The following interview of the President and CEO of Alabama Graphite was conducted in the week ended January 8, 2016. The Company’s management team is confident that its unique approach to the graphite sector places it among the relative few that will make it into production. Intending to produce Coated Spherical Natural Graphite and other ultra-high purity battery-ready products, Alabama Graphite describes itself as a, “green-energy, supply chain company.”
If it can succeed in taking the next value-added step, upgrading its primary graphite concentrate with a proprietary secondary process, it would distinguish itself as the key producer in the U.S, where security of supply is of paramount importance. Please read the interview with the goal of understanding the difference between Alabama Graphite and junior graphite peers, who are largely committed to producing only primary graphite concentrates of varying flake sizes and purities.
Donald Baxter, P. Eng., is President, CEO & Executive Director of Alabama Graphite Corp. Mr. Baxter is one of the foremost graphite experts on the continent, having helped define three graphite deposits and having built one of only two producing graphite mines in North America. He’s the only graphite CEO with demonstrated, direct graphite mining, processing and specialty Coated Spherical Natural Graphite “CSPG” experience. His work on Lithium-ion batteries makes him ideally suited to address surging demand. Mr. Baxter is a, ‘Qualified Person’ as defined by National Instrument 43-101 guidelines.
Esptein: Please describe Alabama Graphite Corp. to readers unfamiliar with the story.
Baxter: Alabama Graphite Corp, “AGC” (TSX VENTURE:ALP) (OTCQX:ABGPF) (FRANKFURT:1AG) is an emerging US producer of specialty, secondary-processed, final graphite products. We are not a conventional graphite play, but rather we aspire to be a green-energy, supply chain company. AGC presented me with my first opportunity to advance a graphite company strategically from the onset, as opposed to attempting to optimize a business strategy that had already been committed to.
When I joined AGC in June of 2015, I began implementing an entirely new strategic direction to build and advance the Company as a US green-energy supply chain producer, with a mandate to address the needs of the rapidly expanding American lithium-ion battery industry. This strategy is unique in that it proposes to avoid the traditional approach of producing and selling primary processed material, instead adding considerable value by diverting 100% of our primary processed material to a secondary, proprietary processing route to produce high-value, finished, battery-ready products.
Alabama Graphite is the only graphite development company with a Preliminary Economic Assessment, “PEA,” that explicitly addresses production of secondary-processed, specialty coated spherical graphite – the only graphite product that we believe has significant, enduring future demand.
Epstein: Virtually every emerging graphite company claims a strong management team. How is your team different?
Baxter: We have an accomplished management team and Board intently focused on the green-energy supply chain, and we believe we have the best people in the industry to deliver battery-ready products. Jean Depatie, P.Geo., our Chairman, put the world’s largest graphite mine (the Stratmin Lac-des-Iles Graphite Mine) into production. Director Daniel Goffaux, P.Eng., served as his President, building the Stratmin mine from mere mining claims to an ISO-compliant graphite producer in just three years. Director H. David Ramm, Chairman and CEO of California-based BrightSource Energy, Inc. is also tremendous asset.
Last year, I appointed graphite industry expert George C. Hawley as Senior Technical Advisor and contracted two independent North American laboratories to complete our team of independent graphite processing experts and lithium-ion battery scientists. I’m confident that we’re capable of executing AGC’s new CSPG-focused strategy. In terms of direct graphite experience, aside from my graphite mining and engineering experience, I was responsible for creating and directing successful spherical graphite programs at two other graphite companies. Also, I was Chief Mining Engineer at the Kearney Graphite Mine when it operated in the 1990s, and subsequently served as Director of Mining at Ontario Graphite.
Epstein: Notwithstanding your experience in graphite, how can readers be confident that you’re not overly optimistic on this particular project?
Baxter: We don’t believe we’re being overly optimistic. We’ve intentionally tempered initial production plans at our Coosa Project in east-central Alabama to 5,000 Metric tonnes, “Mt,” annually in years 1-5. Details of our production profile and other key attributes can be found in our Preliminary Economic Assessment, “PEA.” If achieved, 5,000 Mt/yr, (75% or 3,750 Mt/year CSPG), would very easily be absorbed by the rapidly expanding battery market.
The US and global green-energy and clean-technology industries are experiencing widespread adoption. For example, the proliferation of electric vehicles, “EVs” including Faraday Future’s recently announced $1 billion EV plant north of Las Vegas and Tesla Motors’ (TSLA) $5 billion, ‘Gigafactory 1’ located outside of Reno — are, combined, planning to produce 700,000 EVs per year. Nevada has become the Western center of the new-age automobile industry. However, AGC is by no means a binary play, we will not allow a single company dictate our success. There are numerous other major lithium-ion battery, anode and stationary storage (battery) manufacturers in the U.S. — and AGC is currently preparing CSPG sample material for a number of potential end users.
Epstein: If the dual-pronged approach outlined by the PEA is so compelling, why aren’t peers doing the same?
Baxter: Simply put, a lack of CSPG expertise/experience, time and money. Many graphite development companies hope to upgrade a portion of their graphite concentrate to battery-grade, but may not have the CSPG engineering expertise to do so. If successful in upgrading a portion of production, companies would still be left with tens of thousands of tonnes of primary produced (unfinished) graphite concentrate to place into the market. Even if companies decide to pursue similar strategies to ours, an updated PEA and subsequent Feasibility Study would be needed. This would require significant time and capital, both of which are in short supply these days.
Regarding competitors, we feel the market for conventional unfinished graphite concentrate outside of China is stagnant. I believe the conventional business model for flake graphite development companies (intending to produce traditional run-of-mine graphite concentrate of various flake sizes and purities) has become unsupportable for the foreseeable future. AGC plans to only sell products that are in demand today, most notably CSPG.
Epstein: How do you respond to those who claim that a North American graphite company would not have the expertise to produce CSPG?
Baxter: Those who claim that only China has the requisite expertise to produce CSPG are incorrect. Although CSPG production is complicated, it is not rocket science. Though there is very little actual CSPG knowledge in the graphite development space (this is why most companies subcontract out CSPG-related work, usually to the Chinese) there is CSPG expertise in both Europe and North America. Further, the notion that the Chinese CSPG production process yields of ~ 30%, precludes a team of North American CSPG experts of achieving better yields, is also incorrect.
Engineering processes effecting the sizing and shaping of CSPG material can be significantly optimized to increase production yield. Expertise in order to achieve these efficiencies are a result of years of experience. My team have been working diligently on all aspects of CSPG production for more than half a decade and on numerous types of natural flake graphite. We look forward to releasing test results of our CSPG in coming weeks.
Epstein: As in every major metal & mineral, China is a hugely important and highly uncertain force to be reckoned with. How could China make or break the graphite market?
Baxter: Yes, China’s a wild card for sure, but only as it pertains to conventional graphite concentrate. China has flooded the market with commodities such as rare earths and graphite in the past; however, China is now intensely focused on reducing its heavy industry’s environmental footprint to combat air pollution. Further, China wants to add value domestically in order to address its government’s green-energy mandates. Additionally, consumers are increasingly holding manufacturers accountable for where they source their input materials and how those materials are produced. You can’t have a green car with a dirty battery.
I’ve witnessed China’s CSPG production methods firsthand on multiple occasions. Chinese CSPG production is compartmentalized and very inefficient. The processing methods are harsh and not environmentally responsible. Even if the Chinese improve their process from an environmental standpoint, which presumably they will do, it will take time and translate into higher costs. AGC intends to produce ultra-high-purity, specialty graphite products, without the use of dangerous and environmentally harmful hydrofluoric acid (as is commonly used in Chinese graphite production) or costly high-temperature, thermal upgrading and purification.
Epstein: There’s diverging opinion on nearly every key metric (grade, purity, flake size, shape, impurities, etc.). How can investors possibly pick the good projects from the bad?
Baxter: That’s a great question. As you say, those metrics are critical for projects proposing to produce only primary graphite concentrates. However, we believe that focusing on primary graphite concentrates may not be a prudent strategy as currently there’s oversupply of graphite concentrate globally. The traditional evaluation parameters/metrics of flake size, head grade, or how many tonnes of run-of-mine graphite concentrate can be produced, are not relevant in today’s market outside of China.
We believe the only metrics/parameters relevant to assessing a battery technology graphite company are: can the company produce a high-grade primary concentrate – which can be transformed into a consistent, high-performance, final graphite product that meets or exceeds the requirements of battery manufacturers, and is it able to do so at low cost? Although a PEA is preliminary in nature, AGC’s PEA indicates that we hold the potential to satisfy those parameters – and possibly at the lowest known cost of CSPG production.
If we had based the Coosa project on traditional, primary processed, run-of-mine concentrate production, our PEA economics would not be nearly as strong. The secondary-processed, specialty graphite products are the core of our business strategy. We believe AGC is in the right management hands with the requisite skill set to make our CSPG-based strategy work. All indications at this point are that CSPG will be in high demand, and our process can be utilized to make other high-value graphite products beyond CSPG. Additional products such as purified micronized flake graphite, “PMG,” high-purity flake, and expandable graphite.
Logistically speaking, the Company’s Coosa project is situated in one of the most advantageous locations of any graphite project in North America. The Coosa project is located on private land (with only Alabama state-level permitting required, as opposed to US federal permitting and EPA approvals) in an established mining friendly jurisdiction, with excellent infrastructure, year-round temperate climate, and significant support from stakeholders and local and state governments.
The project has excellent access to the American market; however, perhaps one of AGC’s most important competitive advantages is that the Company holds the potential to offer US clients a, ‘Made-in-USA’ solution. This would afford the end user with the associated U.S. sourcing benefits, as it pertains to the U.S. Federal Trade Commission’s Made in USA labeling act and U.S. materials sourcing claims. The fact that the CSPG that AGC is endeavoring to produce would be sourced from the United States, as opposed to merely being processed in the U.S, could offer formidable competitive advantages that non-U.S.-sourced graphite could not address.
Epstein: What are the prime misconceptions about Alabama Graphite?
Baxter: Misconceptions plaguing Alabama Graphite are the same as those overhanging the sector. For us there’s the fallacy that low-to medium-sized flake is a disadvantage or that low head grade is a serious problem. These misconceptions stem from the mistaken belief that we’re pursuing the same market as numerous other graphite development companies. While peers talk about large and jumbo flake sizes, we believe our flake is ideal for producing CSPG, in particular for the 10- to 25-micron-sized CSPG material demanded by battery makers around the world. In fact, our flake size distribution has allowed us to deliver secondary processing yields of ~75% at bench scale, compared to China’s ~30% CSPG yields.
Regarding head grade, as far as AGC is concerned all that matters is: the final product’s battery performance and can that material be produced at a competitive cost. For example, take a 99.99% pure one-ounce gold coin. No one is going to look at that bullion coin and say ‘Hey, wait a second, what was the head grade of the gold deposit where the gold in this coin came from? That may seem like a silly analogy, but it’s entirely apt. The final product’s performance and cost is what matters.
Given our extremely small production targets, we won’t enjoy particularly low per-tonne costs at the primary processing stage. Having said that, Coosa has near-surface, oxidized and weathered material that’s extremely soft. So soft, in my opinion, it will not require any drilling or blasting. Importantly, we expect to more than make up for a mediocre cost structure at the primary processing stage with a low all-in per-tonne cost after secondary processing. The PEA indicates all-in costs of US$1,555/tonne, and an average selling price of US$7,250/tonne.
Clearly there’s plenty of skepticism directed at emerging graphite players and perhaps rightfully so. However, we believe our plan to commence small-scale production is achievable and that there’s a vibrant market for the entirety of our output. Further, we believe that with a reasonable initial CAPEX requirement (the AGC PEA indicated the lowest initial CAPEX requirement in the graphite development space), AGC’s prospects for financing are stronger.
Epstein: Is there anything else that you would like to share with readers?
Baxter: In summary, Alabama Graphite Corp. (TSX VENTURE:ALP) (OTCQX:ABGPF) (FRANKFURT:1AG) has a unique approach to graphite production, as detailed in our PEA. Instead of facing fierce competition at the primary processing stage where flake size, purity, head grade and other metrics dominate, we intend to deliver small scale (5,000 Mt/yr in years 1-5) production of CSPG (and by-product PMG). We believe, our flake is ideal for producing CSPG, with demonstrated yields of ~75% in lab testing.
Security of supply and geopolitical stability is increasingly important, that’s why we’re excited about our green, Made-in-USA opportunity. Our proximity to existing and new US battery makers is a compelling factor in the risk/reward analysis of the investment thesis. Our management team, Board and Technical team is second to none. We look forward to releasing the results of our CSPG testing in batteries in mid-to-late January.
To learn more, please see this excellent video interview. (Note: 1st minute only in German)
Disclosure: Alabama Graphite has a small market cap. Small market cap stocks are highly speculative, not suitable for all investors. I, Peter Epstein, own shares of Alabama Graphite purchased in the open market. Mr. Epstein, CFA, MBA is not a licensed financial advisor. Readers should take that fact into careful consideration before buying or selling any stocks named herein.
Readers are encouraged to consult with their own investment advisors before buying or selling any stock, especially highly speculative ones like Alabama Graphite. At the time this interview was posted, Alabama Graphite was a sponsor of: http://EpsteinResearch.com
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