Alabama Graphite Corp. Com ABGPF

RE:report

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Alabama Graphite Corp. //Graphite

STORMCROW

INITIATION REPORT
Sweet Home of Battery Graphite...

Jan 23, 2017 TSXV-CSPG Target C$0.69

•  Unique Business Model: Alabama Graphite is a di erent type of graphite company, one whose business model is solely focused on providing high-value secondary products (CSPG and PMG) into the ba ery supply chain.

•  The Right Model: Stormcrow views a downstream-focused strategy to be the only way a new entrant can show material and sustainable pro tability in the current (and likely, future) pricing environment for graphite products.

•  Made for Customers: Alabama Graphite’s “Sourced (not just ‘Made’) In America” product o erings will be of signi cant interest to major Western ba ery graphite end-users, and the company’s ac ve dialogue (and product quali ca on) with at least nine Department of Defense contractors, is testament to this.

•  Local Support: Alabama’s Coosa Graphite project is already receiving local and State-level support

•  Low-Cost: Due to the project’s minerology and loca on, Coosa will have an extremely low cost of start-up and rapid payback, which makes building the project realis c.

•  Strong Management: Alabama Graphite has assembled what we believe to be the strongest opera onally- and technically-focused management team in the junior graphite developer universe.

•  Strong Value: Stormcrow believes the company is materially undervalued today, and ini ates coverage with atarget of C$0.69/shr and a Posi ve ra ng based on 1x NPV18 using a long term CSPG price of $7,500.

Recommendation Target

Shares O/S Shares O/S FD Recent Price Market Cap

Net Cash

New Old

Posi ve N/A C$0.69 N/A

131M ~172M C$0.17

C$22.27 ~C$750k

Jon Hykawy, PhD

President

[e-mail]

Tom Chudnovsky

Managing Partner

[e-mail]

See the end of report for important disclosures

Summary

When we launched coverage on Focus Graphite Inc. in August of 2014, we did so largely because of the presence of one key person in the management team, a mining engineer with actual, extensive eld experience in graphite mining and processing, Don Baxter. While the Lac Knife project compared well with other graphite projects in the pricing environment of 2014, the primary reason that we took ini al interest in the company was a management team that included someone with strong graphite produc on and opera onal experience. The junior graphite world is woefully short of people who understand how to build and consistently operate graphite mines, and even shorter of those who understand how to make money with the commodity.

We regard graphite as a cri cal material, in the sense that where it is required, it is an absolutely essen al component, and the cri cal nature of graphite for use in ba eries has been recognized in past reports on cri cal materials from the United States Department of Energy and the European Union. For example, in secondary lithium ba eries there is really no subs tute for the (largely) natural graphite currently used in anodes. If for some reason the supply of pure, spheroidal natural graphite were suddenly cut o , the ba ery industry would grind to a halt because the supply of synthe c graphite, made mostly from petroleum by-products, for this purpose is insu cient and too expensive, and there are no ready alterna ves.

The situa on regarding ba ery graphite is nuanced. On the one hand, we do not believe that graphite is somehow rare, or that the price of even highly puri ed anode graphite will rise forever, without bound. There is no shortage of graphite in the world. And while turning natural graphite into anode material is no longer so technically demanding that the ability to do so cons tutes a long-term, sustainable barrier to entry, there is a considerable degree of engineering exper se in how the graphite is mined and processed, the development of op mized and environmentally acceptable methods of puri ca on, developing rela onships with poten al end-users and learning their needs, etc., that will ensure those who know how to make ba ery anode materials maintain a market advantage for a meaningful period of me. To us, the keys to having a successful graphite company are managing to keep costs low, selling a high frac on of produc on as a high margin product, and avoiding the produc on of large quan es of a low-value product such as impure graphite nes.

Given the recent market awareness of lithium ba eries, we had decided it was me to take a fresh look at the graphite industry. We also noted that Don Baxter has relocated to Alabama Graphite (TSXV-CSPG; OTCQB:CSPGF; FWB:1AG), which, under Mr. Baxter’s leadership as CEO, is now a company that re ects precisely the above strategy and is precisely the sort of company that we believe can become a pro table supplier into this otherwise di cult sector. Alabama

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Graphite, it appears to us, is the rare case when high management quality meets high project quality to address a high-margin end market. We reiterate that Alabama’s strategy, to make high-end coated spherical puri ed graphite (CSPG, the material used in anodes in the majority of lithium ba eries) and puri ed micronized graphite (PMG, a high-purity by-product of making CSPG) in the United States and rely solely on the sale of these high-value products rather than on the sale of high volumes of low-value concentrates to compete directly against Chinese suppliers, seems a very wise choice to us, and is a signi cant point of di eren a on between Alabama and all the others in the space. At this point in me, and at these stock prices, Alabama Graphite appears to be a bargain.

Graphite – It’s about CSPG, not Flake!

We wish to emphasize that graphite is not rare, although deposits that can be economically developed and that are in desirable loca ons are not common, either. In 2005, world graphite reserves were approximately 86 million tonnes, but in the intervening years several large discoveries in Africa have raised world reserves to more than 620 million tonnes. With an annual level of demand of roughly 1.2 million tonnes of total graphite, but only 375,000 tonnes of ake, there is obviously enough graphite in the ground to keep supply in balance with demand. Hence, we expect the long-term pricing of simple natural graphite ake concentrates to remain low.

We acknowledge that the cost of natural graphite in a lithium ba ery is less than 15%, and in some cases less than 10% of the total nal cost of the ba ery (according to market research rm Avicenne). Some would argue (as they have done with rare earths in the past, and with lithium in the present day) that this means that prices can rise essen ally without restraint. We simply point out that commodity prices are generally established using the cost to produce the commodity, assuming there are is su cient supply. We believe that this will be the case for natural graphite. In other words, while graphite demand, especially for use in ba eries, is almost certain to increase, the likely supply response can, and likely will, cancel out any major price increases.

Another important factor governing future pricing for ba ery anode material is that while a more complicated product, such as coated, spherical puri ed graphite (CSPG), may enjoy higher prices for a period of me due to a lack of processing capacity and engineering exper se, in the long-term there are no overwhelming barriers to entry. Eventually, there will be many companies that will be able to take small- and medium- ake natural graphite, purify it using acceptable methods, micronize and spheroidise the pure akes (making uncoated, puri ed spherical graphite or ‘USPG’, along with quan es of puri ed, micronized graphite, or PMG, as a by-product), coat those roughly spherical par cles with clean sources of carbon and then re them in a furnace to

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graphi ze that material and make CSPG. Of course, there are nuances to understand and quality control factors to consistently achieve, and we acknowledge that the rms that can do this today will likely enjoy a mul -year window to sell their products to end-users. But, by and large, the produc on of basic CSPG requires no addi onal pure scien c research, only engineering development. Given, however, that Alabama Graphite possesses the exper se to produce CSPG now, it is one of the companies that could bene t from this window of opportunity, and is the only one that will be mining and processing graphite in the United States for sale to western customers.

Exhibit 1 – Scanning Electron Micrograph of Alabama Graphite’s CSPG

Source: Alabama Graphite

The current Chinese method for purifying graphite akes involves leaching them in a mixture of acids, including highly dangerous hydro uoric acid. Properly neutralizing any remaining hydro uoric acid would be expensive, likely increasing opera ng costs by thousands of dollars per tonne of CSPG. We note Alabama Graphite’s use of an environmentally friendly, low-temperature, halogen gas- based puri ca on process, to purify its graphite to the required ≥ 99.95% Cg purity. This puri ca on process is a key point of di eren a on between Alabama Graphite and many of its peers. Although this thermochemical process is not proprietary, it is necessarily di erent for each graphite deposit, and involves several parameters (including temperature, me and halogen gas amounts and mixtures) that must be tuned carefully to the contaminant content of the par cular graphite being processed, something that has already been accomplished for the Coosa deposit. Per Alabama Graphite’s PEA, published in November 2015, the Company’s average opera ng cost for making CSPG will be USD$1,555 per tonne, making Alabama Graphite, poten ally, the lowest cost producer of CSPG in the market.

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Another junior graphite company, Syrah Resources (SYR-ASX) of Australia, announced the results of an internal economic assessment on CSPG in June of 2015. The major conclusion from this analysis regarding CSPG was that their cash cost of manufacturing would be roughly USD$3,200 per tonne. New suppliers of CSPG are almost certain to be required as secondary lithium ba ery demand con nues to grow, and costs as high as USD$3,200 per tonne will support strong margins for a low-cost producer such as Alabama Graphite over me.

The Graphite Industry – Down, but De nitely Not Out

To say that the last few years have been hard ones for the ake graphite industry is to sell the downturn in pricing short. We can think of few ways to demonstrate the issues facing the industry more plainly than to simply provide market prices for natural ake graphite concentrates over the last ve years:

Exhibit 2 – Natural Flake Graphite Prices

Source: Industrial Minerals

The prices for natural graphite have fallen despite a burgeoning rechargeable lithium ba ery industry, both because the other major uses for natural ake graphite have su ered their own slowdowns, and because supply remains plen ful. While the majority (roughly 67%, according to Avicenne in 2015) of lithium ba ery anodes use CSPG, a substan al por on (24%) of the ba ery industry s ll uses anode par cles composed of 100% synthe c graphite, made in furnaces from pure feedstocks such as petroleum coke, an energy intensive and environmentally unfriendly process. Lower price, environmental pressures and superior electrochemical performance will likely compel more ba ery manufactures to switch to CSPG over me, but poten al concerns regarding safety and opera onal longevity in the remaining applica ons not yet using CSPG likely mean that this transi on will happen slowly, over the course of perhaps the next ve to 10 years.

And simply because such a transi on is happening does not mean that ba eries will prove to be a panacea for the graphite industry. As in any other commodity, the laws of supply and demand remain fully in force. In the past, the demand for ba ery graphite was small, but as the ba ery industry has developed, the number of China-based suppliers of puri ed but uncoated spherical graphite (USPG) has been increasing, and with scale and compe on the prices for USPG

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have fallen, as shown below. We expect the same to happen, over the course of me, to CSPG:

Exhibit 3 – Price for Uncoated Spherical Puri ed Natural Graphite (USD$/tn)

Source: Industrial Minerals

A major component of the cost of USPG is the medium- ake material that usually serves as a feedstock. In fact, since 2012, 96% of the price change in USPG can be explained by price changes in medium- ake natural graphite. The basic process for crea ng CSPG from USPG is to take the uncoated par cles, coat them in a carbon-rich material and re them. While requiring technical control and know-how, basic CSPG requires no further signi cant amount of scien c knowledge to be added, although Alabama Graphite as well as others are a emp ng to improve on the basic coa ng technology. However, for basic CSPG, this is a well-understood process that adds cost but will over me likely no longer carry a substan al value premium.

We note that there is a misconcep on in the investment community regarding the “need” to use jumbo or surperjumbo ake as the star ng point to make CSPG. Actually, both could be used as feedstock. Larger akes would seem to be a preferred star ng point, given there is a correla on between the chemical purity of the graphite and its ake size; larger ake graphite is generally purer, making the process of producing highly puri ed CSPG simpler and less expensive. However, the use of larger ake graphite is actually less e cient, given the akes must be broken up to create the correct size of CSPG, which takes addi onal energy and processing me.

And with a cost disadvantage to medium- ake graphite of even the present $150 per tonne, there is an economic penalty to using jumbo or larger ake for the purpose of making ba ery materials. Jumbo and superjumbo ake is put to much be er use in making what is known as expanded graphite and related products, such as graphite foils. Medium ake and even smaller material (assuming su cient purity) is a be er choice, from the viewpoint of cost, for producing CSPG.

We believe that the cost of coa ng and ring USPG to produce CSPG is roughly USD$500-750 per tonne. The coa ng uses rela vely li le coa ng material, and the ring is not nearly as extensive (or expensive) as that required to make large synthe c graphite components. The net result is, we believe, a nal cost of USD$3,250-3,500 per tonne for CSPG, today.

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This agrees well with the cost to produce CSPG published by Syrah Resources, as men oned above. In June of 2015, that company released their internal es mate for the cost of produc on of CSPG of USD$3,200 per tonne. We can be forgiven for believing that Syrah’s es mates are, perhaps, slightly op mis c, since almost all cost es mates included in junior company economic analyses are op mis c. Stormcrow believes that the nal market price for CSPG should eventually support a margin of 40-50%, given the eventual commodity nature of the nal product and the increasing number of poten al suppliers. However, these predic ons pertain to the condi ons of the market today. We s ll need to be concerned about the poten al that medium ake graphite prices might rise, resul ng in higher USPG prices and therefore higher CSPG prices in future.

Natural graphite price should be dependent on its use in refractories, par cularly in refractory blocks and parts for iron and steel produc on. Natural graphite is s ll not suitable for use in some applica ons, such as electrodes, because the electrical performance of natural ake graphite can be variable, and, when high currents are involved, such variability becomes dangerous. But the thermal proper es of natural graphite are more than acceptable, so, as demand for iron and steel improves, we would expect natural graphite prices to react. However, we have determined that the graphite price for ne ake graphite does not correlate with crude steel produc on to any meaningful degree (well under 1% of the price varia on in -100 mesh natural ake graphite in China is explained by varia on in global crude steel produc on), and the extent of this in uence not much higher for medium- and large- ake natural graphite (19% and 12%, respec vely).

The major determinant of graphite pricing seems to be graphite produc on. Since 2012, 99%, 95% and e ec vely 100% of price varia on in small-, medium- and large- ake natural graphite from Qingdao, China, is nega vely correlated to changes in produc on volume of graphite (nega ve correla on referring to the expected behaviour that, as produc on goes up, prices go down). Given that steel produc on is expected to remain at to slowly improving for many years, it is the amount of new natural ake graphite produc on entering the market that should concern us, with respect to determining the strength or weakness of future pricing.

One junior graphite company, Syrah Resources, is threatening to bring as much as 380,000 tpa of addi onal ake graphite concentrate produc on to the exis ng total 1,200,000 tpa natural graphite market (of which the vast majority is amorphous graphite, with only about 375,000 tonnes of annual ake graphite output, at present). If we factor such a prospec ve volume increase into our model, the model is unable to calculate meaningful prices. On that basis, it is our conclusion that the pricing for simple natural ake graphite concentrates will be

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driven en rely by a cost-plus pricing framework, and so to will the pricing of USPG and, eventually, CSPG, in our opinion.

While we an cipate an eventual drop in pricing for CSPG, we should note that a further barrier to commodi za on of ba ery anode graphite is that the performance of CSPG from di erent suppliers will necessarily vary. This is already true, of course, for other components within a lithium ba ery, including cathode chemicals from di erent suppliers. This is dealt with by the ba ery manufacturers by using di erent amounts of the materials from di erent suppliers to achieve the same cell performance. However, it is obvious that the ba ery manufacturers must know the rela ve performance of materials from di erent suppliers, and this will extend the me before CSPG becomes anything like a simple commodity.

Eventually, we will leave this period, when the supply of high-purity CSPG was limited to a few companies with signi cant experience in the space, behind, but it will take some me for prices to fall to the levels that simple commodity pricing would suggest. Alabama Graphite has received third-party input regarding future CSPG prices for its recent 43-101 from Benchmark Mineral Intelligence, sugges ng that the price for CSPG today remains well above USD$8,000 per tonne, in the range of USD$8,000 to USD$12,000. We believe the price will go lower, but the rate of that price decrease is uncertain. For purposes of modeling the company at this stage, we therefore elect to use a long-term price of USD$7.500 per tonne for CSPG in our nancial models.

The Company – Sourced in America

The graphite market has changed materially over the past 5 years, and in our view, it has become virtually impossible to yield a posi ve investment case for any new, large-scale, hard-rock graphite mine where management has the inten on to sell nothing more than simple natural ake graphite concentrates. That said, we believe Alabama Graphite (TSXV-CSPG) has the poten al to become a very pro table niche player, delivering a high-value engineered product, produced within the United States, into a rapidly expanding market.

The US 2016 elec on re-introduced a substan al amount of rhetoric regarding US manufacturing back into the public discourse. Regardless of any opinion as to whether this me will be di erent, there are some groups for whom “sourced in America” does ma er. Amongst the most important of those groups is the United States Department of Defense. The US DoD has internal policies and groups devoted to sourcing their raw materials in such ways as to avoid relying on unfriendly, or poten ally unfriendly, sources of supply. Unlike the “Made in America” label, which can be applied to a product from anywhere in the world as

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long as nal processing occurs in the USA, there is a very speci c meaning to “Sourced in America”.

Alabama Graphite reports to have received

emphasis on DoD connec ons to customers. In par cular, we also highlight the appointment of a former EaglePicher Technologies President, Randy Moore, as Alabama Graphite’s Strategic Advisor. EaglePicher is America’s leading DoD lithium-ion ba ery manufacturer, as well as a leading producer of ba eries and energy-storage devices for space and defense. Moore led EaglePicher through

feedback from numerous lithium

ba ery manufacturers that sell their products to the US DoD that “Sourced in America” raw materials are much more important to them than a “Made in America” label, which likely explains Alabama Graphite’s sales approach, and

2015, overseeing its most signi cant growth period, and was responsible for EaglePicher’s recently opened 100,000-square foot Lithium-ion Center of Excellence in Joplin, Missouri. Arguably, there are no execu ves that know and understand the U.S. DoD lithium ba ery sector be er than Mr. Moore, and he

should prove to be a signi cant asset for Alabama Graphite.

Alabama Graphite’s agship Coosa Graphite Project is located in central Alabama, an area of the state with strong local infrastructure and easy project access. The area is, obviously, geopoli cally stable and mining-friendly. The Coosa Project is actually located in roughly the middle of the historic, past- producing Alabama Graphite Belt. From the late 1800s through the 1950s, the Alabama Graphite Belt was home to signi cant ake graphite produc on and more than 30 graphite mines. Large por ons of the deposits found in this region are, like the Coosa Project, hosted by graphite-bearing material that has oxidized and weathered into extremely so rock. The world’s largest calcium carbonate (marble) quarry is in Sylacauga, Alabama, less than 20 miles from the Coosa Graphite Project. Weather is not an issue in any way, ensuring that produc on will not be interrupted due to freezing temperatures or deep snow, at a bare minimum.

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Exhibit 4 – Deposit Loca on

Source: Alabama Graphite PEA

The characteris cs of the Coosa deposit, itself, are perhaps the most encouraging we have seen at this stage of development. The so rock that hosts this graphite makes mining far less costly than a true hard rock-hosted deposit, but also improves the likelihood that the graphite will survive primary processing, prior to diver ng the material to secondary processing. Because of the weathered nature of the host rock, there is actually very li le primary processing required, with no crushing or grinding. As Alabama Graphite plans to micronize and spheroidise all its ake to make CSPG, there is also no concern over preserving larger ake material.

The value of the graphite contained in the deposit is considerable, as the published resource makes clear:

Exhibit 5 – Graphite Resource

Source: Alabama Graphite PEA

Mining at Coosa will be an above-grade contour mining opera on, only. With a low waste-to-ore stripping ra o of 0.11:1, and Alabama Graphite’s inten on to process only 200,000 tonnes of graphi c material, annually, the company’s current business model u lizes only 10% of the Coosa resource over a 27-year life-of-mine, as per the published PEA.

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We also note that the Alabama Graphite PEA highlights the lowest ini al capital expenditure of which we are aware in the en re graphite development space, at USD$43.2 million. The capex covers mining, primary processing and secondary processing plants. Planned produc on for the rst seven years is 5,000 tpa of specialty graphite products, with a 3:1 ra o of CSPG to PMG (3,750 tpa of CSPG and 1,250 tpa of PMG). Subsequent capital expenditure to expand produc on by a factor of three for year seven and beyond is an es mated USD$84.4 million, represen ng a grand total of USD$127.6 million in capital expenditures for the 27-year LOM. The company intends to fund any necessary subsequent expansions through free cash ow, alone.

It should be noted that, based on current pricing for ake graphite, it will be extremely di cult for any new graphite project producing nothing more than sieved natural ake graphite concentrates, to generate a meaningful return for investors on the signi cant investment to build a new mine. Yes, producers can likely make money, in that they are not selling simple ake graphite below their costs, but there is li le joy for investors in owning a company that sells a simple mined product for thin margins. This makes Alabama Graphite’s work, in analyzing the graphite supply chain and determining what stage their own products should reach to generate meaningful pro ts, very valuable.

We will now discuss our modeling and jus ca on of the prices we will use in our analysis of Alabama Graphite.

Financial Analysis:

Good Margins and Presently Low Stock Price Yield Good Value

The reader should recall our long-term price forecast for CSPG (discussed earlier) to be USD$7,500/tonne. We recognize that the price determined by the analysis above is at the very low end of the range recommended by the third party responsible for Alabama Graphite’s recent PEA, however we also note that the net present value of the company resul ng from our price deck s ll remains far above current trading ranges. To illustrate this point and to provide some other scenarios, we have included a sensi vity table with a prospec ve range of valua ons, should those reading this report believe that our assessment of the market is overly pessimis c.

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Exhibit 6 – Share Px Target at Long-Term CSPG Price and Discount Rate

Source: Stormcrow

In our model, ini al produc on is currently slated to begin in 2020, although this start-up date could be advanced if capital is available. In addi on, the jurisdic on allows for rapid commercializa on. For example, no more than an addi onal eight months is required to gain full permi ng. In our model, produc on ramps to a steady-state annual produc on level of 3,720 tonnes of CSPG (along with 1,280 tonnes of PMG (a rough 3:1 produc on ra o) by early in the second year. Produc on then increases to 10,800 tpa of CSPG and 4,200 tpa of PMG by year seven. Based on our analysis, we project that annual revenues at Alabama Graphite will be USD$86.4 million by year seven. Overall produc on costs s ll leave Alabama Graphite with a very healthy margin, even taking into account our more conserva ve pricing assump ons for CSPG and PMG.

We apply a discount rate of 18%, which we believe fairly values the remaining technical risk (which is minimal), market risk (moderate, owing to the risk of price declines for CSPG and PMG, o set somewhat by annual growth of demand for anode material, the rela vely small size of produc on from Alabama Graphite, and the unique loca on of produc on within the US) and nancing risk (s ll signi cant, but decreasing with me as e orts are made to secure business partners within the state of Alabama itself). Taking into account all exis ng op ons and warrants, as well as the cash that exercising all of them would inject, we derive a NPV18/share of $0.69. We are uncertain as to why this management team and the opportunity are currently receiving as li le recogni on in the capital markets as they are.

Management – Knowledgeable and Connected

We have previously noted that given the intricacies of the graphite industry, from the points of view of processing, produc on and marke ng, graphite requires signi cant experience. Alabama Graphite is fortunate enough to have this knowledge and experience, but they also combine that with individuals who are deeply connected to the government of the State of Alabama as well as local government and the business community. The result is a series of connec ons that, we believe, will help bring Alabama Graphite to full produc on and make this a very interes ng cri cal material story to watch.

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Don Baxter, P.Eng. – CEO

We regard Don Baxter as one of the very few actual graphite mining experts in North America. Many people declaim their rela onship to one graphite producer or another, but at this stage Alabama Graphite requires the knowledge of someone who has built and operated graphite projects, and Mr. Baxter is on a very short list of those people. He has de ned three commercially-viable graphite deposits and has helped to build one of only two producing graphite mines in North America.

As President and COO of Focus Graphite, Mr. Baxter achieved wide recogni on for that company within the graphite industry, updated the company’s PEA and advanced the company to a completed NI 43-101 DFS. He was also responsible for rapidly advancing the development of value-added graphite products, principally CSPG for the lithium-ion ba ery sector. Previously, Mr. Baxter served as President of Northern Graphite, and was responsible for all technical aspects related to the Bisse Creek graphite project, including Northern Graphite’s NI 43- 101 DFS, metallurgical test work, environmental and mine permi ng, as well as developing ba ery-related graphite products. Mr. Baxter also served as Mine Superintendent at the Kearney Graphite Mine, when it operated in the 1990s, which obviously gave him relevant and direct opera onal experience in graphite mining and processing. Addi onally, he served as Director of Mining at Ontario Graphite, and has worked for Inco Limited (now Vale SA) and Noranda Minerals, as well as on numerous consul ng projects in both base and precious metals.

Mr. Baxter holds a degree in mining engineering from Queen’s University and is a member of the Board of Directors for NAATBa Interna onal, a US-based, not- for-pro t trade associa on commercializing advanced electrochemical energy- storage technology for emerging, high-tech applica ons. Mr. Baxter is also regarded as a Quali ed Person for purposes of NI 43-101.

Jean Depa e, P.GEO – Chairman of the Board

Mining industry veteran and graphite expert, Jean Depa e put the world’s largest graphite mine into produc on, the Stratmin Lac-des-Iles Graphite Mine in Quebec (now Timcal of Imrey’s SA), and for this feat, Mr. Depa e was awarded the Prix d’Excellence by the Government of Quebec. A er only two years of produc on, Stratmin Lac-des-Iles was selling graphite in more than 16 countries.

Mr. Depa e has been at the forefront of the mining industry for the past 45 years. He is an interna onally recognised expert in the mining world in nancing, takeovers, and mergers and acquisi ons. Mr. Depa e is a past director of Glamis Gold Ltd. that was sold to Goldcorp Inc., crea ng a $21.3-billion en ty, a past Director of Novicourt Inc. (acquired by Xstrata plc, now Glencore plc), and a past Director of Consolidated Thomson Iron Mines Ltd. (acquired by Cli s Natural

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Resources Inc. in a $4.9-billion transac on in 2011). As the Vice-President of Explora on for Sullivan Mines, Mr. Depa e was directly involved in the reac va on of the Win-Eldrich gold mine. As the President and CEO of Louvem Mines Inc. he was instrumental in the discovery of the Louvicourt base metal mine and the development of the Beaufor gold mine in Quebec (later sold to Richmond Mines Inc.). In Peru, as a Director of Gold Hawk Resources Inc. Mr. Depa e was involved in the acquisi on and reac va on of the Cobre San Juan base metal mine located in San Mateo (later sold to Nyrstar NV, a Dutch Company).

Daniel P. Go aux, P.Eng – Independent Director

A mining industry veteran and graphite expert, Daniel Go aux brings more than 40 years of engineering, development, opera ons, and managerial experience to Alabama Graphite Corp. Mr. Go aux served as Chairman Depa e’s President and led the construc on, cer ca on, start-up, and full-scale produc on and opera ons at the Stratmin Lac-des-Iles Graphite Mine in Quebec (now Timcal of Imrey’s SA) — the world’s largest graphite mine. A er only two years of produc on, Stratmin Lac-des-Iles — the most important graphite mine in North America — was selling graphite in more than 16 countries.

Mr. Go aux’s extensive mining experience includes serving as Mine Superintendent and Chief Engineer of the Umex’s (a subsidiary of Belgium-based Union Miniere SA) Thierry Copper Mine, Vice President of Mines at Sullivan Mines, General Manager for all joint ventures at Cambior Inc. (acquired by IAMGOLD Corpora on), Vice President of Opera ons of El Limon Mine at Triton Mining Corpora on, and General Manager of the Bougrine Zinc Mine, in addi on to Vice President of La n America for Breakwater Resources Ltd. (acquired by Nyrstar NV, a Dutch Company). Mr. Go aux is also an Independent Director of Rio Moche Explora on Inc.

Dr. Gareth P. Hatch, CENG, FIMMM, FIET – Independent Director

A two- me graduate of the University of Birmingham in the United Kingdom, Dr. Hatch holds a Bachelor of Engineering degree with Honours in Materials Science & Technology and a doctorate in Metallurgy & Materials, focused on rare-earth permanent-magnet materials. Dr. Hatch is a Fellow of the Ins tute of Materials, Minerals & Mining (IOM3) a Fellow of the Ins tu on of Engineering & Technology (IET), a Chartered Engineer registered through the U.K. Engineering Council and a Senior Member of the Ins tute of Electronic and Electrical Engineers (IEEE). He is also a member of the Washington, DC-based Strategic Materials Advisory Council.

Dr. Hatch is Co-Founder, President and Director of Innova ons Metals Corp., a private, Toronto-based company, specializing in cost-e ec ve processing solu ons for many metals vital to high-tech and green-energy, including ba ery- grade nickel and cobalt, and rare-earth elements (REEs). Dr. Hatch is also a Founding Principal of Technology Metals Research, LLC, a consul ng rm that

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develops market intelligence and analysis on the cri cal materials and technology metals sector. Dr. Hatch was previously Director of Technology at U.S.-based Dexter Magne c Technologies, Inc., and holds ve patents on a variety of magne c devices.

Since 2014, Dr. Hatch has served as Principal Inves gator on a mul -million- dollar U.S. Army Research Laboratory (ARL) U.S. Department of Defense (DoD) research program on innova ve rare-earth elements processes. A world- renowned expert on cri cal materials and global supply chains, Dr. Hatch has advised the DoD on threats to the United States and allied strategic materials suppliers, as well as the U.K. Parliament and members of the U.S. Congress on cri cal materials. Dr. Hatch has contributed to and has been referenced by reports published by the U.S. General Accountability O ce, the U.S. Geological Survey, the Bri sh Geological Survey, the DoD, the U.S. Department of Energy (DoE), and many others.

Tyler Dinwoodie - EVP

Mr. Dinwoodie is responsible for Alabama Graphite’s corporate development, as well as day-to-day opera onal ma ers. A marke ng expert and a corporate strategic advisor with two decades of interna onal experience, Mr. Dinwoodie has an extensive background in market and industry analysis in the graphite sector. Most recently, Mr. Dinwoodie has served as a marke ng and communica ons consultant for Alabama Graphite, having previously served as Senior VP of Marke ng for Focus Graphite, and as a marke ng, communica ons and strategic consultant for other graphite development companies. As Special Advisor to the CEO of Intercon nental Potash Corp., Mr. Dinwoodie contributed signi cantly to raising millions of dollars in strategic investment. Addi onally, Mr. Dinwoodie has consulted for numerous private and public resource and advanced materials companies, both in Canada and the United States. Mr. Dinwoodie studied economics at McMaster University and physics at Lauren an University.

Doug Bolton, CPA, CA - CFO

Mr. Bolton has more than three decades of public accoun ng experience, providing audit, accoun ng, tax, and consul ng services to a wide variety of clients, including a number of repor ng issuers listed on the TSX-Venture Exchange and involved in the mining and resource industry. In addi on to his role as CFO of Alabama Graphite, Mr. Bolton also serves as Director and CFO for Laurion Mineral Explora on Inc., and as interim CFO for Adex Mining Inc. Mr. Bolton is a former CFO for Romios Gold Resources and former Director and Treasurer of the Tony Stacey Centre for Veterans Care, a not-for-pro t, long- term care facility located in Toronto. A graduate of York University, Mr. Bolton holds both CPA and CA designa ons from the Chartered Professional

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Accountants of Ontario and the Ins tute of Chartered Accountants of Ontario, respec vely.

George Hawley – Director of Technology

Mr. Hawley is a leading interna onal industrial minerals expert, specializing in the development and marke ng of graphite and value-added graphite products, and adds more than a half-century of experience to Alabama Graphite’s world- class team of graphite industry professionals. He holds a Bachelor of Science degree from the University of London, with a background in chemistry, chemical engineering and polymer materials. Having successfully developed several innova ve processes involving graphite, Mr. Hawley’s graphite work has encompassed nuclear and chemical applica ons, rocket nozzles, anodes, fric on materials, heat management, electrodes, and carbon brushes. A member of the U.S. Society of Plas cs Engineers, American Chemical Society, and Society of Mining Engineers, his experience includes research and development for one of the world’s largest producers of synthe c graphite products, the Morgan Crucible Company (now Morgan Advanced Materials), and lead acid ba ery manufacturer Chloride Exide Limited, as well as work for government agencies and various mining companies in the USA, Europe, Japan, Australia, Africa, and Canada.

Mr. Hawley specializes in natural graphite anodes for lithium ba eries, and has consulted for Quinto Mining (now Cli s Natural Resources), Northern Graphite and Focus Graphite, prior to joining Alabama Graphite. Mr. Hawley has published more than 50 technical papers on industrial mineral products pertaining to technical and marke ng topics, in addi on to regularly presen ng at global graphite and industrial mineral conferences worldwide.

Jesse Edmondson – Director Business Development and Director, Government and Community Rela ons, Project Geologist

Mr. Edmondson holds a Masters of Science degree in geology from the University of Arkansas at Faye eville, and has a dis nguished academic background that includes numerous peer-reviewed publica ons and lectures. Mr. Edmondson has been with Alabama Graphite since the company’s incep on, and has supervised all surface explora on, airborne and ground geophysics, trenching, and sonic and core drilling. In addi on to his role as Project Geologist, Mr. Edmondson also serves as Director of Community Rela ons, managing the Company’s rela onships with local stakeholders, and local government o cials and agencies.

Mr. Edmondson was awarded an I-WATER (IGERT) PhD Fellowship from Colorado State University in 2012, and a Ph.D. Research Fellowship to the MIT/WHOI Joint Program in 2014, both of which he declined in order to con nue his work with Alabama Graphite. An avid outdoorsman and environmentalist, Mr. Edmondson works out of Alabama Graphite’s U.S. eld o ce in Sylacauga, Alabama.

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Randy Moore - Strategic Advisor

Randy Moore is the former President of EaglePicher Technologies, LLC., a leading US. Department of Defense lithium-ion ba ery manufacturer. Mr. Moore led EaglePicher for eight years, through to the end of 2015, overseeing its most signi cant growth and was directly responsible for EaglePicher’s 100,000-square foot Lithium-ion Center of Excellence manufacturing facility in Joplin, Missouri.

Mr. Moore is the current President and CEO of ZAF Energy Systems, a company that develops and commercializes state-of-the-art, next-genera on ba ery technologies, and is a founding member, former Chairman, and current member of the Board of Directors of the Na onal Associa on of Advanced Technology Ba eries Interna onal (NAATBa Interna onal), a U.S.-based, not-for-pro t trade associa on commercializing advanced electrochemical energy-storage technology for emerging, high-tech applica ons. He brings more than 35 years of senior opera onal, defense and global business experience to Alabama Graphite.

Prior to his term at EaglePicher, Mr. Moore was president of the Surveillance Systems Group at Axsys Technologies. He also served as EVP and GM of Kollsman, an opera ng unit of Elbit Systems that develops advanced avionics and electro-op c instruments and systems for aerospace, defense and medical applica ons. Mr. Moore spent ve years at Kaman Corpora on, where he ran a $65-million business unit and directed programs for the US Navy and US Air Force. Mr. Moore also served in management and opera ons posi ons at Wes nghouse, E-Systems/Raytheon and Lucent Technologies.

Mr. Moore is a re red Lieutenant Colonel in the U.S. Air Force. He spent a combined 27 years in the ac ve and reserve Air Force where he served in various capaci es including as a contrac ng o cer in the O ce of Scien c Research and as a special agent in a counterintelligence capacity for the O ce of Special Inves ga ons. Mr. Moore completed his undergraduate degree in Marke ng and Management at Texas Lutheran University, and received his MBA from Southern Illinois University.

Conclusion:

The Right Project, Making the Right Material, Pursuing the Right Markets

There are a lot of junior, natural ake graphite companies out there, and most of them will never progress beyond issuing stock. The key di erence between almost all of them and Alabama Graphite is that Alabama Graphite has focused on nding the necessary graphite industry exper se to allow them to progress the project while also connec ng with the right poten al buyers regarding o - take. That Alabama Graphite will be a low-cost supplier of a valuable, specialty material like CSPG to a ba ery industry that has no current North American source of supply is signi cant. And we believe that the management team at

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Alabama Graphite is being wise in avoiding compe on with the Chinese suppliers of both ake graphite concentrates as well as USPG. Instead they are focused on making a reasonable amount of very high-quality product for the customers with whom they are engaged, and avoiding having to rely on the sale of large quan es of low-value material to survive.

We like the management team here, we especially like the quality and produc on cost from the Coosa deposit, and we like the prospec ve nancial results even with projected market prices that a few involved in the industry would describe as tremendously pessimis c. Even based on those prices, and with a discount rate that is very likely high for the situa on in which the company nds itself, we derive a target price of $0.69 based on 1x NPV18 and place a Posi ve recommenda on on the company. Alabama Graphite is one of the true value buys in the cri cal materials industry, a project that can make money for investors at product prices that are half of what is currently prevailing in the market, and a company that an investor should care to own, whether they are concerned primarily with the quality of management, the quality of the project, or both.

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Keywords

Industry

Relevant Companies

Graphite, Critical Materials, Critical Metals, Mining, Industrial Minerals, Green-Energy Supply Chain, Battery Materials

Why do we use keywords?

Important Disclosures

We feel people who could stand to benefit from the contents of this report, are not solely ones who already follow the specific company or sector discussed herein. As such, we hope to provide this free service to as wide an audience as possible—and keywords help to this end.

GRAPHITE ONE — TSXV:GPH
MASON GRAPHITE — TSXV:LLG
NORTHERN GRAPHITE — TSXV:NGC
FOCUS GRAPHITE — TSXV:FMS
NOUVEAU MONDE MINING — TSXV:NOU
ST. JEAN CARBON — TSXV:SJL
EAGLE GRAPHITE— TSXV:EGA
ELCORA ADVANCED MATERIALS — TSXV:ERA LEADING EDGE MATERIALS — TSXV:LEM ENERGIZER RESOURCES — TSX:EGZ CANADA STRATEGIC METALS — TSXV:CJC CKR CARBON CORP — TSXV:CKR
ALSET ENERGY CORP — TSXV:ION BERKWOOD RESOURCES — TESCV:BKR STANDARD GRAPHITE — TSXV:SGH
LARA EXPLORATION — TSXV:LRA
SAMA RESOURCES — TSXV:SME
GREAT LAKES GRAPHITE — TSXV:GLK
DNI METALS — CSE:DNI
ONTARIO GRAPHITE – Private

SYRAH RESOURCES — ASX:SYR MAGNIS RESOURCES — ASX:MNS BLACK ROCK MINING — ASX:BKT VOLT RESOURCES — ASX:VRC TRITON MINERALS — ASX:TON TALGA RESOURCES — ASX:TLG BASS METALS — ASX:BSM
ARCHER EXPLORATION — ASX:AXE METALS OF AFRICA — ASX:MTA DISCOVERY AFRICA — ASX:DAF BUXTON RESOURCES — ASX:BUX SOVEREIGN METALS— ASX:SVM ANSON RESOURCES — ASX:ASN KIBARAN RESOURCES — ASX:KNL GRAPHEX MINING — ASX:GPX CASTLE MINERALS — ASX:CDT HEXAGON RESOURCES — ASX:HXG LINCOLN MINERALS — ASX:LML NEXT GRAPHITE — OTC PINK: GPNE SKALAND GRAPHITE AS — Private

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