Montem Resources : Alberta Coal Policy Update - Tent Mountain Mine unaffected

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ASX Announcement

7 March 2022

Alberta Coal Policy Update - Montem's Tent Mountain Mine unaffected

HIGHLIGHTS

• Government of Alberta releases Coal Policy Committee reports and recommendations following the Committee's review of the Alberta 1976 Coal Development Policy.
• Government of Alberta designates Montem's Tent Mountain Mine as an advanced coal project. Advanced coal projects are unaffected by the Ministerial Order resulting from the Committee's recommendations.

Montem Resources Limited (ASX: MR1) ("Montem" or the "Company") has reviewed the Coal Policy Committee ("Committee") reports and recommendations, and the accompanying Ministerial Order, following the Committee's review of the Alberta 1976 Coal Development Policy, as released by the Government of Alberta on 4 March 2022.

As a result of the Committee's recommendations, the Alberta Government has designated Montem's Tent Mountain Mine an advanced coal project. Alberta's advanced coal projects are unaffected by the Ministerial Order's additional exploration and development restrictions implemented as a result of the Committee's recommendations.

Montem continues to advance two parallel strategies for developing Tent Mountain:

1. restart of the existing coal mine;
2. transition of the existing coal mine to a renewable energy complex ("TM-REX").

Work on TM-REX will continue for the remainder of the first half of 2022 until the economic analysis of TM-REX is available, at which point the investment potential of both development pathways can be compared.

Additionally, Montem will continue to advance the existing coal mine restart through the Federal and Provincial permitting processes.

Montem Managing Director and CEO Peter Doyle said:

"We have reviewed the Coal Committee reports and recommendations, and the accompanying Ministerial Order. The Tent Mountain Mine remains unaffected by the policy update and has been recognised as an advanced project. We will continue to work with regulators, First Nations and all stakeholders to establish a suitable path for the mine re-start. The world is demanding responsibly sourced steelmaking raw materials, and the Tent Mountain Mine represents an important new source of high quality steelmaking coal.

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We also continue to investigate the potential of the renewable energy complex at Tent Mountain, which represents an important alternate development pathway for the mine. We look forward to finalising the engineering design and economic analysis of TM-REX later this year and making an informed decision on which development pathway to pursue at Tent Mountain."

Tent Mountain Mine

The Ministerial Order released on 4 March 2022, allows Tent Mountain to proceed along the current regulatory pathway administered in Alberta by the Alberta Energy Regulator ("AER"). The Government of Alberta stipulates advanced coal projects can continue unaffected by the Ministerial Order. The Tent Mountain Mine qualifies under clauses 3 and 6 of the Ministerial Order's Direction to the AER. The Ministerial Order can be accessed here: https://open.alberta.ca/publications/energy-002-2022

The Tent Mountain Mine last operated in 1983 and is in advanced stages of planning for the restart of operations. Montem completed Feasibility studies for the Tent Mountain Mine restart in 2020, and has been optimizing the mine plan, water management systems, and closure plan to accompany various environmental studies as part of our Environmental Impact Assessment ("EIA"). A component of this closure plan includes a passive water management system supported by an end of mine life pump-hydro energy storage system.

Coal market

Globally, steelmaking coal markets have outperformed most other commodities as the world economy recovers from the COVID-19 pandemic. Steel demand is robust, and steelmakers continue to report strong margins despite higher than usual raw material costs.

Over the past 6 months coal prices have reached unprecedented levels, up to 50% higher than previous record prices. Recent events including the Russian invasion of Ukraine have again pushed steelmaking coal prices to unprecedented highs.

Source: Inside Coal & Steel Raw Materials - Issue 2668 (McCloskey), 4 March 2022

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Asian and European buyers are now embargoing Russian steelmaking coal imports, and increasingly seeking ethically produced raw materials. Alberta has tremendous potential to be a safe, environmentally responsible producer of steelmaking coal for the world, and Montem's Tent Mountain Mine represents an important source of new, responsibly mined and ethically sourced steelmaking coal.

Feasibility Study (April 2020)

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Coal Type

Resource (JORC, 2020) 2

Reserve - ROM

Reserve - Product

Mining method

Production

Mine Life

Strip Ratio - ROM

Washery Yield

Capital required

Operating cost

Project NPV8 (post tax) 1

IRR (post tax) 1

Tier 2 Hard coking coal

60 Mt

22 Mt

13 Mt

Open cut

1.1 Mtpa

14 years

8.8:1

60 %

US$161m

US$ 87/t FOB

C$137 million

18.7%

For

1. Based on US$150 LT HCC Reference Price, 13% discount for Tent Mtn

CAD:USD of 0.75 AUD:USD of 0.72

2 As reported in the Prospectus dated 31 July 2021, ASX Announcement 14 September 2020.

The pricing basis of the 2020 Tent Mountain Mine Feasibility study was long-term forecast premium hard coking coal ("HCC") price of US$150/t (FOB, Qld), and discounted 13% for the Tier 2 HCC product to be produced at Tent Mountain. The Feasibility study indicated strong economic results, with post-tax NPV8 of C$137 million (A$145 million), and an IRR of 18.7%.

On 4 March 2022, Inside Coal & Steel Raw Materials (McCloskey) assessed the spot market for Tier 2 HCC at US$439/t. Using this price for Tent Mountain over the life of the project, returns increase dramatically. Taking a more moderate look at future hard coking coal prices, and assuming a long-term reference price for premium hard coking coal at US$200/t, with the assessed 13% discount for the Tent Mountain product, the mine restart project would return an IRR of 45.5% and a NPV8 of C$493 million (A$524 million).

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For the Tent Mountain Mine Redevelopment Project, Montem must undertake both Federal (Impact Assessment Agency of Canada ("IAAC")), and Provincial (AER) regulatory processes. Both processes are well advanced and the Company is currently concentrating on completing the next step of the IAAC process, which is the Detailed Project Description. In late 2021 IAAC began their review of the Tent Mountain Mine Redevelopment Project, by accepting Montem's Initial Project Description submission. This was followed by a 20-day public review period. IAAC then provided Montem with a high-level summary of issues gathered during the public review period. The next step is for Montem to address these issues in a Detailed Project Description.

The Provincial AER permitting process is currently on-hold whilst the IAAC process is undertaken. The IAAC process was initiated two years after the AER process, hence the process with the AER is in abeyance until the IAAC process reaches the same stage. The Provincial regulator process requires an EIA to accompany the mine restart applications, and it is probable that the Federal process will also require an EIA.

Tent Mountain Renewable Energy Complex (TM-REX)

The Company has also been assessing the viability and economic potential of a renewable energy complex at Tent Mountain. Montem's decision to evaluate the transition of Tent Mountain to become a renewable energy complex followed separate independent expert studies in 2019 and 2021 which demonstrated the project's strong viability to host a renewable energy complex which will include:

• 320 MW Pumped Hydro Energy Storage ("PHES");
• 100 MW Green Hydrogen Electrolyser; and
• 100 MW Wind Farm (offsite).

Tent Mountain has inherent advantages for hosting a large renewable energy complex. The project would repurpose existing assets at Tent Mountain which include a 300m drop (or average hydraulic "head") between two large water reservoirs that were formed during previous mining operations. The site is near Alberta's high voltage electricity grid, has great existing infrastructure to support development, is adjacent to rail, gas pipelines and the interprovincial Highway 3, and sufficient space to develop a green hydrogen plant.

Montem continues to work closely with the Piikani Nation ("Piikani") on wind power generation strategies. Tent Mountain is located in the traditional territory of Piikani, and Piikani's reserve lands are in the centre of southern Alberta's major wind power generating region.

Montem has engaged Hatch to complete detailed design and engineering work for the Tent Mountain PHES. This will be followed by field geotechnical investigation work planned to commence in the Canadian summer 2022. These are both key steps in de-risking the project and moving it toward commercialization. In parallel, the Company is working through the Alberta Electric System Operator stage gate process to establish a connection to the Alberta electricity transmission system.

Montem is also progressing design and cost estimates for the Green Hydrogen element of the TM- REX. These workstreams will provide project economics for the Green Hydrogen Electrolyser.

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The development of final designs for the PHES, and the Green Hydrogen Electrolyser will enable an accurate economic assessment for the TM-REX. With this in hand, Montem will have the necessary information to enable a decision on which Tent Mountain development pathway to pursue.

The Chinook Hard Coking Coal Project

The Committee said the following in its 4 March 2022 statement on the release of its reports:

"The central recommendation of the Committee was for Alberta to follow existing laws and statutes, particularly the Alberta Land Use Stewardship Act (ALSA). The Act was designed to align and guide land use planning for the entire Eastern Slopes region and, accordingly, we recommended that coal categories should be replaced by regional or sub-regional plans as defined by ALSA."

The Government of Alberta has indicated that, in the coming months, additional clarity regarding land use and coal activities will be made apparent by an update to Alberta's Eastern Slopes policy, that will incorporate the Alberta 1976 Coal Development Policy land categories, and through the development of new regional, sub-regional or issue-specific plans. Pending that update, the moratorium on exploration and development activities that previously affected only Category 2 lands has been extended to include all land categories with the exception of advanced coal projects (e.g. the Tent Mountain Mine). For that reason, Montem must wait for the release of the Government's updated policies and plans before conducting further exploration and development activities at its other Alberta coal projects, including the Chinook Project.

The Chinook Project lies within the South Saskatchewan Regional Plan ("SSRP") which was established in 2014. This is one of two Land-Use Framework Regional Plans ("LUFRP") Alberta has completed to date. The LUFRP set out the approach to managing Alberta's land and natural resources to achieve Alberta's long-term economic, environmental and social goals.

The SSRP addressed coal development, particularly the opportunity for responsible development:

"The Government of Alberta is continuing to explore development opportunities for our abundant coal deposits. Given the current and anticipated future global demand for coal, particularly from Asian markets, maintaining opportunities for responsible development of coal resources is important to the region and the province."

"Ensuring opportunities for coal exploration and development in the region will create economic diversification opportunities and export markets for Alberta coal and mineral resources and will result in increased employment in the region."

(p.14 South Saskatchewan Regional Plan)

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