Announcement PDF 29 September 2023 ANNUAL & SUSTAINABILITY REPORT 2023 Australian Rare Earths (ASX: AR3) is pleased to release its Annual and Sustainability Report for the financial year ended 30 June 2023. Highlights • Mineral Resource upgrade in March 2023 has confirmed Koppamurra as a globally significant resource of 101Mt @ 818ppm TREO and with a significant exploration target. This has since been updated to 186Mt @ 712 TREO and Contained TREO tonnage up 60% to 132,000 tonnes (ASX, 19 September 2023) • Outstanding growth potential at Koppamurra – the defined Resource is < 5% of total acreage with resource growth potential • First Australian ionic clay hosted rare earth resource to produce a Mixed Rare Earth Carbonate (MREC) • Well supported Capital Raise in April / May 2023 raising $11m before costs, with $15m in cash at 30 June 2023 • Extensive regional drilling campaign completed in 2022/23 with ~30,000 meters drilled, confirming Koppamurra as a rare earth province • Rehabilitation of trial pit area showing progress and providing learnings for further significant soil improvement opportunities During the year the Company continued to build on the expertise and experience gained since its IPO in July 2021. The Company has successfully attracted additional mining talent, with Travis Beinke joining the Company as CEO in June 2023. Travis’ extensive experience in the resources industry will be highly valuable as the Company continue its s drive to unlock the value of its world class Koppamurra rare earths project in South Australia. As CEO Travis Beinke comments in the Annual Report: “We are excited about what can be achieved over the next 12 months and the possibilities ahead. The team and I are energised to unlock value at our flagship Koppamurra project by progressing the project from the mineral resource definition phase into preliminary mine planning, environmental studies, continued community and landowner engagement together with development plans for a multi-generational Province”. This announcement has been authorised for release by the Board of AR3 Limited. For further information please contact: AR3 Limited Travis Beinke Chief Executive Officer T: 1 300 646 100 Media Enquiries Nicholas Read / Paul Armstrong Read Corporate T: 08 9388 1474 About Australian Rare Earths Limited Australian Rare Earths is committed to the timely exploration and development of its 100% owned, flagship Koppamurra Project, located in the new Koppamurra rare earths Province in southeastern South Australia and western Victoria. Koppamurra is a prospective ionic clay hosted rare earth deposit, uniquely rich in all the elements required in the manufacture of rare earth permanent magnets which are essential components in electric vehicles, wind turbines and domestic appliances. In addition AR3 is actively reviewing other potential prospective areas which may also host ionic clay hosted rare earth deposits throughout Australia. The Company is focused on executing a growth strategy that will ensure AR3 is positioned to become an independent and sustainable source of rare earths, playing a pivotal role in the global transition to a green economy. ANNUAL AND SUSTAINABILITY REPORT 2023 Australian Rare Earths Limited CONTENTS Chairman’s Letter 4 Koppamurra Project 6 Project highlights First Koppamurra mixed Rare Earth Carbonate produced 10 Metallurgical tests point to significantly lower processing costs 12 Multi generational rare earth province 13 Trial pit rehabilitation 16 The Community and AR3 18 Mineral Resources Koppamurra Project – Mineral Resource Estimate 22 Koppamurra Exploration Target Estimate 23 Tenement Interests 26 Outlook from the CEO 28 Sustainability Report Introduction 30 Sustainability Foundation Pillars 32 Key Sustainability Pillars 33 Sustainability Guiding Principles 34 Focus Areas Environment - Minimising our footprint 36 Social - Our people 37 Community - Building prosperity 38 Governance - Establishing accountability and stewardship 40 Directors’ Report 42 Remuneration Report (audited) 54 Auditor’s Independence Declaration 69 Statement of Profit or Loss and Other Comprehensive Income 72 Statement of Financial Position 73 Statement of Changes in Equity 74 Statement of Cash Flows 75 Notes to the Financial Statements 76 Directors’ Declaration 101 Independent Auditor’s Report 102 Additional Information 106 Corporate Directory 108 Australian Rare Earths Limited CHAIRMAN’S LETTER Dear Shareholders, it is close to three years ago (late 2020) that Rick Pobjoy and Bryn Jones, the founders of Australian Rare Earths (“AR3” or “The Company”) approached me to join the Board of Directors of Tawel Exploration, the entity that is our company today. I was excited by the combination of the four unique features of the Koppamurra. Namely, the project is a ‘true’ rare earth ionic clay deposit comparable with those in China; reasonable recovery of the rare earths is possible at ambient temperature; the clays are close to the surface offering the potential for low cost mining and, in many ways the most encouraging aspect were the excellent community relations put in place by Rick and Bryn. All these considerations lead me to the conclusion that AR3 is uniquely placed to be the first non-Chinese sustainable supplier of non-Chinese terbium and dysprosium. Given the competency and commitment of the AR3 staff today my excitement is in no way diminished. Over the past year there has been a growing recognition of the critical role rare earths will play in the global push for carbon neutrality. Coupled with the increasing demands by society and the original equipment manufacturers seeking secure and environmentally sustainable supply chains, ‘from the mine to the showroom’; there is a growing recognition that the Company is at the forefront of the ‘new’ potential suppliers meeting the criteria for success. Diversity in the supply of rare earths continues to be of major concern to end users; particularly those applications that are essential to reducing the global carbon footprint such as EVs and wind turbines. Today, supply chains are dominated by sources that do not generate this trust, with little clarity on the measures in place that demonstrate environmental standards are applied fully ‘from mine to showroom’. During the year I was honoured to provide an opening Keynote Presentation at the recent Standards Australia Critical Minerals Forum entitled “How standards can build trust for the Critical Materials Industry”. 4 Commitment to high environmental standards and respect for human rights in Australia, along with the members of the International Council on Mining and Metals, are leading the way in setting global standards for supply chains. In talking to the potential customers long term dependable supply is a key issue to continued negotiations on supply. Accordingly, the size and quality of the Koppamurra rare earth ionic clay deposit is essential to the signing of a supply agreement stretching out for 15-20 years. The Company is working closely with Neo Performance Materials (NEO), a founding shareholder, in the negotiation of a transparent supply agreement from mine to magnet. NEO is providing oversight to our process development, a key element in the successful pilot-scale production of a Mixed Rare Earth Carbonate (MREC) containing all the rare earths needed to produce rare earth permanent magnets. On the other hand the successful mine trial undertaken at Koppamurra by AR3 has given NEO comfort that a future mine at Koppamurra can be rehabilitated to the extent that the impact of the landscape is minimal. In addition our strong relationship with the local communities demonstrates our commitment to human rights; a distinct differentiation from the mining of ionic clays in Asia, the only current source of the terbium and dysprosium required in electric vehicles. Integral to the Koppamurra development strategy has been the ongoing test work being undertaken at the Australian Nuclear Science and Technology Organisation (ANSTO) to produce the MREC. The results highlight not only the immensely valuable characteristics of the Koppamurra deposit but also the skill, expertise, and commitment of the AR3 exploration team lead by the Technical Director, Rick Pobjoy. Australia is playing a leading role in the development of rare earth standards by the ISO, TO which I have contributed since the founding of ISO/TC 298 in 2016. Through this participation Australian Rare Earths is working alongside many of the world’s leading rare earths scientists and engineers. This is a strategic opportunity that we will continue to contribute as an integral part of our commitment to demonstrable environmental practice at Koppamurra The combination of an exceptional market outlook for rare earths, the growing resource inventory at our Koppamurra rare earths project, the recent strong metallurgical results and the support by the local community and the Federal and State Government Agencies underpin an extremely bright future for AR3. Over the past year the hard work of the management team has been instrumental in the outstanding progress in identifying a multigenerational ionic clay hosted rare earths Resource. Your Company’s success could be integral to the establishment of the first rare earths ionic clay mining and processing facility outside Asia. I take this opportunity to welcome our CEO, Mr Travis Beinke who joined us in June 2023. Travis has hit the ground running and with his extensive experience in the resources industry will be key to the Company continuing to unlock value at our world class Koppamurra rare earths project in South Australia. I am confident that Travis’s leadership of our firstclass team will ensure that we continue to generate value as we advance Koppamurra. On behalf of the Board of Directors I thank you for your support of the Company. You may rest assured that we are committed to the hard work required to enhance the value of your shareholding in AR3. It is now 3 years since I had the privilege of joining the newly founded Australian Rare Earths team; during which time we have progressed from a possible rare earths entity of the future to a company with a plan to be an independent globally sustainable supplier of the rare earths required for rare earth permanent magnets. With a view to the changing balance of skills required of the Company in the coming years I am stepping down as the Non-Executive Chairman with effect from the close of the Annual General Meeting. Subject to re-election, I will remain a Non-Executive Director to continue tocontribute my knowledge of the global rare earths industry. Yours sincerely, Professor Dudley J. Kingsnorth Independent Non-Executive Chairman 29 September 2023 5 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited KOPPAMURRA PROJECT OVERVIEW South Australia and Victoria Australian Rare Earths’ flagship Koppamurra Project is establishing an independent source of critical rare earths for a clean energy future - bringing diversity to global rare earths supply. The Company is the registered holder of the granted South Australian tenements EL6509, EL6613, EL6690, EL6691, and Victorian tenements EL007254 and EL007719. 6 The company is the registered applicant for South Australian tenements ELA 2023/00007, ELA 2023/00008, and the Victorian tenement applications EL008208 and EL008254. This granted tenure and tenure applications in South-Eastern South Australia and Western Victoria combine for ~6700km2 of prospective tenure and forms the Company’s flagship Koppamurra Project (“Koppamurra’ or “the Project”). AR3 tenements Elevation in mAHD 250 145 Coastline 0 AR3 Exploration Licences AR3 Tenement Applications Crown Land AR3 Exploration targets and Resources 7 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited KOPPAMURRA PROJECT OVERVIEW Koppamurra has a Substantial JORC Resource of 101Mt at 818ppm TREO (Total Rare Earth Oxide). The resource is open in all directions and the Project area more broadly has an (up to) 1.4bt exploration target. Our cornerstone asset, is a highly valuable potential source of critical rare earths in a Tier-1 location. We are a 100%-owned, clay-hosted critical rare earths deposit located ~300km SE of Adelaide, with ~6,700 square kilometers of exploration tenure. The mineralisation is consistent and shallow which facilitates rapid, low-cost exploration and potentially mining. It is a clay-hosted deposit, the same style that underpins China’s massive rare earths industry. This is best illustrated by the fact that clay hosted REE (Rare Earth Elements) resources in China amount to less than 1% of the total resources, but up to 35% of REE production comes from them. The mineral resource at Koppamurra contains consistent magnet rare earth contents of ~25%. Greater than 60% of the defined resource is in the Indicated JORC Classification, and that Indicated portion has a higher average grade than the inferred resource. Demand growth for EV’s and wind turbines, key technologies in global decarbonisation efforts, 8 require four key REE, the western world is seeking an independent supply chain of these elements, however, deposits containing all four REEs are rare. The Koppamurra Project has all four key REEs including, importantly, the strategically important heavy rare earths Dysprosium (Dy) and Terbium (Tb) – it is those two rare earth elements that allow rare earth permanent magnets to operate at high temperatures in EV’s and wind turbines, these technologies couldn’t be applied in those applications without Dy and Tb. We have immense growth potential at Koppamurra – the defined Resource is < 5% of total acreage and that resource growth potential has been demonstrated in our 1.4bt exploration target. Metallurgical testing has confirmed the presence of recoverable light and highly sought after heavy rare earth elements from the Koppamurra Project. As a first for an Australian ionic clay hosted rare earth resource, a Mixed Rare Earth Carbonate (MREC) was successfully produced from ~800kg of Koppamurra bulk sample using existing equipment and simple processes operating at ambient temperature and pressure at ANSTO Minerals. Recently announced testwork has also shown a pathway to beneficiating the ore, allowing for lower processing costs. We continue to actively engage with the local community, knowing their support is key to building a successful and sustainable operation. By becoming part of the community and engaging with them as often as possible about our activities and plans we are establishing broad acceptance of our Project in the region. We are currently preparing the inputs for a Mine Lease application, as part of the sustainable development of this Project. We have an MOU signed with NEO Performance Materials for a Joint Development and Offtake Agreement, NEO is one of the very few companies outside of China taking rare earth products downstream, and they have a wealth of experience in the industry that we will be able to tap to rapidly progress Koppamurra. Our aim is to become a global supplier of added-value rare earth products, working alongside government, academia, community and landowners. Key aspects of the Koppamurra Project are: Large resource with exceptional potential for multi-generational growth Substantial market opportunity driven by global decarbonisation efforts Endowment of all four of the high value rare earth elements Critical rare earths Nd-Pr and Dy-Tb are essential ingredients in permanent magnets for EV’s, wind turbines, robots and domestic appliances Tier-1 location with strong community, landowner and government support Demonstrated production of a mixed rare earth carbonate (MREC) at scale Project support through NEO Performance Materials MOU Strong demand growth supported by need for a sustainable independent supply chain 9 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT 10 Australian Rare Earths Limited PROJECT HIGHLIGHTS First Koppamurra Mixed Rare Earth Carbonate produced The successful pilot scale production of a Mixed Rare Earth Carbonate (MREC) containing all the rare earths needed to produce rare earth permanent magnets; essential for increasing the efficient use of the power the world generates. As a first for an Australian ionic clay hosted rare earth resource, this achievement is being met with great interest by potential downstream customers, especially in light of an increasing awareness that the world currently lacks the sustainable diversity of rare earths supply required to meet the growing demand of a carbon-free global economy. Highlights: Mixed Rare Earth Carbonate (MREC) has been successfully produced from ~800kg of Koppamurra bulk sample using existing equipment and simple processes operating at ambient temperature and pressure at ANSTO Minerals This is an important milestone for the Koppamurra Project and a key step in AR3’s journey to becoming a producer of rare earth products Demand for MREC with low levels of impurities from sustainable resources from Tier 1 jurisdictions is strong The initial MREC is being used for marketing purposes, particularly in further developing an offtake relationship with Neo Performance Materials (‘NEO’) In consultation with NEO further process optimisation and impurity removal testwork is underway to enhance the initial product characteristics. Main image: Existing equipment at ANSTO, used in the production of a mixed rare earth carbonate from Koppamurra - at scale. Above image: Sample of the mixed rare earth carbonate (MREC) product from Koppamurra The test work is leading to an increased understanding of the chemistry of rare earths recovery at Koppamurra, including improving rare earth recovery and the successful management of impurities in a MREC. 11 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited PROJECT HIGHLIGHTS Metallurgical tests point to significantly lower processing costs Breakthrough testwork shows that removing larger ore particles before processing increases head grade significantly for little reduction in total recovered rare earth. Pivotal metallurgical test results highlight the potential to significantly reduce capital and production costs at its Koppamurra rare earths project. The tests demonstrated that the vast majority of the valuable rare earths occur in the smaller particles. By separating the ore through simple beneficiation, the larger particles could be removed from the downstream process. This resulted in 90 per cent of the magnet rare earths being contained in 64 percent of the ore. The results are considered transformational as they demonstrate the potential to reduce reagent consumption, simplify materials handling, reduce the volume of the leach vessels and therefore reduce capital and operating costs significantly. Highlights: Tests by industry experts ANSTO demonstrate that more than 90 per cent of the important magnetic rare earths can be captured in less than two thirds of the mass during primary processing when the maximum feed size is restricted to less than 75 microns. This means we could substantially reduce the amount of ore we process, while still maintaining 90 per cent of the valuable rare earths. The potential impact on processing costs and therefore the overall economics of the project and shareholder returns are extremely substantial. Competent Person’s Statement The information in this report that relates to metallurgical results is based on information compiled by Australian Rare Earths Limited and reviewed by Mr. Jon Weir who is the Technical Director – Metallurgy of Wallbridge Gilbert Aztec and a Member of the Australian Institute of Mining and Metallurgy (M AusIMM). Mr. Weir has sufficient experience that is relevant to the metallurgical testing which was undertaken to qualify as a Competent Person as defined in the 2012 edition of the “Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr. Weir consents to the inclusion in this report of the matters based on this information in the form and context in which it appears. 12 Multi generational rare earth province Drilling completed since 1 February 2023 on the extensions to the updated Mineral Resource Estimate (MRE) at Koppamurra (ASX: 3 April 2023) has included 698 drillholes for 7,363m with an average depth of just 10.5m. Approximately 5,000 additional assays have been collected as part of this drill campaign, of which the final 2,000 are expected to be received shortly. Once received these assays will provide a robust data set for a significant update to the current MRE scheduled for the next Quarter. As announced (ASX: 10 May 2023) regional drilling also continues on resource definition of the Northern most Exploration Target and with road verge drilling planned to be conducted on areas in between the existing Exploration Target areas in an effort to both extend the Exploration Target and to begin establishing a MRE for the Frances region. Section 1, Koppamurra Southern Resource Extension Section 1, Koppamurra Southern Resource Extension 13 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited PROJECT HIGHLIGHTS Multi generational rare earth province Section 3, Koppamurra Southern Resource Extension Section 4, Koppamurra Southern Resource Extension 14 Drillhole and section location plan: New drilling and Significant Intersection identified with larger circles than existing drilling and significant intersections overlaying the current resource outlines. 15 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited PROJECT HIGHLIGHTS Trial pit rehabilitation Work that commenced last year on the Koppamurra small-scale mining trial has finished and rehabilitation is complete. The trial, supported by the State regulator, the landowner and implemented by local earth moving firm, Henschke Industries, was located over a portion of the Indicated Koppamurra Resource. The Trial Pit has provided an opportunity for landowners, regulators, and community members to see first hand what a rare earth rich clay looks like and to learn about its potential mining and extraction at Koppamurra. Immediately following the conclusion of the trial mining, rehabilitation of the area commenced. This was undertaken with the support of soil scientists and agronomists and will also demonstrate the potential for continuous reclamation and soil improvements for enhanced crop productivity post mining. May 2022 - Aerial view of trial mining pit 16 The trial has achieved the following: Improved the understanding of the geological, mineralogical and structural nature of the clays, including the contact with the underlying limestone layer. Obtained information for mine planning, specifically with respect to fleet selection and selective removal methods of the clay layer to minimise dilution from the underlying limestone or other low concentrations of rare earth minerals. Enabled the collection of a 500 tonne bulk sample of rare earth oxide rich clay for future metallurgical pilot plant tests. October 2022 - Aerial view of rehabilitation progress August 2023 - Aerial view of rehabilitated trial mining pit 17 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited THE COMMUNITY AND AR3 Community Engagement The exploration drilling programmes conducted by AR3 could not have taken place without the support of landowners and the broader community. AR3 recognises the importance of continued proactive and transparent communication with landowners At Koppamurra we actively engage with the local community, knowing their support is key to building a successful and sustainable business. With our now established a Naracoorte office/warehouse, which is managed by locally based Manager of Community and Land, Jacqui Owen, we are fostering an open and collaborative community relationship which underpins AR3’s approach to engagement. 18 Sponsorships and Funding Nurturing Our Local Partnerships Investing in Education for Tomorrow At Australian Rare Earths, our commitment to fostering vibrant and sustainable communities goes hand in hand with our dedication to responsible land management. We believe that education is the key to a brighter future. That’s why we’re committed to investing in local educational initiatives. We understand that our operations impact the lives of those who call our region home, and we take our role as a responsible corporate citizen seriously. By providing funding for the delivery of an educational resources into local schools, to support teacher development and ensure the inclusion of Critical Minerals on the curriculum, we empower the next generation, the future workforce, to pursue their dreams and contribute to the employment capacity of our community. Empowering Local Interests Our support for local community special interest groups is a cornerstone of our community engagement efforts. From horse racing enthusiasts to sports clubs, scouts, and the arts, we recognise the unique passions and interests that make communities thrive. Horses for Heritage We proudly support the Lucindale Camp Draft and the Naracoorte Horse Racing Club, recognising the deep-rooted heritage of horses in the community. Our sponsorship helps preserve traditions, ensuring that generations to come can experience the excitement and grace of these magnificent animals. Fuelling the Spirit of Sportsmanship In partnership with local sports clubs, we champion teamwork, discipline, and physical fitness. We believe that sports play a crucial role in fostering a strong sense of community and a healthier, more active lifestyle. Empowering Future Leaders Our commitment to our local scout’s club goes beyond financial support to enable improvements to the club rooms. We actively engage with the local scout troop, offering event catering opportunities, helping young scouts develop leadership skills that will serve them throughout their lives. Celebrating Art and Culture Culture enriches our lives, and we proudly support our local art gallery. Through our contributions, we ensure that the gallery remains a vibrant cultural hub, showcasing the talent of the communities artists and providing a space for artistic expression. Australian Rare Earths recognise the importance of preserving and sharing works of art, and firmly believing in their power to inspire, uplift and unite communities. It was our pleasure and privilege to contribute to the cultural enrichment of our community by sponsoring the Naracoorte Art Gallery, Ibis Rising Art Competition and funding the restoration of a wonderful Eduardo Cortes painting, the jewel in the crown of the Naracoorte Art Gallery Collection. A Partnership for Progress At Australian Rare Earths, we view our relationship with the local community as a partnership for progress. We are dedicated to making a positive impact by supporting the special interests and cultural institutions that make our community unique. Together, we can build a stronger, more prosperous, and culturally rich future for all. As we reflect on the past year’s achievements, we are proud of our continued collaboration with these special interest groups and our contributions to education and the arts. We look forward to even more remarkable partnerships in the years ahead as we work hand in hand with our community to create a better tomorrow. 19 | AR3 2023 ANNUAL AND SUSTAINABILITY REPORT Australian Rare Earths Limited THE COMMUNITY AND AR3 Community Engagement Empowering Voices: The Landholder Reference Group At Australian Rare Earths, we recognise that our operations impact the communities in which we operate. We value the feedback, insights and concerns of our community members. Transparency and Accountability Transparency and accountability are the cornerstones of our relationship with the Landholder Reference Group. We share information, data and insights openly, allowing members to make informed contributions and hold us accountable for our commitments. That’s why we established the Koppamurra Landholder Reference Group, a dynamic platform that ensures every voice is heard and every perspective considered in shaping our future operations. This commitment to transparency strengthens trust and mutual understanding. Community-Centric Decision-Making Through collaboration with the Landholder Reference Group, we hope to achieve meaningful progress towards a mining lease. The Landholder Reference Group represents our commitment to responsible and community-centric resource development. Together, we’ll identify innovative solutions to minimise our environmental footprint, enhance safety measures and support local businesses. We understand that our operations extend beyond mere exploration and mining; they influence the lives and livelihoods of the people who reside in our region. By actively listening to the concerns and ideas of the community, we become a more responsible and community-minded company. With this in mind, we formed the group to foster transparent, open and inclusive dialogue with our community. A Bright Future Together A Diverse Tapestry of Voices Our Landholder Reference Group is a diverse assembly of individuals, each bringing a unique perspective to the table. From representative landowners, croppers, graziers, forestry, winegrowers and environmental advocates to local council leaders and government agencies, the group reflects the rich tapestry of our community. Facilitating Meaningful Dialogue This platform serves as a bridge between our company and the community. We meet regularly to discuss a wide range of topics, from environmental sustainability and land use to safety measures and community development. The group’s input infor