Mr. Scott Monteith reports

AVALON ADVANCED MATERIALS INVITED TO SUBMIT FULL PROJECT PROPOSAL UNDER NATURAL RESOURCES CANADA'S CRITICAL MINERALS RESEARCH, DEVELOPMENT AND DEMONSTRATION AND GLOBAL PARTNERSHIPS INITIATIVE PROGRAM

Avalon Advanced Materials Inc. has been selected to advance to the next round of project proposals under Natural Resources Canada's Critical Minerals Research, Development and Demonstration and Global Partnerships Initiative program.

Natural Resources Canada (NRCan) invited Avalon Advanced Materials on June 30, 2026, to submit a full project proposal to the Critical Minerals Research, Development and Demonstration and Global Partnerships Initiative (CMRDD-GPI) program. The invitation followed Avalon's March, 2026, expression of interest.

Avalon has now submitted its full project proposal and is seeking approximately $20-million of NRCan funding to advance the 100-per-cent-owned Basal zone at the Nechalacho rare-earth elements project toward a construction-ready engineering basis and demonstrate a Canadian processing pathway for producing separated rare-earth oxides. The invitation to submit a full project proposal follows Avalon's March, 2026, expression of interest and is not a funding decision or a commitment of funding by NRCan.

The proposed program would support three principal workstreams: feasibility-level engineering, including development of an AACE Class 3 capital cost estimate by Wood Canada Ltd.; validation and optimization of Engina Corp.'s hybrid supercritical refining (HSR) process using existing Nechalacho concentrate; and the design, construction and operation of a modular demonstration plant to be tested at a Canadian rare-earth processing facility and subsequently relocated to Nechalacho for an on-site demonstration.

"This proposal is focused on advancing Nechalacho toward a financeable development plan," said Scott Monteith, president and chief executive officer of Avalon. "By integrating feasibility engineering with process validation and demonstration, we believe the program can accelerate project derisking and establish a stronger foundation for commercial development."

Avalon is pursuing a diversified capital strategy as Nechalacho advances, including government programs, non-dilutive funding, strategic partnerships, potential offtake support and project-level financing opportunities.

"Securing non-dilutive and strategic capital is an important part of our approach to advancing Nechalacho," said Lorin Crenshaw, chief financial officer of Avalon. "Our objective is to match the appropriate source of capital to each stage of development and use government and strategic funding wherever possible to accelerate project derisking and use shareholder capital efficiently."

The CMRDD-GPI programs are designed to advance Canada's critical minerals strategy by supporting precommercial research, development, and demonstration activities that strengthen critical mineral value chains and accelerate the commercialization of innovative mining and processing technologies. The programs support projects that validate the feasibility and viability of critical mineral technologies and processes, with the GPI additionally supporting projects undertaken with trusted international partners to strengthen secure, resilient and sustainable critical mineral supply chains.

Avalon's Nechalacho project directly aligns with these objectives by advancing an innovative rare-earth processing technology from pilot-scale validation toward commercial readiness. The proposed program would focus on process optimization, engineering and demonstration using existing Nechalacho concentrate, supporting the development of a domestic pathway for producing separated rare-earth oxides, including magnet-critical neodymium-praseodymium (NdPr), dysprosium and terbium. The project would contribute to Canada's ability to establish a secure, sustainable and diversified North American supply chain for critical rare earth materials.

Advancing Nechalacho toward commercial-scale processing

The proposed HSR process combines caustic pretreatment with supercritical CO2 (carbon dioxide) extraction and has the potential to simplify conventional rare earth processing, reduce water and reagent intensity, and improve recovery.

Avalon is seeking funding to advance the Nechalacho project's rare-earth processing technology toward commercial readiness, generating engineering, operating, and product-quality data needed to support subsequent commercial development and project-financing activities through engineering, process validation and demonstration.

The program will include detailed engineering and an AACE Class 3 capital cost estimate by Wood Canada Ltd.; testwork with Engina Corp. to optimize the hybrid supercritical refining process using existing Nechalacho concentrate; and the design, construction and operation of a modular, containerized demonstration plant capable of processing approximately one tonne of concentrate per day. The demonstration will validate the process at both a Canadian processing facility and the Nechalacho site, using existing material and requiring no new mining, drilling or sampling, positioning the technology for commercial-scale development.

Advancing Canada's path to rare-earth oxide production

Canada does not currently produce separated rare-earth oxides. Nechalacho contains one of the highest combined magnet rare-earth grades among advanced North American rare-earth projects, including neodymium and praseodymium, as well as dysprosium and terbium. When global rare-earth prices declined significantly in 2013, the economic case for the project was no longer viable, despite no fundamental change to the underlying resource. The key challenge is processing, and the proposed program is designed to address this critical gap.

Nechalacho contains both light and heavy rare-earth elements, including the magnet-critical elements neodymium, praseodymium, dysprosium and terbium, as well as tantalum, niobium and zirconium. These materials are used in permanent magnets, electric vehicles, renewable energy, advanced manufacturing and defence applications.

Target products include NdPr oxide for the permanent magnets used in electric vehicle traction motors and direct-drive wind generators, dysprosium and terbium oxides for magnet thermal stability, as well as samarium, yttrium and a zircon co-product. These magnet materials support both commercial and strategic applications, including electric vehicles, renewable energy, defence systems, sensors, uncrewed systems and specialized manufacturing capabilities identified in Canada's Defence Industrial Strategy released in February, 2026.

About Avalon Advanced Materials Inc.

Avalon Advanced Materials is a Canadian critical minerals company focused on advancing lithium and rare-earth elements -- two of the fastest-growing segments of the global energy transition. The company is developing strategic assets to participate in high-growth markets and support the buildout of secure North American supply chains. Avalon is advancing the Nechalacho rare-earth elements and zirconium project in the Northwest Territories, which contains all light and heavy rare-earth elements, as well as zirconium, tantalum and niobium-critical minerals used in advanced technologies across the communications, defence, advanced technologies and energy sectors. The company is also focused on vertically integrating the Ontario lithium supply chain through the development of Lake Superior Lithium Inc., Ontario's first midstream lithium hydroxide processing facility, located in Thunder Bay. This facility is expected to serve as a cornerstone of North America's integrated battery materials supply chain, transforming Northern Ontario lithium into essential inputs for transportation, grid storage and advanced manufacturing.

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