Announcement PDF 7 August 2023 Your reference: 75699 Ms Yushra Haniff ASX Limited 20 Bridge Street Sydney NSW 2000 By email: ListingsComplianceSydney@asx.com.au Dear Ms Haniff Lake Resources NL (‘LKE’): Prospective financial information – Query Lake Resources N.L. (ASX: LKE) (the Company or LKE) refers to your prospective financial information query letter dated 2 August 2023 (the Query Letter) and provides the following responses. Unless otherwise defined, capitalised terms in this letter have the same meaning given to those terms in the Query Letter. 1. Please confirm that LKE has reasonable grounds to announce the 25,000 tpa and 50,000 tpa of battery grade lithium carbonate in the Announcement, along with the reasons for that view. The Company confirms it has reasonable grounds to announce the 25,000 tpa and 50,000 tpa of battery grade lithium carbonate in the Announcement, including for the following reasons: • • Firstly: o The 25,000 tpa and 50,000 tpa figures, each referring to maximum plant capacity, have on multiple occasions been disclosed to the market in historical announcements. These are not new disclosures. o The Company first announced the increase of the production capacity base case of its proposed Definitive Feasibility Study (DFS) to 50,000 tpa lithium carbonate equivalent from the previous DFS base case production capacity target of 25,500 tpa in its announcement released to the market on 19 January 2022. This 50,000 tpa figure was then disclosed in numerous announcements following that initial announcement, including, but not limited to, the Company’s Quarterly Activities / Appendix 5B Cash Flow Report (21 April 2022), the Benchmark World Tour 2022 presentation (26 April 2022), the Bell Potter Emerging Leaders Conference 2022 presentation (7 September 2022), the Full Year Statutory Accounts (30 September 2022), and the Bell Potter Unearthed Conference 2023 presentation (7 February 2023). o LKE considers the Announcement as an operational update to investors on the new phased approach to delivering plants which, in aggregate, will have a maximum plant capacity of 50,000 tpa of battery grade lithium carbonate, being 25,000 tpa in Phase 1, and 25,000 tpa in Phase 2. For example, slides 9 and 10 of the Announcement mention the “phased development to 50,000 tpa of battery grade lithium carbonate” and the “New Production Plan: Two Phases to 50Ktpa target”. Secondly: o Both the 25,000 tpa and 50,000 tpa plant capacity figures are supported by rigorous testing undertaken by the Company. 2. o The figures were carefully vetted by the Company’s management team prior to the Announcement and the new phased approach (which will have a maximum plant capacity of 50,000 tpa of battery grade lithium carbonate in aggregate) was signed off at a suitably senior level before it was released to the market. o The Company’s ongoing testing, including of the mineral resource available to it from the Kachi Project, which was announced in LKE’s 15 June 2023 JORC update, has and continues to provide a reasonable basis for the targeted maximum plant capacity figures included in the Announcement. Are the references to 25,000 tpa and 50,000 tpa of battery grade lithium carbonate in the Announcement production targets as defined by the Listing Rules (i.e. projections or forecasts of the amount of lithium carbonate to be extracted from the Kachi project)? No. 3. If the answer to question 2 is ‘no’, please provide the basis for that view, including an explanation of what the 25,000 tpa and 50,000 tpa do refer to if they are not production targets. The Kachi Project is a very early development project, which remains subject to completion of a DFS, and therefore: 4. • The references to 25,000 tpa and 50,000 tpa of battery grade lithium carbonate in the Announcement refer to targeted maximum plant capacity, not projections or forecasts of the actual amount of lithium carbonate to be extracted from the Kachi Project in any time period. The Company clearly disclosed in the same Announcement that the targeted date of delivery of the Phase 1 DFS, which will support an actual production target schedule, is not due until the end of this year. • As discussed in response to Question 1 above, the 50,000 tpa figure was initially reported as an expansion to LKE’s original DFS base case of 25,000 tpa in January 2022. The Company considers this 50,000 tpa figure a maximum plant capacity target, which will be utilised to underpin the DFS base case – which, as disclosed in the Announcement, will be split into two, being a Phase 1 DFS (based on a plant capacity of 25,000 tpa) and a Phase 2 DFS (based on an additional plant capacity of 25,000 tpa). • The DFS for each phase will determine whether there is sufficient information which can then be provided to support an announced actual production target schedule for each phase (as a result of a plant with capacity to produce 25,000 tpa of battery grade lithium carbonate comes online in Phase 1 and then Phase 2) pursuant to Listing Rule 5.16. Until the DFS for each phase is completed, the Company cannot (and has not) issued an actual ‘production target’ schedule pursuant to Listing Rule 5.16. • For example, the Announcement makes reference to the 50,000 tpa and 25,000 tpa figures as phased DFS targets (see e.g. slides 9 and 10) or as target production capacity (see e.g. slides 18 and 19 which clearly describe the “capacity available”), in each case as a result of the construction of the plant. If the answer to question 2 is ‘yes’, please provide a supplementary standalone announcement containing all the information required under Listing Rule 5.16 for a public report containing a production target. N/A 5. Please confirm that LKE has a reasonable grounds for releasing the Prospective Financial Information, along with the basis for that view, commenting specifically on how the requirements of ASIC’s Regulatory Guide 170 (and RG 170.18 and RG 170.59 in particular) have been satisfied. Yes, LKE confirms it has reasonable grounds for releasing the Prospective Financial Information for the following reasons: • • Firstly: o The Prospective Financial Information is substantially similar in form and substance to prospective financial information that has been historically announced by the Company to its investors on numerous separate occasions. o The updated Prospective Financial Information is disclosed on slide 18 of the Announcement as a result of the new ‘phased-approach’ to development of the plant capacity for the Kachi Project which, in aggregate, will have a maximum plant capacity of 50,000 tpa of battery grade lithium carbonate. o LKE refers to its 25 January 2022 ASX announcement where it reported many of the same metrics as slide 18 of the Announcement. Similarly, LKE refers to its 29 November 2022 ASX announcement where the same Kachi Project metrics were updated. These numbers are based on the targeted maximum plant capacity (rather than an actual production target as defined in the Listing Rules) and updated pursuant to the Company’s obligations pursuant to the Listing Rules and in particular, its continuous disclosure obligations pursuant to Listing Rule 3.1. Secondly: o Given the context outlined above, the Company considers the Prospective Financial Information to be information that an investor would have reasonably expected to be updated pursuant to the Company’s continuous disclosure obligations, as it is information which is likely to have a material effect of LKE’s securities. o The Announcement aimed to provide investors with an operational update, being that LKE was adopting a new phased approach to achieving the previously disclosed 50,000 tpa targeted plant capacity. This new approach is going to facilitate an accelerated timeline to first production, but is ultimately going to take longer to achieve a maximum plant capacity of 50,000 tpa. Additionally, the updated Prospective Financial Information demonstrated that to achieve the maximum plant capacity over two phases, it was going to incur additional costs than previously disclosed to the market. o The updated Prospective Financial Information reflecting the new phased approach was a significant enough change that the Company immediately disclosed this information to the market via the Announcement as soon as the Prospective Financial Information and the material assumptions underlying that information became sufficiently definite, (and as soon as it could reasonably be stated with a level of certainty outside the carve-out in Listing Rule 3.1A), to warrant immediate disclosure. o Accordingly, the Company had a reasonable basis to believe that a reasonable investor would expect that an update to the timeline and the approach of the Kachi Project would also necessitate material updates to the forecast financial information previously provided. In updating and disclosing such figures, LKE also reiterated and disclosed its material assumptions for doing so, being (see page 18 of the Announcement):  All numbers are preliminary internal estimates from the project reset and are not outputs from the completed DFS, which for Phase 1, is still in progress. Numbers exclude the potential impact of Withholding Tax and Value Added Tax and are subject to updates following the DFS for Phase 1, and ultimately the DFS for Phase 2. •  Capex estimates exclude capital cost of grid connection and are assumed to be incurred three years prior to First Lithium based on a spend waterfall; Power capex consists of solar + diesel generator back up for hook-up and commissioning and grid power to come online thereafter. End-of-life plant closure cost assumed to be $30M.  Economics based on leading industry market consultant lithium price outlook for first quarter 2023. Average price forecast of $23,740 per tonne lithium carbonate, net marketing costs.  Please see “Non-GAAP Financial Measures” in the Appendix.  Operating costs include labor, maintenance materials and supplies, raw materials including reagents, outside services, among others; Royalties – 3.5% of revenue; Export Duty – 4.5% of revenue.  Average annual EBITDA based on mid-point of operating cost range.  Discount Rate – 8% discount rate assumed.  Spot price for battery grade lithium carbonate as of June 8th, 2023.  Based on mineral resource estimates and exploration targets in Lake’s JORC update announced on ASX on 15 June 2023. All material assumptions continue to apply and have not materially changed. The potential quantity and grade of an exploration target is conceptual in nature, there has been insufficient exploration to determine a mineral resource and there is no certainty that further exploration work will result in the determination of mineral resources or that the production target itself will be realized. Thirdly: o The Company reasonably believes that it has satisfied the requirements of ASIC’s Regulatory Guide 170 and that the relevance and price sensitivity of the Prospective Financial Information necessitated disclosure. Additionally, the information and material assumptions underlying the information was disclosed in such a manner as to mitigate any likelihood of misleading LKE’s investors and was consistent with the Company’s historical announcements (and to not disclose the information in the same manner could potentially itself have been misleading). o Again, the Kachi Project is a very early development stage project, which remains subject to completion of a DFS. Therefore, LKE had previously made announcements containing prospective financial information that was not based on an actual production target (as defined in the Listing Rules) but rather the proposed targeted maximum plant capacity on 25 January 2022 and 29 November 2022. The review into the delivery of the Kachi Project not only meant a new phased approach but required previously disclosed prospective financial information to be updated to reflect the new phased approach. o The Prospective Financial Information contained adjustments such as significantly higher capex, higher costs per kg, and lower NPV. LKE understands that such information is material to investors. Given the changes to previously disclosed figures, the Company reasonably believed pursuant to RG 170.7 and RG 170.19 that the Prospective Financial Information needed to be disclosed because investors, their professional advisers and retail clients would reasonably require the information to decide whether to acquire LKE securities or to make an informed assessment about LKE securities. Finally: • 6. o The effect on LKE’s share price as identified in paragraph C of the Query Letter supports the materiality threshold underpinning the Company’s decision for disclosure and the material assumptions underpinning that disclosure. The Company views this as supporting the conclusion that investors have not been misled by the Prospective Financial Information and have understood LKE’s intention to provide an operational update to the Kachi Project on the new phased approach to achieving a maximum plant capacity of 50,000 tpa, which consequently involved amended timelines and expenditure. o The Prospective Financial Information disclosed was not based on ‘hypothetical assumptions’ that provided little information value to LKE’s investors. Rather, for this type of early development project, the targeted maximum capacity of a plant yet to be constructed and the prospective financial information and material assumptions, both underpinned by real data (as disclosed on slide 18 of the Announcement), are of high value to investors. As the Prospective Financial Information is not based on a an actual production target as defined in the Listing Rules, LKE has highlighted on slide 18 that these are “preliminary internal estimates from the project reset and are not outputs from the completed DFS…for Phase 1” – in other words, they wholly reflect and illustrate to investors the reasonable basis and underlying assumptions the Company has taken into account in delivering the new phased approach – but, as disclosed in the Announcement, the numbers are wholly subject to being updated following completion of the DFS for Phases 1 and 2. o In making the Announcement, the Company provided enough information to enable investors to assess (within the meaning of RG 170.59) whether prospective financial information is ‘relevant and reliable’, and to identify ‘with certainty’ the facts and circumstances that support the information, and that it was reasonable. Pursuant to RG 170.60, the Company refers to the footnotes in slide 18 where LKE has made full disclosure of assumptions on which the Prospective Financial Information was based that materially affect the forecast outcome, as listed above. Is any of the Prospective Financial Information forecast financial information derived from a production target as defined by the Listing Rules? No. 7. If the answer to question 6 is ‘no’, please provide the basis for that view, including an explanation of what these financial measures are derived from if they are not derived from projections or forecasts of the amount of lithium carbonate to be extracted. Please see responses to Questions 1 and 3 above; however, to reiterate: • LKE has only ever released targeted maximum plant capacity targets (being originally 25,500 tpa, and subsequently 50,000 tpa) as it has not finalised its DFS and does not have sufficient information to release an actual production target schedule. Substantially similar prospective financial information was also released on 25 January 2022 and 29 November 2022, which was based on the same maximum plant capacity target. • The Company maintains that it has complied with all of its obligations and has taken a consistent approach in the Announcement as it has in its historical disclosures of the same information, primarily in an effort to assist investors in the Company to review, analyse, and understand the information disclosed. • The Prospective Financial Information is derived from the targeted plant capacity used as a base case for completion of the DFS, with the Phase 1 DFS targeted for completion at the end of this year. Additionally, the Company refers to the footnotes in slide 18 which discloses the financial measures that the Prospective Financial information is derived from (see also the answer to Question 5 above). 8. If the answer to question 6 is ‘yes’, please provide a supplementary standalone announcement containing all the information required under Listing Rules 5.16 and 5.17 for a public report containing forecast financial information derived from a production target. N/A 9. Please confirm that LKE is in compliance with the Listing Rules, and in particular Listing Rule 3.1. The Company is in compliance with the Listing Rules, including in particular Listing Rule 3.1. 10. Please confirm that LKE’s responses to the questions above have been authorised and approved under its published continuous disclosure policy or otherwise by its board or an officer of LKE with delegated authority from the board to respond to ASX on disclosure matters LKE confirms that this response has been authorised and approved by an officer of LKE with delegated authority from the board to respond to ASX on disclosure matters. Yours sincerely Mark Anning Company Secretary Lake Resources N.L. 2 August 2023 Reference: 75699 Mr Mark Anning Head of Legal and Company Secretary Lake Resources NL Level 5, 126 Philip Street Sydney NSW 200 By email: mark.anning@lakeresources.com.au Dear Mr Anning Lake Resources NL (‘LKE’): Prospective financial information - Query ASX refers to the following: A. LKE’s announcement entitled ‘Investor Operational Update’ released on the ASX Market Announcements Platform at 8:25 AM AEST on 19 June 2023, disclosing LKE’s new two-phased production plan with each phase said to consist of 25,000 tonnes per annum of battery grade lithium carbonate, for its Kachi brine project in Argentina (the ‘Announcement’). B. Slide 18 of the Announcement which contains several financial “outputs from internal preliminary analysis” for phase 1 of the production plan, including an annual average EBITDA of USD$365M, USD$1.4B-2.1B pretax NPV, 17%-24% pre-tax IRR, USD$1.1B-$1.5B capital cost and USD$4.70-$7.10 run rate operating cost (the ‘Prospective Financial Information’). C. LKE’s share price decreased from $0.475 on 16 June 2023 to a $0.380 on 19 June 2023 following the release of the Announcement, and it has continued to decrease since to $0.230 as at 1 August 2023. The Announcement has had a material impact on LKE’s share price. D. ASX Listing Rule 5.17: 5.17 Subject to Rules 5.18 and 5.19, a public report by an entity containing forecast financial information derived from a +production target relating to: a) the +mineral resources and ore reserves holdings of the entity (an entity level +production target); or b) a +material mining project of the entity (or two or more +mining projects which together are material to the entity), must include all of the following information and be given to ASX for release to the market. 5.17.1 All material assumptions on which the forecast financial information is based. If the economic assumptions are commercially sensitive to the +mining entity, an explanation of the methodology used to determine the assumptions rather than the actual figure can be reported. Note: Economic assumptions may not be commercially sensitive. A mining entity that considers that certain information is commercially sensitive should refer to section 8.6 of Guidance Note 31 on the steps ASX expects it to take in these circumstances. 5.17.2 The +production target from which the forecast financial information is derived (including all the information contained in Rule 5.16). ASX Limited [[Listings]] ASX Customer Service Centre 131 279 | asx.com.au 5.17.3 If a significant proportion of the +production target is based on an +exploration target, the implications for the forecast financial information of not including the +exploration target in the +production target. E. ASIC’s Regulatory Guide 170: Prospective financial information, in particular (emphasis added where underlined): a. RG 170.11 - We believe the general test of whether prospective financial information must be disclosed is whether it is: (a) relevant to its audience; and (b) reliable (i.e. there must be a reasonable basis for it: see GIO Australia Holdings Ltd v. AMP Insurance Investment Holdings Pty Ltd (1998) 29 ACSR 584). b. RG 170.17 - The making of a statement that contains prospective financial information (i.e. a forward looking statement) must have reasonable grounds or it will be taken to be misleading under s728(2) or769C of the Corporations Act. What are ‘reasonable grounds’ should be determined objectively in light of all of the circumstances at the time of the statement, so that a reasonable person would view as reasonable the grounds for the statement. c. RG 170.18 - We consider that prospective financial information based on hypothetical assumptions (rather than reasonable grounds) is likely to be misleading and provide little information value to investors. In our view, prospective financial information without reasonable grounds is not material to investors, nor would an investor reasonably require it or reasonably expect to find it in a disclosure document or PDS.RG 170.41 - We generally consider that prospective financial information for a period of more than two years may require independent or objectively verifiable sources of information to establish that there are reasonable grounds to provide it. However, for an existing business preparing a statement on estimates for up to two years, we will generally not regard as necessary independent verification if there otherwise appear to be reasonable grounds to make the statement. Directors should state why they believe the information is objectively reasonable. We may still take action on a statement on estimates for up to two years if we believe there are no reasonable grounds to provide it. d. RG 170.42- The reasonable grounds requirement means that there should be a relevant factual foundation for the prospective financial information and that the information is not contrived: see George v. Rockett (1990) 170 CLR 104 and Re Aldred & Dept of the Treasury (1994) 35 ALD 685. e. RG 170.59 - Investors should be given enough information to enable them to:(a) assess whether the prospective financial information is relevant and reliable (i.e. to form their own view about how reasonable the grounds are for making the statement); and (b) identify with certainty the facts and circumstances that support prospective financial information, as well as being able to demonstrate that the information is reasonable. f. RG 170.61 - A disclosure document or PDS must specifically disclose any assumptions used in compiling prospective financial information that materially affect the forecast outcome. The assumptions should be detailed and specific enough to enable the investor to work through all of the prospective financial information. This may require details about how returns are calculated during each year that the information covers. Among other things, assumptions about expenditures, revenues, inflation rates and other such variables should be clearly disclosed and highlighted if different assumptions have been used for different parts of the term that the prospective financial information covers. g. RG 170.62 Investors must be able to assess:(a) the validity of the assumptions on which the prospective financial information is based;(b) the likelihood of the assumptions actually occurring; and(c) the effect on the prospective financial information if the assumptions vary. 2/5 ASX Customer Service Centre 131 279 | asx.com.au h. RG 170.63 - We expect a disclosure document or PDS to disclose material assumptions about: (a) specific future economic conditions; and (b) particular circumstances affecting a company or financial product and the industries relevant to that company or financial product. i. RG 170.64 - Disclosure of the material assumptions allows an investor or adviser to make an informed assessment of an issuer’s prospects, or a person as a retail client to make an informed decision whether to acquire the product. j. RG 170.65 - An assessment of the impact of these assumptions on prospective financial information should also be included. However, a disclosure document or PDS does not have to: (a) state general assumptions, such as the absence of war or natural disasters, unless the forecast takes these events into account; or (b) disclose assumptions that would not materially affect the prospective financial information. k. RG 170.66 - It is not sufficient to state the general nature of an assumption. Specific quantities or amounts should be set out. For example, it may not be sufficient to state that prospective financial information is based on an anticipated recovery in equity markets, without setting out the amount of the required recovery: see GIO Australia Holdings Ltd v. AMP Insurance Investment Holdings Pty Ltd(1998) 29 ACSR 584. l. RG 170.67 - We consider that because the presence or absence of reasonable assumptions is a factor in any determination of whether an issuer has satisfied the relevant disclosure obligation, the basis for the assumptions underlying the prospective financial information should be stated in the disclosure document or PDS in order that an investor has some means of assessing that information: see Miba Pty Ltd v. Nescor Industries (1996) 141 ALR 525 and Wesfi Ltd v. Blend Investments Pty Ltd (1999) 31 ACSR69.RG 170.68 - Disclosure of the basis for prospective financial information may reduce the capacity of the information to mislead because such disclosure assists the assessment/decision of an investor or retail client. m. RG 170.78 - Investors must be able to assess the reliability of prospective financial information. To do this, they should be able to assess whether the key assumptions are likely to occur. Therefore, a disclosure document or PDS must disclose material details about the enquiries and research undertaken and the process followed in preparing the information. A complete copy of the Regulatory Guide is available at: http://download.asic.gov.au/media/1240943/rg170-010411.pdf Request for information ASX infers that LKE considers the Announcement to be information that a reasonable person would expect to have a material effect on the price or value of its securities. The position is confirmed by the decrease in LKE’s share price referenced in paragraph C above. That being so, ASX has concerns that the Announcement may be defective in a number of respects and that it may not meet the requirements of the ASX Listing Rules or the Corporations Act 2001 (the ‘Act’). In light of the above, we ask that you answer the following questions in a format suitable for release to the market under Listing Rule 18.7A. 1. Please confirm that LKE has reasonable grounds to announce the 25,000 tpa and 50,000 tpa of battery grade lithium carbonate in the Announcement, along with the reasons for that view. 2. Are the references to 25,000 tpa and 50,000 tpa of battery grade lithium carbonate in the Announcement production targets as defined by the Listing Rules (i.e. projections or forecasts of the amount of lithium carbonate to be extracted from the Kachi project)? 3/5 ASX Customer Service Centre 131 279 | asx.com.au 3. If the answer to question 2 is ‘no’, please provide the basis for that view, including an explanation of what the 25,000 tpa and 50,000 tpa do refer to if they are not production targets. 4. If the answer to question 2 is ‘yes’, please provide a supplementary standalone announcement containing all the information required under Listing Rule 5.16 for a public report containing a production target. 5. Please confirm that LKE has a reasonable grounds for releasing the Prospective Financial Information, along with the basis for that view, commenting specifically on how the requirements of ASIC’s Regulatory Guide 170 (and RG 170.18 and RG 170.59 in particular) have been satisfied. 6. Is any of the Prospective Financial Information forecast financial information derived from a production target as defined by the Listing Rules? 7. If the answer to question 6 is ‘no’, please provide the basis for that view, including an explanation of what these financial measures are derived from if they are not derived from projections or forecasts of the amount of lithium carbonate to be extracted. 8. If the answer to question 6 is ‘yes’, please provide a supplementary standalone announcement containing all the information required under Listing Rules 5.16 and 5.17 for a public report containing forecast financial information derived from a production target. 9. Please confirm that LKE is in compliance with the Listing Rules, and in particular Listing Rule 3.1. 10. Please confirm that LKE’s responses to the questions above have been authorised and approved under its published continuous disclosure policy or otherwise by its board or an officer of LKE with delegated authority from the board to respond to ASX on disclosure matters. When and where to send your response This request is made under Listing Rule 18.7. Your response is required as soon as reasonably possible and, in any event, by no later than 9:00 AM AEST Monday, 7 August 2023. You should note that if the information requested by this letter is information required to be given to ASX under Listing Rule 3.1 and it does not fall within the exceptions mentioned in Listing Rule 3.1A, LKE’s obligation is to disclose the information ‘immediately’. This may require the information to be disclosed before the de