Edison Research : Alabama Graphite positive initiation report
Alabama Graphite’s Coosa Graphite Project in Alabama positions the company to be the key producer of natural battery-ready, coated spherical purified graphite (CSPG) for the US. Logistically it is well situated to supply the US growth markets for lithium ion batteries for the fast-growing green energy market, including electric car batteries. Importantly, its focus on higher-value purified battery-ready product in the form of CSPG means it will not be selling the pre-cursor graphite concentrate, as is currently the emphasis of the junior graphite sector.
This note is an introduction to Alabama Graphite ahead of our full initiation of coverage in Q217. Coosa CSPG proven to be suitable for LiB Alabama has completed primary and secondary processing studies on Coosa’s graphite; these are required steps to confirm the natural graphite can be used in LiB manufacture. Results have been highly positive, with the key reversible capacity factor close to the theoretical maximum (367.21mAh/g vs the maximum of 372mAh/g). Reversible capacity is the capacity of a material to hold charge consistently and reversibly achieved upon cycling.
Focus on US could bode well for Coosa Located in the US state of Alabama, Coosa should be relatively well insulated from any political risk associated with the sourcing of potentially strategic commodities such as graphite, from outside the US border. Its location plays perfectly to Elon Musk’s (Tesla Motors CEO) stated desire to source all raw materials from within the US for Tesla’s 35GWh output battery-making factory in Nevada.
Further, the company announced on 2 March that it has held high-level government discussions, specifically with Alabama state senator, Richard C Shelby. These discussions covered a multitude of topics, including the security of supply of an environmentally friendly and America-sourced supply of battery-grade graphite, and the potential for Coosa to feed into Department of Defense applications.
Valuation: PEA highlights high operating margins With an estimated PEA (November 2015) level operating cost for Coosa production stated at US$1,555/tonne, its operating margin on a production weighted basis is 79%. Compared to the operating margins of concentrate-only graphite companies, this would rank Coosa in the top quartile. The PEA NPV calculated using an 8% discount rate is US$444m post-tax and US$320m pre-tax. Coosa’s internal rate of return is 45.7% post-tax and 52.2% pre-tax. Life-of-mine gross revenues are estimated at US$2.4bn, and life-of-mine operating expenses total US$533m. We will assess the valuation when we initiate full research coverage in Q217.