Northern Portugal

Novo Lítio’s Portuguese Lithium Projects consisted of approximately 391km2 of three granted exploration licenses (including the disputed Sepeda Project licence, refer below) and two additional licences registered in Novo Lítio’s 100% and 1,200km2 of exploration license applications (six in the name of Novo Lítio’s Portuguese subsidiary company and six in the name of Lusorecursos subject to dispute).

Novo Lítio was formally advised in June 2018 that its six exploration licence applications had been rejected by the Portuguese General Directorate of Energy and Geology (“DGEG”). This decision by the DGEG is not unique to Novo Lítio. The DGEG is planning to put all vacant ground that is considered prospective for lithium through a public tender process. Accordingly, it is Novo Lítio’s understanding that all applications that cover such ground have been, or are in the process of being, rejected by the DGEG to facilitate the public tender process. Novo Lítio is unsure of the status of the six applications in the name of Lusorecursos that were subject to the Acquisition Agreement. The timing of the public tender is unknown with some indication that it may occur later in 2018, however it has already been delayed on several occasions.

Novo Lítio has undertaken comprehensive mapping and surface sampling over the two granted exploration licences registered in the name of its Portuguese subsidiary company. The mapping and sampling program failed to identify any significant targets.

Sepeda Project Background

The Sepeda Project covers a granted exploration licence area of 37km2, located in the Barroso-Alvão region of Northern Portugal. The Sepeda Project is registered in the name of Lusorecursos with whom the Company entered into a binding agreement (“Acquisition Agreement”) to acquire 100% of the Sepeda Project for consideration of approximately €1.0 million cash, comprising a €250,000 milestone payment on a JORC Mineral Resource of 5Mt @ >1.2%Li2O and a €750,000 milestone payment upon a JORC Mineral Resource of 15Mt @ >1.2% Li2O (refer ASX announcement dated 1 June 2016).

Novo Lítio announced a greenfield lithium (petalite) discovery at the Sepeda Project in October 2016 and released a maiden JORC Inferred Mineral Resource Estimate for the Sepeda deposit of 10.3Mt @ 1.0% Li2O in February 2017 (refer ASX announcement dated 20 February 2017). Unfortunately, the conditions to the completion of the Acquisition Agreement with Lusorecursos were not satisfied by the required completion date of 31 May 2017 contained in the Acquisition Agreement. Furthermore, the Company’s attempt in May 2017 to make the initial milestone payment of €250,000 to Lusorecursos, triggered by the announcement of the maiden mineral resource estimate, was unsuccessful with the payment returned to the Company by Lusorecursos. The Company obtained a legal opinion from Portuguese law firm Jose Pedro Aguiar-Branco Advogados (“JPAB”) that the Acquisition Agreement remained legally enforceable based on a legal argument that the conditions to completion were not met by the required date due to frustration by Lusorecursos. Accordingly, Novo Lítio engaged JPAB to commenced legal proceedings in the Portuguese Courts to seek enforcement of the Acquisition Agreement.

Novo Lítio’s request to the Portuguese Court for expedited legal proceedings to hear the Lusorecursos dispute was denied in December 2017 (refer ASX announcement dated 6 December 2017). The Company has been unable to appeal this decision. As a result, Novo Lítio’s advice is that legal proceedings to resolve the Sepeda dispute will be protracted.

Novo Lítio believes it is in the interest of both parties and all stakeholders to resolve the legal dispute commercially and quickly. Novo Lítio has been making a concerted effort to engage with Lusorecursos, on a without prejudice basis, to resolve the matter outside of the Portuguese Court process.

The Company has recent positive engagement with Lusorecursos and at the invitation of Lusorecursos presented proposals to resolve the ongoing ownership dispute. Unfortunately, Lusorecursos has not accepted such proposals and no resolution to the dispute has yet been able to be achieved. Notwithstanding these discussions, Novo Lítio continues to reserve its legal rights in relation to the Sepeda Project. Novo Lítio has engaged a new law firm in Portugal, Coelho Ribeiro & Associados (“CRA Law”), to advise it on the dispute going forward. Further meetings with Lusorecursos and its representative are expected throughout 2018.

Given the Sepeda Project licences are registered in the name of Lusorecursos, it is not legally possible for Novo Lítio to undertake any further field work, or make any applications to the DGEG, concerning the Sepeda Project. Novo Lítio retains all drill samples and data.