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Interview with Don Baxter, President and CEO of Alabama Graphite Corporation: The Most advanced Battery Grade Graphite Project in USA

on 9/30/2017
Alabama Graphite Corp. (TSX-V: CSPG; OTCQB: CSPGF; FRANKFURT: 1AG) is a Canadian-based flake graphite development company, as well as an aspiring battery materials production and technology company. The Company operates through its wholly owned subsidiary, Alabama Graphite Company Inc. (a company registered in the state of Alabama). With the only completely battery-focused flake graphite project in the contiguous USA, Alabama Graphite intends to become the first producing American graphite mine this century — and to become a reliable, long- term leading US supplier of specialty high-purity graphite for the growing green-energy Lithium-ion battery markets. We learned from Don Baxter, President and CEO of Alabama Graphite Corporation, that the only significant future demand for flake graphite is for battery-ready graphite materials, and that's what the company is focused on. According to Mr. Baxter, graphite demand is only projected to increase for battery graphite, and you need to have the requisite expertise to process the material. Companies interested in the batteries made by Alabama Graphite include some Department of Defense contractors, who are mandated to use products made and sourced in the contiguous USA whenever possible. No other company out there can offer that, which puts Alabama Graphite in a uniquely strong position.

Alabama Graphite Corporation

Dr Allen Alper: This is Dr. Allen Alper, Editor-in-Chief of Metals News, interviewing Don Baxter, President and CEO of Alabama Graphite Corporation. Don, could you give our readers/investors an overview of your company and what differentiates it from other companies?

Don Baxter: Alabama Graphite (AGC) is not a typical mining story, it's more of a clean tech business. It is about mining, but more importantly, it involves a secondary process for transforming graphite concentrate into battery-ready materials.

Other graphite development company business models are based on producing and selling large, medium and fine flake graphite concentrate. Although everyone talks about batteries, the vast majority of existing PEAs or feasibility studies are based on producing this basic graphite concentrate for traditional industrial applications. I have not seen any other graphite development company release the same quality or depth of technical data about battery development work and most companies that talk about batteries have shown no data at all. These companies’ technical reports cannot speak to the cost or CAPEX/OPEX involved in producing battery-ready graphite. I've been in the space long enough to know that a traditional graphite play is not the right approach anymore. It may have been reasonable to produce primary processed concentrate in 2012 when the price for large flake graphite was $2,000 a ton. However, today it is less than $1,000 a ton – which means it is no longer economic to produce copious amounts of this material with such depressed prices and an oversupplied market.

When I joined AGC, end of June 2015, just over two years ago, I knew that the only meaningful future demand for graphite was going to come from the increasing importance and use of lithium-ion batteries. Since AGC was at an early stage, I could do things right from the very beginning. Accordingly, I developed a business model based on producing and selling products that everybody wants. I initiated AGC’s preliminary economic assessment (PEA) and based it entirely on producing battery-ready graphite materials. I wanted to differentiate AGC and take full advantage of the fact that this is the only graphite deposit under development in the contiguous United States. I had the knowledge base to put together the flow sheets for the secondary processing, to make the graphite battery-ready. The highest margins, in the space, are for coated spherical purified graphite or CSPG. Lithium-ion battery manufacturers need CSPG to manufacture anodes for electric vehicles, stationary storage and portable electronics.

Don Baxter: After we produced our PEA, we initiated testing on the batteries we had made, using our graphite, processed by us, in our lab in the United States. The results were quite favorably received. Shortly thereafter, I received the first of several calls from Department of Defense contractors. Currently we have 14 DoD related NDA’s and a total of 29 NDA’s which includes both non-DoD and DoD-related NDA’s. Much of the DoD-related interest in our material stems from the DoD mandate that its contracted battery manufacturers source American material, whenever possible. No other graphite company out there can say that their material is sourced in America – not even the project up in Alaska. This is because, (according to the military), only the contiguous United States are included in their sourced in America protocols.

Our location places us in a truly unique position and others are have recognized the value of our business model. There have been attempts to imitate our business plan, which demonstrates that others realize that we are on the right track. Though some may try to imitate our strategy, nobody can copy our location. I believe from that standpoint Alabama has a definite advantage that the markets haven't quite realized yet. Actually, I believe our share price is not at all reflective of our true value, based on what we've accomplished as a company. I attribute this partially to the fact that people are still confused and unable to differentiate between when other companies are talking about primary processed graphite or battery-ready graphite. People often assume that battery-ready graphite is automatically included in the numbers that other companies put out and in their business plan because those companies mention that they “intend” to produce it. That's a key factor, from an investment standpoint. People also assume there's an abundance of graphite in the world, and that the prices are depressed, so they think there's no sense of urgency about graphite. But this is only true for traditional graphite concentrate – the same cannot be said for battery graphite.

Syrah Resources will be coming online shortly, developing a deposit in Mozambique. It's a monstrous project that's going to produce more traditional graphite flake than the entire world consumed last year. The economics of that make you scratch your head a little bit and wonder how they will be able to sell all their material and stay in business. They're going to produce primary graphite, which you can't use in a battery, and as I mentioned, is in oversupply with depressed pricing.

It requires a significant amount of skill to secondary process graphite into battery material. It's not rocket science, but it takes time, effort, understanding, and a certain expertise to be able to make flake graphite into coated spherical purified graphite ready for a battery. We are fortunate enough to have the requisite experience to do so – that’s what distinguishes Alabama Graphite from every other graphite story out there. We are all about the secondary market since it is the high-margin, high-demand material. The demand for graphite for lithium ion batteries is projected to grow beyond 400,000 tons by 2020. The market is currently 110,000 tons with about 65,000 tons of that being natural. You can use natural or synthetic graphite for batteries. Panasonic presently uses synthetic graphite for the anodes of Tesla’s cells. However, at $20,000 per ton, synthetic is significantly more expensive. Natural graphite for batteries costs between $8,000 and $12,000 a ton.

Equally (and perhaps even more importantly), natural graphite will perform better in a battery than synthetic graphite, due to its physical characteristics. The amount of graphite used in batteries is growing and natural flake graphite is beginning to overtake synthetic graphite as the preferred material. Two years ago, the market share of natural graphite was about 50%. Today it's about 65%, and it's growing. By 2020, with more and more companies using larger quantities, that number is going to get significantly higher. Also, synthetic graphite has a huge environmental footprint because it is basically a petroleum residue that is cooked in massive ovens at incredibly high temperatures for weeks and weeks. Companies are more concerned about corporate social responsibility these days, so environmental concerns are also a factor in the transition to natural flake graphite.

Currently China produces 100% of the world’s battery-ready graphite, and much of the coating of the spherical graphite is done in Asia. 100% of spherical graphite comes from China, and the methods they use, which include purifying with hydrofluoric acid, are not environmentally sustainable nor acceptable by Western standards. That’s a problem and companies like Tesla, Apple, Volkswagen or Mercedes are being held more and more accountable for where they source their input materials.

Dr Allen Alper: Very good. Can you tell our readers/investors a bit more about China and its impact on the market?

Don Baxter: I just returned from China and other parts of Asia after spending a week in Shandong Province and up into Heilongjiang Province looking at some graphite processing and graphite mining and processing plants. The purpose was to gather market intelligence and get some further information about how they mine and process their graphite.

Don Baxter: What I learned was, the Chinese appear to be ramping up their own graphite development, however, they are expected to consume all of their own spherical graphite. For every battery plant built in the West, there are probably 10 built in China for Chinese consumption.

Mercedes has recently announced that they are building a plant in Germany. Whether they know it or not, many companies (for example, Apple) are going to be directly or indirectly exposed to Chinese graphite, which is produced via questionable methods, environmentally speaking. Of the several mining companies I visited in China, most are either already secondary processors of graphite or they're looking at becoming secondary processors of graphite. They don't want to sell run of mine graphite anymore because they can't make any money doing that. They want to make spherical graphite, and they want to make expanded graphite, so more and more feedstock is going to be put into their own spherical graphite consumption. China's mandated a million or two million electric cars on the road in the very near term, within two years. They must switch from gas and diesel to electric because of their pollution problems.

The West does not yet realize the significance of China controlling one of the key ingredients for producing batteries. From an investment standpoint, most westerners have been chasing lithium. There's a huge bubble with lithium and now they're chasing after cobalt, stepping over graphite, thinking there's lots of graphite in the world, so we don't have to worry about that. I can assure you, however, the Chinese are not overlooking graphite. They are gearing up in a massive way to support themselves in the electrification of their economy. We at Alabama Graphite are basing our model on coated spherical purified graphite from the only mine in the contiguous United States.

In China, one of the world's largest graphite mines is gearing up in a massive way to increase production to shift and produce 100,000 tons a year of spherical graphite for domestic consumption. This company has joint ventured with Beijing-based electric car companies and battery companies in order to supply them with the graphite they need for the batteries. The biggest takeaway I had from my visit to China is that Alabama Graphite is definitely on the right track, with the right business model, and we're just waiting for the markets to catch up and realize just what we're doing here and the importance of it.

Dr Allen Alper: Yes, and your company, Alabama Graphite has developed a proprietary processing technology, is that correct?

Don Baxter: Yes it is. I wouldn't call it patentable, but it is definitely proprietary. It's not a complicated metallurgical process like producing lithium hydroxide or rare earth, but it's unique and it's different for every property. You have a purification process that works for one deposit, and it's different for each one.

Alabama Graphite is the only company that has true graphite processing experience within it. Myself, I'm a mining engineer and I was chief engineer at one of two graphite mines that got up and running in Canada in the early 1990s. On my board are two others, Jean Depatie and Daniel Goffaux, who were at the other. Daniel Goffaux, being a metallurgist, basically figured out and got the Lac des Iles mine and processing plant (which is now Imery's) up and running and producing decent graphite. We're in a pretty unique position with our experience in the field.

Dr Allen Alper: That sounds great. Could you tell me a bit about your capital structure?

Don Baxter: We're mainly in retail. We did a small $1.3 million raise in May, so let's say roughly 136 million shares outstanding. Insiders are a little over 4%. I myself own more than 2%. I'm probably one of the larger shareholders. I own 3 million shares.

Dr Allen Alper: Tell me a little bit about your plans for the remainder of 2017 and 2018.

Don Baxter: We are currently advancing on our secondary process as well as in the process of completing a 150-kg sample of our battery-ready graphite materials. It is critical for us to substantially increase the amount of material we have on hand, to respond quickly to our potential customers. They typically come back after testing gram-sized samples, wanting somewhere in the neighborhood of 200 to 400 grams, and then subsequently kilogram quantities that they wish to further evaluate. The material is produced in a batch process (as opposed to a continuous process). As such, we are producing and characterizing the material as we make it. To date, we have produced almost 100 kgs (of the 150-plus-kilogram inventory) and we are finishing the characterization and electrochemical test work of the first 50 kg. It will be another few months before we finish the rest of production and test work of the remaining material. It takes approximately one month to produce the material and up to 3 months to characterize/test each amount of material produced, as we must build CR2016 cells for electrochemical testing. Soaking the anode for a CR2016 cell takes more than one month to complete; initial electrochemical testing requires approximately two months to complete.

We know of no other graphite development company that has produced such a substantial amount of material. Having the material on hand is going to help move us closer to that offtake stage more quickly. We're going through the proper stages of providing samples and looking for a return of existing samples. We are building, first, on our base of Department of Defense contractors, and then non-Department of Defense contractors. We're continuing our development and moving into pilot plants and then ultimately full feasibility study for the project.

The Feasibility Study is critical aspect of what we’re doing, but by no means a critically time-sensitive one. Completing the Feasibility Study will be a straightforward 10-month (max) endeavor, and our permitting process can be commenced concurrently with the Feasibility Study and is an incredibly fast 6-month process in Alabama. With most of our peers the process takes years and is very complicated.

Our battery accomplishments are what potential end-users are interested in (and unfortunately, they are very technical and sometimes difficult for investors to comprehend and appreciate). Although end users do want a timeline for when we might be in production, most of these entities don’t even know what a feasibility study is and are not waiting for it. That being said, pending financing, we intend to initiate our feasibility study by the end of the year.

We continue to advance our silicon-enhanced coated spherical purified graphite and as a result of very strong potential end-user interest, we are also working on our delaminated expanded graphite and conductivity enhancement material for both alkaline and lithium battery cathodes.

We will also continue to advance our numerous discussions with potential end-users both in the DoD and non-DoD. Our progress thus far has been incredibly encouraging.

Dr Allen Alper: That sounds excellent. What are the primary reasons our high-net-worth readers/investors should consider investing in Alabama Graphite Corp?

Don Baxter: I think the best reason is that presently we've gone unnoticed by the markets. We're sitting at 12 cents right now. We are, I think, tremendously undervalued. If you look at our peer group, some of them are incredibly overvalued and I think the actual valuation of them and us should be somewhere in the middle of where it is right now. We're sitting at approximately $17 million for our market cap. I think we're extremely undervalued, we haven't been discovered yet in the markets. We're doing our best to increase our profile but, what we've accomplished on the technical level, either isn't understood or isn't recognized by the market just yet. On a positive note, end users have taken notice of and understood our technical advancements. We believe that it is only a matter of time before the market does too, and I think we have a lot of room to move on our valuation.

Dr Allen Alper: Sounds very good. Is there anything else you'd like to add, Don?

Don Baxter: This is the only pure play graphite battery materials company out there. We're the only graphite company in the contiguous United States. That the United States is solely dependent on imports of materials for this critical component of the new green energy economy is disturbing. We are in a new era of electrification of vehicles and other power sources and renewable energies. I think we're in a strong position to be a key player in this economy going forward. I think people are going to recognize that Alabama Graphite Corp. is undervalued right now and may consider getting in on this. You could take a look too, Allen. Also, in New York, Debra Fiakas is writing about us. She is another reference source (via Crystal Equity Research), as far as independent evaluation goes. We have Edison Research covering us and Stormcrow Capital has written about us as well. We're beginning to get the word out, and it’s beginning to spread. I think once people have a chance to take a look at this company, they're going to realize that wow, this is something pretty exciting. I know that I'm pretty excited about it.

Dr Allen Alper: Thank you so much for taking the time to share all of this with our readers/investors. You have definitely presented some excellent reasons for our high-net-worth readers/investors to take a good look at your company.

Alabama Graphite Corp.
Ann-Marie M. Pamplin
Vice President, Investor Relations
+1 416 309 8641

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