Morella : Quarterly Activities Report and Cashflow

ASX Announcement

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28 July 2022

Quarterly Activities Report and 5B Cashflow June 2022

Completion of maiden drilling program at the Mallina Lithium Project

Fish Lake Valley Project area expanded with key drilling targets identified

Nevada lithium portfolio expansion through the North Big Smoky project

Lithium demand and pricing environment remains at record highs

Overview

Morella Corporation Limited (ASX: 1MC "Morella" or "the Company") is pleased to report on activities conducted during the June 2022 Quarter.

The Company's primary focus for the quarter was directed towards the drilling program at the Mallina Lithium Project in Western Australia and the expansion of the Company's lithium position in the United States.

Exploration and Project Development

Western Australia Hardrock Lithium

The June quarter saw significant progress at the Mallina Lithium Project, in Western Australia's Pilbara region, with the completion of a targeted deep drilling program. The reverse circulation (RC) drill contractor mobilised to the Mallina Project in the second week of April, with drilling commencing on 18 April. In total, three RC holes (430m) and four diamond core holes (831.4 m), including two core tail extensions were completed. The drilling program concluded in late May, with demobilisation of personnel and equipment occurring during June. (Refer to ASX Announcement Mallina Drilling Program Complete released 6 June 2022)

Fine grained spodumene quartz intergrowths within aplite intrusive intervals were observed in the drill core. RC chips and drill core were logged on site and samples were prepared for mineralogical studies and geochemical assay work being completed at an independent laboratory in Perth. Adverse weather meant that access to site was restricted, and core/chips were only able to be collected for transport to Perth in late June. Subsequent to the quarter, Morella has confirmed all chips and core arrived at the Perth laboratory in the first half of July and is scheduled for mineralogical and geochemical analysis, results are expected to take two-three months.

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Morella Corporation Limited ASX Announcement 28 July 2022

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Figure 1 - Location of 2022 Malina Drill Hole Collars

During the reporting period, Morella successfully completed a surface mapping and sampling program at Mt Edon (E59/2092) and Mt Edon West (E59/2055), with a total of 53 pegmatite outcrops mapped. Rock chip assay results indicate the potential of the area for future lithium exploration, with some of the pegmatites indicating potential lithium mineralisation. (Refer to ASX Announcement Lithium targets Identified at Mt Edon released on 23 June 2022).

Several of the pegmatites were mapped as being narrow and discontinuous, but some were mapped as having a substantial apparent thickness and continuity that may evolve into a commercially viable mining opportunity, subject to adequate mineral endowment.

Morella is now reviewing geophysical techniques to support developing a better understanding of the subsurface potential of the Project area to quantify potential drilling targets.

Figure 2 - Map of mapped pegmatites and priority areas for further exploration at Mt Edon

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Morella Corporation Limited ASX Announcement 28 July 2022

Fish Lake Valley Lithium Project

During the June quarter, Morella undertook analysis and interpretation of data from the passive seismic survey (PSS) and a magnetotelluric (MT) survey completed over the period December 2021 to March 2022. The combination of sub-surface structural understanding and resistivity profiling from the combined survey data sets, allowed for the identification of a number of key drilling targets.

The identification of drilling targets is currently constrained to the southern area where the integration of PSS and MT surveys has been completed and modelled. Further updates will be provided on the northern area of the Project as exploration and analysis activities are completed.

Three initial drill targets were identified, with initial exploration drilling to be aimed at confirming the lithology in high-conductivity horizons and underlying and overlying geological units. The Company also intends to collect brine samples from the target horizon for assays of lithium concentration. (Refer to ASX Announcement Drilling Targets Identified at Fish Lake Valley released on 26 April 2022)

During the quarter, Morella also increased the Fish Lake Valley Lithium Project area by roughly 60%, forming an undisrupted total claim area for the Project encompassing approximately 44.4 sq. km. The increased project footprint secures the entire Fish Lake Valley land area, supporting the Company's focus on developing size and scale at the Project.

Figure 3 - MT 2D resistivity inversion model cross section with interpreted layers and faults

In addition to exploration efforts, Morella also took its first steps to assess the suitability of brine material from Fish Lake Valley for a direct lithium extraction (DLE) processing flowsheet. A DLE study was commissioned to provide a preliminary economic assessment of lithium extraction with a proprietary technology solution from Recion Technologies ("Recion"). Recion has leveraged several

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Morella Corporation Limited ASX Announcement 28 July 2022

years of DLE study work to establish a bench top processing system to test the Fish Lake Valley material and have presented staged development options for pilot scale and commercial scale.

North Big Smoky Lithium Project

The June quarter saw an increase in the Nevada lithium position, with the execution of a Letter of Intent (LOI) to enter an Earn-in Option Agreement for a 60% project interest in Lithium Corporation's North Big Smoky (NBS) Project in central-west Nevada. Morella can earn a 60% position in the project by investing at least US$1,000,000 in aggregate, over a four-year period, on exploration and development activities.

The project area consists of 178 claims and covers an area approximately 13.7 sq. km, in a highly prospective lithium region, within a Tier 1 exploration and mining jurisdiction.

NBS lies in the Big Smoky Valley, which hosts several well know mining operations, there is existing infrastructure, access to mining-centric labour, energy and supplies.

Figure 4 - North Big Smoky Claim outline

Lithium Market

The Australian Government's latest Resources and Energy Quarterly: June 2022 forecasts lithium demand to remain bullish, anticipating demand to reach 677,000 tonnes of lithium carbonate equivalent (LCE) in 2022, followed by a 40% rise in demand over the next two years, to reach 947,000 tonnes in 2024. The growth in demand is principally centred on Asia given it accounts for over 90% of the current global cathode production capacity. However, towards the end of the decade, cathode and battery manufacturing capacity planned for Europe and North America/Canada is scheduled to come on line.

While global production of lithium precursor material (spodumene) and lithium chemicals is expected to continue to rise, a forecast supply gap remains persistent over the coming years. As the report highlights: "tight supply conditions and ongoing concerns about supply chain bottlenecks are forcing lithium processors and battery makers to pay record prices to secure supply".

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Morella Corporation Limited ASX Announcement 28 July 2022

Sustainability

Health and Safety

There were no injuries or safety incidents during the quarter.

Environment

There were no environmental issues or breeches during the quarter.

In accordance with the requirements of Morella's approved Program of Works for the Mallina drill program, the Company oversaw the rehabilitation of the Mallina drill pads during the month of June. Rehabilitation reporting was completed and submitted to the Western Australia Department of Mines, Industry Regulation and Safety after the end of the reporting period.

Community

During the reporting period, and as a part of the Mallina drilling Program, the Company undertook an effort to support the local and broader community by leveraging the Containers for Change program. Throughout the duration of the Mallina drilling campaign, all site-based plastic and glass containers were split from general waste, aggregated, and then deposited to the Containers for Change depot in Wedgefield (Port Hedland). On both occasions that a container deposit was made, all proceeds were donated to the nominated Group of the Month, Morella were proud to be able to contribute to the community and also reduce the amount of general waste generated from field activities.

Figure 5 - Morella contractors/staff donating at Containers for Change Wedgefield

Financial Commentary

During the quarter, Morella continued expenditure against its two earn in projects as well as corporate and administrative actions to support expansion of the Nevada lithium portfolio, marketing and general administrative functions. Approximately $826,000 was invested into exploration activities,

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