Mr. Martin Perez de Solay reports

OLAROZ MINERAL RESOURCE UPDATE, AND STAGE 1 & 2 OPERATIONS UPDATE

Allkem Ltd. has provided an update to the Olaroz lithium brine operation located in Jujuy province in Argentina. Allkem has reviewed and updated the mineral resources and economics for the Olaroz lithium facility, including Stage 1 and Stage 2. In April, 2022, Allkem released a technical report updating key economic metrics for Olaroz Stage 2, and in March, 2023, Allkem released a technical report updating mineral resources.

Highlights

Stage 1 and 2 (42,500 lithium carbonate equivalent tonnes per annum)

Financial metrics:

• Pretax net present value (NPV) of $7.01-billion (U.S.) at a 10-per-cent discount rate and a posttax NPV of $4.56-billion (U.S.);
• Long-term operating costs for the combined Stage 1 and Stage 2 operation are estimated at $4,149 (U.S.) per tonne lithium carbonate equivalent (LCE) over the life-of-mine considering operational synergies from the joint operation of Stage 1 and 2.

Mineral resource:

• Total mineral resource estimate of 22.63 million tonnes LCE, a 10-per-cent increase from the previous estimate in March, 2023, with a 52-per-cent increase in measured mineral resources;
• The mineral resource now comprises 11.54 Mt of LCE, as measured, and 3.83 Mt as indicated, for a combined 15.38 Mt of measured and indicated mineral resource; there are an additional 7.25 Mt of inferred resources for a total resource of 22.6 Mt (measured, indicated and inferred);
• The improvement in mineral resource categorization results from reclassification of indicated mineral resources between a 200-metre and a 650-metre depth as measured mineral resources in the pumping field area, reflecting the greater amount of information available from pumping performance since installation of the Stage 2 wells and the addition of Maria Victoria tenements;
• Olaroz's life-of-mine (LOM) production represents approximately 8.5 per cent of the measured and indicated mineral resources, further confirming the Tier 1 status of the basin and its potential to support additional expansions.

Stage 2 (25,000 lithium carbonate equivalent tonnes per annum)

Schedule update:

• The expansion achieved the first wet lithium carbonate production in July. 2023. Commissioning activities are continuing, and production is scheduled for second half calendar year 2023, with ramp-up expected to take one year.

Managing director and chief executive officer Martin Perez de Solay commented: "We have recently concluded a review of the company's resource base. The improvements in mineral resource classification for the project are built on our long-term commitment to understand the hydrology of the Olaroz-Cauchari basin to the best extent possible and to manage extraction from the basin in a responsible manner. This mineral resource base will support future studies focusing on maximizing the productive capacity of this Tier 1 resource."

Project background

Allkem is the operator and majority owner of Olaroz, located in the Jujuy province in northwest Argentina.

Allkem holds 66.5 per cent of Olaroz through its local subsidiary Sales de Jujuy SA, with the remaining project ownership held by Toyota Tsusho (25 per cent) and the Jujuy Energia y Mineria Sociedad del Estado (JEMSE) (8.5 per cent). This joint venture holds mineral properties that cover the majority of the Salar de Olaroz, including tenements covering 47,615 hectares and two exploration properties consisting of 33 mining concessions.

Olaroz is fully permitted by the provincial mining authorities, and has provincial and federal permits, to allow operations for an initial 40-year mine life with renewable options to extend beyond 2053. Olaroz Stage 1 is the original project which commenced operation between 2013 and 2015 during the production ramp-up, with a maximum production capacity of 17,500 tonnes per year of lithium carbonate.

The Olaroz Stage 2 expansion, targeting an additional 25,000 tpy of lithium carbonate, produced first wet concentrate in July, 2023, and is scheduled to commence production in second half calendar year 2023. Olaroz Stage 1 and Stage 2's cumulative site lithium carbonate production capacity is 42,500 tpy.

Geology and mineralization

The Olaroz salar is located in the elevated Altiplano-Puna plateau of the central Andes. The Puna plateau of northwestern Argentina comprises a series of dominantly north-northwest to north-northeast-trending reverse fault-bounded ranges up to 5,000 to 6,000 metres high, with intervening internally drained basins at an average elevation of 3,700 m. High evaporation rates, together with reduced precipitation, have led to the deposition of evaporites in many of the Puna basins, with borate deposition occurring. Precipitation of salts and evaporites has occurred in the centre of basins where evaporation is the only means of water escaping from the hydrological system.

Mineralization in the Olaroz salar consists of lithium dissolved in a hypersaline brine, which is about eight times more concentrated than seawater. The lithium concentration is the product of the solar evaporation of brackish water, which flows into the salar as groundwater and occasional surface water flows. The concentrated brine with lithium is distributed throughout the salar in pore spaces between grains of sediment. The brine also extends a considerable distance away from the salar, beneath alluvial gravel fans around the edges of the salar. These areas are largely unexplored by the company to date. In addition to lithium, there are other elements, such as sodium, magnesium and boron, which constitute impurities that are removed in the ponds and processing plant.

Mineral resource update

Olaroz wellfield update

Following installation of the Stage 1 production wellfield at Olaroz, several deeper wells were installed in 2014 below 200 m in depth and subsequently utilized for Stage 1 production. This deeper drilling intersected high porosity and permeability sand units, with flow rates of over 30 litres per second. This discovery initiated evaluation of the deeper resource potential of the basin.

Since 2011, material amounts of new information have been obtained from exploration and production activities at Olaroz. This included geological and production data from Stage 1 production and monitoring holes generally drilled to 200 m, with some to 350 m and 450 m, and the Stage 2 expansion production and monitoring holes to depths of between 450 and 650 metres. Additional information has also come from drilling in Cauchari, a 1,408-metre-deep exploration hole north of the production holes in Olaroz and geophysical surveys over the whole basin.

Olaroz Stage 2 involved an expansion of facilities and production capacity to reach a total production capacity of 42,500 tpy LCE. This involved the installation of additional wells for brine extraction and for industrial water extraction, pipelines for brine and freshwater, additional brine collection ponds, lime plants, significantly expanded evaporation ponds (adjacent to the existing ponds), a new plant facility, stores, power generation facilities, reverse osmosis plant, production plant, and accommodation camp.

The last of the 15 new wells for Stage 2 production was completed late in 2022. These production wells are installed to depths between 450 m and 650 m (with one hole to 751 m), and most of the brine production comes from these deeper levels in the salar on a one-kilometre grid spacing in the central to eastern area of the salar, between the original northern and southern wellfields. In addition to the production wells, a number of diamond drill holes provide core and brine samples and allowed the installation of monitoring wells. The Stage 2 production wells are producing a combined flow of approximately 396 litres per second, at an average per well of 28 l/s, since beginning operation. This is considerably higher than the Stage 1 wells, which have averaged 11 l/s per hole since the beginning of 2017.

Samples from the wells were sent to external and internal laboratories for chemical analysis. This information and downhole geophysics (from a borehole magnetic resonance tool, part of a broader suite of geophysical tools) were used to update the geological model.

The newly completed wells reached depths between 390 m and 751 m (E15). The lithium concentrations recorded an average lithium grade of 643 milligrams per litre and varied from 544 mg/l to 789 mg/l.

Wellfield operation started in August, 2013, with the ramp-up of Stage 1 wells, and then, in calendar year 2021, wellfield production increased again with the ramp-up of Stage 2 wells.

The historical well production from start of wellfield operation to June 30, 2023, is approximately 291,000 tonnes of LCE. A total of 286,000 t of LCE was depleted from measured resources, and a total of 5,000 t of LCE was depleted from indicated resource over this period.

Brine mineral resource estimate

Hydrominex Geoscience was engaged to estimate the lithium mineral resources in brine for various areas within the Salar de Olaroz 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, the qualified person has taken into account the Australian Association of Mining and Exploration Companies (AMEC) brine guidelines and the National Instrument 43-101 guidelines for lithium brines set forth by the Canadian Institute of Mining, Metallurgy and Petroleum (CIM 2014). Hydrominex Geoscience considers that these comply the intent of the JORC 2012 guidelines with respect to providing reliable and accurate information for the lithium brine deposit in the Salar de Olaroz.

The 2023 mineral resource estimate is outlined herein, presenting the lithium and lithium carbonate tonnages. The previous estimate at March, 2023, is also presented.

A lithium cut-off grade of 300 milligrams per litre was utilized based on a projected LCE price of $20,000 (U.S.) per tonne over the entirety of the LOM. The total revised mineral resource estimate of 22.63 Mt LCE reflects a 10-per-cent total increase to the prior mineral resource of 20.65 Mt LCE.

Olaroz basin geology

Exploration activities, since Allkem acquired the properties in 2008, have consisted of extensive geophysical programs and drilling over the Olaroz basin. Geophysical programs have included AMT (audio-magnetotellurics) electrical surveying and vertical electrical soundings to define the lateral extents of the brine beneath alluvial sediments around the margins of the salar. This is important to constrain the geological and hydrogeological models and assess areas for brine prospectivity off the salar. The northern SDJ and 100-per-cent Allkem properties have been subject to minimal exploration to date. However, electrical geophysics indicate prospectivity for brine beneath alluvial and deltaic sediments north of the Olaroz salar in the exploration mining right, Cateo 498, and other properties.

Additional geophysics have included an extensive gravity and magnetic survey across the basin that provided information on the basin depth and corroborated the early geophysical interpretation, which indicated the basin is more than one kilometre deep.

Since the exploration drilling for the 2011 mineral resource estimation, conducted between 2008 and 2011, more extensive drilling undertaken for exploration and production well installation has provided information to depths of 751 m in Olaroz (generally 400 m to 650 m) and better defined the basin geology. Additionally, one deep exploration hole has been drilled at the north end of the production area to a depth of over 1,400 m, without intersecting basement rocks. This drilling led to development of a mixed salar basin model, with five separate geological and hydrogeological (hydrostratigraphic) units above the basement, defined by geological and geophysical logging of holes.

• UH1: upper evaporite deposits, porous halite, clay, sand and silt;
• UH2: alluvial fans on the western and eastern margins of the salar, which contain brine beneath brackish water off the salar (as defined by production well E26);
• UH3: mixed sediments with clay and sand intervals;
• UH4: evaporite deposits, principally halite, with clay, silt and sand interbeds;
• UH5: sand units, interbedded with clay and silt; sandy material is sourced from the historical western margin of the basin and becomes progressively deeper in the east of the basin.

Drilling has not intersected the basement rocks beneath the salar, and it is possible that additional units will be intersected in future deeper drilling. In the central eastern part of the salar unit, UH4 is thicker, reflecting the nucleus of the salar in this area.

The geological interpretation across Olaroz is also consistent with the independent interpretations on adjacent projects based on drilling conducted by Allkem and Advantage Lithium in Cauchari, and the work conducted by Minera Exar in Cauchari, being the southern continuation of the Olaroz structural basin.

Resource estimate data sources

Average production well brine chemistry values, from throughout pumping of the wells, have been used as inputs for the resource estimation, in addition to the interval samples historically collected in the upper 200 m. This is considered an acceptable approach in this situation, given the level of information available in the Olaroz salar, hydrogeological continuity between drill holes, comparison between historical interval samples and pumped brine concentrations, and the history of pumping data available. Additional diamond drilling is recommended for future resource evaluations and to allow installation of additional deep monitoring wells.

Geophysical logging in the deeper holes has confirmed generally consistent drainable porosity and permeability characteristics throughout the clastic sediments with higher porosities and permeabilities associated with more sand-dominated intervals.

Mineral resource estimation

Estimation of a brine resource requires definition of:

• The aquifer distribution (in this case restricted to the salar outline, except around hole E26 in the south);
• The distribution of drainable porosity (specific yield) values;
• The distribution of lithium and other elements in the brine defined by drilling;
• The external limits (geological or property boundaries) of the resource area.

The resource grade is a combination of the aquifer volume, the drainable porosity (portion of the aquifer volume that is filled by brine that can potentially be extracted) and the concentration of lithium in the brine.

The Olaroz aquifer system is not a conventional water supply style aquifer, based on a discrete geological unit, but rather a layered sequence of sediments that contributes brine flow to production wells. More permeable sand and gravel units provide relatively higher flows. The surface outline of the salar is used to delimit the area of the resource estimate (except for the off-salar extension around E26). The 2023 resource covers 147.9 square kilometres, larger than the original 2011 resource area (93 square kilometres).

The expanded area reflects inclusion of the Olaroz lithium and La Frontera (Maria Victoria) properties, which were not part of the original property holdings. The resource has been further expanded by the drilling of hole E26 south of the salar, allowing definition of resources beneath the alluvial gravels south of the salar. Brine saturated sediments are known to extend beneath alluvial sediments surrounding the salar, and this was confirmed in drilling of hole E26 on the edge of the gravels beside the salar, which continued to 510 m in sandy and gravel material.

The resource estimate is limited laterally by the boundaries with adjacent property owner Exar in the salar to the east and north of the properties owned by Allkem subsidiaries (Olaroz Lithium and La Frontera Minerals) and SDJ entities. The resource estimate is limited at depth by the sediment-basement contact interpreted from the gravity geophysical survey conducted over the basin. Drilling suggests this interpretation underestimates the basin depth.

Within the salar, the 3-D distribution of the different hydrostratigraphic units was defined using Leapfrog 3D software, with these units based on geological and geophysical logging observations. The resource is entirely within the salar, except in the gravel area extending west from production hole E26. This is the only location where brackish water overlies brine within the resource estimate. Lower lithium concentration blocks have been excluded from the resource by the 300 mg/l cut-off grade. In all other areas within the resource, brine begins from within several metres of the salar surface.

The porosity data set consisted of interval porosity samples analyzed in an independent laboratory for the upper 200 m and the BMR downhole geophysics from 200 to 650 m. These were used to generate a block model across the salar area, applying ordinary kriging to the composited drainable porosity data.

The distribution of lithium and other elements was estimated from point sampling data from the upper 200 m of the model, where samples are typically spaced every six m in the 200 m holes and three m or fewer in the 54 m holes. Below the upper 200 m, the resource was estimated based on the pumped samples from the production wells, with a single value per hole representing the average pumped lithium value, assigned to the areas with screens in the production wells.

The block model was constructed with 500-by-500-metre blocks, with a 20-metre vertical extent. Only the portion of the block inside the salar outline is reported in the resource (with the exception of the area around E26). The resource estimate was undertaken using Datamine software, with variograms developed for the point samples from the upper 200 m. Estimation was undertaken using ordinary kriging. The ordinary kriging method is the most commonly used kriging method. In areas of sparse data around the model edges, nearest neighbour estimation was used.

The mineral resource was estimated using four passes in the search strategy. The results of the first two passes are nominally equated to blocks classified as measured and indicated, with the latter two passes equating to blocks classified as inferred. The resources were defined across the salar outline and extension around E26, defined over different depths, reflecting drilling density and confidence. Future drilling on the salar may bring additional mineral resources into the indicated and measured classification.

Mineral resource classification

Measured mineral resources

The measured classification is based on reliable geological correlation between drill holes, which show gradual changes in lithology laterally and with depth. Measured resources were previously defined to cover the entire salar area to a 200-metre depth, as exploration drilling was previously conducted across the salar area to a 54-metre and a 200-metre depth. The deeper extension of the measured resource in this estimate is defined based on the drill hole depth in the pumping field, with the resource to a 650-metre depth in the east of the salar and 450 m deep in the west, where drill holes are shallower. Measured resources are defined to a 350-metre depth around holes drilled in the Maria Victoria property, in the north of Olaroz, extending below the 200-metre depth defined elsewhere in the north of the salar.

Classification is supported by continuing extraction by pumping of brine from production wells installed to 200 m since 2013, 300 m since 2014 and 650 m since 2021, with one-kilometre-spaced production wells and a drilling density of approximately one hole per two square kilometres.

Indicated mineral resources

Geological continuity established by deeper drilling below 200 m, geophysical logging of holes and gradual changes in lithium concentration provide the basis for classifying the brine below 200 and 350 metres below surface in the north of the salar (with lesser drilling density) and south of the salar around hole E26, to the base of the salar in that area as indicated. Mineral resources below this depth are defined as inferred.

Laboratory porosity samples are relatively limited below 200 metres; however, similar sediment intervals are present above 200 metres at Olaroz, where porosity characteristics have been established from hundreds of laboratory analyses. Extensive porosity samples from similar sediments are also available from the Allkem Cauchari properties. Continuing extraction by pumping of brine from wells up to 450 metres deep since 2014 and from a 650-metre depth for up to three years provides confidence as to the extractability of brine from the resource to this depth.

BMR porosity data were collected below a 200-metre depth, providing extensive porosity data in the Stage 2 holes. Future drilling below 200 metres provides the opportunity to upgrade indicated mineral resource to measured mineral resource status.

Inferred mineral resources

The inferred mineral resource is defined between 200 or 350 metres and 650 metres in the north of the salar and below 650 metres to the base of the basin. The base of the basin is defined by the gravity geophysical survey, with areas significantly deeper than 650 m defined. There are currently 19 production wells installed to 350 metres or below, with production wells for Olaroz Stage 2 installed between 400 and 751 metres deep between the existing northern and southern wellfields. The deep hole drilled in the north of the salar confirms locally the salar sediments extend to below a 1,400-metre depth. Drilling has not intersected the base of the salar sediments, where the geophysical estimated basement depth has been reached, suggesting the basin may be deeper than estimated from the gravity survey. Limited brine samples were collected in this deep hole.

Taking account of the distribution of brine grade and porosity to date (as determined by BMR geophysics), there is a sufficient level of confidence to classify the mineral resources extending to the bottom of the basin as inferred mineral resources. It is likely that additional drilling could convert these to a higher confidence mineral resource classification.

Mineral resource classification table and cut-off grade

Since publication of the updated mineral resource on March 26, 2023, Allkem has undertaken a company-wide review of mineral resources. This has led to the reclassification of a large portion of the Olaroz indicated mineral resources to measured mineral resources.

The Olaroz brine project is a very large salar, which hosts lithium dissolved in hypersaline brine present in pore spaces between sediment grains. The brine mineralization in the resource covers an area of 147.9 square kilometres, within a larger area also known to contain lithium-mineralized brine.

The lithium concentration is highly homogeneous compared with most mineral deposits as the lithium concentration process results in a relatively homogeneous brine concentration. The lithium concentration varies slowly laterally and vertically across the salar. There is no internal waste (uneconomic lithium concentrations) within the mineral resource. Stage 1 and Stage 2 of the project have been developed with conventional evaporation pond technology. Future additional developments may utilize direct extraction technologies.

The mineral resource was previously stated with no cut-off grade, considering its large homogeneous nature and location almost entirely on the salar. As an outcome of internal peer review, the mineral resource is stated at a lithium cut-off grade of 300 milligrams per litre, applied based on a break-even cut-off grade for a projected LCE price of $20,000 (U.S.) per tonne over the entirety of the life of mine (there are no areas within the resource below this).

Brine extraction and processing

A groundwater model has been developed for Allkem by Napa consultants of Barcelona, Spain, covering the Olaroz and Cauchari basins. The model was developed in FeFlow groundwater modelling software, based on the exploration and production holes drilled to date and calibrated with the preproduction water levels and the results of production pumping.

The steady state model was calibrated to 49 wells, and the transient model was calibrated to 32 wells with 12,921 data points from production pumping since 2013, providing extensive information on brine levels and response to pumping. Geochemical data were available from 107 monitoring points having 33,640 geochemical data points. The model was calibrated in a steady state configuration and also calibrated with the results of pumping from the period from 2013 to 2018 in a transient mode. The effects of industrial water extraction from the existing water source in the Archibarca area, south of the plant, was also simulated in the evaluation.

The model was subsequently used for a number of model simulations of future production scenarios, including Stage 2 development, with coincident pumping and operation of the adjacent Exar project in Cauchari-Olaroz, to simulate the results of combined pumping and long-term extraction of brine from the large brine body present in the salt lake.

The model will be used to evaluate different scenarios for the development of Stage 3 of the project and will be updated to incorporate results from additional drilling in the Olaroz basin, particularly in the north of the salar and south of the ponds and plant, where there is little current information available. With this information, the model will be used to simulate future combined production in the basin and to develop an ore reserve estimation for the different stages of the project. Brine is extracted from the host sediments from wells at different depths, depending on the age of the wells. There is no mining of the sediments. All extraction of lithium is through brine.

Audits and reviews

An independent assessment of the groundwater model that will be used to derive ore reserves has been undertaken, and observations and recommendations are being reviewed and implemented.

Operations and Stage 2 status

The Olaroz project was subject to an initial definitive feasibility study in 2011 with engineering company SKM, which was the basis for Stage 1 project design and construction. A subsequent study was undertaken to support the development of Stage 2 of the project, the results of which were published in April, 2022, in a Joint Ore Reserves Committee-compliant announcement and National Instrument 43-101 technical report. The Stage 2 project has been constructed, achieved first wet production in July, 2023, and is in the commissioning stage with operations ramp-up starting in second half calendar year 2023.

The Olaroz project borefield and ponds have been operating from 2013, and site-based lithium processing and sale of lithium carbonate product from 2015 as part of the Stage 1 project development. The Stage 2 development is designed with a substantial increase in the evaporation pond area with the addition of nine square kilometres of new ponds. A second processing plant has been built to increase annual production capacity to 42.5 million tpy LCE from the combined stages 1 and 2. The new plant design is based upon the original Stage 1 plant but with improved equipment selection and processing strategy based on that experience.

Mining factors

Mining is undertaken by the installation of large-diameter (12-inch installed casing) wells into the salt lake sediments. Once installed and developed, the wells are pumped to provide a continuous supply of brine to the project evaporation ponds. The wells provide an average lithium concentration that is derived from the sediments where production wells are installed.

Only a portion of the project resource can be extracted, due to the limitations of extraction by widely spaced wells. This amount was simulated in the groundwater model, which will be the basis for the future project ore reserve, which will take account of salar's environmental factors during extraction. The extraction from wells was simulated using calibration data from actual pumping operations since 2013, providing an extensive data set for model calibration and prediction.

Extraction using bores is the appropriate extraction choice in salars, as the lithium is dissolved in brine (fluid) and mining of unconsolidated sediments is not contemplated. There are no minimum mining widths, as brine mining is not a selective mining method.

Geotechnical limits for brine extraction are different from hardrock mining, and consider issues such as compaction and settlement of sediments over time as brine is extracted.

Inferred mineral resources are present beneath and laterally to the volumes of measured and indicated mineral resources. The inferred mineral resources are not included in current mining studies but are considered a possible source of future brine extraction, when further drilling is completed.

Brine mining requires the provision of electricity and pipelines to the sites of wells from which brine is extracted. The pipelines pump brine to centralized collection ponds, from where it is pumped to the evaporation pond network. The brine is subject to the addition of lime in the evaporation ponds. Pumps are required to move brine between ponds and pump brine into the plant, where lithium carbonate product is produced. A gas pipeline provides the energy source for on-site electricity and heat generation.

Brine is liquid and flows in response to operation of pumps installed in wells, with pumping inducing radial flow toward the well and extraction of brine to evaporation ponds. The location of some of the Stage 2 production wells in proximity to the eastern boundary of the Olaroz SDJ properties will result in a portion of the brine from these wells being extracted from adjacent properties. This is a small portion of the overall brine extraction.

The lithium concentration in brine is forecast based on the groundwater flow and transport model. This predicts a minor decline in the lithium concentration over time from 650 mg/l in 2023 to an overall concentration of approximately 570 mg/l in 2053.

Metallurgical factors

The metallurgical process utilized for the production of lithium carbonate is based on solar evaporation of brine prior to reacting lithium with soda ash in the plant to produce lithium carbonate. In this way, much of the energy required for the process is provided naturally by the sun. Lithium remains soluble in the brine, and other elements precipitate in response to their increasing concentration and saturation in the brine. Lime is added to the ponds to facilitate the precipitation of magnesium from the brine. Although more recent direct extraction processing techniques are more widely available, pond evaporation provides a cost-effective and low-risk processing method for Olaroz brine.

The metallurgical process is based on the well-established Silver Peak process, which was adapted for use at the Olaroz project. The project has been producing lithium using the Olaroz process since 2015, with optimization of the process undertaken during this period.

Extensive testwork was undertaken on the Olaroz brine prior to finalization of the process and development of the project. Deleterious elements were characterized during the exploration of the project and evaluated extensively during the process development. Pilot-scale testing was undertaken at the site in real environmental conditions. The actual processing plant has been operating since 2015.

Lithium carbonate is sold as both technical (greater than 99.3 per cent Li) and battery grade (greater than 99.5 per cent Li) product, depending on the concentration of impurities. The project produces both grades of product.

The Olaroz Stage 2 process plant has been designed primarily based on the experience gained from five years of operating development and data analysis from the Stage 1 process plant. Some equipment specific testing was also conducted, mostly on new solid liquid separation steps in the polishing area.

The Olaroz 2 plant is similar in its general process flowsheet and chemistry to the Stage 1 plant; however, it has been designed to provide higher-quality technical-grade product and improved recovery in the primary carbonation circuit. This is achieved by:

• Washing of solid precipitates in the polishing circuit to minimize lithium loss;
• Inclusion of improved ultrafine filtration technology in the polishing circuit, which will contribute to product quality;
• Removal of trace calcium and magnesium by ion exchange (IX) processing of carbonation reactor feed, which will contribute to product quality and an anticipated improvement from technical to battery grade;
• Improved control of washing and filtration of final product using air-blown plate and frame filters, also contributing to improved quality by minimizing entrained impurities in the cake moisture;
• Improved process control by enhanced instrumentation and increased process buffer storage.

It should be noted that Stage 2 does not include a purification circuit as installed in Stage 1.

A gas-fired rotary drying kiln has been used in the Olaroz Stage 2 drying plant, along with additional micronizing capacity. A new soda ash bag storage area and mixing plant with the capability to convert to bulk delivery have been designed. Additional raw water wells in the Archibarca alluvial field and downstream reverse osmosis plant capacity are provided to meet the increased clean water requirements. Extended water supply rights have been obtained in the northern Rosario River alluvial sediments. The required increase in power generating capacity is provided by expansion of the Stage 1 gas-fired generators and additional boiler capacity for solution heating.

Infrastructure

The project is well served by infrastructure, being located adjacent to a paved international highway between Argentina and Chile that leads to major import and export ports in northern Chile.

The project is supplied by a spur line from a gas pipeline, which passes to the north of the project. Electricity and heat are generated on site for the project process and camp.

Water for industrial processes is obtained from groundwater that is treated by reverse osmosis.

Accommodation is provided by purpose-built accommodation at the project, with additional accommodation provided in nearby villages and towns.

Financial performance

Olaroz Stage 2 reached substantial mechanical completion in June, 2023, with first wet production achieved in July, 2023.

Capital investment for Olaroz project Stage 2, including equipment, materials, indirect costs, and contingencies and precommissioning activities during the construction period, was estimated to be $425-million (U.S.), excluding value-added tax and working capital.

The operating cost estimate for Olaroz was updated by Allkem's management team. Most of the operating costs are based on labour and consumables, which are currently in use at the operation.

A summary of the estimated cost by category for a nominal year of operation is provided herein.

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 2022/2023, in response to EV sales, Chinese production and supply chain destocking trends. Woodmac noted 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 tonne (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 lithium price used in the economic analysis is weighted on the basis of the proportion of the various products produced. The basis of forecast lithium carbonate pricing was provided by Woodmac, which expect prices to settle between $26,000 (U.S.) per tonne and $31,000 (U.S.) per tonne (real U.S.-dollar 2023 terms) over the longer term.

There is a 3-per-cent mine mouth (boca de mina) royalty on the value of production to the provincial Jujuy government, considered the value of the product after the deduction of the costs of extraction, processing and transportation. There is an export duty of 4.5 per cent on the FOB price, as regulated by Argentine government decree Nr. 1060/20.

Olaroz Stage 1 and 2 production is expected to reach nominal capacity of 42,500 metric tonnes per year of lithium carbonate for an estimated operational life of approximately 32 years. This would result in the production of approximately 543,030 dry metric tonnes of saleable lithium carbonate. When considering both Stage 1 and 2, the total saleable product is estimated to be 1,310,670 dmt of lithium carbonate for the LOM.

The saleable product for Stage 2 is expected to be of technical grade (greater than 99.3 per cent Li). However, it is important to note that Stage 1 includes both technical- and battery-grade (greater than 99.5 per cent Li) lithium carbonate.

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

The project economics of Olaroz Stage 1 and 2 demonstrate strong results, with substantial net present values and robust projected revenue and operating cash flow figures.

Pretax NPV discounted at 10 per cent is estimated to be $7,012-million (U.S.). Posttax NPV discounted at 10 per cent is estimated to be $4,562-million (U.S.).

Sensitivity analysis

As displayed herein, the Olaroz operations update for Stage 1 and 2 demonstrates strong financial outcomes with a posttax NPV at a 10-per-cent discount rate of $4,652-million (U.S.).

Environmental

The environmental monitoring and follow-up plan (PMSA) of SDJ contains the procedures and methodologies to evaluate the environmental components of the project area and to measure and monitor their variations during operation. Olaroz Stage 2 is permitted under 2016 and 2018 authorizations, with additional authorizations from March, 2021.

Environmental monitoring aims to obtain data on periodic and seasonal environmental limits, running quarterly campaigns, in the months of February, May, August and November. The objectives are to verify that environment conditions in the area of influence by the operation remain unchanged or that changes produced are within the approved permissible limits as part of the project operations.

This work includes extensive studies of flora, fauna, hydrogeology, hydrology, climate, air quality, noise, limnology, landscape characteristics and ecosystem characterization. This is supported by social economic and cultural studies, surveys, and support programs.

SDJ has received the relevant permissions from 2009 through 2021 for the Olaroz project development and operating activities from provincial and federal agencies, such as the provincial Jujuy mining directorate and the UGAMP scientific committee of Jujuy (which reviews lithium project developments), provincial water resource authority and environmental authorities.

The project is located in the Olaroz Cauchari fauna and flora reserve (La Reserva de Fauna y Flora Olaroz-Cauchari). The reserve was created in 1981, under provincial law 3820. The reserve is a multiuse area that allows for agricultural and mining activities and scientific investigation programs. The operation of the Olaroz project is consistent with the multiuse reserve status.

Social and community relations

SDJ has been very actively involved in community relations since the properties were acquired in 2008. Although there is minimal habitation in the area of the salar, SDJ has consulted extensively with the local aboriginal communities.

SDJ has agreements with communities in the territory where the Olaroz brine operation is developed, which are the communities of Olaroz Chico and El Toro (the northern area around the Rosario River), and provides assistance to the local community by providing services to community members and employing a significant number of people from the surrounding communities in the current operations.

As part of the SDJ community and social performance policy, SDJ has a commitment to six communities to provide an Internet connection and a commitment to nine communities so that every two years, SDJ makes an investment in the construction of infrastructure for community use. Ten communities in the surrounding area are beneficiaries of the community relations plan programs. Olaroz Stage 2 will provide new employment opportunities and investment in the region, which is expected to be positive. Currently, 40 per cent of the project work force is from surrounding towns, and 75 per cent is sourced from within the province of Jujuy.

Technical information and competent person statements

The information in this report that relates to Olaroz's exploration results and mineral resources is based on information compiled by Murray Brooker, who is a member of the Australian Institute of Geoscientists (AIG), a registered professional geoscientist in Australia (RPGeo) and a member of the International Association of Hydrogeologists (IAH), and Michael Gunn, BAppSc (metallurgy) (Gunn Metallurgy) is a chartered professional fellow of the Australasian Institute of Mining and Metallurgy (FAusIMM), both of whom are recognized as competent persons by a recognized professional organization (RPO) included in a list posted on the Australian Securities Exchange website from time to time. Mr. Brooker an employee of Hydrominex Geoscience Pty. Ltd., and Mr. Gunn an employee of Gunn Metallurgy. They have sufficient experience that is relevant to the style of mineralization and type of deposit under consideration and to the activity being undertaken to each qualify as a competent person as defined in the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr. Brooker and Mr. Gunn consent to the inclusion in this announcement of the matters based on their information in the form and context in which it appears.

The scientific and technical information contained in this announcement has been reviewed and approved by Mr. Brooker (Hydrominex Geoscience) as it relates to geology, modelling and mineral resource estimates; and Mr. Gunn, BSc, chemical engineering (Gunn Metallurgy), as it relates to processing, facilities, infrastructure, project economics, capital and operating cost estimates. The scientific and technical information contained in this release will be supported by a technical report to be prepared in accordance with National Instrument 43-101 (Standards of Disclosure for Mineral Projects). The technical report will be filed within 45 days of this release and will be available for review under the company's profile on SEDAR+.

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