Chairman's Address to Shareholders

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Suite 1.03, Level 1

46A Macleay St

Potts Point

NSW 2011

Australia

Company Announcements OfficePh: +61 2 8084 7813

Australian Securities Exchange Limited

20 Bridge Street

Sydney, NSW 2000

25 May 2022

Dear Sir/Madam,

Magontec Limited - 2022 Annual General Meeting Wednesday 25 May 2022 11:00am

Executive Chairman's Address

Attached is the address of Mr Nicholas Andrews, Executive Chairman of Magontec Limited, to be delivered at the Company's 2022 AGM today.

The slides referred to in the body of the address appear in this document at the foot of the Chairman's address.

Shareholders' attention is drawn to heading "Slide 10 - Capital management" and the commentary below. There, Mr Andrews references a Board determination to pay a dividend of 0.6 cents per ordinary share for the 6 months to 30 June 2022.

Yours sincerely

Mr John Talbot

Company Secretary

Magontec Limited

Contact details: +61 (0) 405 317 594

John Talbot, Company Secretary Magontec Limited, has authorised the release of this document to the market on 25 May 2022

For personal use only

ADDRESS BY EXECUTIVE CHAIRMAN MAGONTEC LIMITED

TO ANNUAL GENERAL MEETING 25 May 2022

Slide 1 (Frontispiece)

Ladies and Gentlemen, I would now like to move on to a discussion of our company and go through a few slides that explain the critical trends in our industries, a review of our business performance, some corporate issues and some financial commentary and outlook.

As many shareholders will have observed from comments in our 2021 Annual Report and in our more recent 2022 first quarter report, the global magnesium industry has experienced some challenging times over the last 9 months.

Slide 2 (Disclaimer)

Slide 3: Mg price chart

In 2021 the price of magnesium metal soared to nearly ¥63,000 per tonne, up 309% from 1 January to 26th September last year. While the price has now settled at a lower level, around ¥32,500 per tonne, this is still well ahead of its prior 10 year average price of a little over ¥16,000 per tonne. The rise in the price of our key raw material has had two countervailing effects; on the one hand it has raised the cost of inventories and debtors while, on the other, it has increased the selling price of our magnesium alloys and anodes.

The more important of these effects is the higher selling price. The profit that has flowed from higher magnesium prices has significantly reduced Magontec debt, a topic I shall return to later in the presentation.

The key questions for medium term profitability for Magontec are

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• will prices remain at higher levels? and
• will high prices continue to generate higher profits?

So firstly, why is the price of magnesium so high and what is the likely trajectory?

Around 90% of all magnesium is made using the Pidgeon process. The inputs are dolomite (a low-cost magnesium host rock), ferro silicone (a high cost reducing agent that extracts Mg from dolomite), energy and labour.

Energy in the Chinese magnesium industry is almost entirely derived from coke gas, a by-product from coke made for use in the steel industry, that is diverted to fire Pidgeon magnesium retorts. The price of Pidgeon process magnesium is thus largely derived from the price of coal and labour.

In China imported coal volumes have been disrupted and a nation-wide restructuring of the coal industry has closed private coal mines, many of which were low cost and lightly regulated. The result has been a decline in available volumes and supply disruption leading to historic coal price volatility.

New emission controls imposed on coke makers and magnesium producers by Chinese environmental authorities have made matters more complicated. Many companies have been shuttered while they buy and install emission abatement equipment. And over the long-term Chinese labour prices have continued to rise and are now higher than in some European countries.

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Slide 4: Mg & FeSi price chart

As I said earlier, ferro silicon is a key input raw material for Pidgeon process magnesium, and it is currently in a sharp upswing, putting renewed upward pressure on magnesium prices.

For Chinese magnesium producers able to operate, profitability has been very high. But high raw material, emission remediation, energy and labour costs appear likely to ensure that the price of magnesium will continue to track above the long-run average.

While this has raised the cost of magnesium relative to other competitor metals, there have been price rises and disruption across the entire metals industry supply chain, particularly in the aluminium industry, which closely competes with magnesium.

Slide 5: Magontec alloy and anode profitability

Over the last three quarters our metals and magnesium anode products, Magontec's principal operating activities, have enjoyed a boost in profitability that coincides with this rise in magnesium prices.

At the beginning of this period there was an inventory effect where material acquired at a lower cost was sold into a higher priced market. More recently profitability has been sustained in all key magnesium metals products. In part this reflects a greater scope to arbitrage a higher commodity price relative to its cost of processing and in part a change in non-class 1 scrap values - material that was previously uneconomic to process, can now be profitably used as cast house feedstock. So higher selling prices have sustained higher levels of profitability through the first 4 months of 2022, and we think these

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conditions are likely to persist while magnesium prices remain at elevated levels.

Slide 6: Qinghai - dates and QSLM commentary

Moving on to our Qinghai business, we have continued to operate our cast house on reduced volumes, and in each period since the end of March 2019 this business has been unprofitable awaiting the recommencement of supply from QSLM.

We have persisted at Qinghai because to seek a temporary cessation of operations would likely become an effective withdrawal and would be difficult to reverse. At the Qinghai cast house we have an experienced team of 70 including managers, engineers, cast house operators and a settled administration team.

We have been able to contain losses at relatively low levels and we have retained important customers in China, Japan and North America. Effectively, our average EBITDA loss of $0.35 million at Qinghai for each of the five half year periods since 1 July 2019, has been an option on the QSLM plant restarting and the original production plan being achieved. Looking forward, we now expect a resumption of liquid pure magnesium supply within a few weeks. In my most recent communication with the leadership at Qinghai we have been told that remediation work in the dehydration plant has progressed and that commissioning will commence this month. I do caution that commissioning rarely goes to plan and there may still be further delay.

If the commissioning process is successfully completed on the foreshadowed timetable, we can expect limited volumes of magnesium

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