Sunrise Energy Metals : March 2022 Quarterly Activities and Cash Flow

ASX Announcement

29 April 2022

Quarterly Activities Report

MELBOURNE, Australia - Sunrise Energy Metals Limited (Sunrise Energy Metals or Company) (ASX:SRL and OTC:SREMF) is pleased to provide an update on its activities for the quarter ended 31 March 2022.

Key Developments:

• • The Company secured conditional finance support from Export Finance Australia ('EFA')

  for up to A$400 million of debt funding.

• • Work streams to advance the fully integrated Sunrise Battery Materials Complex ('Sunrise Project') continued with activities focussed on:

  • o An application for a modification to the Sunrise Development Consent, with NSW Government approval for the modification received in January 2022.

  • o Progressing the long-lead electrical transmission line ('ETL') work scope.

  • o Design and scoping of the transport route through South Australia and New South Wales for the movement of large equipment packages to site.

• • Exploration activities continued during the quarter with a focus on expanding the understanding of the geological potential of our large tenement package in the Macquarie Arc:

  • o Drilling at Sunrise East continued to intersect more cobalt-bearing laterite. A 50- hole reverse circulation ('RC') drill program was completed to test the extent of further cobalt and nickel mineralisation at Sunrise East.

  • o A 96-hole RC scout drilling program commenced at the Hylea Project during the quarter designed to test for extensions to the Tigers Creek cobalt, nickel and scandium deposit and potential additional laterite deposits associated with the Hylea Intrusive Complex.

• • Work continues on development of a range of scandium-containing aluminium alloys across multiple industries. As a strategically important rare earth used in a range of sensitive military and industrial applications, scandium production from the Sunrise Project will deliver safe and dependable supply chains for North American based defence-related industries and the communications sector.

Sunrise Energy Metals Limited (ACN 127 457 916)

L6, 350 Collins St, Melbourne VIC 3000

T [phone]

[e-mail]| sunriseem.com

ASX Announcement

Managing Director and CEO, Sam Riggall said: "The current geopolitical situation is highlighting and exacerbating supply chain risks for critical minerals across the globe. Large-scale, long-life, low-cost and sustainability focused assets situated in safe sovereign risk countries, like the Sunrise Project are increasingly being recognised by end customers as crucial and reliable new sources of raw materials for building reliable and sustainable supply chains.

"The non-binding letter of support from Export Finance Australia for up to A$400 million of debt funding clearly demonstrates the Commonwealth Government's commitment to providing material financial assistance to project developers like Sunrise Energy Metals to bring Australia's critical minerals projects to fruition. The Company is targeting approximately 50% of the Project's capital requirements from commercial bank lenders, and this additional financial support from EFA is most welcome. We look forward to working with EFA as we continue to focus on securing a comprehensive financing package for the Sunrise Project from a range of local and offshore participants who have expressed interest in the project.

"The Company's growing exploration portfolio offers exciting opportunities which we will continue to progress. Our exploration activities remain focussed on expanding our understanding of the geological potential of our broader tenement package, ensuring that we can maximise the value from our core activity which remains progressing the Sunrise Battery Materials Project into production."

OCCUPATIONAL HEALTH AND SAFETY

The Company had no lost time injuries or reportable environmental incidents recorded during the quarter.

SUNRISE BATTERY MATERIALS COMPLEX

During the quarter, the Company continued to advance the development of the Sunrise Battery Materials Complex. A range of workstreams remain ongoing to progress a number of value-adding deliverables aimed at minimising Project start time once funding is secured. Key work programs include:

• • Progressing the long-lead electrical transmission line work scope. The ETL application to connect to the NSW electrical grid is currently in progress and will continue through CY22.

• • Test work and process development work assessing opportunities for potential recycling of spent battery materials and further downstream processing of sulphates into precursor cathode active material.

• • Ongoing environmental work including monitoring and compliance reporting.

• • A range of scandium alloy development programs continue to be progressed, consistent with Sunrise Energy Metals' long-term strategy to work with, and assist, industry players to investigate and develop new applications for scandium-aluminium alloys.

Conditional finance support from Export Finance Australia

During the quarter (refer to the ASX release dated 17 January 2022) a letter of conditional finance support was received from Export Finance Australia for up to A$400 million of debt funding for the Sunrise Project.

EFA is Australia's export credit agency and provides financial solutions to support Australian exporters through loans, guarantees, bonds and insurance. EFA also manages the Australian Government's A$2 billion Critical Minerals Facility which was established in 2021 to support projects that are aligned with the Australian Government's Critical Minerals Strategy and are otherwise in Australia's national interest.

As outlined in EFA's non-binding letter of support, a successful outcome from the EFA assessment and due diligence process is contingent on several conditions including:

• • Satisfactory independent technical review of the Sunrise Project;

• • An acceptable contracting strategy for the engineering, construction and commissioning of the Sunrise Project;

• • Finalising a comprehensive funding plan for the Sunrise Project including equity investment and securing debt funding from other lenders;

• • Meeting eligibility criteria, credit and risk requirements including but not limited to EFA's "know your customer" and anti-bribery requirements and checks; and

• • The Sunrise Project complying with EFA's environmental and social risk policies, including receiving the required regulatory and environmental approvals.

EFA has advised that it will commence detailed due diligence on the Sunrise Project.

Permitting and approvals

The Company completed a Project Execution Plan (PEP) in late 2020. Undertaken by an integrated Sunrise Energy Metals and Fluor Australia Pty Ltd (Fluor) team, the PEP updated the 2018 Definitive Feasibility Study, incorporating revised cost estimates, updated design and engineering work as well as a revised master schedule for the engineering, procurement, construction, commissioning and ramp-up of the Project. The PEP resulted in several enhancements to the Project layout and design, requiring a handful of modifications to be made to the Sunrise Project Development Consent - the key NSW state government approval. During the quarter the Company progressed the process for approval of these modifications. Final approval of these (Mod 7) was received in January 2022.

Progress continues on the long-lead electrical transmission line work scope. The application to connect to the NSW electrical grid is currently in progress and will continue through CY22.

Connection to the NSW electrical grid is a key enabler of the Company's commitment to procure renewable energy to supply 100% of the Project's external power requirements.

The Company has also continued to progress commercial discussions with landowners, local councils, the NSW State Government and other impacted parties required for land access agreements for key infrastructure including the water pipeline and the electrical transmission line.

Initial discussions were held during the quarter with the National Heavy Vehicle Regulator (NHVR) on the planning and approvals required for the oversized transport route from Port Pirie to Sunrise. Work is progressing on the design and scoping of civil and overhead services modifications required for the transportation of major equipment packages along the route.

Project Financing

The Company continues to engage proactively with a range of participants in the electric vehicle (EV) industry with a view to securing an offtake and equity investment partner for the Project. Recent global developments, including surging nickel, cobalt and lithium prices, have highlighted the risks associated with critical minerals in EV supply chains. The Company remains optimistic on the outlook for demand growth in the EV and lithium-ion battery sectors, and in particular the strategic importance of Sunrise as one of the largest suppliers of battery-grade nickel and cobalt into the global EV supply chain.

While demand fundamentals continue to strengthen, the supply outlook for nickel and cobalt battery materials remains particularly challenging. Given the strong outlook for nickel and cobalt demand, the Company remains committed to developing the Project once funding has been secured. As such, the partnering process will continue, however the targeted timing for completion of any transaction is not possible to forecast.

SCANDIUM MARKET UPDATE

During the quarter the Company continued to advance its scandium research, development and marketing activities. The Company has developed a portfolio of world-class research and development partners focussing on the advancement of scandium across a range of alloys and applications.

The utilisation of scandium in aluminium and other alloys will create lighter, stronger and more thermally resistant alloys that are potentially suitable for use in a range of temperature-sensitive applications. These collaboration programs are consistent with the Company's long-term strategy to assist industry players to investigate and develop new applications for scandium-aluminium

alloys. The Company's aim is to stimulate growth in demand for the material which will be converted into sales of scandium from the Sunrise Project once it is in operation.

Sunrise Energy Metals, with its significant scandium deposit is well positioned to provide scandium into a rapidly growing market. Importantly Sunrise's premier location in Australia will ultimately provide a safe and dependable supply chain of scandium to sensitive industries such as defence and telecommunications across North America and Europe.

The Company has entered into a Joint Cooperation Agreement with Kurt J. Lesker Company (Lesker) and Metalysis Ltd (Metalysis) to develop processes for the production of scandium-containing aluminium alloys that are integral to 5G cellular telephones and other radio communications equipment.

The Joint Cooperation Agreement with Lesker and Metalysis will focus on producing scandium-containing aluminium alloys that can be used in sputter targets. The process is specifically engineered for the reactive deposition of thin film scandium doped aluminium nitride films. Sunrise Energy Metals will contribute technical support and supply scandium for the collaboration.

Aluminum-Scandium Sputter Target (image Kurt J. Lesker Company)

Sputter targets are metal disks which are used for thin film deposition (plating) of specialty alloys onto a range of components. Sputtering of aluminium-scandium alloys is employed extensively in the manufacture of chips and other components in 5G cellular telephones and other radio communications equipment, including communications equipment with important military applications.

Production of the alloys used to manufacture these scandium-containing aluminium alloys is currently dominated by China. The aim of the cooperation agreement is to develop new lower-cost processes for the production of these alloys which will encourage growth in the use of scandium for these types of applications as well as enabling greater diversification of their sources of supply.