Morella : Annual Report to shareholders

Morella Corporation Limited

ABN 39 093 391 774

ANNUAL FINANCIAL REPORT

30 JUNE 2023

Morella Corporation Limited and Controlled Entities

CONTENTS

	PAGE
Corporate Directory	3
Directors' Report	4
Auditors' Independence Declaration	19
Consolidated Statement of Profit and Loss	20
Consolidated Statement of Other Comprehensive Income	21
Consolidated Balance Sheet	22
Consolidated Statement of Changes in Equity	23
Consolidated Statement of Cash Flows	24
Notes to the Financial Statements	25
Directors' Declaration	72
Independent Auditor's Report to the Members	73

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Morella Corporation Limited and Controlled Entities

Directors' Report

FOR THE YEAR ENDED 30 JUNE 2023

Corporate Directory

DIRECTORS

James Brown - Managing Director

Allan Buckler - Non-Executive Director

Dan O'Neill - Non-Executive Director

Beng Teik Kuan - Non-Executive Director

COMPANY SECRETARY

John Lewis

REGISTERED OFFICE

Suite 5, 68 Murray Street

West Perth WA 6005

Telephone: [phone]

Facsimile: [phone]

Email: [e-mail]

Email:[e-mail]

Website: www.morellacorp.com

AUDITORS

PKF Perth

Level 5, 35 Havelock Street

Perth WA 6005

SHARE REGISTRY

Link Market Services Limited

Level 12, QV1 Building

250 St George's Terrace

Perth WA 6000

AUSTRALIAN SECURITIES EXCHANGE

Code: 1MC

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Morella Corporation Limited and Controlled Entities

Directors' Report

FOR THE YEAR ENDED 30 JUNE 2023 (CONTINUED)

Your directors have pleasure in presenting the annual financial report of Morella Corporation Limited ("Morella" or "the Company") and its controlled entities ("the Group") for the financial year ended 30 June 2023.

DIRECTORS

The names of the directors in office during the financial year and up to the date of this report are as follows:

Mr James Brown

Mr Allan Buckler

Mr Dan O'Neill

Mr Beng Teik Kuan

COMPANY SECRETARY

The name of the secretary in office during the financial year and up to the date of this report is as follows:

Mr John Lewis

PRINCIPAL ACTIVITIES

The principal activity have been centered around the Groups exploration tenements and conducting exploration programs on these tenements.

OPERATING AND FINANCIAL REVIEW

Overview

Morella Corporation Limited ("1MC" or "the Company") is an ASX listed entity. During the year Morella focussed operational efforts on exploration and development activities across Morella's suite of lithium projects both in the Pilbara region of Western Australia, and Nevada in the USA.

Review of Operations

Corporate

During the year the Group raised $7.5 million in cash, the proceeds were used to fund medium-term exploration and operational activities.

Project Development

Fish Lake Valley Lithium Project

During the first quarter of the Financial Year, Morella increased the Fish Lake Valley Lithium Project (FLV) area by roughly 60%, forming an undisrupted total claim area for the Project encompassing approximately 44.4 sq. km. The increased project footprint secures the entire Fish Lake Valley playa with a strike length of 11.5km, supporting the Company's focus on developing size and scale at the Project. In addition to exploration efforts, Morella also took its first steps to assess the suitability of brine material from Fish Lake Valley for a direct lithium extraction (DLE) processing flowsheet. A DLE study was commissioned to provide a preliminary economic assessment of lithium extraction with a proprietary technology solution from Recion Technologies ("Recion"). Recion has leveraged several years of DLE study work to establish a bench top processing system to test the FLV material and have presented staged development options for pilot scale and commercial scale.

During the second quarter Morella met the first-year expenditure requirement for the Fish Lake Valley Lithium Project ahead of schedule. Under the terms of the Earn-in Agreement, Morella was required to undertake exploration and development work to a total value of US$200,000 by no later than 17 August 2022. Morella notified LTUM that the Company had met its first-year expenditure requirement with effect 13 July 2022. A second phase of magnetotelluric ("MT") surveys over the northern part of the Project area was undertaken, to complement the previous MT survey conducted in the southern portion of the Project completed between December 2021 and April 2022. The MT survey was completed along two east-west trending survey transects of the Project. The survey was undertaken to identify electrically conductive anomalies at depth, which are assessed as having potential to be caused by brine accumulations which may host lithium solution. The MT survey lines in relation to the Project along with a composite cross section of the four MT survey lines completed to date. Results from geophysical survey work in the northern section of the Project confirmed additional shallow and at depth target zones for future drilling programs. MT survey data was acquired by US-based Zonge

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Morella Corporation Limited and Controlled Entities

Directors' Report

FOR THE YEAR ENDED 30 JUNE 2023 (CONTINUED)

International, Inc. ("Zonge") using the 'Zen' EMAP system, with 2D resistivity inversion modelling of the MT survey data using CGG Geotools, completed by Perth-based Resource Potentials in August 2022. 2D resistivity inversion modelling of the MT survey data produced a distinct, very high conductivity (<2Ohmm) anomaly in the west, within a broader high conductivity (<4 Ohmm) anomaly zone, which may be caused by lithium bearing brines at 300m depth and near a vertical fault (it is also possible the high conductivities are in part, associated with increased clay content). The MT inversion modelling results also showed a shallow, very high conductivity (<1 Ohmm) layer is present from surface and extending to approximately 30m below surface, which may be caused by a shallow layer of lithium sediments with saline groundwater at or just beneath the ground surface.

During the third quarter Morella received the results from the direct lithium extraction (DLE) study conducted by Recion Technologies. The Recion test work on the FLV brine determined the Following conclusions:

• 2 hours was sufficient timeframe to extract lithium from the provided brine sample with an extraction efficiency up to 95% using an absorption column configuration.
• Processing of the brine in the column results in a high lithium recovery and lithium can be concentrated by a factor of 7-9 up to ~400-500 ppm depending on recovery.
• Desorption can be completed in 1-2 hours; however, 2 hours is recommended to ensure full recovery of lithium from the sorbent.
• The absorption column configuration is a well-known modular configuration which has been used in water treatment for decades and can be scaled up using standard equipment.
• Preliminary economics have been determined and will be refined following the provision of more representative deeper reservoir samples from the upcoming drill program.

The DLE study will continue with Morella recently providing additional brine material to Recion. A primary objective of the next phase of testing is to generate enough concentrated lithium in solution to allow for continued processing at benchtop scale and production of lithium chemicals from the FLV brine.

The June Quarter has been spent analysing the data from the MT survey conducted in February 2023 in order to develop a targeted drilling program. Permitting is currently underway with most permits granted post the end of the financial year, Morella has also submitted a notice to the Bureau of Land Management (BLM) in Nevada for the drilling program in the northern project area. The northern drilling permit was granted in late June 2023. A notice will be submitted for the drilling in the southern project area in due course. Morella expects to commence drilling in the north of the FLV project area in the next quarter of 2023.

North Big Smoky Lithium Project

In August 2023, Morella completed negotiations for an Earn-In Agreement for a 60% interest in the North Big Smoky project (NBS) . The earn‐in agreement is with US‐based Lithium Corporation to earn‐in to the North Big Smoky Project in central‐west Nevada, USA. Initially the project consisted of 178 claims covering approximately 3,400 acres (1,376 hectares) in a well-known, highly prospective lithium region (Carvers). Subsequently in March 2023 the Carvers Project was expanded by adding 210 contiguous claims to the existing area increasing the project area by approximately 15 sq kms. The second extension area known as Austin is 11 kms north of Carvers is 360 placer claims and covers 29sq km's.

Carvers project area

Morella commenced its exploration by undertaking a detailed soils program supervised by a Certified Professional Geologist. With prospective areas identified from the soils program a controlled source audio magnetotelluric (CSAMT) survey was completed in December 2022 and the analysis identified a deep conductivity anomaly that may be caused by an accumulation of brine, which may host Li in solution.

Morella then commissioned a more comprehensive Magnetotelluric (MT) and passive seismic horizontal-to-vertical spectral ratio (PS-HVSR) survey covering the wider Carvers Project area in order to map the extents of the conductivity anomaly identified from 2D inversion modelling of the CSAMT survey completed during January and February 2023.

Following completion of the MT survey data acquisition and quality assurance/quality control QA/QC completed by US-based KLM Geoscience LLC, Perth based Resource Potentials Pty Ltd completed 2D resistivity inversion modelling of the MT survey data acquired along the MT survey lines and gridded those mode data in 3D to generate a 3D block model, which was used to create 3D resistivity isosurfaces and model slices. The 2D MT resistivity inversion model cross sections from the February MT survey reinforce and expand upon the 2D resistivity inversion modelling results from the CSAMT survey completed during December 2022, where a very high MT conductivity anomaly is present within the central and west of the Carvers area, which is broadly co-located or above the PS-HVSR acoustic bedrock, and could be caused by an electrically conductive brine accumulation located approximately 1,000 m below ground level. The PS-HVSR depth calibration was completed using digital downhole log data from the nearby petroleum exploration well.

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