Interview with Don Baxter, President and CEO of Alabama Graphite Corporation: The Most advanced Battery Grade Graphite Project in USA
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By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, 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.
http://alabamagraphite.com/
Alabama Graphite Corp.
Ann-Marie M. Pamplin
Vice President, Investor Relations
+1 416 309 8641
apamplin@alabamagraphite.com
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