.

Interest from automakers in the lithium industry continued to increase with Chinese and western original equipment manufacturers investing and financing directly into lithium assets to secure supply.

The race to secure key critical materials has further intensified across the EV battery value chain.

Corporate and financials

Corporate

The executive team has been strengthened recently with the addition of several key personnel.

Karen Vizental has joined as chief sustainability and external affairs officer. She has extensive experience in multinational organizations such as Unilever and will lead corporate sustainability activities, including Allkem's journey to net zero emissions by 2035.

James Connolly has joined as chief project development officer. He has extensive operating and project development experience in the resource sector. He has previously held senior positions with Vale Base Metals and Barrick Gold Corp.

Christian Barbier joined the organization as chief sales and marketing officer. He has a long history in sales and marketing of industrial minerals, having held key positions with Iluka and Sibelco.

Christian Cortes has taken up the role of chief of staff, working closely with the chief executive officer after heading the sales and marketing function. He will utilize his vast knowledge of Allkem and the lithium industry to support the CEO in executing Allkem's growth strategy.

Financial position

At June 30, 2022, Allkem had available cash of approximately $663.2-million (U.S.), up $213.1-million (U.S.) from the balance at March 31, 2022 (5). Mount Cattlin contributed $233.9-million (U.S.) cash from operations (including $73.4-million (U.S.) related to a March shipment that was collected in early April) net of capital expenditures and working capital movements. Olaroz contributed $20.2-million (U.S.) cash from operations net of financing approximately $30-million (U.S.) of Stage 2 expansion project capital expenditure during the quarter. Cash spend related to Sal de Vida capex of $22.2-million (U.S.), James Bay development costs of $10.9-million (U.S.), Naraha project contributions of $2.9-million (U.S.), corporate costs of $3.9-million (U.S.) and net costs for other projects of $1.1-million (U.S.).

Amounts of $7.9-million (U.S.) and $83.9-million (U.S.) have been set aside as precompletion guarantees for the Naraha debt facility and the Olaroz expansion debt facility, respectively. The $83.9-million (U.S.) is available to Allkem to finance capex, value-added tax and working capital related to the Olaroz Stage 2 expansion, if required. The $40-million (U.S.) BNP Paribas debt facility remains fully undrawn with a current maturity of December, 2022.

Argentine economic conditions

The official foreign exchange rate depreciated by 12.8 per cent in the June quarter from 111.01 Argentine pesos at March 31, 2022, to 125.23 Argentine pesos at June 30, 2022, while inflation was approximately 17.3 per cent.

The accumulated devaluation of the Argentine pesos against the U.S. dollar for the 12-month period from July 1, 2021, to June 30, 2022, was approximately 31 per cent while inflation was approximately 64 per cent.

Competent person statement

Mount Cattlin

Any information in this announcement that relates to Mount Cattlin's mineral resources and ore reserves is extracted from the announcement entitled "Mount Cattlin Update" released on June 6, 2021, which is available to view on the Allkem website. The company confirms that it is not aware of any new information or data that materially affect the information included in the original market announcements and that all material and technical assumptions underpinning the mineral resources and ore reserves estimates in the relevant market announcement continue to apply and have not materially changed. The company confirms that the form and context in which the competent person's findings are presented have not been materially modified from the original market announcement.

Sal de Vida

Any information in this announcement that relates to Sal de Vida project mineral resources and ore reserves is extracted from the report entitled "Sal de Vida capacity increased to 45ktpa in two stages" released on April 4, 2022, which is available to view on the Allkem and Australian Securities Exchange websites. The company confirms that it is not aware of any new information or data that materially affect the information included in the original market announcements and that all material and technical assumptions underpinning the mineral resources and ore reserves estimates in the relevant market announcement continue to apply and have not materially changed. The company confirms that the form and context in which the competent person's findings are presented have not been materially modified from the original market announcement.

Any information in this announcement relating to Sal de Vida scientific or technical information, production targets, or forecast financial information derived from a production target is extracted from the ASX announcement entitled "Sal de Vida capacity increased to 45ktpa in two stages" released on April 4, 2022, which is available to view on the Allkem and ASX websites. The company confirms that all the material assumptions underpinning the scientific or technical information, production targets, or the forecast financial information derived from a production target in the original market announcement continue to apply and have not materially changed.

Olaroz

Any information in this announcement that relates to Olaroz project mineral resources is extracted from the report entitled "Olaroz resource upgraded 2.5x to 16.2 million tonnes LCE" released on April 4, 2022, which is available to view on the Allkem and ASX websites. The company confirms that it is not aware of any new information or data that materially affect the information included in the original market announcements and that all material and technical assumptions underpinning the mineral resources estimates in the relevant market announcement continue to apply and have not materially changed. The company confirms that the form and context in which the competent person's findings are presented have not been materially modified from the original market announcement.

Any information in this announcement relating to Olaroz scientific or technical information, production targets, or forecast financial information derived from a production target is extracted from the ASX announcement entitled "Olaroz resource upgraded 2.5x to 16.1 million tonnes LCE" released on April 4, 2022, which is available to view on the Allkem and ASX websites. The company confirms that all the material assumptions underpinning the scientific or technical information, production targets, or the forecast financial information derived from a production target in the original market announcement continue to apply and have not materially changed.

Cauchari

Any information in this release that relates to Cauchari project mineral resources and ore reserves is extracted from the release entitled "Cauchari JORC Resource increases to 4.8 million tonnes Measured + Indicated and 1.5 million tonnes Inferred LCE" released on March 7, 2019, which is available to view on the Allkem and ASX websites. The company confirms that it is not aware of any new information or data that materially affect the information included in the original market announcements and that all material and technical assumptions underpinning the mineral resource and ore reserve estimates in the relevant market announcement continue to apply and have not materially changed. The company confirms that the form and context in which the competent person's findings are presented have not been materially modified from the original market announcement.

(1) All figures are unaudited and contain non-international financial reporting standard metrics. Gross operating cash margin is calculated as revenue less cash cost of goods sold, freight and insurance.

(2) All figures are 100-per-cent-Olaroz-project basis.

(3) FOB (free on board) excludes insurance and freight charges included in CIF (cost, insurance and freight) pricing. Therefore, the company's FOB reported prices are net of freight (shipping), insurance and sales commission.

(4) Revenue excludes tantalum sales from Mount Cattlin.

(5) Previous quarterly ASX releases excluded partially owned subsidiaries' available cash balances from the disclosed group cash balance. The increase in group cash balance factors in SDJ's cash balance at March 31, 2022, of $28.8-million (U.S.).

We seek Safe Harbor.