Mr. Martin Perez de Solay reports

MARCH 2023 QUARTERLY ACTIVITIES REPORT

Allkem Ltd. has provided an update on its global lithium portfolio, business activities and financial position (1) as at March 31, 2023.

Highlights

Operations:

• The Olaroz lithium facility (2) achieved production of 4,102 tonnes of lithium carbonate, up 38 per cent on the previous corresponding period (PCP) and a new record for a March quarter.
• Lithium carbonate sales were 2,904 tonnes, generating record Olaroz quarterly revenue of approximately $159-million (U.S.) with a record gross cash margin of 91 per cent or $47,814 (U.S.) per tonne.
• Excluding shipments to Naraha, third party lithium carbonate sales for the quarter averaged $53,175 (U.S.) per tonne (3) FOB, meeting guidance and up slightly from the December quarter.
• The weighted-average price for third party sales of lithium carbonate products in fourth quarter fiscal 2023 is expected to be approximately $42,000 (U.S.) per tonne subject to final sales allocation.
• Mount Cattlin produced 38,915 dry metric tonnes of spodumene concentrate at 5.3 per cent lithium oxide grade during the quarter, at approximately 2.3 times increase quarter on quarter. Recovery of 60 per cent demonstrates significant improvement in grade and favourable mineralization as mining moves to more central zones of the main orebody.
• Spodumene sales of 21,553 dmt generated revenue of approximately $123-million (U.S.) (4) with a gross cash margin of 81 per cent based on an average sales price of $5,702 (U.S.) per dmt CIF for SC 5.2 per cent, which corresponds to approximately $6,500 (U.S.) per dmt on an SC6 CIF basis, up 8 per cent QoQ and above prior guidance. Pricing in the June quarter is expected to be approximately $5,000 (U.S.) per dmt CIF SC6.
• An additional $33-million (U.S.) of revenue was generated from sales of 54,064 dmt of low-grade spodumene concentrate.

Development projects:

• At Naraha, approximately 670 tonnes of lithium hydroxide produced during the quarter have been sold to third party customers. Work continues on product quality and operational improvements.
• Olaroz Stage 2 reached over 98.2-per-cent completion, with commissioning activities under way and first production expected in second quarter calendar year 2023.
• The Olaroz resource increased by 27 per cent to 20.7 million tonnes (Mt) of LCE following expansion drilling in the south and inclusion of the recently acquired Maria Victoria property.
• The first two strings of ponds at Sal de Vida (SDV) Stage 1 reached over 92-per-cent completion, and engineering of the third string has reached over 78-per-cent completion.
• At James Bay, the federal government approved the environmental and social impact assessment. Comex approval (Quebec government and Cree Nation), agreement of the IBA and procedural construction permitting remain in progress.

Financials and corporate:

• Group revenue for the quarter was $315-million (U.S.), and group gross operating cash margin (1) was approximately $269-million (U.S.) (85 per cent).
• At March 31 group net cash (5) was $577.9-million (U.S.), up $25.9-million (U.S.) from Dec. 31 2022.
• Progress continues on a proposed project finance facility of up to $200-million (U.S.) for the Sal de Vida project by the International Finance Corp.
• Christian Cortes was appointed as acting chief financial officer after the passing of Neil Kaplan.
• Twenty-two million dollars (U.S.) of interest was paid on shareholder loans from Olaroz to Allkem and Toyota Tsusho.
• During the quarter, TLC (Naraha) received the Japanese government subsidy toward the construction of Naraha of three billion Japanese yen (approximately $23-million (U.S.)), which was utilized to repay borrowings.

Sustainability

Allkem continues to focus on a long-term commitment to environmental and social performance and transparent reporting across its operations and growth projects. In February, Allkem was included in the 2023 edition of the S&P Global sustainability yearbook. This means that Allkem's corporate sustainability assessment score is in the top 15 per cent of the industry.

Human capital -- safety performance

Allkem recorded a 12-month moving average total recordable injury frequency rate of 1.72 (per million hours) at the end of March, a 9-per-cent improvement QoQ. The 12-month moving average lost-time injury frequency rate was 0.37 (per million hours).

Four recordable injuries were incurred by contractors during the quarter: two at Mount Cattlin (restricted work injury and medical treatment injury) and two at Sal de Vida (lost-time injuries). Investigations have been carried out, and corrective actions have been implemented.

As part of Allkem's strategic improvement program, field-critical control checks and a safety perception survey are under way at Mount Cattlin. A behavioural-based safety program has been initiated both at Olaroz and Sal de Vida, which encourages workers to actively participate in the detection and correction of safety deviations.

Decarbonization -- net-zero commitment

Allkem continues to investigate the most efficient pathway to net-zero Scope 1 and 2 operational greenhouse gas emissions. The company's net-zero task force has identified six projects to date that are being further evaluated for inclusion in Allkem's net-zero action plan.

Natural capital -- impact assessment

In January, Allkem received federal government approval for the James Bay ESIA, determining that the project's environmental mitigation measures provide a sustainable path for the project to proceed. During the quarter, the company progressed the environmental plans under the conditions of the approval in partnership with the communities of Waskaganish, Waswanipi and Eastmain.

Participatory environmental monitoring was also carried out for the Olaroz project during February with representatives from five local communities taking part.

Shared value -- community initiatives

Allkem is committed to building shared value with community stakeholders across all operations and projects. During the quarter, Allkem participated in the Olaroz Chico lithium festival along with other businesses, local communities and government representatives. The festival showcased initiatives such as the local greenhouse projects developed in partnership with Allkem's shared value team. Workshops to promote regional skill development were also held in the Antofagasta de la Sierra community near the Sal de Vida project.

The Mount Cattlin community consultation group continues to identify opportunities to create shared value with representatives from the Ravensthorpe and Hopetoun communities. Applications for a further round of the pitch your project initiative were received and evaluated during the quarter.

Operations

Olaroz lithium facility

Lithium carbonate

Jujuy province, Argentina

Production

Production for the March quarter was 4,102 tonnes, up 38 per cent on the previous corresponding period. Approximately 65 per cent of production was technical grade.

Product quality remains high, reflecting excellent plant reliability, low downtime and improved energy efficiency with better operating practices and high brine feedstock concentration.

Sales and financial performance

Quarterly product sales volume was down 7 per cent QoQ to 2,904 tonnes of lithium carbonate, of which 39 per cent was battery grade. Sales were lower than production due to the deferral of volumes allocated to Naraha, significantly higher-than-expected production from Olaroz Stage 1 and a decision later in the quarter to withhold spot sales into the Chinese market, which currently does not reflect underlying supply/demand fundamentals.

Total sales revenue was a record approximately $159-million (U.S.), including $5.7-million (U.S.) related to sales of a lithium carbonate byproduct. The average price received from third party sales was $53,175 (U.S.) per tonne on an FOB (2) basis, in line with the previous quarter.

Cost and margins

Cash cost of goods sold for the quarter was $4,924 (U.S.) per tonne, up 5 per cent from prior quarter, mainly due to the expiry of export incentives during the quarter. Cost of sales has increased over the last year due to material increases in the price of soda ash, lime, natural gas and employment costs from increased head count, and inflation/devaluation impacts.

Gross cash margin for the quarter was 91 per cent or $47,814 (U.S.) per tonne.

Lithium carbonate pricing

The weighted-average price for third party sales of lithium carbonate products in fourth quarter fiscal 2023 is expected to be approximately $42,000 (U.S.) per tonne subject to final sales allocation.

Stage 2 expansion

Overall construction of the Olaroz Stage 2 lithium facility reached 98.2-per-cent completion by the end of the March quarter. All evaporation ponds, lime plants, soda ash handling and infrastructure are complete.

The carbonation plant reached 94-per-cent overall completion with over 97 per cent of mechanical equipment installed and 100 per cent of building structures and foundation equipment completed. Electromechanical interconnecting activities continue in the carbonation plant.

Precommissioning activities are under way within the carbonation plant, with full process plant commissioning under way and progressing through the June quarter.

Resource extension

The revised mineral resource estimate increased by 27 per cent to 20.7 Mt, comprising 7.6 Mt of measured resource, 7.1 Mt of indicated resource and six Mt of inferred resource.

The recently acquired Maria Victoria property in the north of Olaroz contributed 2.8 Mt of the increase in resources, with the rest of the upgrade relating to expansion of the resource to the south following completion of the expansion drilling.

The resource estimate is restricted to directly beneath the Olaroz salar surface, except for the area at the south, where influence from expansion hole E26 extends the resource beneath gravels to the west of the salar and toward the Cauchari resource.

Mount Cattlin

Spodumene concentrate

Ravensthorpe, Western Australia

Production

Grade control drilling was conducted earlier in the period to confirm the location and grade of ore that will be mined over the rest of second half fiscal 2023. Results from the drilling have confirmed expectations that production will increase as mining progressively moves from the upper end of the orebody into more central zones. The company anticipates that production for the June half will be approximately 80,000 to 90,000 tonnes with annual production of 114,000 to 124,000 tonnes.

In line with this guidance, 38,915 dmt of spodumene concentrate was produced at 5.3-per-cent-lithium-oxide grade in the March quarter, an approximately 2.3 times increase from the prior quarter. Recovery of 60 per cent demonstrates significant improvement in grade and favourable mineralization as mining moves to more central zones of the main orebody.

Sales and financial performance

The company shipped 21,533 dmt of spodumene concentrate during the quarter (with a further shipment occurring in the first week of April) at an average grade of 5.2 per cent Li2O. This generated revenue of $123-million (U.S.) at an average realized sales price of $5,702 (U.S.) per dmt CIF, an 8-per-cent QoQ increase, which corresponds to approximately $6,500 (U.S.) per dmt CIF on an SC6 equivalent.

An additional $33-million (U.S.) in revenue was generated from shipments of 54,064 dmt of low-grade spodumene concentrate.

Customer demand in the spodumene market remains robust, driven by lithium hydroxide requirements outside of China, and pricing has better resisted the spot price erosion observed in China on other lithium products. Pricing in the June quarter is expected to be approximately $5,000 (U.S.) per dmt CIF SC6.

Cost and margins

The FOB cash cost of production for the quarter was $1,033 (U.S.) per dmt of spodumene concentrate, which includes higher unit mining costs and increased amortization of prestrip expenses resulting in costs being similar to the prior quarter. The gross cash margin for the quarter was 81 per cent or approximately $99-million (U.S.). In addition, low-grade concentrate sales contributed approximately $26-million (U.S.) of gross cash margin.

Fiscal 2023 cash cost of production is forecast to be approximately $950 (U.S.) per tonne dmt FOB, recognizing the higher mining and prestrip expenses noted above.

Resource update

Subsequent to the end of the quarter, the mineral resource estimate for Mount Cattlin was updated, with 90 per cent of the resource now in the measured and indicated categories.

Further diamond drilling has been completed to support geometallurgical and geotechnical testwork to inform the Mount Cattlin mine life extension study, which aims to inform approvals and design of both potential open-cut and underground options. Initial results are expected by mid-calendar year 2023.

Development projects

Naraha

Lithium hydroxide

Naraha, Japan

Since successful first production of lithium hydroxide in late October, high product quality continues to be achieved, enabling approximately 670 tonnes of technical-grade lithium hydroxide to be sold to third party customers.

Operational focus continues to be on progressively increasing the product quality and consistency to allow commencement of customer qualification testing for battery-grade hydroxide. This is being done in preference to a focus on volume as high utilization rates have already been confirmed.

Sal de Vida

Lithium carbonate

Catamarca province, Argentina

Sal de Vida is expected 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 will be delivered in two stages with Stage 1 currently in construction targeting 15,000-tonne-per-year production capacity.

Project execution

Construction of the first two strings of ponds reached over-90-per-cent completion with the first eight ponds completed and filled with brine. The third string of ponds has reached over-80-per-cent completion in engineering. The main brine pipeline is complete, and eight out of 10 production wells have been commissioned. Brine evaporation will continue during plant construction to provide evaporated feed for future production.

Camp expansion activities and procurement for long-lead items continue. Detailed engineering on the process plant has advanced to 40-per-cent completion, and mobilization and delivery of precast foundations are occurring.

The contract for construction and supply of solar energy to meet 30 per cent of site power needs is in the final stages of negotiation.

Whilst many areas of the project such as bores, ponds and general infrastructure are well advanced, resourcing and procurement issues are potentially causing delays with the completion of the lithium carbonate plant. Allkem is working with its prime contractor and suppliers to ameliorate the impact of potential delays on the plant completion date, and will advise of any changes to the schedule once the work has been completed and mitigation measures have been put in place.

James Bay

Spodumene concentrate

Quebec, Canada

James Bay is designed to produce approximately 330,000 tonnes per year of spodumene concentrate, utilizing predominantly hydro power over a project life of 19 years.

Project execution

Detailed engineering continues alongside procurement activities, including ordering of key long-lead items and equipment packages (such as temporary camps, primary substation and process equipment).

Engineering progress achieved 65 per cent by the end of the quarter with engineering of the process plant package at 79 per cent. Procurement of mechanical process equipment, electrical equipment and mine mobile equipment is completed to 88 per cent, 82 per cent and 84 per cent, respectively, with receipt of vendor data continuing.

Hydro-Quebec completed the installation of the power line (weather-related critical work) to connect hydro power to the site. Allkem's key operational personnel has been recruited.

Permitting

Approvals by the joint assessment committee (federal government) of the ESIA were obtained in January. Comex approval (Quebec government and Cree Nation) of the ESIA, agreement of the IBA and procedural construction permitting remain in progress. As part of this process, two public hearing sessions took place in January, and the one-month public consultation period ended in late February.

Engagement remains positive with community stakeholders, including community consultations, meetings with key Cree stakeholders and discussions with the Eastmain community economic development branch to agree on local economic benefits.

Once permits are secured, construction will commence, and the company will update guidance for first production. Work is continuing with engineering contractors to progress alternative commencement dates and evaluate opportunities to accelerate the construction schedule, including use of prefabricated modules.

Resource drilling

Twenty-nine thousand metres of resource extension drilling has been completed, reflecting a 51-per-cent increase over original plans. The program was extended into April to take advantage of favourable weather conditions and high productivity of drilling activities. A resource update is also currently being prepared.

Lithium market

Demand

The first quarter of the calendar year is historically the slowest period of the year for lithium consumption due to adjustments to electric vehicle (EV) subsidy policy, seasonal destocking, scheduled maintenance outages and the lunar new year break in the world's largest market, China. During the quarter, demand continued to grow steadily in volume, albeit at a lower rate than expected and slower than what many had become accustomed to over the last few quarters.

In China, some EV original equipment manufacturers sought to gain market share through engaging in price discounting, which led consumers to delay purchases in the hope of further price reductions. The wait-and-see customer behaviour continued as internal combustion engine (ICE) vehicle OEMs pursued aggressive price reductions to destock inventory that would be in breach of emission targets being introduced in July, 2023. This slower-than-expected EV growth impacted the battery material supply chain, which had procured feedstock and built capacity in anticipation for a higher growth rate. As a result, inventory levels reached what has been perceived as high level but, in reality, is a more normalized situation. This is in contrast to the extremely low stocks held in 2022, especially considering the complex, geographically diverse and geopolitically risky lithium supply chain characteristics.

Despite recent volatility, the fundamentals underpinning lithium demand remain very strong: EV sales continued to grow during the March quarter, with notably Chinese EV sales increasing by 25 per cent year over year and sales in the United States and the European Union also posting strong growth and higher-than-expected penetration against ICE vehicles. Despite a slower start to the calendar year, global EV sales forecasts remain at approximately 14 million units, implying a steady acceleration during the rest of 2023. EV demand is strongly supported by government targets and policies, including the EU's parliamentary agreement that all new vehicles registered in Europe must be zero emission by 2035, and the more recently announced U.S. Environmental Protection Agency rule that will require up to 60 per cent of new car sales to be EVs by 2030 and 67 per cent by 2032.

Supply

Delays to additional supply materializing on time and on budget continued throughout the quarter. This reflects the complexity involved in expansion projects, irrespective of the supply being brownfield or greenfield, in hardrock or brines, upstream or mid-stream. Furthermore, consensus views on forecast supply appear optimistic in relation to qualification periods required for new production to be considered battery-grade material. Whilst additional lithium supply is expected to be brought on-line in the near to medium term, the quantum of the increase is likely to continue to lag relative to consensus views on timing. Recent news about the shutdown of independent Chinese lepidolite production due to costs being higher than the local spot price are a reminder of how exposed the supply chain can be when relying on high cost and technically challenging swing capacity.

Estimated lithium chemical production in China fell 4 per cent quarter on quarter, attributable to seasonal factors that have impacted demand. Spodumene concentrate volumes shipped to China from Australia for December to February, 2023, were 20 per cent higher compared with the PCP due to new supply from brownfield expansions and restarted idle capacity. However, spodumene supply remains tight despite production increases, with the majority of the product already locked under existing offtake arrangements or allocated for internal consumption by integrated producers.

Corporate and financials

Finance matters

Progress continues on a proposed project finance facility of up to $200-million (U.S.) for the Sal de Vida project by the International Finance.

Twenty-two million dollars (U.S.) of interest on shareholder loans was paid from Olaroz to Allkem and Toyota Tsusho.

Mr. Cortes was appointed as acting CFO after the passing of former CFO Mr. Kaplan in February.

Financial position

At March 31, 2023, group net cash (5) was $577.9-million (U.S.), up $25.9-million (U.S.) from Dec. 31 2022. Net cash generated from operations and corporate was $180.8-million (U.S.), capital expenditure and working capital movements was $122.1-million (U.S.), Naraha project cash generated was $21.7-million (U.S.) mainly due to the government subsidy, and payments of income tax were $54.5-million (U.S.). At March 31, 2023, Allkem had available cash of $751.7-million (U.S.).

The company has set aside $2.3-million (U.S.) and $76.7-million (U.S.) as guarantees for the Naraha debt facility and Olaroz expansion debt facility, respectively.

Competent person statement

Olaroz

Any information in this announcement that relates to Olaroz's mineral resources and reserves is extracted from the report entitled "Olaroz resource increases 27 per cent to 20.7 million tonnes LCE" released on March 26, 2023, which is available to view on the Allkem website and the Australian Securities Exchange 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 resource 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.

Mount Cattlin

Any information in this announcement that relates to Mount Cattlin's mineral resources and reserves is extracted from the report entitled "Mount Cattlin Resource Update with Higher Grade" released on April 17, 2023, which is available to view on the Allkem website and the ASX 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 resource 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 and exclude Borax as a discontinuing operation. Gross operating cash margin is calculated as revenue less cash cost of goods sold, freight and insurance (and excludes corporate and non-operating costs).

(2) All figures 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) Net cash includes Naraha cash balances and project loans at 75-per-cent interest and Olaroz cash deposits to secure project borrowing. Related-party loans are excluded.

We seek Safe Harbor.