Announcement PDF ANNUAL REPORT 2023 Company information Contents DIRECTORS Mick Wilkes Bob Katsiouleris Melissa Holzberger Austen Perrin James Marsh Letter from the Chair 4 Managing Director’s report 6 Operations review 8 Non-executive Chair Managing Director Non-executive Director Non-executive Director Executive Director, Sales & Marketing The Great White Project 10 Commercial Strategy 11 Exploration 21 COMPANY SECRETARY Sarah Clarke General Counsel and Company Secretary Hammerhead Deposit 23 ANDROMEDA METALS LIMITED Tiger Deposit 24 ABN: 75 061 503 375 ASX code: ADN REGISTERED AND PRINCIPAL ADDRESS Level 10, 431 King William Street Adelaide, South Australia 5000 CONTACT DETAILS Telephone: +61 8 7089 0600 ir@andromet.com.au www.andromet.com.au SHARE REGISTRY Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide, South Australia 5000 GPO Box 1903, Adelaide, SA 5000 Enquiries (within Australia): Enquiries (outside Australia): 1300 556 161 +61 3 9415 4000 AUDITORS Deloitte Touche Tohmatsu 11 Waymouth Street Adelaide, South Australia 5000 SOLICITORS Minter Ellison Lawyers 25 Grenfell Street Adelaide, South Australia 5000 BANKERS Westpac Banking Corporation 155 Unley Road Unley, South Australia 5061 2 AN DROME DA M E TAL S L IM ITE D Great White Deposit 22 Eyre Kaolin Project 25 Mt Hope Kaolin Project 26 Wudinna Gold Project 27 Moonta Copper Gold Project 27 Drummond Epithermal Gold Project 28 Corporate 29 Sustainability 30 Schedule of tenements 41 Reserves and resources 43 Competent person statements 47 Directors’ report 49 Remuneration report 58 Auditor’s independence declaration 76 Financial report 77 Directors’ declaration 113 Independent auditor’s report 114 Shareholder information 119 Glossary 121 Highlights Program for Environment Protection and Rehabilitation (PEPR) Lodged Land Access and Acquisition Agreements Signed Procurement of Long Lead Items Ordered Bankable Feasibility Study (BFS) Released Debt Funding Data Room Opened Rigorous Commercial Strategy Developed Product Portfolio – Core and Complementary Refined Updated Definitive Feasibility Study (2023 DFS) Released Approved Andromeda – strongly positioned for growth Tier 1 mining jurisdiction Exploration endowment Mineral resources Ore reserves South Australia Large portfolio of exploration tenements, totalling 8,348km² including earn-ins Kaolin Mineral Resource: >110Mt of Resources Kaolin Ore Reserve (GWKP): 15.1Mt of Reserves Mining lease & PEPR Land acquisition 2023 DFS Experienced team Great White Kaolin Project Mining Lease granted Agreements signed to acquire land covered under Mining Lease 65% increase in pre-tax NPV to $1.01 Billion Experienced and industry focused Board and Executive team Environmental Management Plan submitted and approved Subdivision of land progressed Average annual EBITDA increased by 59% to $130 million A NNUA L R E P O R T 2 0 2 3 Construction ready 3 Letter from the Chair Dear Shareholders, Welcome to the Annual Report covering the Financial Year 2023 for Andromeda Metals Limited (Andromeda). Looking over the past year, the Company made some crucial changes that has enabled significant progress to be made in the planned development of The Great White Project (TGWP or Project). We continued moving towards making a final investment decision while progressively de-risking the Project and evaluating funding arrangements that best suit the long-term interests of the Company and its shareholders. These progressive steps are part of the invigorated long-term strategy to bring our product to the broader global market. The staged approach to development was refined to reduce the initial capital investment required, through the construction of an initial Stage 1A Plant. The reduced capacity of Stage 1A was deemed prudent as it more closely matches production to signed offtake volumes in place and being negotiated. In August 2022, the Program for Environment Protection and Rehabilitation (PEPR) was lodged with the South Australian Department for Energy and Mining (DEM) and, subsequently, approved in March 2023. During the year, a number of additional offtake agreements were signed across our portfolio of halloysite-kaolin products to cover a significant proportion of planned Stage 1A production capacity. The growth profile of these agreements, as well as ongoing negotiations with several other potential customers, continue to provide us with the confidence that further offtake agreements will be signed. 4 AN DROME DA M E TAL S L IM ITE D To support the planned development of TGWP, the Board considered it appropriate to strengthen executive management capacity and capabilities. Accordingly, in October Joe Ranford was appointed Chief Operating Officer, moving from being a part-time consultant to a full-time employee, and subsequently resigned as a Director in November, to solely concentrate on advancing TGWP. In January, Sarah Clarke was appointed as General Counsel & Company Secretary, bringing these functions in-house and reducing the cost of external consultants. Also in January, Bob Katsiouleris was appointed Managing Director and Chief Executive Officer. Bob joined Andromeda in April, with James Marsh transitioning to the role of Executive Director, Sales and Marketing. In April 2023, the Research Agreement related to the carbon capture and conversion project (CC&C Project) with the University of Newcastle was terminated, by mutual agreement. The termination followed ongoing delays in the progress of the CC&C Project, including with the certification process for components of the Carbon Capture Pilot Plant and its set up and installation by GICAN, following its arrival in Newcastle. Andromeda retains control of the CC&C business opportunity and ownership of the CC&C Project intellectual property and the right to continue the CC&C Project and seek to further develop the opportunities identified, with suitable partners. In considering funding arrangements it was necessary to develop a Bankable Feasibility Study (BFS) to underpin the Company’s ability to secure a proportion of the funding required for TGWP’s development through debt. Letter from the Chair In June, a virtual data room was opened to a number of debt-only financiers, for the purpose of pursuing debt financing discussions. Additionally, following Bob's appointment we have been in discussions regarding a range of other potential funding options. For these discussions to progress in earnest, it was necessary to update the Definitive Feasibility Study (2023 DFS) covering planned production over the full 28 year life-of-mine. Importantly, this updated DFS reflects a comprehensive review of the Company’s corporate positioning and business strategy. This significant piece of work, which Bob explains in detail in his Managing Director’s Report, and announced subsequent to year end, added significant incremental value from the 2022 DFS further confirming the long-term viability of TGWP. In my letter last year, I also wrote how Andromeda acknowledges the importance of committing to safe and sustainable operations and extraction practices. As the Company moves towards production, it continues to aspire to adopt, monitor and report on relevant frameworks and metrics that emerge from the developing consensus and convergence of Environmental, Social and Governance (ESG) frameworks and standards. This year, I am pleased to say that we have progressed our journey through the inclusion of a Sustainability section in this year’s Annual Report, which can be found on page 30. The Board continues its commitment to responsible financial and business practices, and the highest standards of corporate governance. Last year, the Board made a number of changes to remuneration practices which continued to be embedded. I invite you to read about these in the Remuneration Report, starting on page 58 of this Report. Thank you to all our stakeholders, in particular, I would like to thank all of our staff, led by Bob, for their ongoing commitment. Finally, I would like to thank you, our shareholders, for your ongoing support. It has been a difficult year for the Company, as it has been for many industrial minerals companies, as we transition to a developer and producer of high quality kaolin, but rest assured the Board and Management remain committed and focused on maximising shareholder value through a considered and methodical approach to advancing TGWP’s development. Yours sincerely, Mick Wilkes Non-executive Chair In the Sustainability section, you can read more about how we measure our anticipated Scope 1, 2 & 3 greenhouse gas (GHG) emissions and the plans we have to reduce them over time and as anticipated production expands. A NNUA L R E P O R T 2 0 2 3 5 Managing Director's report Andromeda’s commercial strategy continuously defines: “Where we want to play, why we want to play there, who we want to play with, and when.” My fellow Shareholders, This is the first Annual Report in which I write to you, having commenced in my role in April this year. Following my appointment, many shareholders have asked the question of what drove me to move to Adelaide and take on this role. The fact is, I first became aware of the significant size and high quality nature of the resource underpinning TGWP, over 15 years ago, and simply thought and believed that the time to commercialise it is “now”. At the time, both James Marsh and I worked for the same global kaolin company and looked forward to a time when the challenge of developing a resource located so far away from traditional kaolin markets, could be overcome. At Andromeda, we now believe that time has come! Focused approach to advancing TGWP Since commencing in my role, my singular aim has been to narrow the focus of the business, with the aim of accelerating the progress of the development plans and financing options to support a final investment decision (FID) for TGWP being made. This focused approach sought to prioritise activities that support TGWP’s accelerated development, bringing forward the expected generation of revenue and cashflow linked to our world class deposit. Business positioning and commercial strategy To do this, the Company undertook a review of its business positioning and a rigorous, expedited approach to revising its Commercial Strategy. As the proud owner of what are believed to be some of the last great white mineral deposits in the world, Andromeda revised its vision to becoming “The Great White Mineral Company”, with the ambition of leading the world in the sustainable supply of superior quality industrial minerals. 6 AN DROME DA M E TAL S L IM ITE D Andromeda’s revitalised Commercial Strategy involved identifying key priority markets and segments, that would attract above market value in use opportunities for Andromeda’s kaolin products, which would in turn be accretive to the value of TGWP’s development over the Life-of-Mine (LOM). In doing so, the commercial strategy identified a product portfolio that balances a rigorous segmented market to mine approach with a disciplined and optimised mine to market response. You can read more about Andromeda’s Commercial Strategy on page 11. This led to interesting opportunities that weren’t previously considered, and some difficult decisions being made. In addition to confirming Great White CRM™ and Great White KCM™90 as having an above market value in use in porcelain tableware, an additional application for Great White CRM™ in ceramic tiles and glazes was found to have a potentially high value in use, due to its world-class high alumina/low iron ratio and rheological properties. Whilst Great White HRM™ is subject to ongoing end customer validation, an independent study has demonstrated that Great White HRM™ is a costeffective additive to decarbonise concrete, through enabling an 8% reduction in cement and water required, leading to an over 7% reduction in Global Warming Potential. Additionally, an emerging shortage of industrial sand, both in Australia and South East Asia, was identified. This led to the opportunity to turn what had been considered as waste previously, both coarse and fine industrial sand, into revenue and margin accretive co-products. Managing Director's report This now sees Andromeda’s core and complementary product portfolio, defined as: CORE COMPLEMENTARY Great White CRM™ Great White HRM™ Great White KCM™90 Industrial sand This enhanced product portfolio targeting high value markets was incorporated into the 2023 DFS, along with an updated mine development plan (based on the Mine to Market response) that supported an accelerated sales profile and reduced costs across the LOM. This led to the 2023 DFS, whose outcomes were announced following the end of the financial year, that delivered significantly improved economics and an increase of 65% in pre-tax net present value (NPV) to over $1.1 billion, over the 2022 DFS2. Unfortunately, the difficult decisions that needed to be made included pausing some of our research and development activities, including into producing high purity alumina (HPA) and carbon capture. These activities will require further research and investment which the Company will consider once its generating cashflow or should a suitable partner be identified. Reflecting over the past year, the Company has achieved numerous and significant milestones in progressing TGWP to the point of an anticipated final investment decision being made in the coming months. Procurement activities for long lead items commenced, with all items now on order. Ongoing negotiations for additional binding offtake agreements continue, which provide support for the planned development of Stage 1A and subsequent expansion. The Project is construction ready, with the required permits in place and a committed Project Team poised for delivery. We continue to assess potential funding arrangements that are appropriate for the Project. With the 2023 DFS recently completed, we can now progress our funding strategy to support an anticipated FID being made. Supporting us in this endeavour, are our legacy metal assets, where we continue to seek opportunities to realise maximum shareholder value through divesting our gold and copper projects, while minimising the cost and management time incurred. Progressing the Project represents a significant, longterm opportunity for Andromeda, you our shareholders, the local Eyre Peninsula community and the South Australian economy. Andromeda is well-positioned to continue the advancement of TGWP through to anticipated development and, together with the numerous growth opportunities in front of us, this provides me with confidence of achieving success in executing on our strategy and in delivering long-term value for you, our shareholders. Yours sincerely, Bob Katsiouleris Managing Director & CEO 2 Refer ADN ASX dated 24 August 2023 titled 2023 Definitive Feasibility Study Results. A NNUA L R E P O R T 2 0 2 3 7 Operations review is an Australian company with the vision to be “The Great White Mineral Company”, with the ambition of leading the world in the sustainable supply of superior quality industrial minerals. Andromeda’s aim is to develop its globally significant, high-quality resources into world-class mining operations that produce superior quality halloysite-kaolin products with high value in use, for supply to key target segments across growing global markets. Andromeda is the proud owner of what are believed to be some of the last great white mineral deposits in the world: a unique blend of bright kaolinite and halloysite clays, producing a refined product with a high average alumina content of greater than 36%. Through developing The Great White Project (The Project or TGWP), Andromeda is focused on leveraging the potential of this unique, world-class resource for the long-term benefit of our shareholders, the local Eyre Peninsula community and the South Australian economy. Together with our portfolio of halloysite-kaolin projects, Andromeda is also exploring several copper and gold prospects across Australia in conjunction with joint venture partners. Our strategy is to leverage our joint venture relationships to maximise shareholder value through divesting these assets, while also minimising the cost and management time incurred developing them. Our purpose Through the use of our industrial minerals and nanotechnologies we strive to enrich the lives of people by improving the environment, creating prosperity for our shareholders and delivering value for our stakeholders. Our vision Our mission To become “The Great White Mineral Company and lead the world in the safe, sustainable supply of superior quality industrial minerals and technologies. Develop TGWP and leverage its high quality halloysite-kaolin resources to develop a new industry supplying high value in use products to supply growing key targets segments and markets. Our values Innovation Teamwork Integrity Quality Andromeda’s team is passionate about developing, commercialising, and monetising TGWP and, our other high-grade kaolin deposits. The safety and wellbeing of our employees and our communities is our first priority. 8 AN DROME DA M E TAL S L IM ITE D Operations review Overview of Andromeda’s current projects and resources Halloysite-Kaolin CAMEL LAKE Kaolin GREAT WHITE Kaolin MOUNT HOPE Kaolin EYRE Copper Gold MOONTA Gold WUDINNA THE GREAT WHITE PROJECT (TGWP) MOONTA COPPER GOLD PROJECT Flagship project with 15.1Mt Ore Reserve and Resource ~100Mt3. Joint venture for potential extraction of copper via in-situ recovery (ISR) with Environmental Metal Recovery Pty Ltd. 2023 DFS underpins 28-year operation with pre-tax NPV of $1.01 billion4. EYRE KAOLIN PROJECT / MOUNT HOPE KAOLIN PROJECT / CAMEL LAKE PROJECT WUDINNA GOLD PROJECT Joint venture exploration for potential development of gold and rare earth elements (REE) deposits and prospects with Cobra Resources PLC over six tenements covering 1,832 km2. Projects focused on expanding halloysite-kaolin resources, across six tenements covering 3,481 km2. 3 Refer ADN ASX announcement dated 6 April 2022 titled Great White Kaolin Project - Definitive Feasibility study and Updated Ore Reserve. 4 Refer ADN ASX dated 24 August 2023 titled 2023 Definitive Feasibility Study Results. A NNUA L R E P O R T 2 0 2 3 9 Operations review The Great White Project SOUTH AUSTRALIA 100% Andromeda The Great White Project (TGWP) is a wholly owned project that includes several high-quality deposits of halloysite-kaolin, containing naturally occurring kaolinite plates and halloysite tubes. TGWP comprises three tenements centred within the District Council of Streaky Bay, approximately 15 km southwest of the township of Poochera. Poochera is located on the Eyre Highway about 635 km northwest by road from Adelaide and 65 km east of Streaky Bay, on the Eyre Peninsula in South Australia (Figure 1). Subject to making a final investment decision with respect to TGWP, Andromeda aims to become a globally significant supplier of high-quality kaolin products to growing segments in global markets. Andromeda has continued to progress and de-risk The Project’s development. During FY23, this included the submission of the PEPR to, and subsequent approval by, South Australia’s Department for Energy and Mining. Additionally, land purchase agreements were signed and the process of subdivision for the eventual transfer of ownership to Andromeda, were progressed. The Project has highly valued kaolinite and halloysite mineral deposits with a world-class iron to alumina ratio , outstanding mechanical strength, exceptional fired brightness, and distinctive rheological properties. 134° 136° 138° Roxby Downs Tarcoola Woomera S OUTH AUSTRALIA Ceduna 32° ML 6532 – Great White Deposit Streaky Bay Great White Project Port Augusta Poochera Whyalla Kimba Lucky Bay 34° Port Pirie Kadina GREAT AUSTRALIAN BIGHT Port Lincoln Adelaide 36° Main road Railway Town Lake Exploration Licence 0 100 200 Kilometres AND SA11 Figure 1 The Great White Project regional location map. 10 AN DROME DA M E TAL S L IM ITE D Operations review The Great White Project COMMERCIAL STRATEGY Andromeda’s commercial strategy identified a product portfolio that balances a rigorous segmented market to mine approach with a disciplined and optimised mine to market response. Andromeda’s commercial strategy map is presented in Figure 2. Through the rigour of applying the methodology behind the Commercial Strategy Map, Andromeda understands the key drivers in both the macroenvironment and microenvironment in which it operates. From this understanding, strategic white mineral market opportunities are identified. Through Andromeda’s market to mine approach, white mineral options are proposed for those strategic market opportunities with the greatest business potential. MAR KET TO M I N E To be the “Best” white mineral company in the world, Andromeda will support selected customers in targeted high value market segments of non-commodity markets. These markets include high quality ceramic tiles, ceramic porcelain tableware and low-carbon concrete production. Micro environment Strategic market opportunities Strategic Lens Megatrend response solution The “Best” aligned Return on invested capital/CCC Market and technical validation Strategic White Mineral product options Core business products Great White CRM Great White CRM Great White KCM Complementary business products Great White HRM Industrial sand Adjacent business opportunities High-purity alumina Carbon capture Mine responce M IN E TO MAR KET TGWP, fueled by the team’s passion, will be Andromeda’s economic engine for its strategic intent to become the “Best” white mineral company in the world. The Great White Mineral Company Macro environment LOM value accretive LOM plan and mine schedule LOM product wet metric tonnes Great White Great White CRM CRM 3,485,586wml 3,518,962wml Great White KRM 305,881wml Great White HRM 750,734wml Sales plan EXECUTION The Andromeda team is passionate about developing, commercialising, and monetising TGWP and, in time, Andromeda’s other unique high-grade kaolin deposits. Marketing and sales strategy Sales and operational planning Figure 2 Andromeda’s commercial strategy map. Figure 3 Images show (from left) raw kaolin clay from Andromeda’s TGWP, which is then refined and processed, before being graded and packaged into various products that meet our clients’ exacting specifications. A NNUA L R E P O R T 2 0 2 3 11 Operations review The Great White Project Products within Andromeda’s product portfolio may interchange from core to complementary to adjacent business lines. They may also be replaced by other newly originated white mineral products, dependent on measurable performance success in respective market segments. Andromeda’s commercial strategy uses both top down, market to mine, and bottom up, mine to market, approaches to carefully determine the most suitable markets to engage and strategically supply. The marketing and sales strategy is essential to ensure the success of the product in the market. Andromeda’s commercial strategy map and methodology continuously defines: “Where we want to play, why we want to play there, who we want to play with, and when.” The commercial strategy map and methodology assist in providing direction towards the markets best suited for TGWP products, the underlying drivers for why they are the best suited, and the key customers, stakeholders, partners and competitors anticipated response. By determining the “where”, Andromeda can identify and efficiently capture the value in use potential for both preferred customers and for Andromeda alike. By understanding and actively revisiting the “why”, Andromeda is able to respond and adjust to prevailing market conditions. The “who” will evolve over time as customers, stakeholders, partners and competitors will be driven by different strategic imperatives. By keeping a disciplined approach across the commercial strategy map and methodology, Andromeda will have the commercial tools in place to understand these changing imperatives in order to prepare and capitalise or mitigate sustainably. More importantly the methodology allows a “first mover” response to leading macro and micro indicators. 12 AN DROME DA M E TAL S L IM ITE D MARKET TO MINE Macroenvironment The macroenvironment has a significant influence on the success of Andromeda’s marketing efforts. The key macroenvironment elements considered by Andromeda on an ongoing basis, are: • Geopolitical risk • Decarbonisation • Urbanisation and social trends • Macroeconomics • Shipping and ports • Kaolin markets • Water and energy • Regional economies Consideration of the global kaolin macroenvironment has determined that the low-margin and/or high entry cost markets of polymer, paper, pharmaceuticals and paint commodity markets will not be the focus for Andromeda. Analysis of these factors identified the following key target markets for Andromeda to be: • High quality ceramic tiles • High quality ceramic porcelain tableware • Low carbon concrete production • Industrial sand. Microenvironment The microenvironment has a significant influence on the success of Andromeda’s marketing ventures. The key microenvironment elements considered by Andromeda on an ongoing basis, for each key target market are: • Global supply and demand • Addressable market opportunities • Contestable markets • Product end use validation • Competitor product, profiles and competitive positioning. Operations review The Great White Project Megatrend response solution Strategic lens Andromeda’s strategic lens is an essential decision-making tool in the market to mine stage of the strategic map methodology. This tool is used to successfully identify strategic white mineral product options by determining how best to take advantage of macroenvironment and microenvironment trends and ultimately drive value creation. Aligned with the “Best” Return on capital Cash conversion cycle (CCC) How we identify strategic market opportunities and evaluate them against our three key strategic criteria: 1. Megatrend response solution This criterion is based on the need for the white mineral product options to respond to one or more of the following key megatrends: » Urbanisation » Decarbonisation » Technology Figure 4 Andromeda’s strategic lens. Andromeda defines the outer ring as ‘enablers of optionality’. Each enabler is addressed with some key questions: • Partnerships » Does Andromeda currently have a strategic partnership in place for this opportunity? » Are there strategic partnerships available for this opportunity? » Does this opportunity require a strategic partnership? » Would this opportunity benefit from a strategic partnership? 2. Aligned with the “Best” White mineral products are assessed against the best-in-class value in use, where this could result in premium pricing in selected target market segments. 3. Return on capital investment; Cash conversion cycle • This is a core competency for Andromeda, this determines who to sell to, on what terms and how quickly cash flow into the business could occur. Opportunities are assessed according to the above criteria, then allocated to the corresponding numbered circles in Andromeda’s Strategic Lens, as depicted in Figure 4. • Evaluating all opportunities against these strategic criteria is required to appropriately assess and pursue those that maximise the value creation potential for Andromeda. • Resources » Does Andromeda have access to the geological, financial, physical and human capital resources for this strategic opportunity? » Does this opportunity require additional resources? » Is there market demand for the geological resource? Regions » Does Andromeda have access to the region where there is demand for this opportunity? » Does this opportunity target regions of interest? » Does this opportunity address demand/supply shortfalls of certain regions? » What is the effect of the opportunity given the location of TGWP? Time » Is there an immediate need in the market currently that this opportunity responds to? » Can Andromeda respond in a timely way with this opportunity? » What is the time requirement of this opportunity? REPORT 2023 13 Operations review The Great White Project CRMTMP CRMTMT KCMTM • Megatrend response solution • Aligned with the “Best” • Return on investment • Megatrend response solution • Aligned with the “Best” • Return on investment • Megatrend response solution • Aligned with the “Best” • Return on investment Industrial sand • Megatrend response solution • Return on investment HPA • Megatrend response solution HRMTM • Megatrend response solution • Return on investment Carbon capture • Megatrend response solution Figure 5 Andromeda’s product portfolio. The bidirectional arrows around the outer ring represent the flexibility between the enablers and how these navigate optionality. Therefore, the focus between lenses is in response to changing circumstances or strategic priorities. Opportunities are first considered against the enablers and then against the strategic criteria. It must be understood that this is a dynamic strategic lens, and although an opportunity may initially be placed in one area this is not fixed and should be reassessed proactively. This ensures opportunities capitalise on favourable conditions. The lens encourages well-informed choices that contribute to long-term success and competitiveness through understanding the strategic criteria and their interplay. Ultimately outputting prioritised potential white mineral product options f