Announcement PDF 24 August 2023 Andromeda Metals Limited ASX: ADN ASX Announcement 10/431 King William Street Adelaide, SA 5000 Tel:+61 8 7089 9800 admin@andromet.com.au ABN 75 061 503 375 The 2023 DFS delivers significantly improved economics, following a comprehensive strategy review establishing an enhanced product portfolio in high value markets Andromeda Metals Limited (ASX: ADN) (Andromeda, the Company) is pleased to release the results of an updated Definitive Feasibility Study (2023 DFS) following a comprehensive commercial strategy review and approach to developing the world-class, high quality Great White Deposit. The Great White Project (TGWP, The Project) is construction ready with the required permits in place. The Great White Project Net Present Value (NPV) increases by 65% to $1,010 million 1, and average annual earnings before interest tax depreciation and amortisation (EBITDA) increases by 59% to $130 million. The increased NPV compared to the 2022 DFS, primarily results from: • • • • • Strengthened global prices driven by geopolitical risk and global and regional supply shortages Enhanced product mix and partner portfolio Established high value in use of Andromeda products in key market segments An updated mine development plan (based on the Mine to Market response) that supports an accelerated sales profile and reduced costs across the Life of Mine (LOM) Improved weighted average product margin by 34% to $450/tonne of product The commercial strategy review confirmed The Great White Project’s kaolin core product portfolio, Great White CRMTM and Great White KCMTM 90, and identified a value in use for that is above market in established and growing segments for high quality ceramic tiles and porcelain tableware. Andromeda’s complementary product portfolio was defined as Great White HRMTM and industrial sand co-products. In addition to the current established use of Great White HRMTM as a rheology modifier, the global market for low-carbon concrete production has been identified as a further opportunity to be commercialised. Industrial sand co-products (not commercialised in the 2022 DFS) will be sold to meet the regional shortfall in the construction and infrastructure markets. Subject to additional funding, the commercial strategy review identified an opportunity for High Purity Alumina (HPA) to become part of Andromeda’s complementary product portfolio. Technical and market validation is proposed to restart, post The Project’s commissioning. It is estimated $8-10 million will be required to complete a prefeasibility study on HPA, the commercialisation of which is not included in the 2023 DFS. Andromeda is focused on the sustainable development of its future operations, through a low-impact approach to mining and processing over the life of The Great White Project, and effective, ongoing, and transparent consultation across all our stakeholders, including First Nations and the local community. For Stage 1A, it is estimated that the Scope 1 & 2 emissions (mine to gate) will be 0.097 t CO2-e per tonne of product 2, equating to kilogram per revenue figures of 0.17 per Australian dollar and 0.29 per Euro at full production. Scope 3 emissions (gate delivered to port) are estimated to be 0.184 t CO2-e/t, with Andromeda intending to reduce its operational carbon footprint as production expands. 1 2 All monetary values in this document are expressed in Australian dollars t CO2-e/t refers to tonnes of equivalent carbon dioxide per tonne of product. Bob Katsiouleris, CEO and Managing Director of Andromeda said: “The 2023 DFS represents the outcome of a rigorous commercial and business strategy review for commercialising our construction ready project, to meet rising market demand. As we move to finalising debt funding, the 2023 DFS will underpin our funding strategy for the remaining capital required to move towards anticipated construction and into production.” 2023 DFS compared to the 2022 DFS Comparison of key metrics from the 2023 DFS to the 2022 DFS are presented in Table 1 below. Table 1 Key Metrics Comparison (pre-tax) 2022 DFS 2023 DFS $613 million NPV8 3 +65% $1,010 million $4,706 Revenue +32% $6,207 million 300,000 tpa Kaolin Production Target 4 0% 300,000 tpa 15.1Mt Ore Reserve 5 0% 15.1 Mt 28 years LOM 0% 28 years $337 / tonne Weighted Average Product Margin 6 +34% $450 / tonne $82 million Average Annual EBITDA +59% $130 million $207 million Capital Costs 7 -9% $188 million 8 $26 million Sustaining Capital +36% $35 million 36% IRR +9% 45% 5.9 years Payback Period 9 -14% 5.1 years 3 All dollar values are undiscounted other than NPV 8 4 Kaolin final production volume as measured in tonnes per annum (tpa) and excludes sales of industrial sand. 2023 DFS 2022 DFS Stage 1A – 50,000 tpa Stage 1 – 150,000 tpa Stage 1B – 150,000 tpa Stage 2 – 150,000 tpa Stage 2 – 250,000 tpa Stage 3 – 300,000 tpa Stage 3 – 300, 000 tpa Stage 4 – 300,000 tpa The staged ramp-up as follows: 5 JORC compliant Ore Reserve remains as lodged in ADN ASX announcement dated 6 April 2022 titled Great White Kaolin Project - Definitive Feasibility study and Updated Ore Reserve. 6 Includes incremental revenue from sales of Industrial Sand as a co-product in the calculation 7 Capital costs for each stage of production are as follows: 2023 DFS 2022 DFS Stage 1A – $62.4m Stage 1 – $93.8m Stage 1B – $57.6m Stage 2 – $11.0m Stage 2 – $57.2m Stage 3 – $73.8m Stage 3 –$10.9m Stage 4 – $28.3m 8 Capital costs of $3.1 million have been incurred since the 2022 DFS for capital items (long lead items) and land related payments. In addition, capital costs in 2023 DFS have been impacted by favourable product mix. Capital costs of Stage 3 intended to be funded by cash flows from The Project. Andromeda Metals Limited | 2 9 Payback period includes capital costs of Stages 1A, 1B and 2. Tax treatment • Andromeda continues to report on a pre-tax basis, given it has $191 million in available tax losses to June 2022, reducing taxes payable on any future profits, subject to the normal tax rules to carry forward losses. 2023 DFS Highlights Strengthened global prices driven by geopolitical risk and global and regional supply shortages • • • The significant and growing market gap for high quality kaolin has greatly increased by the recent loss of Ukrainian kaolin, which was recognised as a world leader in quality for use in ceramic applications. Ukraine, up until 2022, was consistently recorded in the top 10 kaolin exporters, with over 1 million tonnes of kaolin exported in 2021. 10 There are currently no announced new high quality kaolin projects (>36.5% AI2O3) globally. Enhanced product mix and partner portfolio • • • • Rigorous market and technical validation coupled with a disciplined and optimised mine response identified the core, complementary and adjacent product portfolios. The exclusion of Great White PRMTM (included in the 2022 DFS) has led to enhanced product portfolio margins. Andromeda’s selected strategic partners helped develop value in use and market penetration of the product portfolio. 2023 DFS product portfolio mix is less capital intensive than the 2022 DFS. Established high value in use of Andromeda products in key market segments • • • Great White CRMTM and Great White KCMTM90 world class brightness, colour and aluminium to iron ratio was confirmed independently by ITC and IberoClays. 11 Globally, Andromeda estimates an identified contestable market for high quality ceramic tiles of 340 – 500 ktpa 12. There is a shortage of good quality construction sand across Australia, as reported by market followers. An updated mine development plan supports an accelerated sales profile and reduced costs across Life of Mine (LOM) • • • • • The new starter pit position (see Figure 1) and the first 36 months of the mine plan represent an ideal mine response to the market to mine plan, identified through the commercial strategy review. Excluding Great White PRMTM from the 2023 DFS contributed to a margin uplift. Improved sequencing of overburden removal reduced cost. Cost avoidance and additional sales will be realised by commercialising both coarse and fine industrial sand co-products. The 2023 DFS has the following product portfolio, by volume: 24.9% Great White CRM™P 5.4% Great White HRM™ 25.1% Great White CRM™T 2.2% Great White KCM™ 42.4% Industrial sand Weighted average product margin improved by 34% to $450/tonne of product 13 • • Product pricing has been determined based on existing offtake agreements 14, market and technical product validation by independent consultants, customer product validation, market research and market forecast data from TZ Minerals International Pty Ltd (TZMI). Pricing for Great White HRMTM is included at conservative levels due to ongoing customer validation work. 10 Kaolin Market, Market Analysis 2018-2030 (Grand View Research, 2023). 11 Testwork was carried out by IberoClays and the Instituto de Tecnologia Ceramica in 2023. 12 Work commissioned by Andromeda, “overview of the Ceramic tile market’ (Strateg-on, 2023). 13 Great White HRMTM is included at conservative prices due to ongoing customer validation. 14 Including long form offtake agreements and terms sheets. Andromeda Metals Limited | 3 Decarbonisation opportunities in construction materials increasingly mandated by new regulations, support the product portfolio • • • Working with partners to validate Great White HRMTM applications and value in use across markets, prior to commercialisation and distribution. A significant amount of work has been undertaken to understand and utilise the un-calcined attributes of Great White HRMTM. The rheology modification properties of Great White HRMTM reduce the amount of cement required in concrete production, potentially reducing global carbon emissions by over 7%. 15 Planned Development Pathway The 2023 DFS confirms the staged approach (Figure 1) to the development of The Great White Project results in low initial capital requirements and a 12-month construction and commissioning program required for each stage. Stage Commissioning Kaolin production Stage 2 Stage 1A Stage 1B Oct 2024 Dec 25 50,000 tpa 150,000 tpa Dec 2027 250,000 tpa Stage 3 Dec 2029 300,000 tpa Figure 1 2023 DFS planned development stages The Great White Project Product Geology Heat Map: Mine to Market Response The Great White Project Reserve (Table 2) has remained unchanged since the 2022 DFS. Table 2 The Great White Project Reserve Reserve Category Mt Yield (%) Halloysite (%) Brightness (%) Fe2O3 (%) Proved 5.2 45 14 84 0.5 Probable 10 46 10 83 0.5 Total 15.1 46 11 84 0.5 The Great White Deposit’s 15.1 Mt JORC reserve delineated by core and complementary products aligned to market demand, is presented in Figure 2. 15 Work commissioned by Andromeda, “Product Evaluation of Great White Halloysite Kaolin Clay (Great White HRM) for Andromeda Metals Pty Ltd” (Jackson, 2023). Andromeda Metals Limited | 4 2023 DFS starter pit Figure 2 The Great White Project 2023 DFS starter pit position, products 16, and grades Andromeda Product Development Comparison Table Core, complementary and adjacent products will go through a product lifecycle assessment (Table 3) as part of the commercialisation process. This is outlined in detail in 2023 DFS Executive Summary under Andromeda’s Commercial Strategy Map (refer to Executive Summary Section 1.4). Table 3 Andromeda Product Development Comparison Table Market and Technical Validation Element Great White CRM™ Great White KCM™90 Great White HRM™ Industrial Sand HPA Determine key market segments      Conduct initial process testwork      Conduct initial product testwork     Planned Identify addressable market      In progress In progress In progress n/a Planned Identify contestable market share   Planned Planned Planned Conduct commercial scale pilot trials In progress In progress Planned Planned Planned Value in use assessment Assumptions and Notes: • • • • • The 2023 DFS financial model methodology has been verified by independent financial consultant. A discount rate of 8% has been used. A revised foreign exchange rate of AUD:USD 0.675 (2022 DFS 0.74) has been applied. Product pricing is commercially sensitive and legally restricted, and has not been disclosed in this document. The Great White Project results in Table 1 of this document are based on the same Ore Reserve reported with the 2022 DFS 17. The Ore Reserve estimate supporting the production targets and in turn the forecast financial information based on those targets, has been prepared by a Competent Person in accordance with the JORC 16 Great White CRMTM TM T is for use in high-quality ceramic tiles and Great White CRM P is for use in high-quality ceramic porcelain tableware. 17 The material assumptions underpinning the Ore Reserve estimate published in April 2022 continue to apply and have not materially changed, Refer to ASX announcement 6 April 2022 ‘Great White Kaolin Project – Definitive Feasibility Study’. Andromeda Metals Limited | 5 • • Code requirements. Accompanying Competent Persons consent statements for this document applicable to the JORC 2012 Code for the publication of the Ore Reserve estimate are included at the end of this Announcement. The Ore Reserve estimate classified as being Proven has been derived from the Mineral Resource classified as Measured only. The Ore Reserve estimate classified as being Probable has been derived from the Mineral Resource classified as Indicated only. The Ore Reserve comprises of 34% Proved Reserve and 66% Probable Reserve (Table 2) 18. The Production Target comprises of 34% Proved Reserve, 65% Probable Reserve and 1% Inferred Resources. Inferred Resources are not included in the Reserve and are not considered within the pit design process. There is a low level of geological confidence associated with Inferred Mineral Resources and there is no certainty that further exploration work will result in the determination of Indicated Mineral Resources of that production target itself will be realised. Metallurgical test work has been completed by reputable laboratories experienced in kaolin processing. This testwork supports modifying factors applied in the Ore Reserve estimate. • The mining process has been based on Measured and Indicated Mineral Resources reported in accordance with the 2012 JORC code, together with mine designs and scheduling, geotechnical parameters and mining equipment determined from experienced mining engineers. • The processing plant design has been developed by Andromeda personnel with experienced process engineers to support the flowsheet and the predicted yield, throughput, and production estimates of The Project. • The infrastructure requirements have been defined by specialist engineers in conjunction with The Project Team. • The detailed designs discussed in the 2023 DFS have been used as the basis for capital and operating costs estimates which have been corroborated by suppliers, contractor and vendor quotes. • A Corporate tax rate of 30% has been assumed. • The new mine royalty rate of 2.00% will apply until 30 June 2026 and then increase to 3.5% thereafter. • Corporate costs of $1m per annum have been allowed for in respect of charges for centralised services and resources that may be utilised, such as accounts payable, legal, marketing and project management. • No allowance has been made for the following items in the operating cost estimate: Exchange rate variations Escalation Project financing costs Interest charges • All goods and services tax (GST), import duties, surcharges and any other statutory taxation, levies or government duties are excluded. • No allowance for contingency has been made in the operating cost estimates. • The mining method will be conventional earth moving. • The processing method will be blunging, separation, dewatering, product drying and packaging. • The Company will receive all authorisations required to sell industrial sand and increase processing of kaolin ore beyond 300,000 tonnes per annum. • The average annual processing rate will be ~93,000 tpa (17 months), ~298,000 tpa (2 years) ~504,000 for 2 years and 612,000 tpa (21.5 years). • Average annual saleable production 45,000 tpa (17 months), 142,000 tpa (2 years), 250,000 tpa (2 years) 297,000 (21.5 years). • Mine life is 28 years. • Accuracy of data is to +/-15%. This ASX announcement has been approved for release by the Board of Directors of Andromeda Metals Limited. For more information about the Company and its projects, please visit our website, www.andromet.com.au or contact: Manager, Investor Relations & Corporate Affairs Patrick Sinclair T: 08 7089 9819 M: 0403 708 431 E: Patrick.Sinclair@andromet.com.au 18 The material assumptions underpinning the Ore Reserve estimate published in April 2022 continue to apply and have not materially changed, Refer to ASX announcement 6 April 2022 ‘Great White Kaolin Project – Definitive Feasibility Study’. Andromeda Metals Limited | 6 Disclaimer and qualifications This DFS was prepared for the sole and exclusive benefit of Andromeda. Any other use or reliance on this DFS by any third party is at that party’s sole risk. This DFS is meant to be read as a whole. Sections should not be read or relied upon out of context. This DFS contains the expression of professional opinion based on information available at the time of preparation. The quality of the information, conclusions and estimates contained in this DFS are consistent with the intended level of accuracy, and are subject to the assumptions, qualifications and disclaimers described in this DFS. Information in this DFS may be subject to change without notice. Forward-looking statements This DFS contains or may contain certain forward-looking statements and comments about future events, that are based on Andromeda's beliefs, assumptions and expectations and on information currently available to management as at the date of this DFS. Often, but not always, forward-looking statements can generally be identified by the use of forward-looking words such as "may", "will", "expect", "plan", "believes", "estimate", "anticipate", "outlook", and "guidance", or similar expressions, and may include, without limitation, statements regarding plans, strategies and objectives of management, anticipated production and production potential, financial forecasts, product quality estimates of future Mineral Resources and Ore Reserves. Such statements are only expectations or beliefs and are subject to inherent risks and uncertainties which could cause actual values, results or performance achievements to differ materially from those expressed or implied in this DFS. Where Andromeda expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and on a reasonable basis. No representation or warranty, express or implied, is made by Andromeda that the matters stated in this DFS will in fact be achieved or prove to be correct. Except as required by law, Andromeda undertakes no obligation to provide any additional or updated information or update any forward-looking statements whether on a result of new information, future events, results or otherwise. Readers are cautioned against placing undue reliance on forward-looking statements. These forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of Andromeda, the directors, and management of Andromeda. These factors include, but are not limited to difficulties in forecasting expected production quantities, the potential that any of Andromeda’s projects may experience technical, geological, metallurgical and mechanical problems, changes in market prices and other risks not anticipated by Andromeda, changes in exchange rate assumptions, changes in product pricing assumptions, major changes in mine plans and/or resources, changes in equipment life or capability, emergence of previously underestimated technical challenges, increased costs, and demand for production inputs. Accuracy This DFS has been prepared to an overall level of accuracy of approximately +/-15%, guided by the requirements of the Australian Institute of Mining and Metallurgy (AusIMM) guidelines (AusIMM 2012. Cost Estimation Handbook Second Edition, Monograph 27). Currency Unless otherwise stated, all cashflows in this DFS are in Australian dollars, are undiscounted and are in real terms (not subject to inflation/escalation factors). No warranty While care has been taken in preparing the information in this DFS, no representation or warranty, express or implied, is made as to the currency, accuracy, reliability, completeness or fairness of the information, opinions and conclusions contained in this DFS. The information in this DFS has been obtained from or based on sources believed by Andromeda to be reliable. This includes references to test results and reports completed by external parties. Information in this DFS which is attributed to, or derived from, a third-party source has not been independently checked or verified by Andromeda. No representation or warranty is made as to the accuracy, completeness or reliability of such information. To the maximum extent permitted by law, neither Andromeda nor its related corporations, Directors, officers, employees, advisers or agents, nor any other person, accepts any liability, including, without limitation, any liability arising from the use of this DFS or its contents or otherwise arising in connection with it, nor guarantees or makes any representations or warranties, express or implied, as to or takes responsibility for, the currency, accuracy, reliability, completeness or fairness of this DFS nor the information, opinions and conclusions contained in this DFS. Third party data from consultants and government agencies Andromeda has relied on information provided by specialist consultants and government agencies in preparing this DFS. Andromeda has reviewed all information to the best of its ability but does not take responsibility for its accuracy or completeness, or reliability of such information. Third party data on markets and pricing This study uses information from third parties pertaining to the kaolin industry, forecast pricing, market segments and end-markets in which Andromeda intends to operate (Market Data). This information has been substantially derived from market research prepared by third parties. The Market Data includes assumptions, estimates and generalisations that the Company believes to be reliable, but no representation or warranty is made as to the accuracy, completeness or reliability of such information. Due to the forward looking nature of the Market Data, it may not necessarily reflect actual market conditions and there is no guarantee that any forward looking statements in the Market Data will prove to be correct or will be achieved. Andromeda has not independently verified the Market Data and the Company cannot give any assurances to the accuracy or completeness of this information or the underlying assumptions used in generating this information. Industry assumptions, forecasts and estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in the risk factors set out in Executive Summary Section 15. Andromeda Metals Limited | 7 Additional authorisations/certification Additional authorisations or certification is required for certain activities described in this study, including: a. the current Program for Environment Protection and Rehabilitation (PEPR) covers a 13 year mine life, with processing of 300,000 tonnes per annum of kaolin ore, so any increase or change to this will require a new PEPR; b. the sale of sand products as extractive minerals, which is not currently authorised under Mining Lease 6532 (and will require a change in operations) or under the PEPR (which would need to be updated and approved by DEM accordingly) c. the sale of Great White HRM™ into Europe, which will require certification. Andromeda has no reason to believe that such additional authorisations and certifications will not be forthcoming, but no guarantee can be given on this, including as to timing. No investment or financial product advice The information contained in this DFS does not constitute investment advice or financial product advice (nor taxation or legal advice) and is not intended to be used as the basis for making an investment decision or as a recommendation to acquire securities in Andromeda. The information contained in this DFS should not be relied upon as a recommendation or forecast by Andromeda (including as to the performance of Andromeda or its share price). Readers should obtain their own professional advice and carry out their own independent investigations and assessment of the information in this DFS (including any assumptions) before acting. An investment in Andromeda is subject to investment and other known and unknown risks, some of which are beyond the control of Andromeda including loss of income and principal invested. This DFS has been prepared without taking into account any particular person’s objectives, financial situation or needs; does not purport to identify the nature of specific market or other risks associated with any investment in the Company and does not constitute any legal, taxation, investment or accounting advice. An investment in Andromeda's securities is subject to investment and other known and unknown risks, some of which are beyond the control of Andromeda including loss of income and principal invested. Any investment decision should be based only on a person's own due diligence, inquiry, assessment and professional advice. Readers should have regard to Executive Summary Section 15 of this study for further information about risks applicable to Andromeda. Mineral Resources and Ore Reserves Estimates As an Australian company with securities listed on the Australian Securities Exchange (ASX), Andromeda is subject to Australian disclosure requirements and standards, including the requirements of the Corporations Act and the ASX. Investors should note that it is a requirement of the ASX listing rules that the reporting of ore reserves and mineral resources in Australia comply with the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code) and that the Ore Reserve and Mineral Resource estimates underpinning the production targets in this DFS have been prepared by a Competent Person in accordance with the JORC Code. Information that relates to Mineral Resource Estimate has been previously announced to ASX on 26 November 2020, "Updated Mineral Resource for the Great White Kaolin Project" and, information that relates to Ore Reserve Estimate has been previously announced to ASX on 6 April 2022, "Great White Kaolin Project – Definitive Feasibility Study and Updated Ore Reserve" both available at https://www2.asx.com.au/markets/company/adn. Andromeda confirms that it is not aware of any new information or data that materially affects the information included in the original market announcement and that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. Modifying Factors Modifying factors under the JORC Code (mining, processing, transport and shipping, refining, marketing, infrastructure, environment, legal, social and commercial) have been considered in this DFS and the Ore Reserve estimation. Competent Person's Statements The data in this report that relates to Mineral Resource estimates for The Great White Deposit is based on information evaluated by Mr Eric Whittaker who is a Member of the Australasian Institute of Mining and Metallurgy (MAusIMM). Mr Whittaker is the Chief Geologist of Andromeda Metals Limited and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to 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 (the “JORC Code”). Mr Whittaker has over 30 years of experience in the mining industry. Mr Whittaker consents to the information in the form and context in which it appears. Mr Whittaker is entitled to participate in Andromeda’s employee incentive plan. The data in this report that relates to Mineral Reserve estimates for The Great White Deposit is based on information evaluated by Mr John Millbank who is a Member of the Australasian Institute of Mining and Metallurgy (MAusIMM). Mr Millbank is the Director of Proactive Mining Solutions Pty Ltd, an independent mining consultancy, and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration, and to the activity which he is undertaking, to 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 (the “JORC Code”). Mr Millbank consents to the information contained in this report being used in the form and context in which it appears. Mr Millbank, or any of the entities he directly controls, has no financial interests in Andromeda Metals Ltd or any of its subsidiaries. Photographs, Diagrams and charts Diagrams and maps used in this DFS are illustrative only and may not be drawn to scale. Unless otherwise stated, all data contained in the charts, graph