Alabama Graphite: The Future is Bright Green

February 10, 2016

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In the middle of a wounded junior resource market those companies with superior management and realistic business strategies present the greatest opportunities. Alabama Graphite Corp. (V.ALP) may very well be one of those companies.

Alabama Graphite has a resource: a huge graphite deposit in the mining friendly state of Alabama; an experienced management team: President and CEO Don Baxter, P.Eng. and his team have significant graphite mining and processing experience; and a truly unique business strategy: to produce a finalized battery-ready graphite product, as opposed to producing a primary-processed concentrate as almost all other graphite companies are pursuing. An apt analogy would be if Alabama Graphite were in the petroleum business, it would be producing 94 Octane premium gasoline, while its competitors were producing barrels of crude oil.

Alabama Graphite’s core strength, brought to the company when Mr. Baxter came on board, is its corporate strategy to move directly to the production of battery-ready coated spherical purified graphite or CSPG.

Every graphite deposit is unique and presents its own set of advantages and challenges. There is actually no such thing as a perfect deposit, and that is why specific experience with graphite and CSPG is so critical for graphite juniors. In order to successfully develop any project, it is crucial that management have the knowledge and the skill-set necessary to maximize advantages and to determine a sound strategy for meeting the company’s objectives.

“By the time I joined AGC, it was quite obvious to me that the graphite development space as a whole was up against some tough challenges. It was clear that an entirely new strategy was required – one that recognized three things. First, demand is currently being driven by growth in CSPG for lithium-ion batteries (not run-of-mine concentrate). Second, a project must have a low initial CAPEX that is fundable in the current market. Lastly, a project must start small, with the ability to scale-up as demand increases.”

With this in mind, Baxter based AGC’s Preliminary Economic Assessment (PEA) entirely on secondary production of CSPG. Alabama Graphite recently published its PEA, but rather than hundreds of millions, the proposed Alabama Graphite CAPEX is on the order of $43 million, including both primary and secondary processing plants.

Baxter stated, “AGC is built on a foundation of three pillars, including the PEA, our CSPG battery performance results and the pilot plant results. The PEA (announced November 30, 2015) indicates that the economics of the project are sound based on diverting 100% of primary production to secondary production of higher-value CSPG. Notably, the byproduct of CSPG is purified, micronized graphite (for use in polymer, plastic and rubber composites, powder metallurgy, energy materials, and friction materials, among other applications), which provides us with another salable product at no extra cost for producing it. The second pillar is the successful independent testing of our 99.95% Cg CSPG in lithium-ion batteries (announced January 19, 2016). Alabama Graphite manufactured 60 coin-cell batteries. These results demonstrated that we are able to produce our CSPG to battery manufacturers’ specifications and that it performs better than costlier and environmentally damaging synthetic graphite. The third and final pillar is our pilot plant (announced February 3, 2016), which demonstrates that we are able to achieve a high carbon grade, averaging 96.7% across all flake sizes. This means 100% of the concentrate to be produced via primary processing from the Coosa Graphite Project is expected to be suitable for secondary processing. Further, upgrading from 96.7% to the 99.95% Cg required for CSPG should not be problematic at all.”

Perhaps the important take away from the company’s accomplishments to date is that AGC has evolved from a mining story into a technology story. Specifically, a green-energy technology story as it pertains to batteries. The lithium-ion battery market is growing rapidly. Demand stems from consumer electronics (such as smart phones and laptops), electric vehicles (which utilize up to 200 pounds of CSPG per vehicle), and most significantly, from stationary batteries (meaning, energy storage for electrical grid, commercial and residential buildings; solar, wind and traditional power storage and peak shaving). In fact, the Panasonic Corporation forecasts exponential growth in stationary batteries, with a 74% CAGR (2014-2025). All of these applications require finished CSPG, not conventional graphite concentrate. Additionally, it is worth noting that, on average, there is 10 to 30 times more graphite than lithium utilized in a lithium-ion battery (CSPG is used as the anode in a lithium-ion battery).

The mining side of the Alabama Graphite story is very straight forward. “We have what could be called an ‘above surface’ deposit,” explained Baxter. “The graphite is heavily oxidized and is a ridge.” In other words, the actual mining could be done with backhoes and trucks, meaning that the extraction costs of the Coosa deposit are very low.

The successful li-ion battery electrochemical testing allows Baxter to position Alabama Graphite as a solution to the technical challenge of making batteries in the United States, using all American, environmentally sound, inputs. “There is only one graphite project in the contiguous United States,” commented Baxter.

For companies like Tesla Motors, sourcing the critical raw materials for its batteries is a significant issue. Graphite produced outside North America has an awful environmental record. It also is, obviously, not “Made in America” (or sourced from America). Building “clean”, “Made-in-America” batteries to power clean, made-in-America electric vehicles requires graphite that can be traced back to a plant which uses up-to-the-minute, environmentally sound technology.

By being able to supply battery-grade, value-added graphite in an environmentally friendly manner, Alabama Graphite is able to reach out to alternative funding sources — a critical advantage in today’s horrendously depressed mining market.

“Our survival depends on adaptation,” said Baxter. “We’ve had discussions with a number of institutions which are interested in getting into the supply chain for battery technology. In Europe, I’ve spoke with a number of institutional investors. They are looking at non-traditional investments. They are already investing in lithium. They understand the battery technology and the growing future demand.”

As well as the European institutions, Baxter is also beginning to speak with various U.S.-based ‘green’ funds.

The company’s mine-to-green-energy-markets business strategy puts Alabama Graphite at the head of the pack of potential graphite miners.

Alabama Graphite was trading at $0.13 at time of writing with 115.7 million shares outstanding for a market cap of $15.02 million.

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