What is the value of being ‘shovel ready’?

It’s a term thrown around but what is the tangiblevalue of having done everything relatively ‘early’ before the funding & FIDstarting gun is fired?

A pertinent question especially to those of theopinion SRL is heavily undervalued and therefore see $0 of the share price attributedto its shovel readiness.

Conclusion: I quantify this at US$640 million to US$2.74Bn

Here’s my attempt to attain a valuation:

Cost #1 - Time:

I believe it is helpful to look at where our peers areat, for example COB QPM ARL, all of which are completing DFS/BFS in 2022, forsimplicity lets say mid-2022.

· SRL has roughly a 2 year head start relative tonear-term DFS peers, here are the workings for peers:

o A further 3 months until DFS completemid-2022

o A FEED study alone for a large scale projecttakes about 12 months to complete

o Outcomes of FEED study invariably result inproject modifications, in the case of SRL this was a 15 month process togain regulatory approvals at outlined in timeline below

§ Sep 2020 completed PEP / FEED

§ July 2021 complete internal scoping for projectmodifications and presented to regulators

§ January 2022 regulators approved the finalproject modifications

o To be fair, subtract 6 months as beingdelays circumstantial to Sunrise course of events

Some of you may be familiar with my spreadsheet whichaims to quantify the savings of partnering 50% into Sunrise and yielding reducedcost metal for partner (Scenario #1) versus buying the same quantity of metalon spot market (Scenario #2). Here I will use this spreadsheet to attempt toplace a value on 24 months of time delay. By opting for a DFS peer, the OEM isbasically stuck in Scenario #2 (buying on market) for an additional 2 yearsbefore they are in Scenario #1 (partial mine owner).

Within my model, savings are returned to present dayvalue using a 5% WACC discount factor. I include tax & depreciation asshown below. Long term price assumptions – use recent spot price $35k/t Ni +$2.2k/tsulphate premium and $75k/t Co. I believe this is fair as EV penetrationis today only at 10%; ~2025 EV penetration could be astronomically higher,sustaining pressure on supply chains.

Results: Post ramp-up, an OEM who partners 50%with Sunrise saves US$306M in year 1 and US$291M in year 2 for a total of US$597M.I consider this the base case as the OEMwas ultimately able to get their hands on battery grade material to producevehicles. I do not deduct capital spent on the project as this is considered asaleable asset, not an expense.

As an OEM bear case one could consider if the partnerhad vehicle production throttled due to lack of supply of battery grade rawmaterials. I estimate this to be of the order of 20-40% reduction in vehicleproduction. For someone like Hyundai or GM this could be $Billions. Lets take alook:

· GM's North American productioncapacity to build 1 million electric vehicles by 2025

· Say 30% of planned vehicles are effected,300,000 vehicles per year or 600,000 vehicles over 2 years

· “Between 2015–2020, the average profitmargin for major automotive companies worldwide was nearly 7.5%” also “BMW: EVMargins will match those of piston cars by 2025”… lets use these assumptions

· Using average sale price of $60k USD, 600,000vehicles @ 7.5% margin is a loss of $2.7Bn of profit. This is my bearcase.

· As a sense check, how many vehicles willSunrise’ output support?

o Assume typical $60k vehicle would havea 90kWh battery ~2025.

o SRL stated output:

§ 1M vehicles @ 50kWh supported by project p/a, or 555k vehicles @ 90kWh or 1.1M vehicles @ 90kWh over 2 years

o My empirical method:

§ Post ramp-up year 1 and 2 would be22,501t Ni / 4,993t Co and 22,596t Ni / 5,676t Co respectively for a total of45,097t Ni and 10,669t Co

§ Typical NMC811 battery has 0.69kg Niper kWh and 0.086kg Co per kWh

§ 45,097t Ni = 65,357,971 kWh = 726,000vehicles @ 90kWh

§ 10,669t Co = 124,058,140 kWh = 1,378,423vehicles @ 90kWh

§ These numbers are in broad agreeancewith SRL numbers above

o Using average sale price of $60k USD,1.1M vehicles @ 7.5% margin = US$5Bnof potential OEM profit supported by Sunrise

Cost #2 - Funds:

A$250M spent on the project to get it to constructionready status.

From last 3 annual reports I estimate A$50M wasspent post-DFS: on FEED, project modifications, planning documentation andother early works

As a minimum I see this should yield a 1:1 value $ perspent $, therefore attribute this value to be US$37M (A$50M)

It is worth noting the exhaustive list of managementdocumentation that is required to be submitted, which to my knowledge the DFSpeers haven’t prepared.

Also, Social Impact Management Plan

Cost #3 – Key long lead items – Autoclaves

Without these puppies a 3-year construction schedulewould incur even further delays imo. Reason being upon order they take like 2-3years to construct and deliver from FID. They are the heart of the processing plant,the body of which is basically built around them and they’re obviously criticalto commissioning works.

Conclusion

The 24 month head start by being shovel ready relativeto DFS peers is relatively conservative. The analysis quantifies that these critical2 years, between 2025-2030, could be equal to the calculated savings achievedfrom partial mine ownership. This “base case” assumes there is adequate metalto draw upon from the spot market to satisfy demand.

Base case

US$597M + US$37M = US$634M

The bear case considers an OEM physically not havingenough battery grade raw material for 30% of its planned vehicle production duringthe 2 year period of lost opportunity. I use GM’s 1M annual production targetas a reference point.

Bear case

US$2,700M + US$37M = US$2,737M