Audalia Resources : Medcalf Project Updated Pre-feasibility Study Results

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MEDCALF PROJECT

UPDATED PRE-FEASIBILITY STUDY RESULTS

ANNOUNCEMENT

26 JULY 2022

H I G H L I G H T S

• PFS supports the potential for a high-grade titanium lump ore (HTLO) product suitable protection for a blast furnace liner.
• PFS identifies several options to further enhance the economics of the project including upgrading the Inferred category for inclusion and possible sale of the fines.
• RtS document accepted by EPA.

Audalia Resources Limited (ASX: ACP) (Audalia, the Company or ACP) is pleased to announce completion of the Updated Pre-Feasibility Study (PFS) on its 100%-owned Medcalf Project, undertaken by METS Engineering Group Pty Ltd (METS) with input from a group of consulting firms including Cube Consulting Pty Ltd (Cube), together with Audalia's technical team. The PFS updates the previous pre- feasibility study completed in March 2016.

The PFS includes an economic valuation and supports the potential for high grade titanium lump ore (HTLO) product Western Australia-based mining and processing operation suitable for the blast furnace steel mills in Asia as a hearth liner for protection of the furnace walls.

The study has been completed to a PFS-level of accuracy and all costings, unless specified otherwise, have been undertaken at an accuracy level of ± 25 %.

Cautionary Statement

The Company advises that the PFS referred to in this announcement has been undertaken for the purpose of initial valuation of a potential high grade titanium lump ore (HTLO) operation from several open cut pits at the Medcalf Project (the Project) in Western Australia. The PFS is based on lower-level technical and preliminary economic assessments. It is insufficient to support an estimation of Ore Reserves or to provide assurance of an economic development case at this stage, or to provide certainty that the conclusions of the PFS will be realised. Further exploration and evaluation work and appropriate studies are required before the Company will be in a position to estimate any Ore Reserves or to provide any assurance of an economic development case.

The PFS is based on the material assumptions outlined in this announcement. These include assumptions about the availability of funding. While the Company considers all of the material assumptions to be based on reasonable grounds, there is no certainty that they will prove to be correct or that the range of outcomes indicated by the PFS will be achieved.

The JORC-compliant Indicated Mineral Resource estimate forms the basis for the PFS that is the subject of this announcement. Over the payback period, 100% of the production target comes from Indicated Mineral Resources. No Inferred Mineral Resources were used for this study.

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To achieve the range of outcomes indicated in the PFS, funding in the order of A$33 million will likely be required. Investors should note that there is no certainty that the Company will be able to raise that amount of funding when needed. It is also possible that such funding may only be available on terms that may be dilutive to or otherwise affect the value of Audalia's existing shares. It is also possible that Audalia could pursue other 'value realisation' strategies such as a sale, partial sale or joint venture of the Project. If it does, this could materially reduce Audalia's proportionate ownership of the Project.

The PFS results contained in this announcement relate solely to the Project and does not include Exploration Targets or Mineral Resources defined elsewhere. The Company has concluded it has a reasonable basis for providing the forward-looking statements included in this announcement. The detailed reasons for that conclusion are outlined throughout this announcement and in particular the sections entitled "Forward Looking Statements" and "Cautionary Statement".

Given the uncertainties involved, investors should not make any investment decisions based solely on the results of the PFS.

Key PFS highlights

• The Medcalf Project scope has been revised to significantly reduce the upfront capital cost, simplify and de-risk the project;
• The Project produces high TiO2 lump ore (HTLO) for refractory lining protection in blast furnace applications;
• Highly favourable economics, NPV (8%) AUD$178M and 146% IRR (using the projected long-term price from local market research); and
• A number of options have been identified to further improve the economic outcomes of the Project including extending the life-of-mine with inclusion of the inferred resource and possible value addition through sale of the fines product.

PFS Results

The PFS results indicate the potential to create value through a direct shipping operation producing a high-titanium lump ore for use in blast furnace liner protection. The PFS is based on an updated Mineral Resource estimate using a 6%TiO2 cut-off grade that was completed in March 2022. The Mineral Resource estimate was prepared by Competent Person as defined in the JORC Code, Patrick Adams of Cube.

A summary of the economic assessment based only on the Indicated category of the Mineral Resource estimate is provided in Table 1. The project will initially comprise three open pits (Egmont, Vesuvius and Fuji), a processing plant, private haul road, road train transfer area and associated infrastructure such as laydown areas, gravel pits, groundwater bores, workshops and an accommodation village.

The project is contractor dominant, with contractors operating the crushing plant, haulage, mining, the accommodation village and communications.

A summary of the key financial results is presented in Table 1.

A summary of the primary assumptions is presented in

Table 2.

The base case economic assessment results are presented below. The results indicate positive cashflow, generating payback in 0.71 years and a positive NPV (8%) of AUD$177.9M with an IRR of 146.3%.

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Table 1: Economic Assessment Results
		Variable		Units	Base
			Case
		Saleable Products			Lump
				Ore
		Capital Cost		AUD million	32.76
		Operating Cost		AUD/t ROM	62.62
				AUD/t	96.34
				Product
				AUD	93.93
				million/annum
		Lump Product Pricing		USD/t (CFR)	110
		Revenue (LoM)		AUD million	785.87
		Cumulative Cashflow (LoM)		AUD million	236.17
		Simple Payback		Years	0.71
		NPV (8%)		AUD million	177.91
		IRR	%	146.29

NPV is presented as pre-tax and inclusive of royalties.

Sensitivity of the project economics was also modelled against variable lump ore pricing, capital costs, operating costs and foreign exchange rates. Variations up to ± 35% were modelled.

The NPV and IRR are less sensitive to the capital cost, whilst the project economics are highly sensitive to the operating cost, revenue drivers and FX rate as expected from a low CAPEX contractor dominant project. Given the strong modelling results, the project has high tolerance for fluctuations in the FX rate and lump ore price. As a >30% decrease in the price, the project becomes uneconomic as the NPV becomes negative. However, the economics can tolerate a >35% increase in the OPEX and CAPEX. The upside is strong as 30% increases in price will boost revenue pushing the NPV towards $400M and IRR above 300%. Sensitivity results can be seen in Figures 1-4.

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Figure 1: IRR sensitivity

Figure 2: NPV sensitivity

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Figure 3: IRR sensitivity: FX rate

Figure 4: NPV sensitivity: FX rate

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