Mr. Martin Perez de Solay reports

JUNE 2023 QUARTERLY ACTIVITIES REPORT

Allkem Ltd. has provided an update on its global lithium portfolio, business activities and financial position (1) as at June 30, 2023.

Highlights

Operations:

• The Olaroz lithium facility (2) achieved record annual production of 16,703 tonnes of lithium carbonate with a record 5,059 tonnes produced in the quarter, up 47 per cent on the previous corresponding period (PCP).
• Lithium carbonate sales were 3,430 tonnes, generating Olaroz quarterly revenue of approximately $132-million (U.S.) with a gross cash margin of 85 per cent or $32,172 (U.S.) per tonne.
• Excluding shipments to Naraha, third party lithium carbonate sales for the quarter averaged $38,062 (U.S.) per tonne (3) FOB.
• Mount Cattlin achieved annual production of 130,984 tonnes of spodumene concentrate, exceeding previous guidance with 58,059 dry metric tonnes at 5.3-per-cent-lithium-oxide grade produced during the quarter, an approximately 50-per-cent increase quarter on quarter (QoQ).
• Mount Cattlin recovery of 67 per cent demonstrates significant improvement in grade and favourable mineralization as the main orebody is mined.
• Spodumene sales of 46,787 dmt generated revenue of approximately $201-million (U.S.) (4) with a gross cash margin of 80 per cent based on an average sales price of $4,297 (U.S.) per dmt CIF (cost, insurance and freight) for SC 5.3 per cent, which corresponds to approximately $4,800 (U.S.) per dmt on an SC6 CIF basis.

Development projects:

• Olaroz Stage 2 achieved first wet production in mid-July with commissioning to continue and ramp up over the next 12 to 18 months.
• At Naraha, 464 tonnes of lithium hydroxide were sold, and after completing work on product quality and operational improvements, battery-grade qualification has commenced with customers in early July.
• Mount Cattlin's ore reserve update confirms an additional four- or five-year mine life to 2027/2028 through open-pit methods.
• The liner installation has been completed on the first two strings of ponds at Sal de Vida Stage 1, engineering on string 3 is complete and earthworks have commenced.
• Engineering at James Bay has reached 72.5 per cent. Permitting activities progressed but were interrupted as local communities were evacuated due to recent wildfires. Engagement with the communities remains very positive as local economic benefits are being finalized.

Financials and corporate:

• Allkem and Livent announced a definitive agreement to combine in an all-stock merger of equals to create a leading global integrated lithium chemical producer.
• Group revenue for the quarter was approximately $334-million (U.S.), and group gross operating cash margin (1) was approximately $274-million (U.S.) (82 per cent).
• At June 30, group net cash (5) was $648.4-million (U.S.), up $70.5-million (U.S.) from March 31, 2023.
• A $130-million (U.S.) sustainability-linked green project financing facility has been signed with the International Finance Corp. (IFC) for Sal de Vida Stage 1.

Sustainability

Allkem continues to focus on a long-term commitment to environmental and social performance and transparent reporting across its operations and growth projects.

Decarbonization -- net-zero commitment

Six projects are currently being evaluated for inclusion in Allkem's net-zero action plan. Allkem has also initiated a study focusing on additional net-zero opportunities for the James Bay project.

Human capital -- safety performance

Allkem recorded a 12-month moving average total recordable injury frequency rate (TRIFR) of 1.98 (per million hours) at the end of June, achieving the fiscal 2023 safety target (less than 2.45). This TRIFR also represents a 15-per-cent increase QoQ but a 24-per-cent improvement year on year (YoY).

The 12-month moving average lost-time injury frequency rate target (less than 0.9) was also achieved, closing fiscal 2023 with 0.62 (per million hours).

Four recordable injuries occurred in Argentina, and investigations have been carried out with corrective actions implemented.

Natural capital -- impact assessment and rehabilitation

During the quarter at James Bay, Allkem has continued to progress the environmental plans under the conditions of the federal government approval in partnership with the communities of Waskaganish, Waswanipi and Eastmain. Forest fires impacted the region during June with environmental-monitoring-related activities on the James Bay territory suspended by the government during periods of high fire danger.

At Sal de Vida, water and biodiversity monitoring programs continued in the area surrounding the project with participation of local communities and representatives of the Catamarca Ministry of Mining. A workshop was also held, presenting a review of biodiversity and water studies carried out by the Sal de Vida environment team.

At Mount Cattlin, specialist indigenous rehabilitation contractors have been engaged to complete the winter 2023 rehabilitation work program.

Shared value -- community initiatives

During May, Allkem's shared value team at Olaroz launched a project with the Inti (Argentine National Institute of Industrial Technology) to further support capacity development of its local community suppliers.

At Sal de Vida, a series of eight photovoltaic systems have been installed to generate electricity for families in the salar de Hombre Muerto area.

Community engagement with key Cree stakeholders for the James Bay project remains positive following discussions with the Eastmain community economic development branch to agree on local economic benefits.

The Mount Cattlin community consultation group continues to provide regular engagement opportunities for representatives from the Ravensthorpe and Hopetoun communities with the mine's management team. Monitoring and reviews relating to noise, vibration and dust were presented showing continuing compliance with regulatory limits.

Operations

Olaroz lithium facility

Lithium carbonate

Jujuy province, Argentina

Production

Production for the June quarter was a new quarterly record of 5,059 tonnes, up 47 per cent on the previous corresponding period and concluding the year at an annual record at 16,703 tonnes. Approximately 33 per cent of quarterly production was battery-grade lithium carbonate in line with previous quarter.

Excellent operational performance continues, reflecting robust 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 up 18 per cent QoQ to 3,430 tonnes of lithium carbonate, of which 34 per cent was battery grade. Approximately 380 tonnes slipped into early July due to delayed vessel arrivals. Strong production from Olaroz Stage 1 significantly exceeded budget and sales forecasts; however, sales for the September quarter are expected to be materially higher.

Total sales revenue was approximately $132-million (U.S.), including $2.0-million (U.S.) related to sales of a lithium carbonate byproduct. The average price received from third party sales was $38,062 (U.S.) per tonne on an FOB (2) basis.

Cost and margins

Cash cost of goods sold for the quarter was $5,882 (U.S.) per tonne, up 19 per cent from prior quarter, mainly due the elimination of export incentives coming into full effect 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 affected by inflation.

Gross cash margin for the quarter was 85 per cent or $32,172 (U.S.) per tonne.

Stage 2 expansion

The Olaroz Stage 2 lithium facility achieved first production in mid-July, with wet lithium carbonate cake produced at the filter presses. The focus will be commissioning of the dry plant, progressively increasing production volumes and product quality over a 12- to 18-month ramp-up period.

The Olaroz Stage 2 project involved the construction of 15 extra brine wells, 31 evaporation ponds, three lime plants, a reverse osmosis water plant, a soda ash plant, a carbonation plant, accommodation and various service spaces.

Mount Cattlin

Spodumene concentrate

Ravensthorpe, Western Australia

Production

Production in the June quarter was 58,059 dmt of spodumene concentrate at 5.3-per-cent-lithium-oxide grade, a 50-per-cent increase from the prior quarter. Recovery of 67 per cent demonstrates significant improvement in grade and favourable mineralization as mining has moved into the central zones of the main orebody.

Sales and financial performance

A total of 46,787 dmt of spodumene concentrate were shipped during the quarter at an average grade of 5.3 per cent Li2O. Shipment of additional approximately 11,700 dmt slipped into July due to severe weather conditions delaying loading at the port. Revenue generated for the quarter was $201.0-million (U.S.) at an average realized sales price of $4,297 (U.S.) per dmt CIF, which corresponds to approximately $4,800 (U.S.) per dmt CIF on an SC6 equivalent.

Cost and margins

The FOB cash cost of production for the quarter was $830 (U.S.) per dmt with higher production volumes and recoveries compared with previous quarters. The gross cash margin for the quarter was 80 per cent or approximately $162-million (U.S.).

Reserve update

Mount Cattlin's ore reserve was revised and provides a projected four- or five-year life of mine (2027/2028) through open-pit mining methods. The ore reserve tonnage increased with higher grade despite mining depletion. The recent category upgrades in the latest mineral resource estimate and substantial increases in pricing for spodumene concentrate have contributed to the increase in ore reserves.

The next mining stage (Stage 4) consists of two separate cutbacks (Stage 4-1 and 4-2) to optimize ore presentation. Subject to regulatory approval, the Allkem board has approved mining of the first cutback (Stage 4-1) of the open pit, which will result in continued spodumene production into 2026. In the second cutback (Stage 4-2), the increasing waste/ore strip ratio at depth through open-pit mining methods is being evaluated against an alternative underground mining option in the form of a feasibility study.

Development projects

Naraha

Lithium hydroxide

Naraha, Japan

Equipment repairs and improvements identified during commissioning and ramp-up were implemented during the quarter. The operational focus continues to be on progressively increasing product quality and volumes to design capacity.

A total of 464 tonnes of technical-grade lithium hydroxide were sold to third party customers during the quarter. The battery-grade hydroxide qualification process with customers commenced with samples to be produced postquarter.

Sal de Vida

Lithium carbonate

Catamarca province, Argentina

Sal de Vida is designed with a nameplate capacity of 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 98-per-cent completion with the first nine ponds completed and filled with brine and all ponds lined. The engineering for the third string of ponds has been completed, and earthworks have started. The main brine pipeline is complete, and eight out of 10 production wells have been commissioned.

Camp expansion activities and procurement of long-lead items continue to progress with the arrival on site of a number of items of proprietary equipment. Detailed engineering of the process plant achieved significant milestones during the quarter, and steady progress was made on procurement activities for this package. Process plant construction also advanced with the mobilization of the EPC contractor and continuation of civil works, including delivery and installation of precast foundations and associated concrete works.

Allkem continues to evaluate the development schedule and will advise of any changes once the work has been completed.

James Bay

Spodumene concentrate

Quebec, Canada

James Bay is designed to produce approximately 330 ktpy of spodumene concentrate 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 (temporary camps, primary substation and process equipment).

Engineering progress achieved 72.5 per cent by the end of the quarter with engineering of the process plant package at 81 per cent. Procurement of mechanical process equipment and mobile mine equipment is completed to 94 per cent and 88 per cent, respectively (weighted average), with receipt of vendor data continuing.

Permitting

The impact benefit agreement with the Grand Council of the Crees (Eeyou Istchee), the Cree Nation government and the Cree Nation of Eastmain progressed well. The last approval process was under way when a state of emergency was declared on July 13 in relation to forest fires in the James Bay territory causing evacuation of the community. The process will recommence once the situation returns to normal.

Comex approval (Quebec government and Cree Nation) of the environmental and social impact assessment and procedural construction permitting remain in progress. 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 in progress with engineering contractors to progress alternative commencement dates and evaluate opportunities to accelerate the construction schedule, including use of prefabricated modules.

Resource update

A resource update is currently being prepared following completion of 29,000 metres of resource extension drilling that has occurred in fiscal 2023.

Exploration update

Exploration at Mount Cattlin involved the completion of 300 metres of reverse circulation drilling. Expenditure related to this drilling totalled approximately $100,000 (U.S.).

Exploration during the quarter at James Bay involved the completion of 2,372 metres of RC/diamond drilling. Expenditure related to exploration and resource evaluation totalled approximately $2.8-million (U.S.).

Lithium market

Demand

Demand conditions over the past quarter have been varied with the destocking cycle within the battery supply chain coming to an end and demand showing signs of recovery. During the March quarter, electric vehicle sales in China were adversely impacted by the removal of original equipment manufacturer subsidies and aggressive pricing competition from internal combustion engine (ice) vehicles, which was exacerbated by a July deadline for more stringent emission standards for new ice vehicles. Despite this slower-than-expected growth, Chinese EV retail sales during the June quarter recovered strongly with first half calendar year 2023 retail sales reaching 3.1 million units, up 38 per cent YoY. Global EV sales forecasts remain robust with consensus sales estimates being reaffirmed between 13 million and 14 million units this calendar year (an increase of 30 per cent year on year), adding support to the view that demand is expected to exhibit a strong uptick during the second half of the year.

Chinese EV sales and battery production data have shown strong improvements: June year-to-date EV sales have increased 44 per cent year on year whilst battery production was up 36 per cent year on year. China's EV purchase tax exemption has been extended until 2027, which, coupled with the implementation of more stringent transport emission standards in July, 2023, provides further support in the short- to medium-term demand outlook for EV sales. Demand outside of China also rose during the quarter: European Union and U.S. EV sales were up 23 per cent and 48 per cent year on year, respectively, May YTD. The Inflation Reduction Act and ice phaseouts in Europe represent key enablers encouraging demand.

Supply

The lithium chemical market is expected to be tightly balanced during the year, particularly given the complexity and risks involved in bringing qualified product to market. Environmental, social and governance frameworks, permitting and part shortages, including crystallizers, have impacted the industry and may cause further delays in increasing refining capacity.

Mineral concentrate markets are expected to be fairly balanced in the near term, reflecting the number of projects (mainly China, Australia and Africa based) that have announced start of production within the 2023 calendar year. Risks of curtailment or delays are ever present. The company notes Chinese supply curtailment during the March quarter reflected the price sensitivity of this incremental supply. In addition, production from new jurisdictions carries higher risks in relation to quality, volume and government restrictions.

Corporate and financials

Proposed merger with Livent

On May 10, Allkem and Livent announced a definitive agreement to combine in an all-stock merger of equals to create a leading global integrated lithium chemical producer.

Postquarter-end, the following progress had been made in relation to the transaction:

• Antitrust/competition and investment screening/foreign investment regime notifications and applications or draft filings (as applicable) have been lodged in all required jurisdictions.
• Preparation of Allkem's notice of meeting and explanatory statement is in progress, with Allkem having recently appointed Kroll Australia Pty. Ltd. as the independent expert to prepare a report opining on whether the scheme is in the best interest of Allkem shareholders. Behre Dolbear Australia Pty. Ltd. has been appointed as the independent technical expert.
• Subject to receipt of all necessary regulatory, shareholder and Australian court approvals, and the satisfaction or waiver of other closing conditions, Allkem and Livent are currently still targeting completion of the transaction by around the end of calendar year 2023.

Upon closing of the all-stock merger of equals, Allkem shareholders will own approximately 56 per cent, and Livent shareholders will own approximately 44 per cent of the merged entity.

Finance matters

An IFC project financing facility for the development of Sal de Vida project Stage 1 has been signed for $130-million (U.S.) over a 10-year period consisting of an A loan of $100-million and a B loan of $30-million. Allkem is in discussions to increase the total loan by a further $50-million.

Financial position

At June 30, 2023, group net cash (5) was $648.4-million (U.S.), up $70.5-million (U.S.) from March 31, 2023. Net cash generated from operations and corporate was $220.3-million (U.S.). Expenditure during the quarter included:

• Capital expenditure of $96.0-million (U.S.) and working capital movements of $16.8-million (U.S.);
• Naraha project cash utilization of $9.2-million (U.S.) to finance ramp-up of operation;
• Payments of income tax of $19.6-million (U.S.);
• Merger costs of $8.2-million (U.S.).

At June 30, 2023, Allkem had available cash of $821.4-million (U.S.). A total of $2.3-million (U.S.) and $76.7-million (U.S.) have been set aside as guarantees for the Naraha debt facility and Olaroz expansion debt facility, respectively.

Competent person statement

Mount Cattlin

Any information in this announcement that relates to Mount Cattlin's mineral resources 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 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.

Any information in this announcement that relates to Mount Cattlin's ore reserve estimate is extracted from the report entitled "Mount Cattlin Ore Reserve update confirms mine life extension" released on June 16, 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.

James Bay

Any information in this announcement that relates to James Bay's exploration results is extracted from the report entitled "New NW Zone at James Bay" released on May 4, 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, 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 and deposits that are held as guarantees. Related-party loans are excluded.

We seek Safe Harbor.