Hexagon Energy Materials : Pedirka Hydrogen Project PFS Study Completed

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ASX Announcement | 28 February 2022

Hexagon Energy Materials Limited (ASX: HXG)

Hexagon's Pedirka Hydrogen Project Pre-Feasibility Study completed. Study identifies the pursuit of clean Hydrogen opportunities in North Western Australia as most commercially attractive for Hexagon.

Key Findings:

• Hexagon's objective is to secure the most commercial, practical and timely pathway to establish a large-scale decarbonised Hydrogen business in Northern Australia.
• Hexagon has completed a comprehensive Pre-Feasibility Study (PFS) on the Pedirka clean Hydrogen project. This PFS was based on the initial Pedirka scoping study and, through an extended scope, expanded to analyse broader routes to market.
• The completed PFS resulted in the following key findings:
• • The production of Ammonia (as a hydrogen carrier) is more commercially viable than liquid hydrogen due to the capital and operational costs associated with handling and transporting liquid hydrogen as a product. Technology developments will, over time, create shifts that Hexagon will position itself on a commercial basis to capitalise on.
  • Carbon Capture and Storage (CCS) or decarbonisation is a major cost consideration in selecting the project location. Minimising the cost of transporting CO2 for CCS and being able to tap into multi-user, established infrastructure based business models, to minimise total CCS costs toll charges, is crucial.
  • Minimising gross CO2 production is a key driver of profitability. The use of low-cost renewables as the source of energy in the hydrogen conversion process and on-site CO2 capture and compression processes, and the potential use of natural gas rather than coal as the hydrocarbon feedstock, will significantly lower Hexagon's total CCS costs and requirements.
  • Locating the hydrogen plant at or near a substantial pre-established port facility brings significant commercial benefits to the project in terms of construction costs and ongoing operational expenses (OpEx).
  • Locating the hydrogen plant adjacent to feedstock supply is also critical to minimising raw material logistics costs and, as a result, commercial returns. Low cost access to local process water supply and infrastructure impacts commercial returns, also.
  • Participation in and capitalisation on well-funded hydrogen hub investments that share substantial upfront capital costs (CapEx) will result in improved commercial returns.

Lowest Risk, Lowest Capex Way Forward for Hexagon:

• As a result of these findings and the opportunities identified through the PFS work, Hexagon is now in a position to pursue a lower risk, lower CapEx and OpEx, more rapid and cost- effective route to market in establishing its clean Hydrogen business than the model originally laid out in the Pedirka scoping study. The findings better pave the way for Hexagon to substantially grow as the global clean Hydrogen market emerges.
• Details of the progress that has been made by Hexagon with a clean Hydrogen project in Western Australian will be announced to the market within the coming week.

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Hexagon Energy Materials Limited (ASX: HXG; "HXG", "Hexagon" or "the Company") has completed the Pedirka clean Hydrogen Project (Pedirka) PFS. This announcement presents the results of the PFS and outlines the Company's clean Hydrogen plans moving forward.

1 Hexagon's clean Hydrogen Strategic Objectives

Hexagon's clean Hydrogen strategic objectives are:

Value creation for shareholders through participation in the large, global, emerging clean Hydrogen market by developing projects that commercially deliver at scale. Hexagon is focused on creating a basis for future growth matched to emerging markets, on the following terms:

• Lowest possible production risk. By using technically proven-at-scale technologies which have a track record of being successfully (i.e., on time, budget and quality) constructed, commissioned and operated long-term at design capacity.
• Lowest possible cost (in Total life of project CapEx and OpEx terms).
• Most timely/efficient route to production.

These objectives underpinned the expanded PFS scope and review of other Northern Australian locations. Western Australia (WA) was specifically identified as a more attractive project opportunity location, based on the following favourable factors:

1. More advanced and cost-effective CCS toll treatment services,
2. Low-costnatural gas feedstock, available in the timeframe sought by Hexagon,
3. Low-costrenewable energy,
4. Low-costprocess water, and
5. Export/Port facility access.

Figure 1, below, illustrates Northern Australia's attractions due to existing critical elements for commercial clean Hydrogen project development.

Further details on progress achieved with Hexagon's WA Hydrogen Project, will be announced over the coming week.

Figure 1 - Northern Australia Infrastructure

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2 The Next Steps for Hexagon in terms of clean Hydrogen

Hexagon has commenced technical and commercial work including financial modelling, on a WA clean Hydrogen project (WAH2). This project significantly leverages the work done on the PFS based on Pedirka and the insights gained.

In relation to CCS, the PFS confirmed the need for Hexagon to leverage established infrastructure and low-cost renewable energy to the greatest extent possible. The PFS confirmed natural gas was Hexagon's preferred hydrogen feedstock. This requires Hexagon to be in locations where low-cost access to natural gas over the long term is achievable.

The PFS also clearly demonstrated that, for Hexagon to deliver its clean Hydrogen strategy, coastal sites would be far more attractive and efficient. In accessing CO2 compression processes, accessing renewable energy and sourcing well established large scale offshore gas field feedstock would be more attractive and efficient than sourcing coal from Pedirka as a feedstock.

Positive initial progress has already been made on the WAH2 Project leveraging the work and insights gained from the PFS. Around 30% of insights, engineering and modelling have been carried over to the going forward strategy.

Specific progress on WAH2 to date:

• Plant location - An application for over 80 hectares of land available for lease within the Ashburton North Strategic Industrial Area (SIA), which is owned by the WA Government, was lodged 18 January 2022. This is to be expanded to include the Burrup and Maitland SIAs based on discussions held with DevelopmentWA on 14 February 2022. Hexagon will work constructively with all stakeholders to secure an optimal site for WAH2.
• CCS/Decarbonisation - Negotiations over CCS toll treatment services with third parties have progressed. Firm commercial terms for CCS toll service delivery and the process by which Hexagon can secure an option to access these services are expected next week.
• Natural Gas supply - Negotiations around supply are underway through a gas brokerage agreement signed on 18 February 2022. This agreement has been struck to secure, in a timely fashion, the requisite gas feedstock for the contemplated Stage 1 of WAH2 project, producing 0.25 MTPA of blue Ammonia for export. Stage 2 is expected to expand the production of WAH2 to 0.8 MTPA. Offers for around 70% of Hexagon's WAH2 project Stage 1 gas requirements have already been received.
• Renewable Energy supply - Discussions to progress the Memorandum of Understanding (MoU) with FRV Australia, announced on 24 January 2022, have commenced in order to reach a specific WAH2 related development agreement. Hexagon / FRV Australia collaborations in the NT are also expected to continue as part of Hexagon's longer-term NT clean Hydrogen plans.
• Blue Ammonia Offtake/Sales - Discussions with blue Ammonia customers and/or trading houses have commenced.
• Strategic partner/investor discussions are well underway with multiple parties.

The current work program pertaining to further progressing Hexagon's WAH2 project can be covered within the Company's existing cash position.

3 The Australian / Asian clean Hydrogen opportunity

During the course of the PFS, the scale and certainty of the opportunity for a successful clean Hydrogen (Ammonia) business based on Australia's northern seaboard has become certain.

Multiple industrial sectors in Asia are both advancing and providing greater detail around their decarbonisation plans involving clean Hydrogen and, more specifically in the short term, clean

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Ammonia. Figure 2, below, outlines some of these plans, specifically priority sectors for Hexagon namely, energy / electricity generation, maritime transportation and energy storage.

Hexagon has been engaging with key industry participants and potential customers and trading partners as part of its clean Hydrogen business development strategy. The Company looks forward to making announcements around these interactions throughout the course of the 2022 calendar year.

Figure 2 - Hexagon's blue Ammonia (DCAmmonia) target markets

Figure 3, below, contains recent media reports about Japanese trading house JERA. On 18 February 2022 JERA announced that from 2027 it will issue international tenders and purchase Ammonia for use in its coal-fired power stations to decarbonise them.

Figure 3 - Ammonia in Coal Fired Power Plants1

Hexagon's blue Ammonia sales target markets include coal fired power stations and maritime shipping seeking to decarbonise their operations. Maritime shipping currently accounts for 75% of global

1 Source: S&P Global Platts

https://www.spglobal.com/platts/en/market-insights/latest-news/energy-transition/021822-japans-jera-eyes-up-to-500000-mtyear-ammonia-long-term-supply-from-fy-2027-28

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freight transport activity2 and around 3% of global greenhouse gas emissions3. Shipping transport demand is forecast to increase. By mixing blue Ammonia with current fuels or using 100% blue Ammonia in new engine designs, significant CO2 emission reductions could be achieved in this sector.

Use of clean Hydrogen across Power/Utilities, Transport, in Building heating and cooling and as a feedstock for Industrial Chemicals, is forecast to grow by a factor of 10 by 2050.4

As shown in Figure 4 below, significant growth in the clean (decarbonised) Hydrogen (blue and green) markets is forecast over the next 20 years. Sales revenue of over A$400 billion globally could be generated by 20505. For Australia alone, clean Hydrogen is forecast to be contributing over A$10 billion to the economy by 2050.6

Figure 4 - Forecast global Hydrogen market growth, by end use and by Hydrogen type

Hexagon's blue Ammonia product (DCAmmonia) end market focus is on two specific sectors and uses:

1. In coal-fired power stations (co-fired with coal), to decarbonise power station emissions. Ammonia does not emit Carbon Dioxide (CO2) when burned. The chemical formulae below set out the reactions that take place within this application.

To accommodate Ammonia, relatively minor modifications of existing coal-fired power stations are required. (For more information visit Hexagon's website, www.hxgenerymaterials.com.au, where a more detailed description of this application is provided).

As shown at the right in Figure 2 above, total cost (price) of 60% blending or co-firing of ammonia with coal could deliver similar to current electricity prices for customers whilst also delivering

1. International Energy Agency. (2021). International Shipping. International Energy Agency. Paris. https://www.iea.org/reports/international-shipping
2. International Maritime Organisation. (2021). Fourth IMO Greenhouse Gas Study 2020 - Full Report. International Maritime Organisation. https://www.imo.org/en/OurWork/Environment/Pages/Fourth-IMO-Greenhouse-Gas-Study-2020.aspx
3. Source: BP Energy Outlook 2020, https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/energy-economics/energy-outlook/bp-energy-outlook-2020.pdf
4. International Energy Agency. (2021). International Shipping. International Energy Agency. Paris. https://www.iea.org/reports/international-shipping
5. Advisian Pty Ltd - 2021 Market Study report for the Clean Energy Finance Corporation

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