Sunrise Energy Metals : Half Year Accounts - December 2021

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Half-year Financial Report 31 December 2021

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Contents

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Directors' report

For the financial half-year ended 31 December 2021

The directors present their report, together with the financial statements, on the Consolidated Entity consisting of Sunrise Energy Metals Limited (referred to hereafter as the 'Parent Entity', 'the Company' or 'Sunrise Energy Metals') and the entities it controlled (referred to hereafter as the 'Consolidated Entity'), for the financial half‑year ended 31 December 2021, referred to hereafter as the 'financial half‑year', and the auditor's review report thereon.

DIRECTORS

The following persons were directors of Sunrise Energy Metals Limited during the whole of the financial half‑year and up to the date of this report, unless otherwise stated:

Robert Friedland (Co‑Chairman and Non‑Executive Director)

Jiang Zhaobai (Co‑Chairman and Non‑Executive Director)

Sam Riggall (Managing Director and Chief Executive Officer)

Stefanie Loader (Lead Independent Non‑Executive Director)

Eric Finlayson (Non‑Executive Director)

Trevor Eton (Non‑Executive Director)

PRINCIPAL ACTIVITIES

During the financial half‑year the principal continuing activities of the Consolidated Entity consisted of the development of the Consolidated Entity's Sunrise Battery Materials Complex ('Sunrise Project') in New South Wales utilising the Company's Clean‑iX® resin technology for extraction and purification of a range of metals as well as progressing exploration activities at the Company's other mineral tenements ('Metals Division').

During the financial half‑year the Consolidated Entity completed a reorganisation of its water purification business which is focused on the engineering design, procurement and commissioning of water treatment plants for clients in the municipal, industrial and mining sectors as well as being actively engaged in research and development into complementary value adding new technologies including the development of a graphene oxide membrane for water filtration ('Water Business'). During the financial year ended 30 June 2021 the assets and liabilities associated with the Water Business were transferred into a new entity, Clean TeQ Water Limited ('Clean TeQ Water'). On 1 July 2021 the Consolidated Entity disposed of its interest in the Water Business when it undertook a capital reduction by way of an in‑specie distribution to Sunrise Energy Metals shareholders of all of the shares in Clean TeQ Water. As such, the Water Business is presented herein as a discontinued operation.

There have been no other significant changes in the nature of the Consolidated Entity's activities during the financial half‑year.

DIVIDENDS

There were no dividends paid, recommended or declared during the current financial half‑year or previous financial year.

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Directors' report

Continued

REVIEW OF OPERATIONS

The Consolidated Entity reported a net loss after tax from continuing operations for the financial half‑year of $10,200,000 (31 December 2020: loss of $8,624,000). During the financial half‑year, the Consolidated Entity's revenue from continuing operations increased to $317,000 (31 December 2020: $27,000).

The continuing development of the Sunrise Project resulted in an $8,328,000 net cash outflow from operating activities during the financial half‑year (31 December 2020: net outflow $11,578,000). This net cash outflow from operating activities was financed largely from existing cash reserves.

The Consolidated Entity's net assets increased during the financial half‑year by $6,634,000 to $29,122,000 (30 June 2021: $22,488,000). Working capital, being current assets less current liabilities, was a surplus of $29,100,000 (30 June 2021: $22,458,000 surplus), with cash reserves decreasing from $54,657,000 to $29,305,000 during the financial half‑year.

SUNRISE BATTERY MATERIALS COMPLEX

During the financial half‑year, the Consolidated Entity continued to progress the development of the Sunrise Battery Materials Complex ('Sunrise Project') and its portfolio of exploration tenements. A range of workstreams remain ongoing to progress a number of value‑adding deliverables aimed at minimising Project start time once funding is secured.

Conditional finance support from Export Finance Australia

Following the end of the financial half‑year a letter of conditional finance support was received from Export Finance Australia ('EFA') for up to A$400 million of debt funding for the Sunrise Project.

EFA is Australia's export credit agency and provides financial solutions to support Australian exporters through loans, guarantees, bonds and insurance. EFA also manages the Australian Government's $2 billion Critical Minerals Facility which was established in 2021 to support projects that are aligned with the Australian Government's 'Critical Minerals Strategy' and are otherwise in Australia's national interest.

Major Project Status Award

During the financial half‑year the Australian Minister for Industry, Energy and Emissions Reduction, the Honourable Angus Taylor MP, awarded Commonwealth Government 'Major Project Status' to the Sunrise Project. The award of Major Project Status formally recognises the significance of the Sunrise Project to the Australian economy and regional communities in New South Wales.

Permitting and Approvals

The Consolidated Entity completed a Project Execution Plan ('PEP') in late 2020. Undertaken by an integrated Sunrise Energy Metals and Fluor Australia Pty Ltd team, the PEP updated the 2018 Definitive Feasibility Study, incorporating revised cost estimates, updated design and engineering work as well as a revised master schedule for the engineering, procurement, construction, commissioning and ramp‑up of the Sunrise Project. The PEP resulted in several enhancements to the project layout and design, requiring a handful of modifications to be made to the Sunrise Project Development Consent - the key NSW state government approval. During the financial half‑year the Consolidated Entity progressed the process for approval of these modifications. Final approval of these modifications (Mod 7) was received in January 2022.

Progress continues on the long‑lead electrical transmission line work scope. The application to connect to the NSW electrical grid is currently in progress and will continue through CY22. Connection to the NSW electrical grid is a key enabler of the Consolidated Entity's commitment to procure renewable energy to supply 100% of the Sunrise Project's external power requirements.

The Consolidated Entity has also continued to progress commercial discussions with landowners, local councils, the NSW State Government and other impacted parties required for land access agreements for key infrastructure including the water pipeline and the electrical transmission line.

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Offtake

In 2017 the Consolidated Entity entered into a binding offtake contract with Beijing Easpring Material Technology Co Ltd ('Easpring') under which the Consolidated Entity committed to sell tonnages representing approximately 20% of the nickel and cobalt sulphate production for the first five years of operation of the Sunrise Project. During the financial half‑year the Consolidated Entity (with the mutual agreement of Easpring) terminated the offtake contract.

Sunrise Energy Metals now has all the production of battery materials from the Sunrise Project available for sale to strategic partners who may want product offtake as a condition of a direct investment in the Project.

Test Work Programs

The Consolidated Entity is progressing a number of research and development workstreams aimed at demonstrating the capability of the Sunrise Project to diversify further downstream into the production of precursor cathode active material as well as processing of the lithium‑ion battery recycling intermediate product, 'black mass'.

Part of this work scope will be undertaken through the Future Battery Industries Co‑operative Research Centres Program (FBICRC), of which Sunrise Energy Metals is an associate member of the independently managed government‑industry partnership to build an Australian battery industry.

Scandium Development

During the financial half‑year the Consolidated Entity entered into a binding agreement for the development of aluminium‑scandium alloys with UACJ Corporation ('UACJ'). The agreement with UACJ, Japan's largest aluminium producer, will focus on the research and future development of aluminium scandium alloys for use in transportation parts and equipment. Under the agreement UACJ and the Consolidated Entity will develop a range of aluminium‑scandium alloys for material characterisation testing in specific components. Sunrise Energy Metals will contribute its technical expertise and, over time, provide the scandium needed by UACJ for use in the alloys.

Autoclaves

The Consolidated Entity owns two autoclaves - the major component of the hydrometallurgical leaching circuit for the Sunrise processing plant - which were being stored at Port Pirie. Due to significant port maintenance works to be undertaken at the port, the autoclaves were relocated to an alternate storage location during the financial‑half year.

The autoclaves and their associated equipment are unused, in excellent condition and are ideally sized for the Sunrise Project. Manufactured with steel shells and an explosively bonded titanium lining, they are designed to withstand the operating conditions required for the effective leaching of nickel, cobalt and scandium from the Sunrise ore.

EXPLORATION

The Consolidated Entity continues to advance activities across its range of exploration assets in New South Wales.

Sunrise East (EL4573)

Exploration licence EL4573 is located to the east and west of the Sunrise Project mining lease ML1770. During the financial half‑year Sunrise Energy Metals reprocessed and modelled airborne magnetics associated with the eastern part of EL4573 which covers a strong discrete magnetic high of dimensions 2.0x1.5km. Preliminary interpretation suggested that the magnetic feature has a high potential to be an intrusive complex with numerous cross‑cutting zones of magnetic destruction associated with hydrothermal alteration.