PEA - Robust Economics for German Lithium Project

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the UK Market Abuse Regulation. With the publication of this announcement, this information is now considered to be in the public domain.

Zinnwald Lithium plc / EPIC: ZNWD.L / Market: AIM / Sector: Mining

7 September 2022

Zinnwald Lithium plc

("Zinnwald Lithium" or the "Company")

Preliminary Economic Assessment Reports Robust Economics for German Lithium Project

Zinnwald Lithium plc, the German focused lithium development company, is pleased to announce that a NI 43-101 standard Preliminary Economic Study ('The Technical Report' or 'PEA') has been published on its integrated Zinnwald Lithium Project in Germany ('the Project') focused on supplying battery grade lithium hydroxide ('LiOH') to the European battery sector.

HIGHLIGHTS

Robust economics with upside to expand production:

·    Pre-tax NPV (at 8% discount) of US$1,605m

·    Pre-tax Internal Rate of Return ('IRR') of 39.0%

·    3.3 years payback period (post commencement of production)

·    US$336.5m initial construction capital cost

·    US$6,200 Life of Mine ("LOM") operating costs per tonne LiOH (after by-product credits)

·    US$320.7m Average Annual LOM Revenue

·    Post-tax NPV (at 8% discount) US$1,012m

·    Post-tax IRR 29.3%

·    US$192.0m Average Annual EBITDA with co-products

·    US$22,500 per tonne of battery-grade LiOH in the financial model used for this PEA

Opportunity to be become a key low-cost supplier to Europe's fast-growing battery:

·    Measured and Indicated lithium resource of 35.51 Mt of greisen ore with a mean lithium grade of 3,519 ppm

·    Production of c. 12,000 tonnes per annum ('tpa') of battery grade (99.5%) LiOH

·    LOM: >35 years

·    Simple 5-stage processing confirmed by extensive testwork - the estimated overall recovery rate from ROM to end product (LiOH) is 75.4%

·    Includes the production of key by-products:

o  c. 57 ktpa potassium sulfate as fertilizer and technical product;

o  c. 16 ktpa precipitated calcium carbonate ('PCC'); and

o  c. 75 ktpa granite and 100 ktpa sand as by-products

Rapidly expanding market due to an increase in the use of lithium-ion batteries for electric vehicle and energy storage applications:

·    Compound annual growth rate of lithium market for battery applications projected to be more than 20% per year to 2028 (Roskill)

·    282 Gigafactories at various stages of production/construction, up from only 3 in 2015 (May 2022: +300), which would require 5 Mt of Lithium each year compared with 480,000 tonnes produced in 2021 (Benchmark)

·    Lack of supply due to a lack of capital investment to build future mines and estimated $42bn needs to be spent by 2030 to meet demand for lithium (Benchmark)

·    The EU has made it a strategic priority to improve its self-sufficiency for lithium

·    Analysts forecast an inflation adjusted long term price of $23,609 per tonne LiOH through to 2036 with a nominal rate of $33,200 by 2036 (Roskill, March 2022)

Aiming to become a leading European sustainable lithium producer:

·    Located close to the German chemical industry enabling it to draw on a well trained and experienced workforce with well-developed infrastructure

·    Integrated, on-site, mining to battery grade product process and proximity to many of the planned Gigafactories resulting in reduced transport emissions

·    An underground mine in an established mining region with extensive existing and well-maintained infrastructure

·    To be permitted under EU and German environmental rules, some of the strictest global standards

·    Basic process has key elements that are more sustainable than some of its main rivals including limited water use and less energy intensive than traditional spodumene-based production

·    Potential to be a low or "zero-waste" project, as the vast majority of both its mined product and co-products have their own large-scale end-markets

·    Bringing industrial activity and jobs back to a region long steeped in mining history - across the lifetime of the Project, it is estimated to generate c. €2.0bn in state and federal level taxes

Next steps ahead of planned project construction and production commencing include:

·    Better define the Resources and Reserves that lie within the ore body at core Zinnwald license with ongoing infill drilling programme

·    Complete exploration drilling campaign at the nearby Falkenhain license to determine the potential for expansion of both the Project's resources (including tin and tungsten) and the production level

·    Collate data and optimize mining plan

·    Continue to develop the technologies planned for its processes with further testwork and refine plans for reducing the overall CO₂ footprint and operating costs, such as via the use of electric mining equipment

·    Continue EIA and other permit application processes, including baseline studies and other reports

·    Evaluate options for the construction strategy - currently EPCM

·    Complete further work/negotiations on all infrastructure aspects of the Project

·    Publish Bankable Feasibility Study end 2023

Zinnwald Lithium CEO, Anton du Plessis, commented:  "We are delighted with the results of the PEA for our integrated Zinnwald Lithium Project in Germany, which reported a headline pre-tax NPV8 of US$1,605m, IRR of 39.0%, $192m EBITDA and a payback of just 3.3 years. The extremely robust economics in tandem with the technically proven processing route to deliver circa 12ktpa battery grade lithium hydroxide to the developing European battery storage/EV manufacturing sectors, underpins the potential of the Project.  

"There remain other positives: the current Measured and Indicated lithium resource of 35.51 Mt grading 3,519 ppm, which provides feed for over 35 years, is scalable and the short timeframe to production, targeted for 2026, is very opportune, given the strong LiOH prices and global rise in green energy strategies.   

"We have made significant progress over the last year, undertaking extensive research and testwork to re-orient the Project towards producing circa 12ktpa battery grade lithium hydroxide from the initial plan to produce 5ktpa of Lithium Fluoride.  This optimisation has greatly improved both Zinnwald's economics and sustainability credentials and I'd like to thank the team and consultants for all their work.  

"Looking ahead, we have an extremely active schedule to crystallise the value of this project.  We are already working on a Bankable Feasibility Study, which we intend to deliver by the end of 2023 and will continue to evaluate processing and manufacturing options to ensure the Project achieves economic and environmental excellence; our aim is to become one of the more sustainable and investable lithium projects worldwide."

Cautionary Statement Regarding Preliminary Nature of the PEA

Readers are cautioned that the PEA summarised in this press release is preliminary in nature and is intended to provide an initial, high-level review of the project's economic potential and design options. The PEA mine plan and economic model includes numerous assumptions.  There is no certainty that the PEA will be realised. Actual results may vary, perhaps materially. The projections, forecasts and estimates presented in the PEA constitute forward-looking statements and readers are urged not to place undue reliance on such forward-looking statements.

The Mineral Resources referred to in the PEA were announced in a Competent Persons Report on the Zinnwald Lithium Project dated 20 September 2020. Zinnwald Lithium confirms that it is not aware of any new information or data that materially affects the information in the above releases and that all material assumptions and technical parameters, underpinning the estimates continue to apply and have not materially changed. Zinnwald Lithium confirms that the form and context in which the Competent Person's findings are presented have not been materially modified from the original market announcements.

SUMMARY

Introduction

A Technical Report was commissioned by Zinnwald Lithium's 100% owned subsidiary, Deutsche Lithium GmbH ('DL') in relation to its wholly owned Zinnwald Lithium Project (the "Project") in Saxony, Germany. 

The Project is situated near to the town of Altenberg, 35km south of Dresden and adjacent to the border with the Czech Republic and is located in a developed area with good infrastructure, services, facilities, and access roads. Power and water supply is available from well-established existing regional networks.  DL has held license areas in Zinnwald since 2011 and conducted various drilling campaigns from 2011 to 2017 to delineate a mineral resource. DL was subsequently granted a mining permit over its core Zinnwald License (the "License") area of 2,565,800m2 valid to December 2047 (subject to receipt of operational permits). 

A NI 43-101 Feasibility Study Technical Report for the Project was published in May 2019 and updated in September 2020 (the "2019 FS"). However, this was based on a smaller scale, niche end-product (Lithium Fluoride) project designed to be internally financed and integrated to the original owners' operational strategy.   Since June 2021, Zinnwald Lithium Plc ("ZLP") has refined the development plan in response to the wider lithium market dynamics and has changed strategy to focus on a larger scale operation that produces battery-grade Lithium Hydroxide Monohydrate ("LiOH", "LHM" or "LiOH*H₂0") products; to optimise the Project from a cost perspective, and also to minimise the potential impact on the environment and local communities. All aspects of the Project from mining through to production of the end product will now be located near to the deposit itself.

The Project described in this Technical Report includes an underground mine with a nominal output of approximately 880,000 t/a ore at estimated 3,004 ppm Li and 75,000 t/a barren rock. Ore haulage is via a 7km partly existing network of underground drives and adits from the "Zinnerz Altenberg" tin mine which closed in 1991. Processing including mechanical separation, lithium activation, and lithium fabrication will be carried out at an industrial facility near the village Bärenstein, in close proximity to the existing underground mine access and an existing site for tailings deposition with significant remaining capacity.

The nominal output capacity of the project is targeted at c. 12,000 t/a LiOH with c. 56,900 t/a of potassium sulphate ("SOP"), which is used as a fertilizer, as a by-product. Another by-product that is contemplated is Precipitated Calcium Carbonate ("PCC") a key filling material in the paper manufacturing process. The estimated mine life covers >35 years of production. The optimisation of mining methods has been a key consideration to realise increased total mined tonnage from the Zinnwald mine. This includes utilising more efficient techniques such as sub-level stoping and Avoca wherever possible and in preference to the less efficient room and pillar method.

The economic analysis included in this Technical Report demonstrates the financial viability of the Project. Based on the assumptions detailed in this report the Project supports a Pre-tax Net Present Value ("NPV") of US$1.6 billion (at a discount rate of 8%, "NPV8)") and a pre-tax Internal Rate of Return ("IRR") of 39%. The after tax NPV8 is US$1.0 billion and post-tax IRR is 29.3% The Project has a mine life of over 35 years and the payback period is less than four years post commencement of production.

This Technical Report was prepared according to the rules of the National Instrument 43-101 "Standards of Disclosure for Mineral Projects" developed by the Canadian Securities Administrators effective as per June 30, 2011. The NI 43-101 follows the recommendations of the Canadian Institute of Mining (CIM) Standing Committee on Reserve Definitions.

This PEA is preliminary in nature, it includes certain assumptions that are considered too speculative to have economic considerations applied to them.  There is no certainty that the Project as described in this PEA will be realised.

Accessibility, Local Resources, Infrastructure and Physiography

DL currently holds four licenses in the area.  The core Zinnwald License, which forms the basis of this report, has a mining classification, and runs to 31 December 2047.  It also holds three other exploration licenses at Falkenhain, Altenberg DL and Sadisdorf, as show in Figure 1 below:

Falkenhain - the license covers an area of 2,957,000 m² and is valid to 31 December 2022.  DL has already applied for a 3-year extension and has commenced a 10-drill hole exploration in September 2022.  A geological 3-D model of the "Falkenhain" license area is being created and further steps will be taken depending on the results of the drill campaign, such as laboratory-scale processing tests and the construction of a resource model.

Altenberg DL - the license covers an area of 42,252,700 m² and is valid to 15 February 2024.  DL is currently evaluating historical data, which will be used to define new exploration targets in the area

Sadisdorf - the license covers an area of 2,250,300 m² and is valid to 30 June 2026. The previous holder of the license had defined a JORC compliant inferred resource of 25 million at a 0.45% Li₂O grade. DL is reviewing and evaluating this historic data to determine further exploration steps.

Figure 1:               Location plan of the exploration licenses and mining permission of DL

Geographically, the area shown above forms part of the upper elevations of the Eastern Erzgebirge Mountains, at elevations of 750 to 880 m a.s.l. The general topography is typical for a low mountain range with steep valleys and smooth summits, the latter gently dipping towards north. It comprises wide grasslands surrounded by forests and is structured by the local river network with pronounced V-shaped valleys belonging to the Elbe River Basin. Most of the land use in the area is agriculture and forestry with most surface rights being privately owned. The surface water bodies are reserved for public water supply, farming or recreation.  With an average of 65 inhabitants per km2 the region is sparsely populated. The town of Altenberg has a population of 7,785 inhabitants.

The main licence area is close to the town of Altenberg. The motorway A 17 (E 55), which connects Dresden with Prague in the Czech Republic (CZ) bypasses the property 17 km to the east. Border crossing between Germany and the Czech Republic at Zinnwald is possible by car and truck. The airports of Dresden, Berlin and Prague are 70, 230 and 100 km away, respectively. The Altenberg railway station is located on the north side of the town. The Heidenau-Altenberg railway (38 km) connects in Heidenau (near Dresden) with the Elbe valley railway. This railway represents line 22 of the Trans-European Transport Network (TEN-T).

The overall area is well developed with respect to regional electricity, sewage, water and gas networks. Electric power, gas and potable water is available in the region.  Area-wide broadband internet access is being rolled out, but the area is already well covered by German and Czech mobile telephone networks.

Since the closure of the main regional mining operations 30 years ago following the reunification of Germany, tourism has become an important local industry.  In addition, the region is home to numerous small and medium-sized enterprises that are based within in the mechanical, electrotechnical and automotive industry sectors. However, the region faces the challenge of an ageing population and the rural exodus of younger people. This is a supporting factor to local authorities encouraging companies such as DL that are bringing industrial activity and jobs back to a region long steeped in mining history.

Geology and Mineralization

The area covered in this Technical Report is part of the Erzgebirge-Fichtelgebirge Anticlinorium, which represents one of the major allochthonous domains within the Saxo-Thuringian Zone of the Central European Variscan (Hercynian) Belt. Its geological structure is characterized by a crystalline basement and post-kinematic magmatites (plutonites and volcanites). The Zinnwald deposit belongs to the group of greisen deposits. Greisens are formed by post-magmatic metasomatic alteration of late stage, geochemically specialized granites and are developed at the upper contacts of granite intrusions with the country rock. The Zinnwald greisen is bound to an intrusive complex, which intruded rhyolitic lavas of Upper Carboniferous age along a major fault structure.

The prospective mineralization is of late Variscan age (about 280 million years old) and is geologically restricted to the cupola of the geochemically highly evolved Zinnwald granite. It was in its apical parts underground mined for veins with tin (cassiterite) and tungsten (wolframite, minor scheelite) until the end of the Second World War. Lithium is incorporated by a lithium-bearing mica, which is called "zinnwaldite", a member of the siderophyllite-polylithionite series, which contains up to 1.9 wt.% lithium. It is enriched in 10 parallel to subparallel stretching horizons below the already mined tin mineralization. Individual lithium-bearing greisen beds show vertical thicknesses of more than 40 m. The mineral assemblage consists of quartz, Li-F-mica (zinnwaldite), topaz, fluorite and associated cassiterite, wolframite and minor scheelite and sulfides.

Exploration Status

The first underground mining for tin in the Zinnwald deposit on both sides of the current border between Germany and the Czech Republic was recorded in the second half of the 15th century. The "Tiefe-Bünau-Stollen", which was driven from the year 1686 on, became the most important gallery of the whole Zinnwald ore field. This adit is part of the visitors' mine "Vereinigt Zwitterfeld zu Zinnwald" and is located in the mining concession. Tin and minor tungsten mining on the German side ceased with the end of the Second World War, and on the Czech side in 1990. From 1890 to 1945 lithium-mica was produced as a by-product and used as raw material for lithium carbonate production. Lithium exploration on the German side started again in the 1950s.

DL initially focused its exploration activities on the central Zinnwald license as well as underground on the accessible parts of the abandoned mine. An underground sampling campaign was conducted in 2012, which provided a series of 88 greisen channel samples from the sidewalls of the "Tiefer-Bünau-Stollen" (752 m a.s.l.) and the "Tiefe-Hilfe-Gottes-Stollen" galleries (722 m a.s.l.). DL subsequently expanded the work to peripheral parts of the deposit. Exploration consisted of 10 surface drill holes (9 DDH and 1 RC DH) completed between 2012 and 2014 with a total length of 2,484 m. Infill and verification drilling was resumed and completed in 2017 by DL consisting of 15 surface diamond drill holes with a total length of 4,458.9 m.

Resource Estimates

The Mineral Resources referred to in this PEA are as previously published in the 2019 FS. In the 2019 FS, the geological and geochemical results of the exploration campaigns were fully integrated in a data base, which comprises the following underlying data:

·    76 surface holes,

·    12 underground holes,

·    6,342 lithium assays of core samples covering 6,465 m of core,

·    88 lithium assays from channels; and

·    1,350 lithium assays from pick samples.

DL's exploration samples were analysed by the accredited commercial ALS laboratory at Roşia Montană, Romania. Duplicates were sent to Activation Laboratories Ltd. In Ancaster, Canada, for external control. QA/QC procedures were carried out for due diligence purposes and the results confirmed the careful sampling and reasonable accuracy and precision of the assays. Twinned drill holes showed a good match. The initial geological model of several parallel to sub-parallel stretching mineral horizons ("Ore type 1 greisen beds") was verified and an authoritative resource assessed.

The general mineral inventory of lithium, shown in Table 1, was estimated from the block model based on a zero cut-off and without a constraint of minimum thickness of the ore bodies. It accounts for 53.8 Mt greisen tonnage ("Ore Type 1") with a rounded mean grade of 3,100 ppm.

Table 1:                Lithium Mineral Inventory of Zinnwald (German part below 740m)

Selection criteria for eventual economic extraction (vertical thickness ≥ 2 m, cut-off = 2,500 ppm Li) applied to the mineral inventory result in a demonstrated (measured and indicated) lithium resource of 35.51 Mt of greisen ore with a mean lithium grade of 3,519 ppm (see Table 2).

Table 2:                Lithium Mineral Resource - Zinnwald, Base Case

The potential of Sn, W and K₂O have been estimated for the greisen beds as mean grades for "Ore Type 1" for the German part of the Lithium Zinnwald Deposit and below 740 m a.s.l.: At a total volume of rounded 15 million cubic meters and a tonnage of 40 million tonnes, the overall mean tin grade accounts for approximately 500 ppm, mean tungsten grade for approximately 100 ppm and mean potassium oxide grade for approximately 3.1 wt.%.

Reserve Estimates

Since this Report summarizes the results of a Preliminary Economic Assessment (PEA), no Mineral Reserves have yet been estimated for the revised Zinnwald Lithium Project as per NI 43-101 guidelines. However, for the purpose of project appraisal, the previously calculated Mineral Reserves from the 2019 FS report have been used as mining inventory. This PEA includes assumptions for an optimised of the mining extraction and production methods together with the almost doubling of the Lithium price and accordingly considers this to be a conservative and appropriate approach.

For detailed summary on the calculation of these mineral reserves the reader should refer to the 2019 FS. Some key assumptions are as follows:

·    Proven and Probable Mineral Reserves = 31.20 Mt, 3,004 ppm Li

o  Including internal dilution (8%) = 2.28 Mt, 1,929 ppm Li

o  Including external dilution (20%) = 5.5 Mt, 1,700 ppm Li

Processing and Metallurgical Test Work

Process Stages

The mineral processing consists of 5 stages

·    Primary crushing using a jaw crusher

·    Secondary crushing using a cone crusher

·    Drying of the crushed material

·    Dry grinding for liberation

·    Dry-magnetic separation

The pyrometallurgical process consists of:

·    Fine grinding of mica concentrate to below 315 µm

·    Mixing of milled concentrate with suitable additives such as anhydrite/gypsum and limestone

·    Roasting in kilns e.g., rotary

The hydrometallurgical processing consists of:

·    De-agglomeration of roasted material

·    Leaching of roasted material with hot water

·    Purification of the mother leach liquor

·    Precipitation, washing and drying of lithium hydroxide

·    Sulphate of potassium (SOP)-crystallization

The flow sheet is summarised at a high level in Figure 2 below.

Figure 2:               Simplified Project Flowsheet

Test work undertaken

The most recent test work programmes undertaken in 2021 and 2022 built on the work done for the Feasibility Study, which itself had confirmed the results of laboratory test work on a technical scale.  The earlier FS test work included flowsheet development test work using a split of a 100t lithium-mica greisen ore sample, that in turn generate a 50t sample used in the beneficiation work and a 10t mica concentrate for use in the pyrometallurgical and hydrometallurgical work. This ore was mined by drilling and blasting in the Zinnwald visitor underground mine from ore body B, one of the largest ore bodies in the deposit.

For mineral processing, DL continues to rely on the original metallurgical test work undertaken by UVR-FIA for the 2019 FS, which comprised the following:

·    2011 - approximately 20 t of ore that had a mean Li grade of 3,900 ppm.

·    2017 - approximately 100 t of ore that had a mean Li grade of 4,009 ppm.

·    DDH core samples: 25 variability samples selected from drill core from 2012- 2013 and 2017.

For pyrometallurgy, the basic calcination and leaching of Zinnwaldite concentrate have been tested in several stages and are described in the FS report. During 2022, a test campaign was carried out at IBU-TEC to:

·    Further optimise the mixing ratios of the reagents

·    Test the potential to further increase the leaching recovery of metals, especially potassium

·    Confirm that FGD Gypsum can be used as the reagent in the process

For hydrometallurgy, in 2021 further Laboratory scale and Pilot scale hydrometallurgical test work was carried out at K-UTEC using 5.6 t Calcined Zinnwaldite. This Calcined Zinnwaldite that originated from calcination tests carried out in 2018 was used for pilot-scale tests to produce 50 kg of a reference LiOH product sample as well as for the locked cycle test for process verification as part of the process design work.  The main areas of testwork were as follows:

·    Test the conversion of the leach brine resulting from calcined Zinnwaldite leaching into LiOH.

·    Further development of the removal processes for impurities in the leach liquor

·    Further development of the processes to ensure no downstream quality issues in the sulphate and carbonate stages of the process

·    Improvements to the crystallisation process for the production of Potassium Sulphate (SOP)

·    Lock cycle tests to confirm composition and quantity ratios required for the mass balance

Summary of results

The key outcomes of the test work are summarized below and the design criteria that has been used to develop the mass balance are based on these test work results.

·    The mineral processing has been shown to be very robust. The lithium recovery was above 90 % for both the 20t test work of the PFS (94 %) and the 50t test work of the FS (92 %). The lithium recovery assumed in the FS and the current PEA is 92 %.

·    The pyrometallurgy test work continues to confirm a robust roasting recipe consistently achieving yields of at least 90% for Lithium and 80% for Potassium in the leach.

·    The hydrometallurgical work included the following all of which resulted in a battery-grade LiOH with 99.5% purity with a recovery rate of 95%.:

o  The extraction of lithium and potassium through water leach of calcined Zinnwaldite is viable, as well as providing the required amount of leach liquor to verify the downstream processing.

o  The test work around recirculation of the liquors showed the beneficial effects of minimum sulfuric acid consumption for decarbonisation; minimum losses of potassium and sulphate in the leach residues and the purification sludge; and establish a constantly low level of calcium and magnesium concentration below 5 ppm in the brine for further processing

o  To avoid quality issues after downstream processing, the tests show that the pH value should be lowered to just below 4.5 to avoid these.

o  Confirmed the creation of both technical and fertilizer grade SOP with further work to be done to clarify yields of both. The testwork also confirmed the process to remove the remaining impurities.

o  4 lock cycles were performed that further developed the mass balance and the process. 

·    The estimated overall recovery rate from ROM to end product (LiOH) is 75.4%.

Mining

The mining operation for the Project is planned as an underground mine development using a main ramp for access to the mine and for ore transportation from the mine to the surface via access tunnels.  The operation has been designed for an annual output of c. 12,000t of LiOH. Applying the mineral reserve estimation of 3,004 ppm lithium content, and estimated Lithium recovery in downstream processes this corresponds to an average annual ore production of 880,000 tons.

The conceptual plan for mining operations is based on access from Altenberg Mine on 500 m Reduced Level (RL) advancing upwards with room and pillar, Avoca, and sublevel stoping methods followed by hardening backfill. On production levels LHD (Load-Haul-Dump) loaders dump the mined material into ore passes from where the ROM (Run of Mine) is transported 7 kms to ROM pad downhill to Bärenstein via the Zinnerz - Altenberg Mine drainage tunnel.

The mine will be first accessed from two locations: From the Zinnerz - Altenberg Mine with a 4 km tunnel (Access Tunnel) and from Zinnwald with a 1.7 km decline (Ventilation Decline). The two connect at +500 RL in the central pillar / ore pass area. Once connected the decline functions as a second means of exit and as a main ventilation route.  The cross-section map of the area shown in Figure 3 shows the drainage access tunnel, as well as the two access mining tunnels. It also shows the historic tailings facility at IAA Bielatal, as well as the prospective ore body at the Falkenhain license.

In essence, the deposit structure represents an anticline, at the flanks of which the ore bodies plunge below 400 RL. The Access Tunnel enters the deposit in the north at 500 RL, which will be the first production level. The level will be the loading/transportation level for all the material mined on the level and levels above it. The ore will be transferred on to 500 RL via ore passes.

The development drives are planned with a 5.0 m by 4.0 m profile and will be driven by conventional drilling and blasting technology. The sublevels are planned with a vertical distance of 12.5 m in East and North Flanks and with 25 m spacing in the West Flank.  A mining area is first entered on the lowest level, the location of the drive above is designed based on sludge drilling profiles with horizontal spacing 12.5 m - 25 m.

For an optimal development of the mine and a steady output of ore material, the initial development of the mine within the first years will be focused on the bodies between +500 to +600 RL. The deepest envisaged sublevels are in the North Flank at +392 RL and in the East Flank at +360 RL. The uppermost mineable sublevel will be at +688 RL, leaving 20 m vertical distance to the historic mine workings.

The tailings generated comprise two types. A "quartz-sand" tailing generated during the mechanical processing of the greisen ore within the processing plant and a dry Leached Roasted Product ('LRP') tailing generated as residue from the metallurgical process.   Based on the project outline of c. 12,000t/a LHM, c. 610,000 t/a "quartz sand" tailings and about 310,000 t/a (dry) LRP tailings are generated.  The "quartz-sand" tailings represent basically a sharp-edged crushed grit to fine sand (< 0.1 mm to 1.25 mm grainsize) and predominantly consist of quartz (> 80 %). This quality of quartz sand is identical to a building aggregate already being mined nearby for use in various construction industries.  The Company is exploring options to create a railhead nearby to facilitate the sale and use of this aggregate rather than having to store it.

During the first years of the production the preferred extraction method is AVOCA as it allows immediate backfill. The key working principle of this method is to continuously backfill the excavated stope with waste rock, the dry LRP and quartz sand. This minimises the risk of any potential subsidence and could also increase mining recovery of the resource whilst reducing the need for intermediate storage facilities for materials such as LRP. It is anticipated that c. 90% of the mined-out void will be backfilled.

The ground water draining to the mine will be collected in settling ponds on 500-level. The clarified excess water will be drained further to the Bärenstein processing site into a central water treatment plant. The amount of excess water will change during operation and depends on the weather and backfill operations.  The mine drainage water between the surface and +750 RL (TBS level) and +720 RL (THG level) is drained through the existing galleries.

Recovery Methods

The Zinnwald Lithium Process Plant is designed to process 880,000 dmt/a of ROM feed, at an average grade of 0.30 wt.% Li, to produce a minimum of 12,011 t/a of battery grade LiOH*H2O (equivalent to 10,530 t/a LCE) and 56,887 t/a of K2SO4 and about 16,000 t/a PCC (precipitated calcium carbonate) by-products. The potassium sulfate produced is expected to be sold as a sulfate of potash (SOP) in technical grade and as fertilizer.

The beneficiation plant will operate 24 h/d, using three 8 h shifts per day from Monday to Friday, 260 d/a. The extraction plant is a continuous 24 h/d operation, using three 8 h shifts per day, 7 days per week, 365 d/a. Design plant availabilities are 96 % (6,000 h/a) for the beneficiation plant and 91 % (8,000 h/a) for the extraction plant.

The flowsheet, as shown in Figure 2, is based on calcium sulfate/calcium carbonate roasting and consists of the following major unit processes:

·    Comminution followed by beneficiation using dry magnetic separation to recover a lithium mica concentrate.

·    Calcium sulfate / carbonate roasting, which converts the lithium and potassium to water soluble Li2SO4 and K2SO4 in the presence of anhydrite or gypsum and limestone

·    A hydrometallurgical section where the roasted product is leached in water to form an impure Li2SO4 aqueous pregnant leach solution (PLS). Impurities are then removed from the PLS using precipitation and ion exchange prior to the precipitation of battery grade LHM.

·    Potassium sulfate is recovered from the mother liquor using crystallization and selective dissolution.

·    Precipitated CaCO₃ (PCC) is precipitated from the PLS

Project Infrastructure

On a high-level basis, the Project is located in a region with developed infrastructure, services, facilities, and access roads. Power and water are provided by existing regional supply networks.   It is also located close to the heart of the German automotive and chemical industries.  The Project itself comprises several industrial modules each of which have specific requirements to local infrastructure, space and proximity to other parts of the process. Aligned with the conceptual nature of this technical report, the preferred location is focussed on the geographic area of Zinnwald / Altenberg for all facilities. However, as required for on-going development of technical planning and permitting the Project retains some optionality regarding the precise location of certain facilities.

The Company has prioritised the alignment of Project goals with the concerns and needs of other stakeholders and minimise the potential impact of the operation on the local environment, businesses, and residents. By removing the need to transport large volumes of material via roads of the Altenberg and Freiberg region (as was considered in previous technical reports), the expected impact of the operation on the environment and local communities can be reduced significantly.

The preferred Site Option (shown in Figure 4 below) is in the area near Bärenstein, due to its key advantages:

·    Mine access through existing de-watering adit of the Zinnerz Altenberg mine (ceased operations in 1991, refurbished in 2020, total useable length 4 km, with sufficient cross section).

·    Quarry site with intermittent operation.

·    Existing tailings storage facility from the former Zinnerz Altenberg mine with remaining capacity.

·    Nearby existing rail connection with connection to Dresden. 

Figure 4:               Local Infrastructure at Altenberg / Barenstein

The Company has identified a second site location option for the location of the pyrometallurgical and hydrometallurgical processes at facilities at an industrial site in Boxberg / Oberlausitz / Kringelsdorf, close to a former lignite open-pit and coal fired power station operated by LEAG. The site is approximately 150 km distance by road and accessible by sealed roads. As an established industrial site, power, gas and other services are already available at site. The site has a rail line within 1km, is itself however not connected to the rail network.

Environmental Studies

Due to the revised operational plan that involved a significant increase in planned production and the location of the refining plant near to the mine site - the Company has suspended its previous strategy to pursue the Facultative Framework Operational Plan (FFOP). Instead, the Company will convert the permitting progress made so far into a regular permitting process, including EIA/UVP permits within a Mandatory Framework Operation Plan (MFOP) under mining law. 

The overall permitting pathway for the project is subdivided between processes to be permitted under

·    Mining Act, including the mine, its associated infrastructure and the mechanical separation plant. This includes the Mandatory Framework Operation Plan (MFOP) approved by the Saxon Mining Authority.

·    Bundesimmissionsschutzgesetz (BImSchG) (Federal Emission Protection Act) can be led by either regional authorities or the mining authority and evaluates compliance of facilities with existing technical standards as well as other requirements set by law.  It provides for protections from noise and air pollution, vibration, and other impacts on the environment from human activity.

·    Water Permits - all aspects relevant to water use, potential for water pollution etc are reviewed and permitted by the water authority, in this case the lower water authority.

The MFOP provides clarity on a first outline of the planned operation, even if final technical items are still outstanding.  It provides an overview of the technical process of mining and processing, considerations for environmental aspects, urban planning and expected impact on residents.  The MFOP will include a specific EIA on all directly mining related assets.

·    Note:  Following MFOP approval, the Company will also require a separate Mine Operation Plan Permit to cover the actual construction and operation of the assets.

The BImSchG Permit under Germany's environmental legal framework ensures that installations meet all technical minimum standards based on provided technical plans. DL commissioned G.E.O.S. in 2021 to carry out an updated Environmental Impact Assessment Screening study to consider several operational concepts, including trucking ore material over longer distances to external facilities vs. local processing operations. The study concluded that the option to concentrate all processing operations at one location will likely have the least environmental impact of all options under consideration.  DL is currently updating this study for the revisions to the site location and technical processes and will submit shortly.  The EIAs for the pyrometallurgical and hydrometallurgical plants will fall under the BImSchG.

The Company is committed to being a responsible project developer and maintains the environmentally acceptable and sustainable construction and operation of the Project as a paramount principle in its activities. The Company will comply with all applicable environmental laws and regulations, as well as other industry codes and standards to which we subscribe, such as:

·    Social Impact Assessment - noise, light pollution.  Vital for local stakeholder support.

·    Prevention/ mitigation of impact on Animals, Plants and Biodiversity, based on international best practice.

·    Compliance with European Water Framework Directive around groundwater, surface water, mine water.

·    Maintenance of Air Quality

·    Ensure that the Project does not compromise local recreation and tourism

Market Review and Lithium Pricing

Background to Lithium and its production

Lithium compounds typically come from one of two sources - metallic brines or hard-rock mining of spodumene ores.   In many ways, Lithium extraction and production is a specialty chemicals business rather than a conventional mining one, and it is that chemicals expertise that plays a vital role in a project's success, especially for those designed to produce battery grade lithium compounds. Qualification of battery grade lithium compounds for use in battery cathode materials can take a long time and is often specific to individual battery manufacturers/cathode makers.

Brines

Brine is pumped from subsurface reservoirs to surface ponds and evaporated until the lithium liquor content reaches 6%, when it is removed and processed into lithium chemicals. This processing, initially into lithium carbonate, generally occurs on site.  Typically, the timetable to produce a saleable lithium product is in the range of 2 - 3 years, depending on prevailing weather conditions.  Several companies are currently experimenting with Direct Lithium Extraction (DLE) technologies in an attempt to speed up the extraction process and utilise lower grade brines.  Whilst the application of DLE to low grade brines has been shown to work at a laboratory scale, large scale industrial extraction has yet to be demonstrated. Where DLE has been used in commercially, it has typically been following a pre-concentration step and using higher-grade brines.

Historically, brine producers have enjoyed a significant advantage on the cost curve given the fact that there is no mining and crushing involved and their location in arid regions enables them to utilize evaporative drying.  From a sustainability point of view, brines benefit from a low energy intensity for production and the technology involved is conventional and well established.  However, it has three main ESG downsides - its water intensity is high and typically in areas where water is scarce; it also takes up a very large physical footprint during production and tailings disposal; finally these sites are typically a long way from the end market for its product with the resultant transport costs and CO2 emissions.

Hard-rock Mining

Hard rock mining is the more traditional extraction process. Spodumene, a lithium-containing mineral, is mined and crushed to form a low-grade concentrate (4-6%). This mineral concentrate is then sold to lithium processors which use the feedstock to produce lithium chemicals, or to glass and ceramics producers for use as an additive.   Mineral producers, compared with Brines, have additional costs associated with both hard rock mining and processing and historically have not benefited from the integration of the chemical conversion. Currently the majority of mineral producers are located in Australia and typically supply concentrate to lithium processors in China.  As such they typically often have extensive transport costs due to the low-grade concentrate and distances covered.

From a sustainability point of view, Spodumenes benefit from a relatively low water intensity in their production process and the extraction technology is well established.  However, it has three main ESG downsides - the physical footprint of the sites are usually large and often open-pit; the energy required to process a spodumene concentrate is high; and the transport distances are usually extremely large raising the overall CO2 footprint (especially given that they are effectively transporting 94% waste product). Further, as noted above, the majority of spodumene currently comes from Australia and processed in China which has a high proportion of coal-based power in its energy mix.

Lithium Market - Supply / Demand and Pricing Forecasts

The global lithium market is expanding rapidly due to an increase in the use of lithium-ion batteries for electric vehicle and energy storage applications. In recent years, the compound annual growth rate of lithium for battery applications was over 22% and is projected by Roskill to be more than 20% per year to 2028.  This expansion is being driven by global policies to support decarbonisation towards carbon neutrality via electrification, which is underpinned by Carbon Emission Legislation (COP26, EU Green Recovery, Paris Accord); Government regulation and subsidies; and Automakers commitment to EVs.

Benchmark Minerals highlighted that there are 282 Gigafactories at various stages of production/construction, up from only 3 in 2015 (by May 2022, this number had gone over 300).   If all these plants did come online in the planned 10-year timeframe, it would equate to 5,777 GWh of battery capacity, equivalent to 109 million EVs.  But more relevantly it would require 5m tonnes of Lithium each year, as compared with 480,000 tonnes produced in 2021.  They noted that the lack of supply is not due to any geological constraints but to a simple lack of capital investment to build future mines and estimated $42bn needs to be spent by 2030 to meet demand for lithium. 

In April 2022, the Belgium-based research university KU Leuven published a report "Metals for Clean Energy" on behalf of Europe's metal industry group, Eurometaux, and endorsed by the EU.  This report explored in detail the supply, demand and sustainability factors at play around critical raw materials, especially in Europe.  It noted that Europe's 2030 energy transition goals would require 100-300kt of lithium rising to around 600-800kt by 2050, equivalent to 3,500% of Europe's low consumption levels today.  In terms of direct European supply, Eurometaux comments that "Several projects are subject to local community opposition (most visibly in Portugal, Spain, and Serbia). Others are dependent on untested technologies to be viable or have less certain economics. However, the EU has made it a strategic priority to improve its self-sufficiency for lithium."

Lithium Supply is currently concentrated in four main countries, each of which have strengths and weaknesses to their ability to materially ramp-up supply to meet the expected demand.

·    Chile - dominated by the incumbent suppliers, SQM and Albermarle.  Strengths are that they are the established industry experts in production of lithium from brines.  They have announced plans for expanded production, but that is set against a backdrop of local water issues and also a potentially punitive royalty regime at a governmental level on expanded production.

·    Argentina - the newcomer in the production from brines with Livent and Orocobre in production and a number of well-funded newcomers, such a Lithium Americas, Neo, POSCO and Millennial.  Argentina is expected to be the next major source of battery grade lithium to the market.  Its biggest downsides are on a sustainability front around water usage and transport distances to the end-users.

·    Australia - the dominant producer of spodumene concentrate globally with the largest producers being Pilbara, Mineral Resources/Ganfeng, Talison JV.  Australia has the advantages of a well-established mining industry and significant scope to increase production.  Its downsides are that it has almost no processing facilities currently, so its emissions levels from transport and conversion in China are high.

·    China - has an existing in-country mining industry, but this is dwarfed by its dominance in the production of end-product lithium based primarily on Australian spodumene.  Ganfeng and Tianqi are two of the world's four biggest lithium companies and are expanding their investments globally.  The biggest issue is one of sustainability and that its energy intensive processing of spodumene is largely from coal fired power station, thus worsening the already high emissions levels from transport.

One of the wider issues around constriction of global supply is that of resource nationalism and security of title.  Bolivia has had a long-standing nationalised industry that has resulted in its production being suppressed to a fraction of its potential.  Mexico has recently nationalised its nascent lithium industry.  In the wider mining industry, political and economic instability in many jurisdictions has manifested itself in significant real and perceived risks around security of ownership and continued ability to operate resulting in limited production.  These factors have contributed to an increasing interest by western car makers to secure supply in domestic or more "reliable" jurisdictions.

Price Forecasts

Definitive and accurate lithium pricing is inherently problematic, due to the opaque nature of what is, in global mining terms, a relatively new and small market by value.  Lithium is not quoted on any major exchange, so there is no readily available information.  There is no terminal market, although the LME is working to launch a futures contract.  There is a spot market visible in China, but this is a small part of the overall lithium market.  As there is no industry wide benchmark for pricing, the bulk of the market is sold based on negotiation between buyer and seller on long term contracts with prices fixed on an annual or quarterly revised basis.  This is not wholly surprising given that battery grade lithium is a speciality chemical that requires cycle testing by manufacturers who value the consistency of quality of end product and its impurities and guarantee on supply. 

Furthermore, the largest current players in the market are companies that are either not listed or ones that are not required by local listing rules to detail their contract pricing achieved.  This will likely change as the industry matures and more listed companies become involved.

What is clear is that lithium prices have experienced exponential growth in the last 18 months.  SQM announced their Q1 2022 numbers that showed $38,000 per tonne for contract lithium hydroxide.  Allkem has also increased its Q2'22 guidance on contract pricing for lithium from $35k to $40k per tonne and that China spot pricing is now around $70k per tonne.

There is also a growing consensus around the worsening Supply / Demand imbalance, which is generally accepted economic pre-cursor to increased prices.  In terms of what that means for long term lithium hydroxide prices, back in Q3 2021 Benchmark forecast a price of $12,110 long term, but this is before the step change in balance in the market.  In March 2022, Roskill forecast an inflation adjusted long term price of $23,609 per tonne through to 2036 with a nominal rate of $33,200 by 2036. 

Zinnwald Project Business Model

Strengths and Sustainability of the Project

The Zinnwald Lithium Project's business model is predicated around utilising its inherent advantages to enable it to become one of the more sustainable projects in the global lithium market:

·    It is located close to the German chemical industry enabling it to draw on a well trained and experienced workforce and attendant infrastructure.  Addresses the issue of "Lithium is a specialty Chemicals industry rather than a conventional mining one."

·    It is situated close to many of the planned Gigafactories, and it is an integrated mining to battery grade product process.  The transport distances for emissions will be measured in the tens of kilometres rather than tens of thousands.

·    It will be an underground mine and is in an established mining region.  There is extensive existing and well-maintained infrastructure that the Project may be able to use. 

·    It will be permitted under EU environmental rules, which are some of the strictest globally.  OEMs will be able rely on the production being done in compliance with EU Battery Chain directives.

·    Its basic process has key elements that are more sustainable than some of its main rivals

·    The process has limited water use relative, in particular, to brine producers. 

·    The process flowsheet is less energy intensive than traditional spodumene-based production as it involves a single pyrometallurgical step at a lower temperature than is required in a spodumene-based process

·    Overall transport costs and emissions are reduced by being an integrated operation located close to end markets especially when compared to Australian sourced spodumene concentrate processed in China

·    German energy sources currently include a higher overall "low carbon" component than China

·    It has the potential to be a low or "zero-waste" project, as the vast majority of both its mined product and co-products have their own large-scale end-markets:

·    Its initial mined waste product, quartz sand, is a "benign dry stack end product" that itself is used as a construction aggregate for roads and other projects. 

·    Its primary co-product is high grade Potassium Sulphate, which is in huge demand as a fertiliser.

·    Its secondary co-product is Precipitated Calcium Carbonate ("PCC") typically used as a filler in the paper making process

Project's pricing assumptions

As part of the PEA process, the Company commissioned Grand View Research to provide 25-year pricing forecasts for Lithium Hydroxide and Potassium Sulphate, to underpin the pricing assumptions assumed in the financial model.   The results of these forecasts are shown in Figure 5 below.

Figure 5:               LiOH and SOP - 25 Year Pricing forecasts

Primary Output - Lithium Hydroxide (LiOH)

The Company has used a base average price of US$22,500 per tonne of battery-grade Lithium Hydroxide in the financial model used for this PEA.  This price is based on a conservative discount to the projections provided Grand View Research.  It is also at a discount to pricing forecast data issued by peer companies in recent months (Keliber: $24,936, European Lithium: $26,800, Bearing Lithium: $23,609). 

Primary by-product - Potassium Sulphate

The primary by-product produced from the Hydromet stage is a high-grade potassium sulfate (K₂SO₄ or sulfate of potassium "SOP").  Based on an annual production of c.12,000 tonnes of LiOH, the Project will produce approximately 57,000 tonnes of SOP each year.  The process can be adjusted to produce a blend of Fertiliser Grade SOP (98.45% K2SO4) and Technical Grade SOP (>99.6% K₂SO₄).  The former is a high value fertilizer with particular application for producers of fruits, vegetables and nuts.  The latter is supplied to the chemical industry.  The bulk of global production is predominantly in China and European production is heavily sourced from Russia.  Grand View has produced a forecast that shows combined demand for these types of SOP rising in Europe alone from circa 410,000 tonnes in 2021 to more than a million tonnes by 2045, so the Zinnwald Project's output of SOP should be readily absorbed into this market without distorting pricing.   For the purposes of the financial model, a blended SOP price level of €875 per tonne has been assumed.

Secondary by-product - Precipitated Calcium Carbonate

PCC is used in 5 five main industrial areas, as a filler in high-performance adhesives and sealants; as dietary calcium in medicines, food and cosmetics; as an extender in paints to increase opacity and porosity; as a coating and surface finishing agent in papers; and as filler/extender in Plastics, such as improving impact strength in rigid PVC fillers.   PCC is estimated to represent approximately 20% of the European market for Calcium Carbonate products, which itself is expected to grow at around 5.6% CAGR from 2022 to 2030 to a market size in of US$14.1 billion (circa US$3bn for PCC alone).  In terms of pricing, ongoing political turmoil from Russia's invasion of Ukraine, has caused prices to rise to $297 per tonne in Europe in Q1 2022, as compared with €150 per tonne in the same quarter of 2021.  For the purposes of the financial model, the Company has used US$150 per tonne and expects to produce circa 16,300 tonnes of PCC per annum.

Other by-products - Construction Aggregates

Approximately 75% of the original ore mined is a coarse grade Quartz Sand, which can either be stored as an inert landfill or potentially sold to construction companies as an industrial aggregate.  The current financial model assumes a very limited revenue for this end product of 100,000 tonnes per year at €5 per tonne.  However, the goal is to find outlets to take this in-demand industrial product either as a direct revenue stream or simply to reduce the cost of storage.

Other by-products - Tin

The Zinnwald Lithium Project has historically not considered the option of including a tin circuit as part of its production process, primarily because the planned annual mining rate did not support the economics of a such a concept.  However, with the planned increase in size of the Zinnwald Project, and the generally stronger tin price, the Company is reviewing both the cost and the practicality of adding beneficiation of tin to the Project.  The Company may include further details in any future NI 43-101 Feasibility Study, if the economics support such a plan.

Capital Cost Estimates

The overall capital cost estimate is summarized in Table 3. The capital cost estimates were produced by ZLP, OEMs and external expert consultants.

·    G.E.O.S.

·    Epiroc for mining capital costs

·    Metso:Outotec for beneficiation capital costs

·    CEMTEC for pyrometallurgical capital costs

·    K-UTEC for hydrometallurgical costs

It must be noted, that, at the time of writing this study, extraordinary supply chain disruptions are having a general effect on the cost estimates. The estimates presented below are made with the assumption that at the time of construction, the underlying supply disruptions have been resolved and raw material costs normalised. Capital costs below are all presented in US$ and a USD / EUR exchange rate of 1.05 for costs based in €.

The capital cost estimates cover the design and construction of the mine and the process plants, together with on-site and off-site infrastructure to support the operation including water and power distribution and support services. The capital costs associated with the gas supply pipeline and power/steam stations are also included.

Table 3:                Overview of the Project's Capital Expense Estimate

(* The subsidies are based on present EU and German laws and are granted for investments in the industrial sector of the former German Democratic Republic.)

Operating Cost Estimates

The project operating cost is mainly determined by the cost of labour, power (electrical and natural gas), consumables and reagents. For this estimate, long term average prices as well as consensus forecasts for reagents and energy were used. Fixed cost components have been drawn from current process unit engineering plans, which include estimates of labour costs. All costs have been attributed to the production of battery-grade lithium hydroxide. The chemical circuits produce a by-product of potassium sulphate ("SOP"), which can be sold as a potash fertiliser, and the financial model treats this as co-product credit revenue with no associated direct costs. Table 4 summarizes the average overall operating costs per tonne of LiOH produced over the 36-year life of mine plan of the financial model.

Table 4:                Average Operating Costs per tonne of LiOH

The operating cost estimate has been compiled by ZLP supported by G.E.O.S. / K-UTEC and is based on the basic estimates received from:

-              G.E.O.S. for mining operating costs

-              Metso:Outotec for mechanical process operating costs

-              CEMTEC for pyrometallurgical operating costs

-              K-UTEC for hydrometallurgical operating costs

Economic Analysis

As shown in Table 5, the PEA demonstrates the financial viability of the Project at an initial minimum design production rate of approximately 12,011 t/a LiOH (battery grade 99.5 %).  The Project is currently estimated to have a payback period of 3.3 years. Cash flows are based on 100 % equity funding. The economic analysis indicates a pre-tax NPV, discounted at 8 %, of approximately US$ 1,605m and an Internal Rate of Return (IRR) of approximately 39%. Post-tax NPV is approximately US$1,012m and IRR 29.3%.

German federal income tax and depreciation were applied to the appropriate capital assets and income categories to calculate taxable income. A basic corporation tax rate of 30.9 % has been assumed together with a 100,000 EUR/a Mining Royalty Tax due to the Government of Saxony. Across its lifetime, the Project is estimated to generate c. €2.0bn in state and federal level taxes.

Table 5:                                Overview Financial Analysis

A sensitivity analysis has shown that the Project is more sensitive to the lithium price than it is to either CAPEX or OPEX. An increase of 22% in the average lithium hydroxide price, from 22,500 US$/t to 27,500 US$/t, increases the post-tax NPV from US$1,012.3m to 1,444.6m (42%) and the post-tax IRR to 36.8%.  A decrease of 22 % in the average lithium hydroxide price, from 22,500 US$/t to 17,500 US$/t, decreases the post-tax NPV (8 %) from US$1,012.3m to 579.9m (-42%) and the post-tax IRR to 21.1%.

The financial analysis for this report considers only the project level economics and excludes any cost of financing or any historic cost incurred in the development of the project.  The analysis assumes the Project is 100 % equity financed. It includes the project phases comprising 24 months of construction, followed by 12 months of commissioning, ramp-up and stabilisation phases. A total mine life of 36 years is expected when assuming the mining rate of 880,000t / a, and mineral inventory of 31.2Mt which is equivalent to the Proven and Probable category tonnage of the latest Mining Reserve statement, as announced on 31st May 2019. A mean grade of 3,004 ppm Li was assumed, as per the historic Mining Reserve grade, which should account conservatively for potential dilution from mining.

Project Development Plan

The tentative project schedule in this PEA report is developed on the assumption that the Project will be fully funded throughout both its next stage of producing a Bankable Feasibility Study ("BFS") phase and then into construction; all environmental and other regulatory permits will be granted without delays; external agencies and suppliers will be cooperative; and management of the execution will be by competent EPCM / EPC groups. The preliminary development schedule is shown in Figure 6 below.

DL is continuously in contact with the administrative bodies in Altenberg and Zinnwald (mayor, municipal council) regarding ongoing project developments. Furthermore, the Company continues to keep the residents of Zinnwald and Altenberg updated about the Project via newspapers and regular information meetings.

Execution Strategy

The execution strategy assumed in the PEA report is based on the hybrid model mixing the conventional EPCM and Engineering Procurement Construction ("EPC") approach. This type of hybrid model will allow for extensive participation of the local contractors where possible. The preliminary schedule includes typical durations for major activities based on experience with similar size projects. A more detailed execution plan is to be developed during the BFS phase of the project.  Project permitting will cover the mining and processing stages at the same time.

Project Development Plan and Timetable

The project development plan includes the following major phases

·    PEA

·    Geological and Processing development

·    EIA and Permits

·    Bankable Feasibility Study

·    EPCM and EPC selection

·    Construction and commissioning into Production

The schedule of project development shown in Figure 6, developed for the PEA phase, is a graphical snapshot of the driving summary activities and logic. The intent is to demonstrate major project execution activities and key milestones following completion of this PEA. The schedule covers the entire project life cycle from the start of the PEA study until commissioning and nameplate production capacity is reached.

Figure 6:               Project Development Plan

Sustainability Matters

As a mining development Group operating in Germany and the UK, the Company and the wider ZLP Group (the Group") takes seriously its ethical responsibilities to the communities and environment in which it works. Wherever possible, local communities are engaged in the geological operations and support functions required for field operations, providing much needed employment and wider economic benefits to the local communities. In addition, the Company and Group follows international best practice on environmental aspects of its work. The Company's goal is to meet or exceed the required standards, in order to ensure the Company obtains and maintains its social licence to operate from the communities with which it interacts.

The Group has already put in place a Sustainability Committee in place at Plc Board level to incorporate and emphasise the Group's commitment to Sustainability and ESG Matters. The Group's Sustainability framework. is based on the United Nations' set of 17 Sustainable Development Goals.   The Company recognises the need to proactively consult and engage with the communities that may be affected by our activities.  The Company aims to foster long-term relationships with these communities to develop mutual understanding, cooperation, and respect.  As part of this process, the Company will put in place a local Sustainability Committee as part of the Group's wider structures.

Conclusions and Recommendations

The results of this study confirm the development of an underground mine with an extraction rate of 880,000 t/a and a mine life of more than 30 years, including the ramp-up phase, followed by mechanical processing (crusher and magnetic concentrator) at the mine site for the separation of 179,200 t/a of a Zinnwaldite concentrate and the construction of a plant for the production nominally 12,000 t/a of lithium hydroxide monohydrate (LHM) (corresponding to 10,565 t/a of LCE). The project includes the production of 56,887 t/a potassium sulfate as fertilizer and technical product, 16,320 t/a PCC (precipitated calcium carbonate) and annual sales of 75,000 t of granite and 100,000 t quartz sand as by-products.  

The Project is of substantial size with the potential to produce 496,000 t of LHM over 36 years. It has a robust average grade compared to the cut-off grade, promising an operation at a significant profit margin.  

The Company has already commenced an infill drilling programme at the core Zinnwald license with the objective of better defining the Resources and Reserves that lie within the ore body, as well as determine the detailed early years' mining plan. This will likely lead to revised Resource and Reserves Estimate to be included in the new BFS planned for the re-scoped Project as defined in this PEA Study. The Company has also commenced an exploration drilling campaign at its nearby Falkenhain license to determine the potential for expansion of both the project's resources and the production level.

The Company will continue to develop the technologies planned for its processes. Individual processing methods and stages are well established in mining and other industries. As the recognition of Zinnwaldite as a source for battery metals is more recent, the application of methods such as high-intensity magnetic separation has not previously been used in beneficiation of this specific type of lithium ore but is utilised and well established in the beneficiation of other ore types. Evaporators and crystallizers are common processing methods in the production of fertiliser salts. The Company has also completed the initial phases of bulk and particle sorting techniques designed to increase the type of resource available to the Project. The Company will also continue to refine its plans for reducing its overall CO2 footprint and operating costs, such as via the use of electric mining equipment.

The Company has already commenced its EIA and other permit application process, including baseline studies and other reports.  This will be the highest priority area over the coming quarters.

This PEA assumes that the Group will adopt an EPCM construction strategy, but in the BFS phase other options should also be evaluated. The EPCM contractor will provide overall management for the Project as Zinnwald will likely look to limit the size of its Owner's team. The EPCM Contractor will need to work in collaboration with the Company, its consultants and the relevant regulatory bodies.

Forward Work Program

Geology

The Company is currently executing an In-fill drilling campaign to further improve the mineral resources. In connection with the campaign, it is recommended to:

·    Further investigate geo-metallurgical properties of the Ore type 2 to possibly increase the Resources.

·    Collect all geotechnical and structural data from the core to better understand small scale features of the deposit and provide information for detailed mine planning.

The Company is also undertaking an exploration drill campaign at its Falkenhain license area in order to test historic drill results. The intention to establish a lithium resource with potential for tin and tungsten.  If successful, this could ultimately provide additional high grade feed for the Project.

Mining

To optimize the full project and to prepare the bankable feasibility study and to minimize further risks, additional recommendations include:

·    To ensure access to underground mine galleries in Altenberg. Negotiation with current owner, LMBV, are on-going.

·    The ventilation must be optimized and validated by modelling

·    Further optimising the logistical system of the mine, both regarding export of ore and return of material for back-filling.

·    A more detailed concept for backfilling by means of pumps must be developed in the next project steps.

Processing

The next phase testwork for optimization should focus on the following aspects:

·    To further explore the application of ore sorting technology with the goal of

·    Reduction of material for comminution (size reduction) and thus cost / energy reduction.

·    Improve overall process efficiency through the reduction of fines generated in comminution.

·    Facilitate geo-metallurgical control over the ROM-feed material to the mineral processing plant.

·    Test work to check whether a tunnel kiln will be better in process stability and cheaper than a rotary kiln

·    Evaluation of in-house grinding of limestone chunks to flour with the aim to reduce cost for additives

·    Study to further improve SOP and PCC production planning, as economically significant by-products and integrate with the existing extended process design.

·    Further test option for in-house production of potassium carbonate (K2CO3) from other potassium compounds to reduce costs and supply risks for this reagent.

·    Explore the opportunity to additionally reduce the carbon footprint of the process.

·    Carry out further testwork for alternative usages of Quartz Sand

·    Carry out further testwork for alternative usages of LRP Improve the energy efficiency of processes including heat-recovery, heat recirculation or reduction of overall heat / energy demand within the process stages.

·    Progress REACH / CLP registration with the European Chemicals Agency (ECHA) for required reagents as well as products.

Infrastructure

Further work on infrastructure related items is recommended in the following areas:

·    To progress negotiations to access the IAA Bielatal tailings facility with the state company LMBV

·    To carry out Geotechnical studies on the IAA Bielatal tailings facility with regard to risk assessment

·    Alternative options for placement of dry stack tailings material should be investigated.            

·    Advance the negotiations for land usage / purchase required for surface installations.

·    Advance negotiations for service contracts for electric power and natural gas with local power companies as well as supply contracts for required reagents and materials

Environment, Social and Governance

Environmental considerations of the Project are a critical aspect that are a key issue to be advanced. The following aspects should be advanced / improved in the further development of the Project:

·    Carry out required environmental baseline surveys for the areas under consideration.

·    Complete a comprehensive Environmental and Social Impact Assessment study that will quantify the expected impact of the project, with special regard to:

o  Local environment, flora, and fauna

o  Local residents and stakeholders

o  Possible effect on local economy and businesses

o  Opportunities for additional benefit to local stakeholders by

§ Improved employment opportunities

§ Retention of younger residents and families in an area of overall ageing population

§ Improved local infrastructure for residents and businesses

To continue and intensify efforts of public participation and local stakeholder engagement. These must be carried out with the goal of better local understanding of the project and its potential benefits and risks.

Qualified Persons

Kersten Kühn (EurGeol), Head of the Resources Department and Senior Geologist for G.E.O.S. Ingenieurgesellschaft GmbH, Schwarze Kiefern 2, 09633 Halsbrücke, Germany, and Dr Bernd Schultheis (FIMMM), Deputy Head of Department, Chemical / Physical Process Engineering of K-UTEC AG Salt Technologies, each being a Qualified Person as defined in the AIM Rules for Companies and Canadian National Instrument 43-101, have reviewed the information in this announcement.

*ENDS*

 For further information visit www.zinnwaldlithium.com or contact:

Notes

AIM quoted Zinnwald Lithium plc (EPIC: ZNWD.L) is focussed on becoming an important supplier of lithium hydroxide to Europe's fast-growing battery sector. The Company owns 100% of the Zinnwald Lithium Project in Germany, which has an approved mining licence, is located in the heart of Europe's chemical and automotive industries.

Appendix 1 - List of Definitions, Symbols, Units and Technical Terms

Appendix 2 - List of Abbreviations