Altech Chemicals ... According to Persistence Market Research, global consumption of HPA for 2015 was

Annual Report

Altech Chemicals Limited

COMPANY PROFILE

Altech Chemicals Limited (Altech/the Company) is aiming to become one of the world's leading suppliers of 99.99% (4N) high purity alumina (HPA) (Al O ) 2 3 through the construction and operation of a HPA processing plant located in Johor, Malaysia. Feedstock for the plant will be sourced from the Company’s 100%-owned kaolin deposit at Meckering, Western Australia and shipped to the processing plant in Malaysia.

Altech’s production process will employ conventional “off-the-shelf” plant and equipment to extract HPA using a hydrochloric (HCl) acid-based process. Production costs are anticipated to be considerably lower than established HPA producers - in the bottom quartile of the production cost curve. The Company's HPA project is a high margin, high value proposition, requiring a relatively low level of capital investment.

HPA is a high-value, highly demanded product as it is the critical ingredient required for the production of synthetic sapphire.

Synthetic sapphire is used in the manufacture of substrates for LED lights, semiconductor wafers used in the electronics industry, and scratch-resistant sapphire glass used for wristwatch faces, optical windows and smartphone components. There is no substitute for HPA in the manufacture of synthetic sapphire.

Global HPA demand was estimated at approximately 25,315tpa in 2016

(Persistence Market Research) and is expected to reach 86,831tpa by 2024, growing at a CAGR of 16.7% (2016-2024).

Current HPA producers predominantly use expensive and highly processed feedstock materials such as aluminium metal to produce HPA.

Altech has completed a bankable feasibility study (BFS) for the construction and operation of a 4,000tpa HPA plant at Tanjung Langsat, Malaysia. The plant will produce HPA directly from kaolin clay, which will be sourced from the Company’s 100%-owned kaolin deposit at Meckering, Western Australia.

HPA DEMAND

GROWTH FROM THE

BOOMING LED SECTOR IS

WIDELY RECOGNISED - THIS

GROWTH IS NOW COMPLEMENTED

BY THE LITHIUM-ION BATTERY SECTOR

WHERE ALTECH’S HPA IS EXPECTED

TO BE A HIGHLY SOUGHT-AFTER PRODUCT

OUR VISION

HIGH PURITY ALUMINA (HPA)

to be one of the world’s leading producers of high purity alumina (HPA)

Ÿ is aluminium oxide Al O with >99.99% (4N) purity2 3

Ÿ is the vital raw ingredient for synethetic

sapphire (single crystal): - Base substrate for LEDs - Sapphire glass for smartphone components

99.99% 4N HIGH PURITY ALUMINA (HPA)

HPA Demand GLOBAL HPA DEMAND

According to Persistence Market Research, global consumption of HPA for 2015 was 21,309tpa, and by the end of 2016, HPA consumption is estimated at 25,315tpa. This demand is expected to increase to 86,831tpa by 2024, growing by 16.7% (CAGR) over the forecast period (2016-2024).

The consumption of HPA is concentrated predominantly in electronics production hubs such as China, Japan, South Korea, and Taiwan (Asia Pacific region). The largest market for global HPA consumption in 2015 was the Asia Pacific region, accounting for nearly 72% of the global HPA market.

Demand for HPA has witnessed a strong growth over the last decade fuelled primarily by the increasing demand for and proliferation of LEDs – televisions, general purpose lighting, automotive lighting for example.

21,309 25,315

29,669

34,328

39,786

46,748

55,350

65,036

75,637

86,831

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

HPA Volume (tpa)

GLOBAL HPA DEMAND FORECAST TO

INCREASE BY 16.7% (CAGR)

FROM 2016-2024

HPA DEMAND

2016: 25,315TPA

2024: 86,831TPA SOURCE. PERSISTENCE

MARKET RESEARCH

GLOBAL HPA DEMAND FORECAST 2016-2024 SOURCE: PERSISTENCE MARKET RESEARCH

USE OF HPA

FOR LITHIUM-ION BATTERY

SEPARATOR SHEETS IS ON THE

RISE AS HPA IMPARTS SUPERIOR

PERFORMANCE PROPERTIES TO

THE END PRODUCT

Lithium-ion Battery Separators

Based on the global push for electric vehicles and energy storage, the growing demand for lithium-ion batteries is now apparent. Use of HPA for lithium-ion battery separator coatings is therefore expected to grow rapidly. HPA is used as a coating on the ceramic separator sheets that divide the cathode and anode electrodes within the lithium-ion battery. The separator sheet membrane acts as a critical safety barrier inside the battery. HPA- coated separators withstand unusually high temperature incursions, increase battery discharge rates, lower self-discharge, and lengthen battery life cycles.

Based on discussions with various lithium-ion battery separator sheet manufacturers at the China International Battery Fair (CIBF) (May, 2016) the Company established that electric vehicle manufacturers are demanding lithium-ion batteries with 99.99% (4N) HPA-coated separators. These manufacturers are reporting usage of between 40-120g of HPA per battery kilowatt-hour (kWh). Altech reviewed the potential consumption of HPA from the lithium-ion battery manufacturing sector in China alone, and estimated that by the end of 2020 demand will reach around 3,936tpa – the annual production capacity of Altech's proposed HPA plant.

The Company then estimated that demand for HPA from the global lithium- ion battery manufacturing sector will grow significantly over the next decade from approximately 1,000tpa in 2016 to around 15,000tpa by 2025, as per the adjacent graph.

HPA Demand

283 919 1,629

2,713

3,985

5,810

7,554

9,431

11,589

13,848

15,102

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: Altech Chemicals & Deutsche Bank Markets Research Industry Lithium 101-9 May 2016

GLOBAL FORECAST HPA DEMAND

HPA USED IN LITHIUM-ION BATTERY SEPARATORS

Key Assumptions: HPA Coating 5g /m2 or 40 g/kWh Penetration rate of 6% pa from 2015

HPA IS CURRENTLY BEING SUPPLIED TO

CHINESE LITHIUM-ION BATTERY

SEPARATOR SHEET MANUFACTURERS AT

~RMB200/KG (US$30/KG) –

SUPPORTING ALTECH'S BFS PRICE

ASSUMPTION OF US$23/KG

CHAIRMAN’S LETTER Dear fellow Shareholders,

It is a great pleasure to present the Company's annual report for the 2015/16 financial year.

Since the signing of a Project Finance Mandate with KfW lPEX-Bank earlier in the year, Altech has been working with its banking partners to assist with the due diligence required to finalise project debt funding. The positive pre-assessment of the Company's proposed application for export credit insurance cover by Euler Hermes, the German Export Credit Agency, and the subsequent receipt of loan indicative terms and conditions from KfW IPEX-Bank for up to US$70m of debt funding are noteworthy positive steps towards securing finance.

During the year, an off-take sales arrangement with Mitsubishi Corporation's Australia subsidiary, Mitsubishi Australia Ltd was achieved; the arrangement appoints Mitsubishi as the exclusive buyer of 100% of Altech's HPA production for an initial 10 year period.

At Meckering, a granted mining lease and a purchase agreement for the freehold land beneath which the kaolin resource resides were each secured. An exploration tenement surplus to Altech's requirements was disposed of, raising $2m. In Johor, Malaysia, the Company secured a site within the established Tanjung Langsat Industrial Complex as the location for the HPA plant.

Tunku Yaacob Khyra was invited to join the Company's board in October 2015, with Mr Uwe Ahrens nominated as his alternate director – we look forward to a long and successful partnership with them.

During the year the Company raised an initial $3m via a well-supported share purchase plan, supplemented by share placements. A further $10m was raised in an oversubscribed private share placement to various institutional, professional and sophisticated investors.

The year has seen the number of shareholders in the Company almost triple, from around 650 in July 2015 to almost 1,500 presently, with market capitalisation growing by a similar multiple.

The outlook for HPA demand continues to remain positive, with forecast demand increasing over the coming years off the back of global growth in the electric car and LED lighting sectors.

On behalf of the board, I would like to congratulate managing director lggy Tan, who has consistently led the Company from challenge to achievement, and to his hard- working team in bringing the Company to where it is today. Their achievements to date give me the greatest confidence of their capacity to realise the successful conclusion of the HPA project.

Finally, as valued shareholders I sincerely thank you for your continuing interest and support during this exciting period of growth and project realisation.

Yours sincerely,

Luke Atkins Non-Executive Chairman

REVIEW OF OPERATIONS During the year the Company made considerable progress on advancing the commercialisation opportunity for its kaolin deposit at Meckering. The proposed route to commercialisation is the construction of a high purity alumina (HPA) plant at Johor, Malaysia for the production of 99.99% (4N) HPA (Al O ) and the associated 2 3 development of a kaol