Announcement PDF LITHIUM AUSTRALIA LIMITED ACN 126 129 413 FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2023 CORPORATE DIRECTORY Directors Simon Linge George Bauk Kristie Young Phil Thick Managing Director (Appointed CEO on 1 January 2023, Appointed Managing Director on 21 August 2023) Non-Executive Chairman Non-Executive Director Non-Executive Director Executive Management Stuart Tarrant Chief Financial Officer Joint - Company Secretary Catherine Grant-Edwards Melissa Chapman Registered Office and Principal Place of Business Level 1, 677 Murray Street West Perth WA 6005 T: +61 8 6145 0288 E: info@lithium-au.com Bank National Australia Bank 100 St Georges Terrace Perth WA 6000 Auditors Hall Chadwick WA Audit Pty Ltd (Hall Chadwick) 283 Rokeby Road Subiaco WA 6008 Share Registry Advanced Share Registry 110 Stirling Highway Nedlands WA 6009 T: +61 8 9389 8033 Website www.lithium-au.com Stock Exchange Listing Lithium Australia Limited securities are listed on Australian Securities Exchange (ASX Codes: LIT, LITOA, LITOB) Lithium Australia Limited ACN: 126 129 413 Page 1 CONTENTS CHAIRMAN’S LETTER 3 DIRECTORS’ REPORT - REVIEW OF OPERATIONS - REMUNERATION REPORT (AUDITED) 4 7 15 AUDITORS INDEPENDENCE DECLARATION 21 CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME 22 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 23 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 24 CONSOLIDATED STATEMENT OF CASH FLOWS 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27 DIRECTORS’ DECLARATION 49 INDEPENDENT AUDITOR’S REPORT 50 ADDITIONAL ASX INFORMATION 56 Lithium Australia Limited ACN: 126 129 413 Page 2 CHAIRMAN’S LETTER Dear shareholders It is my pleasure to present Lithium Australia’s FY23 Annual Report. This year has seen radical changes in the investment landscape, with a significant increase in interest rates posing new challenges to both our economy and our Group. I am pleased to say that due to our hard work and clearly defined strategic plan, we have achieved our operational objectives. During the year, we have made immense operational progress across all three of our business verticals: Lithium Chemicals, Battery Materials, and Battery Recycling. I believe the Group is well-positioned to accelerate its growth in FY24 and I am excited about our future prospects. Subsequent to the year end, we signed a landmark deal with leading ASX-listed mining company Mineral Resources Ltd (ASX: MIN) (‘MinRes’) to jointly develop our patented LieNA® technology with the aim of commercialisation across the mining industry. MinRes will provide operational expertise, funding, and raw materials, while Lithium Australia will contribute our patented LieNA® technology, forming a strong partnership. We are very excited about the potential opportunities this partnership can bring and look forward to collaborating with an established market leader such as MinRes. Our Battery Recycling vertical, Envirostream, continues to thrive, solidifying its position as Australia’s leading battery recycler. Throughout the year, we collected a record 1,347 tonnes of mixed batteries for recycling, a 24% increase on the previous year. We also enhanced the mix of collected battery types, with an 80% increase in higher-margin small format lithium-ion batteries compared to the previous year. The strong growth in collections was driven by key partnerships we have cultivated over the years, including B-cycle, LG Energy Solutions, and many large-scale EV and ESS manufacturers. In addition to the collection volumes growth, the Battery Recycling division achieved its maiden cash gross profit of $1.2 million, a significant improvement over the previous year's cash gross loss of $(1.3) million, demonstrating our ability to generate operating leverage, and we hope to achieve even stronger results in FY24. During the year, we made tremendous strides in commercialising our LFP production technology, which was independently assessed and validated by leading battery materials and technology Group, NOVONIX (ASX: NVX). NOVONIX tested our LFP cathode powder against numerous competitor products, with Lithium Australia's LFP emerging as the most stable of all tested samples, while also demonstrating a long-lifetime cell design. This validation highlights our ability to produce commercial-grade LFP, a critical milestone as we expand our business operations and establish ourselves as a leading LFP producer outside of China. Currently, the LFP market is dominated by China, which accounts for almost all of the world's current production. This poses significant supply chain risks to international customers who cannot rely on a single country in a post-pandemic environment. We also completed an engineering study in FY23 for a pre-qualification pilot plant, initially targeting a capacity of 200-300 tonnes per annum. However, due to strong demand, we expanded the development plan to a facility with a 10-fold larger targeted capacity of 2,000-3,000 tonnes per annum. This expansion underscores the strong demand for non-Chinese produced LFP, with many large-scale entities requesting samples of our products for internal assessment. We remain excited by the potential of our LFP production technology and are well-positioned to capitalise on the growing global trend. Lithium Australia remains committed to delivering on its ESG roadmap, aiming to facilitate the global transition to sustainable electrification. Not only have we implemented robust ESG governance throughout the organisation, but we have also identified key ESG metrics that we will report in ongoing disclosures to ensure our progress. By reducing toxic chemicals and waste at mine sites, increasing the use of recycled material in batteries, and developing safe and sustainable methods for producing LFP, Lithium Australia remains on the path to both financial and environmental success. During the year, Simon Linge commenced his role of CEO within the organisation. In this brief period, Simon has already demonstrated strong commercial acumen, and the board has been impressed with his operational expertise and dedicated mindset leading to his recent promotion to Managing Director. I am excited by the opportunities that lie ahead for our Group. We are at the forefront of the global trend toward electrification and are well-positioned to capitalise on the shift toward a more sustainable future. We are well funded and have a diverse portfolio of de-risked assets, alongside a talented and passionate workforce. I would like to extend my gratitude to our employees for their ongoing dedication, as well as to my fellow directors. As always, I would also like to thank all our shareholders for their continued support and look forward to the coming year. George Bauk Non-Executive Chairman Lithium Australia Limited ACN: 126 129 413 Page 3 DIRECTORS’ REPORT The Directors present their report on Lithium Australia Limited (‘LIT’ or the “Group”) and its controlled entities (the “Group”) for the year ended 30 June 2023 (the “year”). Board of Directors The names and details of the Group’s directors in office during the year and until the date of this report are as follows. Directors were in office for this entire period unless otherwise stated. Simon Linge George Bauk Kristie Young Phil Thick Managing Director Appointed CEO on 1 January 2023 / Managing Director on 21 August 2023 Non-Executive Chairman Non-Executive Director Non-Executive Director Information on Directors Simon Linge (Managing Director) Qualifications BEco (Hons), MAICD Experience Mr Linge has over 30 years’ experience in manufacturing, logistics and infrastructure. Mr Linge has held multiple senior leadership positions. These included an executive role at Pact Group, a leader in the circular economy focused on minimising waste through packaging, reuse, and recycling solutions. He also served as Managing Director & CEO of Bradken Limited, a global manufacturer of designed alloyed steel components, with a primary focus on the mining sector. Prior to these roles, Mr Linge also held senior executive positions with BlueScope throughout Australia, Asia, New Zealand, and USA. Other directorships in listed entities held in the past three years None George Bauk (Non-Executive Chairman) Qualifications BBus, MBA, FCPA, GAICD Experience Mr Bauk is an experienced Group director with over 15 years’ experience as a listed Group director in Australia with the resources industry in both production and exploration with assets in Western Australia, Australia and internationally. He is an experienced executive, with 30 years’ experience in the resources industry. Mr Bauk holds a Bachelor of Business (Accounting and Finance) from Edith Cowan University, is a Fellow of the CPA and has an MBA from the University of New England. Mr Bauk has held global operational and corporate roles with WMC Resources and Western Metals. Mr Bauk has a strong background in strategic management, business planning, building teams, finance and capital/debt raising, and experience with a variety of commodities in particular rare earths, gold and industrial minerals. During his time as Managing Director of Northern Minerals Ltd, he led its rapid development from a greenfields heavy rare earth explorer to one of a few global producers of high value dysprosium outside of China. Mr Bauk is a passionate member of the WA resources industry having previously held a number of senior governing positions with the Chamber of Minerals and Energy including Vice President. Corporate governance committee roles Member of the Audit & Risk Committee Member of the Remuneration & Nominations Committee Other directorships in listed entities held in the past three years Non-Executive Chairman – Evion Group NL Executive Director – PVW Resources Limited Executive Chairman – Valor Resources Limited Non-Executive Director – Firetail Resources Limited (Appointed 6 September 2023) Non-Executive Chairman – Gascoyne Resources Limited (Resigned 31 January 2022) Lithium Australia Limited ACN: 126 129 413 Page 4 DIRECTORS’ REPORT (continued) Information on Directors (continued) Kristie Young (Non-Executive Director) Qualifications BEng (Hons) Mining, Post Grad Dip (Education), GAICD Experience Ms Young has a unique background with more than 20 years’ experience across technical engineering, project evaluation, strategy, business development, growth, marketing, commercial, client management, governance and human resources. Ms Young previously held senior growth and business development director roles with leading professional services firms PwC and EY. Ms Young is Non-Executive Director of Tesoro Resources Ltd (ASX: TSO), Corazon Mining Ltd (ASX:CZN) and Brazilian Rare Earths Ltd. Ms Young holds a Bachelor of Engineering (Mining) Hons from the University of Queensland, is a Graduate of the Australian Institute of Directors and a Fellow of the AusIMM. Corporate governance committee roles Chair of the Audit & Risk Committee Member of the Remuneration & Nominations Committee Other directorships in listed entities held in the past three years Non-Executive Director – Tesoro Resources Limited Non-Executive Director – Corazon Mining Limited (Appointed 1 September 2023) Non-Executive Chairperson – ChemX Materials Limited (Resigned 3 February 2023) Non-Executive Director – Primero Group Limited (Delisted 24 February 2021) Phil Thick (Non-Executive Director) Qualifications BE (Hons), FAICD, FIEAust Experience Phil Thick has over 30 years’ senior executive experience in oil and gas, mining and chemical processing in large multinational companies, smaller ASX listed companies and privately owned companies. In addition, Mr Thick has extensive experience in Non-Executive Director roles and has chaired many of those boards for extended periods. Mr Thick had a 20-year career with Shell in Australia and overseas and for the last 3 years was Downstream Director on the Board of Shell Australia. This was followed by 5 years as a director and CEO of Coogee Chemicals and then 4 years as CEO of New Standard Energy. Prior to joining the Group, Mr Thick led Tianqi Lithium Australia, a subsidiary of Tianqi Lithium Corp out of China, one of the world’s largest lithium companies. Tianqi owns 51% of the Greenbushes mine in Western Australia, the world’s best hard-rock lithium resource, and Mr Thick was charged with building the world’s largest lithium hydroxide plant in Kwinana south of Perth, an investment of nearly A$1billion. Mr Think also chairs the boards of the Chamber of Arts and Culture WA and Perth Symphony Orchestra. Corporate governance committee roles Chair of the Remuneration & Nominations Committee Member of the Audit & Risk Committee Other directorships in listed entities held in the past three years Non-Executive Chairman – Patriot Lithium Limited (Appointed 9 December 2022) Joint Company Secretary Catherine Grant-Edwards and Melissa Chapman Experience Ms Melissa Chapman (Certified Practicing Accountant (CPA), AGIA/ACIS, GAICD) and Ms Catherine Grant-Edwards (Chartered Accountant (CA)) are directors of Bellatrix Corporate Pty Ltd (Bellatrix), a company that provides company secretarial and accounting services to a number of ASX listed companies. Between them, Ms Chapman and Ms Grant-Edwards have over 30 years’ experience in the provision of accounting, finance and company secretarial services to public listed resource and private companies in Australia and the UK, and in the field of public practice external audit. Lithium Australia Limited ACN: 126 129 413 Page 5 DIRECTORS’ REPORT (continued) Principal activities The principal activities of the Group during the financial year were to lead and enable the global transition to sustainable lithium production. The Group operates Australia’s market leading lithium-ion battery recycler, develops leading-edge processing technology to produce lithium ferro phosphate (LFP), and develops patented lithium extraction technology. There were no significant changes in the nature of the Group’s principal activities during the financial year. Results of operations The operating loss after income tax of the Group for the year ended 30 June 2023 was $7,406,066 (2022: loss of $20,752,379). The operating loss for the year ended 30 June 2022 included impairment of intangible assets of $7,681,637. Please refer to note 12 for further details. The Group’s working capital surplus, being current assets less current liabilities was $10,261,445 at 30 June 2023 (2022: working capital deficit $1,832,344). The working capital deficit for year ended 30 June 2022 included legal claims against the group of $5,043,069 relating to a fire at the premises of Envirostream Australia Pty Ltd, a wholly owned subsidiary for the Group. It is expected that insurances are sufficient to meet the liabilities. Please refer to note 16 for further details. In the Directors’ opinion, there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and payable. Dividends There are no dividend or distribution reinvestment plans in operation and there have been no dividend or distribution payments during the financial year ended 30 June 2023 (30 June 2022: Nil). Lithium Australia Limited ACN: 126 129 413 Page 6 DIRECTORS’ REPORT (continued) REVIEW OF OPERATIONS Overview About Lithium Australia Lithium Australia Limited (‘Lithium Australia’ or ‘the Group’) aims to lead and enable the global transition to sustainable lithium production. The Group is aiming to achieve this through the development of patented lithium extraction technologies, creating leading-edge processing technology to produce lithium ferro phosphate (LFP), and the operation of Australia’s market leading lithium-ion battery recycler. Lithium Australia is well-placed, via its patented technologies and revenue-generating recycling business, to capitalise on favourable market dynamics including the continued global demand growth for input and lithiumion batteries and growing diversification and adoption of alternatives within global lithium supply chains. Leadership and management Following an extensive global executive search, Mr Simon Linge was appointed as CEO of Lithium Australia in September 2022 and officially commenced in January 2023. This appointment followed Mr Adrian Griffin’s retirement as Managing Director effective from 31 May 2022. Subsequent to year end, Mr Linge was also appointed to the Board as Managing Director. Funding In August 2022, the Group announced the successful capital raising of $12.1 million pursuant to a Placement to existing shareholders, high net worth sophisticated and institutional investors. Due to the cash position at December 2022, Lithium Australia elected to not renew the At-the-Market facility, and this facility formally expired in February 2023. Additionally, the Group received $2.3 million in government grants and tax incentives during the financial year. Unmarketable Parcel Sale Facility In May 2023, Lithium Australia established an unmarketable parcel sale facility (‘UMPSF’) for shareholders who held less than $500 worth of fully paid ordinary shares in the Group. The UMPSF was closed in July 2023 with the final number of shares eligible to be sold being 46,819,251 from a total of 7,253 shareholders. This will benefit the Group, as it reduces the administrative costs associated with maintaining a large number of small shareholdings on the share register. Listed investments Lithium Australia retains a strategic investment portfolio of ASX-listed and private assets. The portfolio is strategically positioned for offtake opportunities and pricing arbitrage and effectively allows Lithium Australia to retain potential upside with minimal holding costs. As at 30 June 2023, the Group’s ASX-listed portfolio was valued at $6 million. Environmental, Social and Governance (‘ESG’) During the financial year, Lithium Australia further developed its ESG roadmap, ensuring all policies and practices align with ESG standards. Lithium Australia is committed to sustainability through its businesses, ongoing ESG compliance and remains on track with the standard and policies set out. Key ESG metrics are included below: Pillars Items # Safety Year to date lost time injury incidents 1 People Agreements with First Nation’s Peoples at year end 0 Environment Outstanding closure matters at year end 1* Corporate governance Year to date bribery and / or corruption incidents *Note: Relates to Ravensthorpe rehabilitation Lithium Australia Limited ACN: 126 129 413 0 Page 7 DIRECTORS’ REPORT (continued) REVIEW OF OPERATIONS (continued) Lithium Chemicals Division Overview Lithium Australia has developed a suite of unique extraction and refining technologies for the recovery of lithium chemicals from un-used fine and low-grade lithium ores. The Group’s LieNA® and SiLeach® technologies are processes which target the recovery of lithium phosphate (LP) for use as a direct-feed chemical into the production of lithium ferro phosphate (LFP) cathode powders. The patented technologies have the potential to enhance lithium extraction yields by up to 50%1 over current market performance and specifically targets fine and low-grade ores, which are usually disposed of as waste streams, improving mining output, efficiency, sustainability and ultimately profitability for lithium mine operators. Joint development agreement with Mineral Resources Subsequent to year end, Lithium Australia signed a joint development agreement with leading ASX-listed mining Group Mineral Resources Ltd. (ASX: MIN) (‘MinRes’) to commercialise the lithium extraction technology, LieNA®. Under the agreement, MinRes will provide raw materials and fund the development and operation of a pilot plant and an engineering study for a demonstration plant up to a total budgeted cost of $4.5 million. Lithium Australia will contribute its patented LieNA® technology. On successful completion of the pilot plant operations and engineering study, and subject to the results, a new 50:50 JV will be formed between MinRes and Lithium Australia which will wholly own and commercialise the LieNA® technology through a licensing model. The JV plans to license the technology out to third-parties at a target headline gross product royalty rate of 8%2. The royalty model expands the addressable market as it has the potential to capture a fee on all tonnage processed via any mine utilising the LieNA® technology. The JV plans to initially license the LieNA® technology to a larger demonstration plant which MinRes can elect to independently fund, develop and operate. The license will apply to current and future projects of MinRes and the royalty payable by MinRes under the licenced is based on a discount to the headline gross product royalty rate in acknowledgement of MinRes’ first mover position. IP status A strong and protected lithium extraction IP portfolio is core to the Group’s commercialisation strategy. As such, the Group continued to develop its strong IP portfolio for both the LieNA® and SiLeach® technologies. During the financial year, a Brazilian patent was granted for LieNA® 1st generation and a Chinese patent was granted for LieNA® 2nd generation. In addition, the patent application for SiLeach® 2nd generation has also been allowed in Europe. 1 Relates to LieNA®. Assumes existing mine concentrator is 60%: 60% to 90% Li recovery increase assumes LieNA® recovers 75% of lithium units going to tails 2 The Group cautions that although it considers this to be a reasonable expectation, there is no guarantee that this rate will be achieved Lithium Australia Limited ACN: 126 129 413 Page 8 DIRECTORS’ REPORT (continued) REVIEW OF OPERATIONS (continued) Battery Materials Division Overview Lithium Australia has over 20 years’ experience in developing lithium ferro phosphate (LFP), a cathode active material used for battery manufacturing, through the Group’s fully owned subsidiary VSPC Pty Limited. The Group utilises a proprietary costcompetitive production process to manufacture LFP at scale. The same propriety production process is also able to produce lithium manganese ferro phosphate (LMFP) without significant changes in the process. LMFP batteries can reach an energy density 15% to 20% higher than LFP batteries, with almost no difference in the cost of material inputs. Currently production is dominated by China, with Lithium Australia being one of only a few companies outside of China to successfully produce LFP and LMFP. LFP product validation During the year, the Group’s LFP cathode powder was independently assessed by leading battery materials expert NOVONIX Ltd. (ASX: NVX). The Group’s LFP product was tested against other commercially available competitor products, with Lithium Australia’s LFP proven to be the most stable out of all tested samples while also having potential to support long-lifetime cell designs. These results validate Lithium Australia as a capable manufacturer to produce LFP at a competitive cost base, while also being extremely valuable for ongoing offtake discussions with potential partners. LMFP development Significant advancements have also been made in the Group’s LMFP product during the year, including increased manganese content and improved cycling stability. Most importantly, the significant improvements made in the product’s stability at elevated manganese contents supports the increased energy density the Group’s LMFP product over LFP products, whilst significant retaining significant opportunity for further improvement. The ability for Lithium Australia to pivot production between LFP and LMFP is a strategic advantage, as demonstrated by the increased request for LMFP samples by the battery industry. Pathway to commercialisation An engineering study was completed for a pre-qualification pilot plant (PQPP) during the financial year, which initially had a production capacity of 200tpa to 300tpa3. However, due to strong industry demand, the Group has grown the development plan to a larger qualification plant with production capacity of 2,000tpa to 3,000tpa. This expansion is underpinned by continued growing demand for Lithium Australia’s products, with both cathode material samples requested by several potential large-scale customers across different geographic locations for assessment. Potential customers have begun testing to assess the quality, performance, and suitability of the cathode materials for their specific battery applications. If the completed test work proves that Lithium Australia’s cathode materials are compatible to their applications, opportunities will be explored to establish deeper and more substantial partnerships with these potential customers. IP status Lithium Australia continues to maintain a strong portfolio of patents in relation to its proprietary “Reduced Cost” (‘RC’) production process of LFP and LMFP. During the year, an international patent application for the production of iron (II) oxalate was filed for review. The ability to produce this material independently has the dual benefit of lowering operating costs and ensuring security of supply as the material is predominantly produced by China. 3 Tonnes per annum Lithium Australia Limited ACN: 126 129 413 Page 9 DIRECTORS’ REPORT (continued) REVIEW OF OPERATIONS (continued) Battery Recycling Division Overview Lithium Australia operates a battery recycling division through its fully owned subsidiary Envirostream Australia Pty Limited. The Group is Australia’s leading battery recycler, while also being the only battery recycler which processes batteries domestically. Collected batteries are processed at the Group’s Victoria-based battery processing facilities, which operates using state-of-the-art safety and processing standards. The Group has secured its future supply for battery collections through strong partnerships, while also benefitting from the Australian government-backed battery recycling scheme, B-cycle, which provides rebates across collection, sorting, and processing of batteries. Partnerships Lithium Australia signed multiple partnership agreements during the year to increase collection points and secure future battery collections growth. An agreement was signed with Battery World, which provides the Group access to over 100 Battery World stores across Australia and significantly increased total available consumer drop-off points to Lithium Australia to over 1,000 locations. In addition, an agreement was signed with LG Energy Solutions to process a contracted minimum of 250 tonnes of their energy storage systems (‘ESS’) lithium-ion batteries, which represents approximately 25% of Lithium Australia’s total collection volumes in FY22. In addition, the Group currently has agreements signed with international tier 1 electric vehicle (‘EV’) and energy storage solution (‘ESS’) manufacturers for the collection of used batteries, as well as a strong domestic partner network in place for the collection of consumer drop-off batteries. Domestic partners include Mobile Muster, Bunnings Warehouse, TTI, and Officeworks. Partnerships are key to continued growth in recycling revenue, with the Group continuing to source and secure high-quality partners to increase collection volumes. Productivity improvements Strong production improvements were made throughout the year, driven by process improvements made in partnership with Sustainability Victoria. The process optimisations have resulted in significant uplift of recycled copper quality, which is expected to increase the value of recovered copper by up to 60% based on recent commercial offers. Furthermore, the optimisations and process improvements are also expected to increase final mixed metal dust (‘MMD’) output by 15%, representing a significant uplift in MMD yield to drive further operating leverage. During the year, the Group also initiated an infrastructure expansion scoping study to assess battery storage, sorting and processing requirements, as well as site and location requirements necessary to support the growth in battery recycling volumes in the 3 to 5 year time horizon. Collections volume growth A record total of 1,347 tonnes of mixed batteries was collected for recycling during the year, representing a 24% increase on FY22. In particular, large format and small format lithium-ion batteries experienced significant growth of 41% and 80% respectively, highlighting the increase in recycling volumes of higher margin battery types. The growth in battery collection volumes was largely driven by B-cycle, the government-backed battery recycling scheme, as well as partnerships with key industry brands such as LG Energy Solution. The Group aims to continue growing battery collection volumes in FY24 through securing additional partnerships with tier 1 EV and ESS manufacturers. A record cash gross profit of $1.2m was achieved during the year, a significant improvement relative to the cash gross loss of $1.3m in FY224. The Group’s focus moving forward will be to further optimise the recycling operations revenue and cost base and increase collection volumes to achieve break-even in FY24. 4 Derived from the Quarterly Cash Flow Report: Receipts from customers less product manufacturing and operating costs. Also includes sales and production costs related to the Soluna business. Lithium Australia Limited ACN: 126 129 413 Page 10 DIRECTORS’ REPORT (continued) REVIEW OF OPERATIONS (continued) Investments in listed companies Charger Metals Charger Metals NL (ASX: CHR, 'Charger') acquired the following exploration projects from the Group for a consideration of $100,000 and 9.6 million escrowed shares (19.6% at 7 July 2021). The Group has 15.5% (FY2022: 18.8%) of the shares at 30 June 2023. ▪ The Lake Johnston project, near Southern Cross in WA, which lies approximately