Mallee Resources : Significant Milestone towards Acquisition of Avebury Nickel

ASX ANNOUNCEMENT

11 March 2022

ASX Code: MYL

BOARD OF DIRECTORS

Mr Jeff Moore

Non-Executive Chairman

Mr John Lamb
Managing Director
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Mr Rowan Caren
Executive Director
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Mr Paul Arndt
Non-Executive Director
ISSUED CAPITAL
Shares	190 m.
Performance
Rights	5 m.
Unlisted Options	5 m.
personalFor

Mallee Resources Limited

Suite 1, Ground Floor,

9 Havelock Street

West Perth 6005

Western Australia

[e-mail] P [phone] malleeresources.com.au

ABN: 48 124 943 728

Significant Milestone towards

Transformational Acquisition of Avebury

Nickel Sulphide Project

Highlights

• MYL successfully executes its new project search process and now has a clear path to acquire the Avebury nickel sulphide project in western Tasmania
• Compelling acquisition cost for a highly prized asset - MYL has agreed to acquire 100% of the shares in Allegiance which owns Avebury for A$85.9 m1 through a combination of cash and shares pursuant to the terms of a deed of company arrangement
• MYL will also reimburse an estimated $23.2 million in expenditure incurred in development of the Avebury project during the DOCA term
• Substantial nickel sulphide Mineral Resources of 29.3 Mt at 0.9% Ni (264 Kt contained Ni) (JORC 2012)2
• Avebury hosts an established underground mine development, processing plant and mine infrastructure in good condition
• Targeting a near term re-start of the mine to produce a nickel concentrate product in high demand
• Outstanding exploration potential with deposit open at depth and along strike
• MYL currently reviewing the existing Avebury mine re-start plans. Once finalised, MYL will make further disclosures in relation to operational work programs, schedules, key commercial agreements, and financing plans

Figure 1. Avebury site (MYL)

1. See page 2 for composition of value.
2. Refer to page 7 for a breakdown with respect to the categories of Mineral Resource. See MMG Limited Avebury Mineral
   Resource Estimate JORC (2012) compliant. Contained within ASX announcement "MMG Mineral Resources and Ore Reserves Statement as at 30 June 2013" dated 13 December 2013. MYL will complete a review of MMG's previously stated mineral resources and will release an updated mineral resource to the market in due course.

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Overview

Mallee Resources Limited ("MYL" or the "Company") is very pleased to announce that the deed of company arrangement ("DOCA") proposed by the Company with Hartree Metals LLC ("Hartree") has been executed. The DOCA contemplates MYL (through a wholly owned subsidiary) acquiring Allegiance Mining Pty Ltd (Administrators Appointed) (Receivers and Managers Appointed) ("Allegiance"), which wholly owns the Avebury mining licences, exploration licences, the underground mine, processing plant, mine infrastructure and other associated assets ("Avebury" or the "Project").

The opportunity to acquire Avebury marks the successful conclusion of the Company's search for a new project. Fewer than 5 months have passed since MYL's shareholders voted for the divestment of the Bawdwin Project. Over this time MYL's management has run a well-structured project search seeking value accretive projects with a favourable stage of life, commodity type and jurisdiction. Avebury excels on these measures.

John Lamb, Managing Director, said:

"Avebury is the transformative opportunity MYL is seeking. It stands amongst the best nickel sulphide projects in Australia in terms of scale and grade and it comes with an established underground mine, processing plant and site infrastructure. There has rarely been a better time to acquire a nickel sulphide project with a clear path to near-term production. MYL is pleased to work with Hartree Metals as financiers and off-takers to successfully commercialise the Project and their products

I am a former General Manager of Avebury and I know the great potential of this mine. It is a mine of great importance to local communities and Tasmania, and it is a mine that Mallee would manage responsibly, with due care for the environment and with consideration of stakeholders for a long time.

An early priority will be to assess the business case for net zero carbon status. This is something MYL and our local stakeholders are excited about."

Proposed Acquisition Terms

1. Acquisition Cost

MYL will acquire Avebury for A$85.9 million, being $31.2 million in cash, $3.5 million in liabilities assumed and $51.2 million in shares in an up-front consideration. The acquisition is pursuant to the terms of the DOCA, which extinguishes historical claims of Allegiance and allows MYL to pursue its future at Avebury without the burden of historical liabilities.

The transaction value is comprised as follows (all amounts are in AUD unless otherwise stated):

• Hartree will receive:

1. US$16.2 million (equivalent to A$22.7 million3) in repayment of an existing facility applied toward funding of the Project up to 22 February 2022; and

1. $38.6 million in satisfaction of a claim under a previous offtake agreement for the Project, which will be satisfied through entry into a new offtake agreement with MYL and an issue of shares to Hartree.4

1. Using an exchange rate of A$1.4:US$1.
2. To be satisfied by the issuance 30% of the fully diluted shares on issue of MYL shares post the transaction completing. Shares are issued at $0.42 per share. The number of shares to be issued may be adjusted and supplemented with cash in the event that MYL is unable to repatriate $12 million of funds from Myanmar on the date that is one month after the date the MYL shares are issued, subject

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• Hartree will be refunded:

1. • 1. cash payments totaling $8.5 million in satisfaction of Allegiance creditor claims made up of:
     2. • the Administrators (in their capacities as administrators of Allegiance and its related companies and deed administrators of Allegiance) will be paid an estimated $3.7 million in respect of their fees and liabilities (including legal fees);
        • non-relatedcreditors of Allegiance will be paid up to approximately $1.4 million in satisfaction of existing and potential claims; and
        • $3.4 million to fund the liquidators of Dundas Mining Pty Limited ("Dundas"), being Allegiance's parent company, to pursue voidable transaction claims for the benefit of the remaining creditors of Dundas and to make a pro-rata distribution to related party unsecured creditor claims, or for Dundas shareholders where there is a surplus.
   • Allegiance will have liabilities of approximately $3.5 million following effectuation of the DOCA, which will either be retained or discharged following effectuation.
   • The Liquidators of the holding company of Allegiance will be paid $12.5 million via the issue of 19,841,270 MYL shares at an issue price of $0.63 per share5.
2. Reimbursement of development cost

Hartree has agreed to provide working capital to fund the Avebury project during the term of the DOCA, MYL will reimburse Hartree for such an amount, which is estimated at being up to $23.2 million6 by the time of effectuation of the DOCA.

Completion of the DOCA

Now that the DOCA has been approved by Allegiance creditors and executed, effectuation of the DOCA occurring is subject to the following conditions precedent:

• the Administrators obtaining an order under section 444GA of the Corporations Act for the compulsory transfer of the shares in Allegiance to MYL or its nominee;
• the board of directors of Allegiance being changed in accordance with MYL's directions;
• MYL not receiving any objections from the Treasurer of the Commonwealth of Australia, and no final order being made, pursuant to the Foreign Acquisitions and Takeovers Act 1975 (Cth), to the extent required; and
• Hartree not receiving any objections from the Treasurer of the Commonwealth of Australia, and no final order being made, pursuant to the Foreign Acquisitions and Takeovers Act 1975 (Cth).

MYL's involvement in the DOCA will be subject to shareholder approval under ASX Listing Rule 11.1.2, as well as any other resolutions required in order to complete the transaction, to be sought at an extraordinary general meeting of MYL shareholders to be convened following execution of the DOCA, as well as MYL receiving any other necessary regulatory approvals. In the event that these approvals are not received by 30 June 2022 (or such later date as is requested of and agreed by the administrators), MYL will have no obligations in respect of the DOCA, unless otherwise agreed by the parties to the DOCA.

to completion of the DOCA having occurred, such that the cash backing of the MYL shares held by Hartree is equal to the cash backing that would have been held if all funds were repatriated from Myanmar.

1. If the value of the MYL Shares is less than AUD 12.5 million 30 trading days after the date upon which MYL's shares re-commence trading on the ASX, MYL will issue further shares or pay a cash sum (or a combination thereof) to offset any such shortfall.
2. Includes $7.9 million in respect of an environmental bond to be lodged with Mineral Resources Tasmania which may alternatively be advanced by MYL and reimbursed by Hartree in the event that MYL is not able to satisfy the conditions for acquisition.

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A detailed notice of meeting, including an independent expert's report opining on whether the contemplated transactions are fair and reasonable to shareholders, will be provided to shareholders as soon as possible.

While the Company will complete the Proposed Acquisition following receipt of shareholder approval and satisfaction of the conditions precedent to effectuation of the DOCA, ASX has confirmed that MYL's reinstatement to trading on ASX will be conditional upon the Company re-complying with Chapters 1 and 2 of the ASX Listing Rules, which is anticipated to occur following completion of the Proposed Acquisition.

The Company will require customary ASX in-principle approvals and potentially waivers of certain ASX Listing Rules in order to implement the transaction on its contemplated terms. MYL has not yet applied to ASX for in-principle advice in relation to suitability for re-admission to the official list under ASX Listing Rules 1.1 condition 1 and 1.19 and there is a risk that MYL may have to make amendments to the structure of the Proposed Acquisition or may receive unfavourable in-principle advice from ASX and therefore be unable to proceed with the Proposed Acquisition. The Company will provide further updates in the event that changes to the Proposed Acquisition are required as a result of discussions with ASX and in respect of any waivers of the ASX Listing Rules granted to the Company.

A detailed timetable with respect to the Proposed Acquisition and subsequent re-compliance with Chapters 1 and 2 of the ASX Listing Rules will be set out in the notice of meeting to be dispatched to shareholders in the coming weeks.

Funding

The Company's payment obligations in respect of the DOCA and ongoing financing of the Project will be funded through MYL's existing cash reserves, including funds to be repatriated from the sale of the Company's interests in the Bawdwin project, and a loan facility to be provided by Hartree to the Company's wholly owned subsidiary that holds the shares in Allegiance (Hartree Facility)7.

The terms of the loan facility, drawdown of which is subject to effectuation of the DOCA, are expected to be as follows:

Facility Size	US$20 million
Term	3 years
Interest Rate	10% pa
Security	First ranking security over any and all assets and undertakings of MYL's
	wholly owned subsidiary that will hold the shares in Allegiance

Offtake

Hartree and MYL have agreed that, subject to effectuation of the DOCA, a new offtake agreement will be entered into on terms broadly consistent with the offtake agreement formerly in place between Hartree and Dundas in respect of the Project, other than to provide for life of mine terms, with pricing to be revisited each five years (Offtake Agreement).8

Implementation Agreement

1. Detailed terms and conditions to be agreed prior to effectuation of the DOCA.
2. Detailed terms and conditions to be agreed prior to effectuation of the DOCA.

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Under a separate implementation agreement entered into between the Company and Hartree (Implementation Agreement), Hartree will have the following additional rights:

• For so long as Hartree holds at least 15% of the issued MYL shares on issue, Hartree is entitled to nominate and/or appoint one director to the board of MYL as its representative to the MYL Board, subject to such nominee being a person of good fame and character and having appropriate qualifications, experience and expertise.
• If MYL raises additional equity capital at any time during the period of 3 years following the date of the Implementation Agreement, subject to the Corporations Act, ASX Listing Rules and any negative pledge arrangements applicable to MYL, MYL will use its best endeavours to ensure that Hartree is offered the ability to participate in any such offer of securities, provided that such participation is for cash consideration that is no more favourable than cash consideration paid by third parties, in order to maintain Hartree's relevant interest in MYL shares as at the business day immediately prior to completion of the additional equity capital raising. This right does not create a binding obligation on MYL to make any offer of securities to Hartree.

The Implementation Agreement provides for exclusivity in respect of both MYL and Hartree in respect of the Project and can be terminated by either party in the event that the DOCA terminates without being effectuated, the Offtake Agreement and Facility Agreement are not entered into, either party materially breaches the Implementation Agreement or either party enters into a competing proposal in respect of the Project.

The Implementation Agreement is otherwise subject to a number of customary conditions precedent including foreign investment review board approval and various regulatory and shareholder approvals.

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