Lithium Australia NL : quarterly activities report - March 2022

28 April 2022

Lithium Australia quarterly activities report - March 2022

HIGHLIGHTS

Batteries: VSPC Pty Ltd ('VSPC')

 Lycopodium Minerals Pty Ltd ('Lycopodium') was appointed consulting engineering group for the definitive feasibility study ('DFS') of VSPC's planned lithium ferro phosphate ('LFP') manufacturing facility.

 Testing of VSPC's high-performance LFP cathode powder - as part of the federal government funded Cooperative Research Centre Project ('CRC-P'): Advanced nano-engineered battery for fast-charging catenary-free trams - is ongoing.

Recycling: Envirostream Australia Pty Ltd ('Envirostream')

 The national Battery Stewardship Scheme ('BSS'), which commenced in 2022, is expected to increase the volumes of spent batteries available for recycling.

 Envirostream's newly permitted Laverton site was fully commissioned during the quarter, in anticipation of increased volumes of spent batteries via the BSS.

Raw materials

The Company continued to reduce its exposure to exploration expenditure through the potential sale of its Lepidolite Hill project tenements in Western Australia.

Lithium chemicals

The Company's federally funded LieNA® CRC-P progressed, with assembly and pre-commissioning of the purpose-built autoclave for the pilot plant completed.

Corporate

 As at 31 March 2022, the Company had a cash balance of A$8.0 million and investments in listed equities of A$9.8 million.

 On 15 April 2022 (subsequent to the end of the quarter, the Company changed its name to Lithium Australia Limited (to better align with its technology focus) and its listed partly paid shares were cancelled and replaced with listed options.

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VSPC

Wholly Company-owned subsidiary VSPC operates a research and development ('R&D') facility in Brisbane, Queensland, specialising in research into, and the production of, high-purity, high-performance battery materials, including LFP and LMFP (that is, lithium manganese ferro phosphate) cathode powders.

During the quarter, the Company advised that, as part of its strategy to commercialise LFP production by way of its proprietary RC Process, it made a non-binding offer to acquire the Canadian-based LFP production operations of Johnson Matthey PLC, as well as an R&D facility in Germany. The proposed transaction did not advance.

The DFS for VSPC's commercial-scale LFP manufacturing facility advanced, with Lycopodium selected as principal engineer. The scope of the DFS was expanded to include an engineering study for a pre-qualification pilot plant to expedite product development and customer pre-qualification.

It is likely that the pre-qualification pilot plant will be sited close to VSPC's current R&D facility, while the commercial-scale LFP manufacturing facility will be located in North America. The market in the United States is considered highly strategic, since no LFP is currently produced there; however, there is already significant downstream investment in battery cell and electric vehicle ('EV') manufacture.

Meanwhile, the CRC-P for 'Advanced nano-engineered battery for fast-charging catenary-free trams' is progressing, with battery cells that use VSPC's LFP (the latter having been benchmarked against other commercial cathode products) undergoing electrochemical testing.

Also, R&D on alternative sources of a carbon precursor to coat LFP particles - thus optimising thermal treatment and improving electrode-making properties - continued.

During the quarter, the European Patent Office issued a Deed of Letter Patent for the 'Method for producing fine grained particles' and a final international patent application for 'Production of iron (II) oxalate' was filed.

Battery energy storage systems ('BESS')

The Company's 50% joint venture Soluna Australia Pty Ltd ('Soluna Au'), markets BESS for residential and industrial applications. During the March '22 quarter, Soluna Au sold one residential battery unit (December '21 quarter: five), generating sales of $5,000 (December '21 quarter: $24,000).

This industry remains highly competitive. In light of this, and in consideration of more value-accretive group opportunities, during the quarter the Company investigated options for disposing of all or part of the Soluna Au business. Working with its joint-venture partner, the Company has yet to identify viable options but will keep the market informed of progress.

Recycling

The Company, through its now 100%-owned subsidiary Envirostream, is the national leader in mixed-battery recycling, providing sustainable solutions for the disposal of spent batteries and the re-birthing of the energy metals recovered from end-of-life ('EOL') lithium-ion batteries ('LIBs'). (Following the end of the quarter, the Company completed all formalities for acquiring a final 10% interest in Envirostream for a consideration of $250,000 (see ASX releases of4 February 2022 and20 April 2022.)

During the quarter, Envirostream's newly permitted site at Laverton (see ASX release of22 December 2021)was fully commissioned in preparation for the expected increase in volumes of spent batteries collected as part of the BSS, which launched during the quarter. The Laverton site is now fully operational and integrated into the broader Envirostream business.

Envirostream is targeting higher volumes of batteries from large BESS and EVs for processing. Typically, such batteries become available as an outcome of product recall, warranty issues or damage. During the quarter, commercial discussions with a number of large BESS manufacturers advanced.

Envirostream's revenue for the quarter was $560,000 (December quarter $467,000) including income from the sale of mixed metal dust (the active components of LIBs, commonly referred to as 'black mass').

Results from Envirostream's recycled-battery-material micronutrient field trials (see ASX release of1 June 2021)were received during the quarter. In general, uptake results for the manganese in the Envirostream products were similar to those for commercial blends and compounds at similar dose rates. During the quarter, Envirostream continued to engage with fertiliser manufacturers and suppliers, in order to progress commercialisation of its micronutrient products.

Raw materials

To further reduce its exposure to exploration expenditure, during the quarter the Company assessed the potential sale of its Lepidolite Hill project, comprising three entirely Company-owned tenements in Coolgardie, Western Australia. The prospective buyer, a newly incorporated entity, aims to apply for admission to the ASX and undertake an initial public offering. Binding documentation (subject to certain conditions precedent) executed by the Company with Sheoak Minerals Ltd contemplates a consideration of two million shares in the newly incorporated entity in return for a 75% interest in the tenements. These shares are expected to be subject to escrow, in accordance with the ASX Listing Rules. The conditions precedent relate to the completion of due diligence, ministerial approval and listing approval from the ASX.

The Company, together with ANSTO, continued to develop its next-generation LieNA® processing technology, a unique method of refining fine or low-grade spodumene to produce high-purity lithium chemicals, which can then be used as direct feed for the production of LFP to supply the currently booming global market for LFP batteries.

By targeting what is generally considered 'waste' spodumene, LieNA® has the potential to not only expand current hard-rock lithium resources (thereby reducing mining costs) but also enhance the sustainability of lithium chemical production worldwide.

During the quarter a purpose-built autoclave, the final component required for the construction and commissioning of the Company's LieNA® pilot plant, was assembled and pre-commissioned, in conjunction with the autoclave supplier and its Australian agent. The now assembled and pre-commissioned LieNA® autoclave at ANSTO is pictured below.

ANSTO is working to gain operational approvals for the LieNA® autoclave, and on commissioning the LieNA® pilot plant, during the second quarter of 2022.

Given the delays encountered during installation and commissioning of the autoclave and pilot plant as a result of COVID-19 in Australia, the funding and licensing agreement between the Company and German natural resources holding and investment company Deutsche Rohstoff AG has formally ended (for details of that agreement, see ASX release of 29 April 2021) however negotiations are ongoing forfuture development of the technology. The Company also seeks additional partners to provide samples for testing of its innovative process for the extraction of lithium from waste spodumene.

The Company's intellectual property (IP) portfolio grew in the March quarter. Specifically, notification was received from IP Australia that a standard patent had been received for patent number 2019310188, titled 'Caustic conversion process', which the Company has named LieNA® Generation 2. For more details, see theASX release of21 December 2021.

Corporate and financial

Cash

As at 31 March 2022, the Company had cash reserves of $8.0 million (31 December 2021: $11.8 million) and no debt.

Investments at fair value

As at 31 March 2022, the Company held investments in Australian- and Canadian-listed shares of $9.8 million (31 December 2021: $6.9 million).

Securities

During the quarter, a total of $0.254 million was raised by LITCF shareholders fully paying up their LITCF partly paid shares and an option holder converting options.

Proceedings on behalf of the Company

As disclosed in the 31 December 2021 half-yearly financial report, Envirostream has been served writs regarding statements of claim for damage caused by a fire at 31 Colbert Road, Campbellfield, Victoria on 19 January 2019. These claims are currently being managed by Envirostream's insurance company and the Company expects some or all of the amounts to be reimbursed. As at 31 December 2021, the claims were estimated to total A$5 million (included as a provision) and at quarter's end the Company believes this remains a reasonable estimate.

Company announcements

The full list of Company market announcements released during the quarter is as follows.

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