Mr. Martin Perez de Solay reports

CAUCHARI MINERAL RESOURCE AND ORE RESERVE UPDATE AND PROJECT UPDATE

Allkem Ltd. has provided a project update to its wholly owned Cauchari lithium brine project located in Jujuy province in Argentina. Allkem has reviewed and updated the project mineral resources and ore reserves, project cost and schedule estimates, and project economics from the October, 2019, technical report released before Orocobre Ltd. acquired 100 per cent of Advantage Lithium Corp. in April, 2020.

Highlights

Financial metrics:

• 25,000 tonnes per annum of lithium carbonate production capacity;
• Material approximately 200-per-cent increase in pretax net present value (NPV) to $2.52-billion (U.S.) from $840-million (U.S.) in the previous study at a 10-per-cent discount rate; the posttax NPV at 10-per-cent discount rate is $1.37-billion (U.S.);
• Cash operating margin stayed constant at approximately 85 per cent, with the increased realized price projections being proportionally offset by increased operating costs; operating costs increased from $3,560 (U.S.) per tonne lithium carbonate equivalent to $4,081 (U.S.) per tonne LCE due to material increases in the price of soda ash, lime, natural gas and employment costs since the previous study.

Mineral resource and ore reserve:

• Total mineral resource estimate of 5.95 million tonnes (Mt) LCE, a 6-per-cent decrease from the previous estimate in 2019 due to slight changes in mining assumptions;
• Total ore reserve estimate of 1.13 Mt LCE, supporting a 30-year project life based on ore reserves only, an 11-per-cent increase from the previous statement due to a revised point of reference for ore reserve reporting of brine pumped to the evaporation ponds.

Project cost and schedule update:

• Increase in the development capital cost estimate (capex) from $446-million (U.S.) in the previous study to $659-million (U.S.), for mechanical completion, representing a 48-per-cent increase;
• Substantial mechanical completion, precommissioning and commissioning activities are expected by first half calendar year 2027 with first production expected in second half calendar year 2027 and ramp-up expected to take one year.

Managing director and chief executive officer Martin Perez de Solay commented: "The updated study results clearly demonstrate the value of the Cauchari project on a stand-alone basis. With the study update being based on the historic work performed by Advantage Lithium Corp., we do see substantial opportunities to integrate this asset into our Olaroz complex. These opportunities would likely reduce capital and operating costs, and these are being explored as part of our Olaroz Stage 3 expansion studies."

Project background

Allkem is developing the Cauchari project on the Cauchari salar, which is located in the Puna region, 230 kilometres west of the city of San Salvador de Jujuy in the Jujuy province of northern Argentina at an altitude of 3,900 metres above sea level. The property is to the south of Olaroz near a paved highway that connects to the international border with Chile (80 km to the west) and the major mining centre of Calama and the ports of Antofagasta and Mejillones in northern Chile, both major ports for the export of mineral commodities and import of mining equipment. The Cauchari deposit lies within the lithium triangle, an area encompassing Chile, Bolivia and Argentina that contains a significant portion of the world's estimated lithium resources.

The Cauchari tenements cover 28,906 hectares and consist of 22 minas, which were initially applied for on behalf of South American Salars. SAS is a joint venture company with the beneficial owners being Advantage Lithium with a 75-per-cent interest and La Frontera with a 25-per-cent stake. La Frontera and AAL are 100 per cent owned by Allkem. The project is not known to be subject to any environmental liabilities.

The project is a planned lithium brine mining and processing facility that will produce lithium carbonate. Allkem has reviewed and updated the project mineral resources and ore reserves, project cost and schedule estimates, and project economics from the previous technical report dated October, 2019, released before Orocobre acquired 100 per cent of Advantage Lithium in April, 2020. This project update of the Cauchari mineral resource and ore reserves indicates potential for a 25,000-tonne-per-year lithium carbonate processing facility with a life expectancy of 30 years.

The wellfield, brine distribution, evaporation ponds, waste (wells and ponds) and process plant cost estimates are Association for the Advancement of Cost Engineering Class 4 plus 30 per cent/minus 20 per cent with no escalation of costs. Lithium production has not commenced at the Cauchari site; however, an update to the prefeasibility study has been completed for Cauchari.

Geology and mineralization

Salar de Cauchari is a mixed-style salar, with a halite nucleus in the centre of the salar overlain with up to 50 metres of fine-grained (clay) sediments. The halite core is interbedded with clayey to silty and sandy layers. The salar is surrounded by relative coarse-grained alluvial and fluvial sediments. These fans demark the perimeter of the actual salar visible in satellite images, and at depth extend toward the centre of the salar, where they form the distal facies with an increase in sand and silt. At depth (between 300 m and 600 m), a deep sand unit has been intercepted in several core holes in the southeast sector of the project area.

The brines from salar de Cauchari are solutions nearly saturated in sodium chloride with an average concentration of total dissolved solids of 290 grams per litre. The average density is 1.19 grams per cubic centimetre. Components present in the Cauchari brine are potassium, lithium, magnesium, calcium, chloride, sulphate, bicarbonate and boron.

Mineral resource and ore reserve estimates

Brine mineral resource estimate

Atacama Water was engaged to estimate the lithium mineral resources and ore reserves in brine for various areas within the salar de Cauchari basin in accordance with the 2012 edition of the Joint Ore Reserves Committee Code. Although the JORC 2012 standards do not address lithium brines specifically in the guidance documents, Atacama Water followed the National Instrument 43-101 guidelines for lithium brines set forth by the Canadian Institute of Mining, Metallurgy and Petroleum, which Atacama Water considers comply with the intent of the JORC 2012 guidelines with respect to providing reliable and accurate information for the lithium brine deposit in the salar de Cauchari.

A lithium cut-off grade of 300 milligrams per litre was utilized based on a projected lithium carbonate price of $20,000 (U.S.) per tonne over the entirety of the life of mine. The total revised mineral resource estimate of 5.95 Mt LCE reflects a 5.6-per-cent total decrease to the prior mineral resource of 6.30 Mt LCE. This decrease relates to the use of a cut-off grade in the estimation of mineral resources.

The different mineral resource categories were assigned based on available data and confidence in the interpolation and extrapolation possible given reasonable assumptions of both geologic and hydrogeologic conditions.

Brine ore reserve estimate

Proven reserves were derived from the measured resources in the northwest wellfield area during the first seven years of production (with production in the NW extending for nine years). Lithium ore reserves derived after year seven from the measured and indicated mineral resources in the NW and southeast wellfield areas were categorized as probable reserves. Results of a separate model simulation to evaluate the potential effect of the proposed neighbouring LAC brine production (according to LAC updated feasibility study of January, 2020) showed that there is no material impact on the Cauchari reserve estimate.

It is the opinion of the CP that the Feflow model provides a reasonable representation of the hydrogeological setting of the project area and that the model is adequately calibrated to be an appropriate tool to estimate the proven and probable reserves reported hereinafter. To the extent known by the CP, there are no known environmental, permitting, legal, title, taxation, socio-economic, marketing, political or other relevant factors that could affect the ore reserve estimate which are not discussed in this report.

The revised ore reserve estimate of 1.13 Mt LCE supports a 30-year project life based on ore reserves only, an 11-per-cent increase from the previous statement due to a revised point of reference for ore reserve reporting of brine pumped to the evaporation ponds. Process efficiency factors were considered in the previous estimate while the current reserve is reported from a point of reference of brine pumped to the evaporation ponds.

Indicated mineral resources of 894,000t LCE contained in the West Fan unit are not included in this PFS production profile. There is a reasonable prospect that through additional hydrogeological testwork, inferred resources in the lower sand units will be converted to measured and indicated mineral resources.

Brine extraction and processing

Brine extraction

Lithium-bearing brine hosted in pore spaces within sediments in the salar will be extracted by pumping using a series of production wells to pump brine to evaporation ponds for its concentration. Extraction of brine does not require open-pit or underground mining.

Based on the results of the pumping tests carried out for the project, the brine extraction from salar de Cauchari will take place by installing and operating two conventional production wellfields. The brine production will take place initially from a wellfield in the NW sector immediately adjacent to the evaporation ponds on the Archibarca fan from year one through to year nine. After year nine, it is planned that the brine production will shift to a second wellfield constructed in the SE sector.

The combined production from the NW wellfield will ramp up from 170 litres per second in year one to approximately 460 l/s in year eight. It is expected that pumping rates of individual wells in the NW wellfield will vary between 20 l/s and 30 l/s so that up to 22 wells may be required to meet the overall brine production requirements. The NW production wells are located on the main access roads between the evaporation ponds, and will be drilled and completed to a depth of approximately 360 m in the lower brine aquifer of the Archibarca fan. The upper part of the production wells through the Archibarca fresh to brackish water aquifer will be entirely cemented and sealed to an approximate depth of 140 m to avoid any freshwater inflow into the wells. Below the 140-metre depth, the wells will be completed with 12-inch-diameter production casing. The wells will be equipped with submersible pumping equipment. It is planned that the NW production wells will discharge immediately into evaporation ponds No. 1 and No. 2 without intermediate boosting or storage requirements.

As a general overview of the process, the brine that feeds the lithium carbonate (Li2CO3) plant is obtained from the two brine production wellfields.

The brine is pumped to the evaporation ponds, designed to crystallize mainly halite and some glauber salt, glaserite, silvite and borate salts. At certain points, slaked lime is added to the brine, which removes a large part of the magnesium as magnesium hydroxide. The calcium is precipitated as gypsum, thus also removing dissolved sulphate. After the evaporation ponds, the brine is fed to the Li2CO3 plant, where, through a series of purification processes, solid lithium carbonate is obtained, to be shipped according to the final customer requirements.

The brine is concentrated until it reaches a Li concentration of 7,000 milligrams per litre. Overall evaporation ponds and lithium carbonate plant recovery of 66 per cent for lithium are modelled based on industrial operational results.

The Cauchari project will include the design and installation of production wells, evaporation ponds and a processing plant to obtain 25,000 tpy of battery-grade lithium carbonate.

The lithium carbonate plant is a chemical facility that receives the concentrated brine from the evaporation ponds and, through a series of chemical processes, generates lithium carbonate battery grade in a solid form. All impurities that are still left in the brine after the evaporation ponds are removed in the lithium carbonate plant through specific stages described below.

The first stage of the lithium carbonate plant is the calcium and magnesium removal stage. A solution of soda ash and slaked lime is added to the concentrated brine from the evaporation ponds in an agitated reactor. Mg and Ca will precipitate as magnesium hydroxide and calcium carbonate. The slurry is then filtered, and the magnesium- and calcium-free brine is sent to the next stage. The solids obtained from the filtering stage are repulped and sent directly to the first sludge pond.

The lithium-rich brine is fed to an ion exchange stage to remove remaining calcium, magnesium and any other di/tri valent metals in the brine. The impurity-free brine is then sent to carbonation reactors. Here the addition of a soda ash solution and high temperatures result in lithium carbonate precipitating (technical grade), which is filtered on a belt filter, repulped and centrifuged. This can be directly dried and sold as technical grade. To obtain battery grade, the pulp is transported to another purification stage. The mother liquor generated from the belt filter is recycled to the ponds to recover the remaining lithium.

The purification stage consists of the generation of lithium bicarbonate through the reaction in agitated reactors of the solid lithium carbonate and gaseous carbon dioxide at low temperature. The lithium bicarbonate is much more soluble in water than lithium carbonate, allowing the separation from any residual soluble and insoluble impurities. With the use of an IX stage utilizing a specific selective resin, any boron and/or di/tri valent metals left in the solution are removed, and a highly pure bicarbonate solution is fed to a desorption stage. With the increase of temperature (up to 80 C), the CO2 is desorbed, and solid lithium carbonate is reprecipitated. The slurry is centrifuged, dried, reduced in size (milled) and packaged in maxibags, to be finally transported to clients.

Site layout and infrastructure:

• NW and SE evaporation ponds and liming plant;
• NW brine wellfield (Archibarca location);
• SW brine wellfield;
• Alluvial production wells are located southeast of the project area;
• Liming plant ponds (decantation ponds);
• Industrial facility area;
• Harvested salt stockpile areas.

The brine production wellfields will be located on two sectors of the salar de Cauchari, one in the Archibarca area, near and among the initial evaporation ponds and another located southeast of this location. Initially, and up to year four of the operation, the evaporation ponds will cover an area of approximately 10.5 million square metres. The brine lithium concentration decreases from 580 mg/l to 545 mg/l by year five of the operation, and an increase to 11.3 million square metres in pond area is required. By year 10, the average brine lithium concentration decreases to 491 mg/l and requires the final increase of the evaporation ponds area to 12.2 million square metres.

Temporary and permanent facilities are contemplated in the project for the industrial area. The industrial facility area for the project will be located in the NW sector of the project on the Archibarca fan, and will include:

• Lithium carbonate plant;
• Auxiliary services:
  • Reagent storage;
  • Plant supply storage (gas, CO2, compressed air and fuel);
  • Water treatment plant;
  • Access control area;
  • Electrical rooms (electrical generators);
  • Boiler room;
• Warehouses;
• Truck workshop;
• Administrative building and laboratory;
• Workers camp;
• Temporary contractor installations.

Financial performance

Development capital and operating costs

Project capex for 25,000 tpy lithium carbonate is estimated to be $659-million (U.S.).

Costs estimates and economic assessments for the 25,000-tonne-per-year processing facility are at an AACE Class 4 plus 30-per-cent/20-per-cent level with no escalation of costs.

The Cauchari project is at the prefeasibility study phase.

The capital cost estimate was prepared by Worley Chile SA and Worley Argentina SA (collectively, Worley) in collaboration with Allkem. The estimate includes capital cost estimation data developed and provided by Worley and Allkem and current estimates.

The capital cost was broken into direct and indirect costs.

Operating cost is estimated to be $4,081 (U.S.) per tonne LCE. No inflation or escalation provisions were included. Subject to the exceptions and exclusions set forth in this report, the aggregate annual operating cost for Cauchari is summarized. Reagents represent the largest operating cost category, and then labour, followed by operations and maintenance.

Lithium carbonate price forecast

Lithium has diverse applications including ceramic glazes, enamels and lubricating greases and as a catalyst. Demand in traditional sectors grew by approximately 4-per-cent compound annual growth rate from 2020 to 2022. Dominating lithium usage is in rechargeable batteries, which accounted for 80 per cent in 2022, with 58 per cent attributed to automotive applications. Industry consultant Wood Mackenzie estimates growth in the lithium market of 11-per-cent CAGR between 2023 and 2033 for total lithium demand, 13 per cent for automotive, and 7 per cent for other applications.

Historical underinvestment and strong electric vehicle demand have created a supply deficit, influencing prices and investment in additional supply. Market balance remains uncertain due to project delays and cost overruns. The market is forecast to be in deficit in 2024, and have a fragile surplus in 2025 and a sustained deficit from 2033.

Prices have fluctuated in 2022 and 2023, with factors like plateauing EV sales, Chinese production slowdown and supply chain destocking influencing trends. Woodmac notes that battery-grade carbonate prices are linked to demand growth for LFP cathode batteries and are expected to decline but rebound by 2031. Lithium hydroxide's growth supports a strong demand outlook, with long-term prices between $25,000 (U.S.) and $35,000 (U.S.) per ton (real U.S.-dollar 2023 terms).

Project economics

An economic analysis was developed using the discounted cash flow method and was based on the data and assumptions for capital and operating costs detailed in this report for brine extraction, processing and associated infrastructure. The evaluation was undertaken on a 100-per-cent equity basis.

The basis of forecast lithium carbonate pricing was provided by Woodmac for the period 2023 to 2035, with a longer-term price of $28,000 (U.S.) per tonne and $26,000 (U.S.) per tonne used for battery-grade and technical-grade lithium carbonate from 2035 onward.

The current Jujuy provincial mining royalty is limited to 3 per cent of the mine head value of the extracted ore, calculated as the sales price less direct cash costs related to exploitation and excluding fixed asset depreciation.

The key assumptions and results of the economic evaluation are displayed herein.

The study update demonstrates strong financial outcomes with a pretax NPV at a 10-per-cent discount rate of $2.52-billion (U.S.). This represents a approximately 200-per-cent increase from $840-million (U.S.) in the previous study.

Further project economics are summarized herein.

Sensitivity analysis

As displayed herein, the Cauchari prefeasibility study update demonstrates strong financial outcomes with a posttax NPV at a 10-per-cent discount rate of $1,366-million (U.S.) and a posttax internal rate of return of 23.9 per cent.

Financing

Financing is expected to be provided through one or more of the following:

• Existing corporate cash;
• Existing or new corporate debt or project finance facilities;
• Cash flow from operations.

Environmental and social impacts

Environmental liabilities

The project tenements are not subject to any known environmental liabilities. There have been historical ulexite/borax mining activities adjacent to the project in the north of the salar. These mining operations are generally limited to within three metres of the surface, and it is assumed that these borax workings will naturally be reclaimed when mining is halted due to wet season inflows.

Baseline studies

The project has completed various environmental studies required to support its exploration programs between 2011 and the present. The last environmental impact assessment approval was in 2017 for the exploration stage.

In September, 2019, the project submitted an environmental baseline for the exploitation stage, which to date is under evaluation by the provincial mining authority.

All the environmental impact assessments are submitted to the Provincial Mining Directorate and subject to a participatory evaluation and administrative process with provincial authorities (Indigenous People Secretariat, Water Resources Directorate, Environmental Ministry, and Economy and Production Ministry, among others) and communities of influence, until the final approval resolution is obtained.

In the case of Cauchari, the evaluation process is carried out with the participation and dialogue of the indigenous communities of Manantiales de Pastos Chicos, Olaroz Chico, Huancar, Termas de Tuzgle de Puesto Sey, Catua, Paso de Jama and Susques.

The project has submitted an initial mine closure plan within the exploitation environmental impact assessment, which is still under evaluation.

Permit status

Exploration and mining activities are subject to regulatory approval following an environmental impact assessment before initiating disturbance activities. The competent persons understand that Allkem (previously Advantage Lithium) obtained all required approvals for the exploration drilling and testing programs in the salar.

Allkem is currently in the process of renewing and maintaining required exploration-related permits while awaiting approval of exploitation permitting. Further permits will be required once exploitation is initialized.

There are no insurmountable risks identified at this time that could cause the project to not proceed into potential exploitation.

We seek Safe Harbor.