Quantum Graphite : Interim Financial Statements 31Dec2021

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ASX Appendix 4D

under ASX Listing Rule 4.2A.1

DETAILS RELATING TO DIVIDENDS

No dividends are proposed and no dividends were declared or paid during the current or prior period.

NET TANGIBLE ASSETS

OTHER

Additional Appendix 4D disclosure requirements and further information can be found in the Financial Report for the Half Year to 31 December 2021.

This report is based upon the Financial Report for the Half Year to 31 December 2021 which has been reviewed by RSM Australia Partners. The auditors have issued an unmodified opinion.

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Directors' Report

The Directors of Quantum Graphite Limited present their Report together with the financial statements of the Group for the half year ended 31 December 2021.

Board of Directors

The directors of Quantum Graphite Limited during the financial year and up to the date of this report were:

Review of Operations and Financial Results

The loss of the consolidated entity for the period was $1,146,673 (31 December 2020: loss of $407,806). The loss results primarily from the ongoing technical activities related to the Uley 2 project, the downstream technical activities undertaken within the Quantum Sunlands Partnership (QSP) and costs associated with the requotation of the Company's securities. The Company's financial performance remains broadly in line with plan.

1. Requotation of the Company's securities

Our shareholders are aware of the significant additional resources committed by the Company to the requotation of the Company's securities on 14 December 2021. Whilst the Board is pleased with the outcome it remains disappointed that it was denied resuming trading despite the filing of unqualified financial statements for the period immediately following the financial statements giving rise to the suspension of trading in the Company's securities.

As the Board outlined in its release to the market in October 2020 and again in the 2021 Half Year Report, COVID- 19 detrimentally impacted both the level of industrial activity in our markets and access to project funding at that time. However, this in no way detracted from the market trend in technology and battery minerals and Uley 2's position as the leading graphite project available globally.

Frustrating for us all was the increase in both market activity and the value of companies in the natural flake graphite sector within weeks of the suspension of trading in the Company's securities. The market capitalisation of ASX listed companies multiplied with significant capital raisings completed for companies whose projects are at best no further progressed than Uley 2. It was cold comfort for the Board that its assessment that capital markets funding for such projects would and did resume with renewed strength was proven correct.

1. Director Remuneration

Following shareholder approvals obtained at the 2021 AGM, the Company issued directors with 3,432,878 shares at $0.09 per share as their quarterly director fees for the period 1 January 2021 to 31 December 2021:

1 Shares issued to Directors represent compensation for the period 1 January 2021 to 31 December 2021.

The issued and outstanding securities following the above issue are 293,000,000 fully paid ordinary shares and 28,571,429 options.

1. Continued Technical Work on Uley 2 Flake Products

With the completion of the Uley 2 (Stage 1) definitive feasibility study in the first half of FY2020, the Company continued the technical work aimed at further improvement to the purity of the Uley 2 coarse flake specification. As most of this work is being conducted at high temperatures, the Company is taking advantage of the synergies with the high temperature test work being undertaken by QSP.

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Directors' Report (continued)

1. Sales and Marketing Strategy

The Company was disappointed that it could not conclude agreements in CY2021 despite extending its sales and marketing activities in North Asia and North America. These activities have been the subject of prolonged delays and interruptions due to the impact of COVID-19. During the period, and especially following the Northern hemisphere winter, the deepening impact of the pandemic resulted in structural shifts in work patterns and production cycles. The level of industrial activity, whilst improving, remained subdued.

Despite this challenge the Company is very well positioned to conclude supply agreements and existing negotiations are at advanced stage. Importantly the Company's strategy to expand its focus to North Asia (i.e., ex China) has provided further support to the Board's planning for the expansion of Uley 2 beyond Stage 1 as one of the Company's key priorities.

1. Capital Raising and Uley 2 Financing

The Company is progressing its European bond financing plans and interest from other prospective financiers of Uley 2 continued to be fielded during the period. For much of the second half of the reporting period the Company's resources were largely diverted to the requotation of our securities and the Uley 3 drill program. This slowed our progress on the bond financing but work on the proposal has recommenced this quarter with a focus on the identification of the major risk mitigants for the financing such as offtake partner credit exposure and process plant construction and commissioning risks.

Other equity capital raising initiatives were pursued in the lead up to the requotation of the Company's securities. The Board was very pleased with the response from the market and investor feedback remains very positive. As at the date of this report, the Company's share price has delivered solid returns for our shareholders.

1. Flake Graphite Market

As indicated in prior announcements, the market for Uley 2 material remains unchanged from the prior period. Global supply of flake size of greater than 150 microns remains tight and the limited capacity of major Chinese producers to expand production in this area will continue to support firm prices for the foreseeable future. The Company maintains its market expectations that modest growth in demand in this area will have a significant impact on price.

Uley 3 Drill Program and Update to 2019 JORC 2012 Mineral Resources Estimate

During the period the Company completed the Uley 3 drilling program. Despite the challenges of mobilisation across three states during the height of the pandemic, we were pleased to successfully complete the program, rehabilitate the drill site and announce a maiden Mineral Resource estimate (MRE) for Uley 3.

The program targeted the geophysical anomaly, previously referred to as the Eastern Conductor. The MRE is reported under the JORC 2012 guidelines. The maiden MRE confirms the continuation of graphitic mineralisation to the east of Uley 2 along strike to the north of drill holes previously targeting the Eastern Conductor/Uley 3 geophysical anomaly. Importantly mineralisation remains open along strike to the south and north and at depth, well within the Company's Mining and Retention leases.

Thermal Energy Storage Initiative - Formation of Quantum Sunlands Partnership (QSP) with Sunlands Co.

The Company's collaboration with Sunlands Co. was transformed to a manufacturing partnership responsible for production of the thermal storage media to be fitted in Sunlands Co.'s thermal energy storage cells. The Board has viewed the relationship with Sunlands Co. as a strategic opportunity to participate in the global energy markets. QSP converts this relationship to a structural arrangement within which the Company will play a critical role in delivering Sunlands Co.'s proprietary thermal energy storage technology to the global energy markets.

Investors have recognised that QSP adds both a major downstream business and material diversification from the Company's traditional flake graphite markets including refractories and related thermal management products such as foils and expandables.

Our diversification is a key differentiator from all other graphite mining companies. Most of these companies do not produce a specification that is acceptable to manufacturers of high-end refractory products and almost all of the emerging graphite companies of the last 5 to 7 years are critically dependent on the acceleration of the growing demand from the electrical vehicles market.