Alabama Graphite Corp. Com ABGPF

Hallgarten and Company comments on Alabama Graphite Corp.

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According to Hallgarten and Company:

https://investorintel.com/wp-content/uploads/2014/10/Alabama_graphite_Oct2014.pdf

Monday, October 13, 2014

Alabama Graphite

Down Home Advantage

+ Two highly prospective graphite deposits, one being a high purity, large flake, past producer of significance, in a mining friendly jurisdiction

+ The resource on the Coosa deposit amounts to over 1.6mn tonnes of contained graphite in a shallow, easily accessible deposit

+ The recent acquisition of the past-producing Bama mine may move the company even closer to production (and faster)

+ The USA is massively dependent as 48% of its graphite imports come from China. It is thus vulnerable. There is no US stockpile of this mineral, nor domestic production

+ Graphite prices seem to have stabilized at a healthy level after a retreat from their highs of recent years

X The Chinese still dominate the graphite space with the inherent danger of erratic price movements as they attempt to confound and confuse erstwhile competitors

X Financing in the mining space remains tough and in specialty metals generally most progress is made with an offtaker involved

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Boomlet without much of a “Bustlet”

With graphite appearing so hard on the heels of the Rare Earth mania, and with some of the same boosters enlisted for the cause, we were justifiably wary of even touching it. To our memory we scarcely even mentioned it, or any of the players, despite having attended a number of graphite symposia and entertained meetings with visiting executives to New York or London. Taking a pass was probably the best thing as it helped us miss yet another deflation of a bubble. There have been so many bullets to dodge in recent times that it has been akin to “going over the top at the Somme”.

In any case, the rather swift return to reality in the graphite space meant that there was no proliferation in players. There were less than 30 in total and really only a couple of handful of serious players intending to stay the course. Alabama Graphite is the leading contender in the US to revive production of this increasing strategic mineral where it is primarily dependent upon Chinese sources.

Alabama – a Historical Epicentre of Graphite

The Alabama mines contributed to about half the total domestic output in the early 1900’s. Graphite mining reached its peak in Clay and Coosa counties during World War I. Forty-three major mines and 30 processing plants were in operation during this period. In the 1950s, graphite mining began a decline as technological advances led to the development and production of artificial graphite and as imports of less expensive foreign graphite increased.

The Alabama Graphite District is located near the top of the sequence of high grade metamorphic and igneous rocks, and below the Paleozoic lower grade metamorphic rocks. The graphitic schist belt covers approximately 40% of the area. There are several horizons of graphitic schist belts which extend from near Clanton in the southwest to a point 80 miles (129km) to the northeast. There is a 10 mile (16km) gap in the middle where the units are faulted out. This leaves two belts of graphitic schist, each approximately 35 miles (56km) long. The favorable belts average perhaps four to five miles (6.4 to 8km) wide, with a maximum width of 10 miles (1.6km) and a minimum of two miles (3.2km).

Therefore the flake-graphite deposits of Alabama occur in two belts that are on strike with one another and trend northeastward. The area of the deposits is shown in the maps below. The southwestern belt extends from near Verbena in Chilton County almost to Goodwater in Coosa County. The northeastern belt extends from Millerville across Clay County to a point beyond Delta.

The geology of the southwestern belt, extends about 40 miles from Goodwater to near Verbena, and the occurrence of graphite in it are not well known. The deposits, which are in the Ashland mica schist, resemble those of the northeastern belt in general characteristics and mode of occurrence. Most of the leads dip steeply or moderately steeply to the southeast. The only mines that have yielded large amounts of graphite are the Fixico, Ceylon, and Bama mines.

The host rocks of the Alabama Graphite Belt were originally fine-grained siliceous clastic sediments which were deposited in an environment rich in organic detritus. In the estimate of the authors of the NI43-101 on the Coosa property, this was probably a lagoonal or deltaic, low-energy environment with a periodic influx of slightly coarser fine sands. Perhaps it was comparable to the current Mississippi delta area. Organic material was preserved in the fine grained sediments which were deposited in bayou–like backwaters.

Eventually these sediments were buried and compressed to form organic shales, siltstones and fine grained sandstones. At that point in their history, they might have become source rocks for petroleum deposits. As the depth of burial increased, the rocks were converted under intense heat and pressure to quartz-mica schists, and micaceous quartzites. The heat and pressure drove off the volatile components of the organic material in the sediments and converted the remaining pure carbon to graphite. The sulphur originally associated with the organic material was combined with iron and converted during this process to pyrite. The last event was the emplacement of narrow pegmatite dikes. The additional heat and introduced fluids caused the graphite grains near the pegmatites to recrystallize into larger graphite flakes. Later emplacement of mafic dikes may also have affected the size and distribution of graphite flakes.

In Alabama, weathering has penetrated to a depth of as much as 30m, producing a soft, crumbly rock from which the graphite flakes were easily liberated.

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The Coosa Property

The main thrust of Alabama Graphite’s development strategy is the 100% owned Coosa Graphite Project in Coosa County, Alabama. The company began working on this property in September 2012, but very little actually happened in 2013, and it was only with the financing in late January of 2014 that more substantial work began. The property is comprised of 42,000 mineral acres, all on private land and is in an area that was a significant historical producer of flake Graphite from the late 1800′s through the 1950′s. The aforementioned Fixico Mine was located about 850 m southeast of the Coosa Project drill grid and operated from 1902 to 1908.

The Coosa graphite deposits are flake graphite deposits in high grade metamorphic rocks. They are associated with anomalous vanadium, including the vanadium-mica roscoellite. The key factor that makes Coosa so attractive is that it is an oxidized resource (near surface 0-90ft) with a Bond Work Hardness Index reading 5.3 for oxidized and 15 for unoxidized (ergo softer rock), meaning easier mining and processing.

Terms of the Deal

Alabama Graphite managed to secure the Coosa property under some very attractive terms. The lease is for successive renewable five-year terms (not to exceed 70 years) in consideration of an initial cash payment of US$30,000 and annual advance royalty payments of US$10,000, starting on July 1, 2015. ALP also paid $1,000 for the option and is required to make annual payments of $1,000 to keep the option in good standing. ALP made a payment of US$48,537 on November 5, 2012 to exercise the option as an initial three year payment through November 4, 2015, and issued 25,000 shares to the lessor.

Alabama Graphite is also obliged to pay the lessor an NSR of 2% from the commercial production and sale of graphite from the properties, as well as royalties for any precious metals, mica, iron, magnetite, manganese, calcium carbonate, copper, tantalum and rare earths that might be commercially produced and sold from the properties.

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Input parameters in the NI43-101, published by Metals Mining Consultants, were based on publically available graphite project costs. These were:

- Mining Cost of USD$2 per ton mined

- Processing Cost of USD$10 per ton processed

- GS&A of USD$1 per ton processed

- Total Processing Cost of USD$13 per ton Processed

- Graphite Selling Price of USD$ 1,450.00 per ton

- Pit Slopes at 60°

- Graphite Recovery of 90%

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The Latest Addition - the Bama Mine

In the last month ALP has picked up one of the aforementioned past-producing mines, the Bama flake graphite mine in Chilton County, Alabama. The mineral lease comprises 200 acres and was acquired from an entity that owns both the surface as well as the mineral rights over the historic mine, eventually making a move to production more seamless.

The company has also signed a mineral exploration lease on several parcels comprising 1,160 acres adjacent to the Bama mine. With the addition of these properties in Chilton County, the company has a significant foothold within the Alabama graphite belt with two advanced-stage projects.

The Bama mine in its heyday was the southernmost graphite mine in Alabama and the major producer in Chilton County. It was one of the larger graphite mines in the state and included an electrostatic separator in the mill building. The photo below shows the processing plant in its heyday of the 1940s. The mine operated from 1925 to 1930 when the mill burned. The main pit is 190m long and 45.7m wide and excavated to a depth of 12.2 to 24.4m. Two smaller pits about 61m long were mined along strike between the main pit and the mill.

As with the other graphite mines in Alabama, the Bama mine shut down prior to the end of the Second World War, but not before a substantial volume of ore was extracted from the existing pit.

In the late 1940s the U.S. Bureau of Mines sampled all the known occurrences of graphite in Alabama and the published results showed the Bama mine to be unique. A sample taken from the pit wall not only registered the highest percentage of graphite (7.85% Cg), but also contained 17% jumbo flake.

The deposits trend N20-25W and dip 50-60S, due to the presence of a large fold.

With regard to the potential to host additional resources the company’s NI 43-101 noted former authors on the subject saying: “To the southeast a large tonnage of weathered ore may be present along strike…” (Cameron & Weiss, 1960). The Bama Mine had the highest overall grades of the region and a much higher content of 50-100 mesh flakes than average.