Annual Financial Report

REVIEW OF OPERATIONS

PROJECT REVIEW                

Geomet s.r.o. controls the mineral exploration licenses awarded by the Czech State over the Cinovec Lithium Project. Geomet has been granted a preliminary mining permit by the Ministry of Environment and the Ministry of Industry. The Company is owned 49% by EMH and 51% by CEZ a.s. through its wholly owned subsidiary, SDAS. Cinovec hosts a globally significant hard rock lithium deposit with a total Measured Mineral Resource of 53.3Mt at 0.48% Li₂O, Indicated Mineral Resource of 360.2Mt at 0.44% Li₂O and an Inferred Mineral Resource of 294.7Mt at 0.39% Li₂O containing a combined 7.39 million tonnes Lithium Carbonate Equivalent (refer to the Company's ASX/ AIM release dated 13 October 2021) (Resource Upgrade at Cinovec Lithium Project).

An initial Probable Ore Reserve of 34.5Mt at 0.65% Li₂O reported 4 July 2017 (Cinovec Maiden Ore Reserve - Further Information) has been declared to cover the first 20 years mining at an output of 22,500tpa of lithium carbonate (refer to the Company's ASX/ AIM release dated 11 July 2018) (Cinovec Production Modelled to Increase to 22,500tpa of Lithium Carbonate).

This makes Cinovec the largest hard rock lithium deposit in Europe and the fifth largest non-brine deposit in the world.

Parts of the ore body near surface have been mined for tin from the 14th Century to the 20th Century and the lithium-bearing orebody below surface previously had over 400,000 tonnes of ore mined as a trial sub-level open stope mining operation for tin mineralisation in the 1980's.

On 19 January 2022, EMH provided an update to the 2019 Pre-Feasibility-Study ("PFS") Update. It confirmed the deposit is amenable to bulk underground mining (refer to the Company's ASX/ AIM release dated 19 January 2022) (PFS Update delivers outstanding results). Metallurgical test-work has produced both battery-grade lithium hydroxide and battery-grade lithium carbonate at excellent recoveries. In February 2023 DRA Global Limited ("DRA") was appointed to complete the Definitive Feasibility Study ("DFS").

Cinovec is centrally located for European end-users and is well serviced by infrastructure, with a sealed road adjacent to the deposit, rail lines located 5 km north and 8 km south of the deposit, and an active 22 kV transmission line running to the historic mine. The deposit lies in an active mining region.

The economic viability of Cinovec has been enhanced by the recent push for supply security of critical raw materials for battery production, including the strong increase in demand for lithium globally, and within Europe specifically, as demonstrated by the European Union's Critical Raw Materials Act ("CRMA").

EBRD STRATEGIC INVESTMENT

Early in the year, the Company successfully completed a capital raising of approximately €6 million by European Bank for Reconstruction and Development ("EBRD") as a strategic investment in the Company and the development of the Cinovec Project (refer to the Company's ASX release dated 21 July 2023) (EBRD Strategic Investment in EMH).  As part of the due diligence process, EBRD engaged an independent, international mining consultancy to undertake a technical review of the Cinovec Project. EBRD also performed a review of the Cinovec Project in respect to compliance with EBRD's Environmental and Social Policy.  The Company considers its relationship with EBRD to be highly strategic as the European Union charts a path towards greater lithium supply security and sustainability.  Support for the Company's lithium project aligns with these EU goals.

The EBRD is an international financial institution established in 1991 to foster the economic transition process and to promote private and entrepreneurial initiatives in its countries of operation including Central and Eastern Europe, former Soviet Union and Eastern Mediterranean, through provision of loans, equity investments, conducting policy dialogue and providing technical cooperation.  It has since played a transformative role and gained unique expertise in fostering change in the region and beyond, investing €170 billion in more than 6,400 projects including nearly EUR 3bn in some 70 mining projects across 15 countries. EBRD works very closely with the European Investment Bank ("EIB") and the organisations have made joint public statements to assist in the funding of the energy transition in Europe.

As part of the investment in European Metals, EBRD will be offered the right to maintain its percentage ownership in the Company and we believe that the EBRD will play an important part, both directly and indirectly in the future financing of European Metals and Geomet.

SUCCESSFUL BATTERY GRADE LITHIUM CARBONATE PILOT PROGRAMME

The Company has continued to enhance the project via improvements to recoveries and quality of the potential end product. On 9 November 2023, the Company announced the results of the Lithium Chemical Plant ("LCP") pilot programme, confirming the robustness of the LCP process flow sheet (refer to the Company's ASX/ AIM release dated 9 November 2023) (Successful Battery-Grade pilot programme for Cinovec Project).

The pilot programme, conducted at ALS Laboratories in Perth, confirmed the industrial viability of the LCP process flowsheet, producing exceptionally clean battery grade lithium carbonate (>99.9%) with single-stage purification (bicarbonation) of crude lithium carbonate. The programme processed ore that was fully-representative in all respects of the run-of-mine for the first seven years of planned mining, including average grade and expected rock-type mix from the bulk mining.

A complete assay table for the piloted battery-grade lithium carbonate comparing the Cinovec product with the global standard YS/T 582-2013 and including assay results for the nine elements commonly controlled for cathode manufacturers which sits outside YS/T 582-2013, is presented in the Company's ASX/AIM release dated 9 November 2023 (Successful Battery-Grade pilot programme for Cinovec Project).

SUCCESSFUL BATTERY GRADE LITHIUM HYDROXIDE ALSO PRODUCED FROM PILOT PROGRAMME

The Company announced the successful production of lithium hydroxide monohydrate from pregnant leach solution manufactured during the larger-scale Cinovec pilot programme referred to above.  The pilot programme confirmed the viability of the LCP process flowsheet for the industrial-scale production of either lithium carbonate or lithium hydroxide. Crude lithium carbonate from the pilot programme was converted into exceptionally clean battery-grade lithium hydroxide monohydrate at laboratory scale.

The pilot programme processed ore that is fully-representative in all respects of the run-of-mine for the first seven years of mining planned at Cinovec, including average grade and expected rock-type mix from the bulk mining. The Company is particularly pleased with the quality of product. The lithium hydroxide produced was of the highest grade possible and exceptionally clean. This, when combined with the ability to produce either battery-grade lithium carbonate or hydroxide, enables a wider range of off-takers to be engaged with for the Cinovec product.

A complete assay table for the battery-grade lithium hydroxide monohydrate comparing the Cinovec product with the global standard GB/T 26008-2020 is presented in the Company's ASX/AIM release dated 11 April 2024 (Successful Production of Lithium Hydroxide).

extension granted to all exploration licenses

On 29 January 2024, the Company announced the granting of an extension to all four Cinovec Exploration Licences ("the licences"). These licenses fully cover all three granted Preliminary Mining Permits ("PMP's") comprising the Cinovec Project. All four licences have been extended until 31 December 2026. The granting of this extension follows a comprehensive evaluation by the relevant state authorities of results achieved to date in exploring and developing the deposit. Plans for future exploration work, including further resource drilling, and compliance with conditions set by the Czech Ministry of Environment were also assessed. The extension was required as the granted PMP's, whilst conveying the sole and exclusive rights to apply for a Final Mining Permit, do not allow for further drilling until the final mining area is granted. As the Company plans to conduct further metallurgical and measured resource drilling, an extension to the exploration licenses due to expire in December 2023 was sought.

The licences extension applies to the Exploration Areas Cinovec, Cinovec II, Cinovec III and Cinovec IV, which fully cover the East, South and North West PMP's (refer to the Company's ASX/ AIM release dated 29 January 2024) (Extension Granted to All Cinovec Exploration Licenses).

new plant site EXPECTED TO IMPROVE PERMITTING AND PROJECT ECONOMICS

On 26 April 2024, the Company announced the decision to move the proposed site of the lithium processing plant from Dukla to Prunéřov. The new site was selected for a number of reasons, including the expectation of speeding up the permitting process and expediting the Cinovec Project. The Prunéřov site is anticipated to also enable positive outcomes for project economics including reductions in capex and opex per tonne as a result of optimalization of the engineering identified as part of the Definitive Feasibility Study DFS process, and reduced demolition and clearance requirements (refer to the Company's ASX/ AIM release dated 26 April 2024) (New Plant Site to Improve Project Permitting and Economics).

The new site has received preliminary agreement and support from the municipal and regional governments. Prunéřov is the site of the former Prunéřov 1 Power Station, which was decommissioned in 2020 and Prunéřov 2 Power Station. The site is owned and operated by CEZ, the Company's project level partner. The site, currently zoned for industrial use, is considerably larger in size than the Dukla site and should enable the processing plant to be laid out in a more effective (and anticipated less costly) manner, enabling better and faster constructability, improved operability and greater ease of maintenance. The ore from the underground mining operation at Cinovec will be carried by conveyor to Dukla where it will be loaded onto trains for transport to Prunéřov, a distance of approximately 59 km using existing rail facilities, the capacity of which has been confirmed. During the DFS process, it became apparent that after considerable consultation with local stakeholders and the municipal and regional governments the Dukla site possessed limited capacity and also limited support from the surrounding municipalities, for the extent of processing operations proposed. The Prunéřov industrial site is located alongside the 750MW Prunéřov 2 Coal fired power plant and is situated further away from inhabited areas.

Regional Project Map

REDOMICILIATION

The Company advised the market that it has been registered as an Australian Company effective 7 May 2024 and lodged a notice of intention to discontinue with the British Virgin Islands registry ("BVI Registry") (refer to the Company's ASX/ AIM release dated 7 May 2024) (Redomiciliation Update). The Company advised its intention to redomicile in the announcement to the market on 1 December 2023, and the proposed redomiciliation was approved by the Company's Shareholders on 22 December 2023. European Metals is now domiciled in Australia and is a Company governed under the Corporations Act 2001 (Cth) ("Australian Continuance").

The Board believes that the Australian Continuance should lead to substantial cost savings and improvements in the Company's administration and efficiency of operations. Additionally, it will remove a potential impediment to obtaining European development financial assistance for the Cinovec project. The redomiciliation represented a re-admission to AIM, which was completed shortly after the redomiciliation.

POST PERIOD UPDATE

On 31 July 2024, and post the reporting period, the Company provided a further project update (refer to the Company's ASX/ AIM release dated 31 July 2024) (Cinovec Lithium Project Update). The Company advised that the timeline for the completion of the DFS and therefore construction of the Cinovec lithium processing plant continue to be worked on. Given the change to the location of the lithium processing plant from Dukla to Prunéřov, additional geotechnical work is currently underway to confirm the optimal construction method and layout at the new site. Results from this geotechnical work are expected to be available at the end of September. DRA is then expected to provide a detailed timeline and begin the DFS finalisation program of work.

The Project team continues to progress several DFS-related programs on the Front-End Comminution and Beneficiation circuit ("FECAB") and LCP to improve the overall flowsheet which are expected to positively impact Project economics.

CORPORATE

The Company announced the appointment of Merrill Gray as a Non-executive Director of the Company on 18 April 2024. Merrill is a highly experienced executive and non-executive of ASX and private companies. Her appointment brings over 30 years of metallurgical and mining engineering as well as geology experience., including large-scale new technology project development and production management skills. Merrill currently works as a global critical minerals and renewable energy (including hydrogen derivatives) corporate advisor, having previously been MD and CEO of Syngas Ltd (Founder), Hexagon Energy Materials Limited (ASX: HXG) and Co-MD of lithium-ion battery recycling Company, Primobius GmbH. She has significant international experience, including within the European Union and specifically with German automotive OEM's. Merrill brings experience and networks across the lithium-ion battery supply chain. Merrill holds Bachelor of Engineering and Bachelor of Science degrees, as well as an MBA, and is a fellow of The Australasian Institute of Mining and Metallurgy and the Australian Institute of Engineering (refer to the Company's ASX/ AIM release dated 18 April 2024) (Appointment of Director).

The Company announced the appointment of Henko Vos as Company Secretary on 2 February 2024, following the retirement of Ms Shannon Robinson. Mr Vos is a member of the Australian Institute of Company Directors, the Governance Institute of Australia and Chartered Accountants Australia & New Zealand. He holds similar director and secretarial roles in various other listed public companies in both industrial and resource sectors (refer to the Company's ASX/ AIM release dated 2 February 2024) (Company Secretary Appointment/Resignation).

RISKS AND UNCERTAINTIES

The Group's activities have inherent risk, and the Board is unable to provide certainty of the expected results of activities, or that any or all of the likely activities will be achieved. The material business risks faced by the Group that could influence the Group's future prospects, and how the Group manages these risks, are provided below.

Operational risk

The Company may be affected by various operational factors. In the event that any of these potential risks eventuate, the Company's operational and financial performance may be adversely affected. No assurances can be given that the Company will achieve commercial viability through successful exploration outcomes on its tenement holdings. Until the Company is able to realise value from its projects, it is likely to incur ongoing operating losses.

The operations of the Company may be affected by various factors, including failure to achieve predicted grades during mining, operational and technical difficulties encountered during mining, lack of infrastructure in the Company's areas of operation, unanticipated metallurgical problems which may affect value of defined resources, increases in the costs of consumables, spare parts, plant and equipment.

Mineral Resource estimates are made in accordance with the 2012 edition of the JORC Code. Mineral resources are estimates only. An estimate is an expression of judgement based on knowledge, experience and industry practice. Estimates may alter significantly when new information or techniques become available. Resource estimates can be imprecise and depend on interpretations, which may prove to be inaccurate.

The Company's interests in mining tenements are at various stages of exploration and potential production and potential investors should understand that mineral exploration and production is a speculative and high-risk undertaking that may be impeded by circumstances and factors beyond the control of the Company. The Company has interests in mining tenements in the Czech Republic which operate under different regulatory conditions which may impact on time taken to evaluate projects and may affect the viability of resources.

There can no assurance that the tenements, or any other exploration properties that may be acquired in the future, will result in the exploitation of an economic mineral resource. Even though an apparently viable deposit has been identified, there is no guarantee that it can be economically exploited.

The Company will need to apply for a mining lease to undertake development and mining on the relevant tenement. There is no guarantee that the Company will be granted a mining lease and if it is granted, it will be subject to conditions which may impact on the financial viability of the project.

Renewals

Mining and exploration tenements are subject to periodic renewal. The renewal of the term of granted tenements is subject to compliance with the applicable mining legislation and regulations and the discretion of the relevant mining authority. Renewal conditions may include increased expenditure and work commitments or compulsory relinquishment of areas of the tenements. The imposition of new conditions or the inability to meet those conditions may adversely affect the operations, financial position and/or performance of the Company. The Company considers the likelihood of tenure forfeiture to be low given the laws and regulations governing exploration in the Czech Republic and the ongoing expenditure budgeted for by the Company. However, the consequence of forfeiture or involuntary surrender of a granted tenement for reasons beyond the control of the Company could be significant.

Title

Notwithstanding that the exploration licenses the subject of the Cinovec Project has been granted, if the application for the licenses did not strictly comply with the application requirements (such as were required reports were not lodged or were lodged late), there is a risk that the tenements could be deemed invalid. 

Global conditions

General economic conditions, movements in interest and inflation rates and currency exchange rates may have an adverse effect on the Company's potential development activities, as well as on its ability to fund those activities. General economic conditions, laws relating to taxation, new legislation, trade barriers, interest and inflation rates, currency exchange controls, national and international political circumstances (including outbreaks in international hostilities, wars, terrorist acts, sabotage, subversive activities, security operations, labour unrest, civil disorder, and states of emergency), natural disasters (including fires, earthquakes and floods), and quarantine restrictions, epidemics and pandemics, may have an adverse effect on the Company's operations and financial performance, including the Company's exploration and development activities, as well as on its ability to fund those activities.

Regulatory compliance

Regulatory risks of the Company's operating activities are subject to extensive laws and regulations relating to numerous matters including resource licence consent, environmental compliance and rehabilitation, taxation, employee relations, health and worker safety, waste disposal, protection of the environment, protection of endangered and protected species and other matters. The Company requires permits from regulatory authorities to authorise the Company's operations. These permits relate to exploration, development, production and rehabilitation activities. While the Company believes that it will operate in substantial compliance with all material current laws and regulations, agreements or changes in their enforcement or regulatory interpretation could result in changes in legal requirements or in the terms of existing permits and agreements applicable to the Company or its properties, which could have a material adverse impact on the Company's current operations or planned activities. Obtaining necessary permits can be a time-consuming process and there is a risk that Company will not obtain these permits on acceptable terms, in a timely manner or at all. The costs and delays associated with obtaining necessary permits and complying with these permits and applicable laws and regulations could materially delay or restrict the Company from proceeding with the development of a project or the operation or development of a mine. Any failure to comply with applicable laws and regulations or permits, even if inadvertent, could result in material fines, penalties or other liabilities. In extreme cases, failure could result in suspension of the Company's activities or forfeiture of one or more of the tenements, the subject of the Projects.

Climate

There are a number of climate-related factors that may affect the operations and proposed activities of the Company. The climate change risks particularly attributable to the Company include: (a) the emergence of new or expanded regulations associated with the transitioning to a lower-carbon economy and market changes related to climate change mitigation. The Company may be impacted by changes to local or international compliance regulations related to climate change mitigation efforts, or by specific taxation or penalties for carbon emissions or environmental damage. These examples sit amongst an array of possible restraints on industry that may further impact the Company and its business viability. While the Company will endeavour to manage these risks and limit any consequential impacts, there can be no guarantee that the Company will not be impacted by these occurrences; and (b) climate change may cause certain physical and environmental risks that cannot be predicted by the Company, including events such as increased severity of weather patterns and incidence of extreme weather events and longer-term physical risks such as shifting climate patterns. All these risks associated with climate change may significantly change the industry in which the Company operates.

General risks

Future funding requirements and the ability to access debt and equity markets. The funds raised by the Company are considered sufficient to meet the evaluation and development objectives of the Company. Additional funding may be required in the event development costs exceed the Company's estimates and to effectively implement its business and operations plans in the future, to take advantage of opportunities for acquisitions, joint ventures or other business opportunities, and to meet any unanticipated liabilities or expenses which the Company may incur, additional financing will be required. In addition, should the Company consider that its development results justify commencement of production on any of its projects, additional funding will be required to implement the Company's development plans, the quantum of which, remain unknown at the date of the Annual report. The Company may seek to raise further funds through equity or debt financing, joint ventures, production sharing arrangements or other means. Failure to obtain sufficient financing for the Company's activities and future projects may result in delay and indefinite postponement of development or production on the Company's properties or even loss of a property interest. There can be no assurance that additional finance will be available when needed or, if available, the terms of the financing might not be favourable to the Company and might involve substantial dilution to shareholders.

Reliance on key personnel

The responsibility of overseeing the day-to-day operations and the strategic management of the Company depends substantially on its senior management and its key personnel. There can be no assurance given that there will be no detrimental impact on the Company if one or more of these employees cease their employment. The Company may not be able to replace its senior management or key personnel with persons of equivalent expertise and experience within a reasonable period of time or at all and the Company may incur additional expenses to recruit, train and retain personnel. Loss of such personnel may also have an adverse effect on the performance of the Company.

Competition

The industry in which the Company will be involved is subject to domestic and global competition. Although the Company will undertake all reasonable due diligence in its business decisions and operations, the Company will have no influence or control over the activities or actions of its competitors, which activities or actions may, positively or negatively, affect the operating and financial performance of the Company's projects and business.

Market conditions

Share market conditions may affect the value of the Company's shares regardless of the Company's operating performance. Share market conditions are affected by many factors such as:

(a)       general economic outlook;

(b)       introduction of tax reform or other new legislation;

(c)       interest rates and inflation rates;

(d)       global health epidemics or pandemics;

(e)       currency fluctuations;

(f)         changes in investor sentiment toward particular market sectors;

(g)       the demand for, and supply of, capital;

(h)        political tensions; and

(i)         terrorism or other hostilities.

The market price of shares can fall as well as rise and may be subject to varied and unpredictable influences on the market for equities in general and resource exploration stocks in particular. Neither the Company nor the Directors warrant the future performance of the Company or any return on an investment in the Company. Potential investors should be aware that there are risks associated with any securities investment. Securities listed on the stock market, and in particular securities of exploration companies experience extreme price and volume fluctuations that have often been unrelated to the operating performance of such companies. These factors may materially affect the market price of the shares regardless of the Company's performance. In addition, after the end of the relevant escrow periods affecting shares in the Company, a significant sale of then tradeable shares (or the market perception that such a sale might occur) could have an adverse effect on the Company's share price.

Commodity price volatility and exchange rate

If the Company achieves success leading to mineral production, the revenue it will derive through the sale of product exposes the potential income of the Company to commodity price and exchange rate risks. Commodity prices fluctuate and are affected by many factors beyond the control of the Company. Such factors include supply and demand fluctuations for precious and base metals, technological advancements, forward selling activities and other macro-economic factors. Furthermore, international prices of various commodities are denominated in United States dollars, whereas the income and expenditure of the Company will be taken into account in Australian currency, exposing the Company to the fluctuations and volatility of the rate of exchange between the United States dollar and the Australian dollar as determined in international markets.

Government policy changes

Adverse changes in government policies or legislation may affect ownership of mineral interests, taxation, royalties, land access, labour relations, and mining and exploration activities of the Company. It is possible that the current system of exploration and mine permitting in the Czech Republic may change, resulting in impairment of rights and possibly expropriation of the Company's properties without adequate compensation.

Dilution

In the future, the Company may elect to issue shares or engage in capital raisings to fund construction of the Project and growth, for investments or acquisitions that the Company may decide to undertake, to repay debt or for any other reason the Board may determine at the relevant time. While the Company will be subject to the constraints of the ASX Listing Rules regarding the percentage of its capital that it is able to issue within a 12-month period (other than where exceptions apply), shareholder interests may be diluted as a result of such issues of shares or other securities.

Taxation

The acquisition and disposal of shares will have tax consequences, which will differ depending on the individual financial affairs of each investor. All potential investors in the Company are urged to obtain independent financial advice about the consequences of acquiring shares from a taxation viewpoint and generally. To the maximum extent permitted by law, the Company, its officers and each of their respective advisers accept no liability and responsibility with respect to the taxation consequences of subscribing for shares under any prospectus.

Litigation

The Company is exposed to possible litigation risks including, tenure disputes, environmental claims, occupational health and safety claims and employee claims. Further, the Company may be involved in disputes with other parties in the future which may result in litigation. Any such claim or dispute if proven, may impact adversely on the Company's operations, reputation, financial performance and financial position. The Company is not currently engaged in any litigation.

Environmental regulation

The operations and proposed activities of the Company are subject to Czech laws and regulations concerning the environment. As with most exploration projects and mining operations, the Company's activities are expected to have an impact on the environment, particularly if advanced exploration or mine development proceeds. It is the Company's intention to conduct its activities to the highest standard of environmental obligation, including compliance with all environmental laws.

Mining operations have inherent risks and liabilities associated with safety and damage to the environment and the disposal of waste products occurring as a result of mineral exploration and production. The occurrence of any such safety or environmental incident could delay production or increase production costs. Events, such as unpredictable rainfall or bushfires may impact on the Company's ongoing compliance with environmental legislation, regulations, and licences. Significant liabilities could be imposed on the Company for damages, clean-up costs or penalties in the event of certain discharges into the environment, environmental damage caused by previous operations or non-compliance with environmental laws or regulations.

The disposal of mining and process waste and mine water discharge are under constant legislative scrutiny and regulation. There is a risk that environmental laws and regulations become more onerous making the Company's operations more expensive.

Approvals are required for land clearing and for ground disturbing activities. Delays in obtaining such approvals can result in the delay to anticipated exploration programs or mining activities.