Alabama Graphite Corp. - Crystal Equity...

Please read the important disclosures on page 11 of this report.

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August 22, 2017 Update Report

Alabama Graphite Corp.

Alabama Graphite Corporation (AGC) is an aspiring graphite materials

company with a vertically integrated business model to mine, process

and market high value-added graphite. AGC has developed a proprietary

process to upgrade and purify graphite materials that command superior

selling prices in the nuclear, defense and battery markets. The primary

graphite product Coated Spherical Purified Graphite and will be trade-

marked ULTRACSPG.

Clearing Hurdles for Commercial Stage

In July 2017, the Company took an important step toward commercial

stage by commissioning a final feasibility study the could confirm the

economic viability of its proposed mine and secondary processing plant.

Permits for additional trenching and drilling tests has already been re-

ceived. The feasibility study is expected to require 8 to 10 months.

The Company has also engaged Thomson Engineering to supervise envi-

ronmental permits required in Alabama to begin commercial production.

Environmental impact of AGC’s graphite mining and processing is ex-

pected to be modest. Coosa graphite project requires surfacing mining

techniques that involve removal of overburden and limited excavation.

AGC’s proprietary process for refining the Coosa graphite requires is a

low-temperature procedure that requires no toxic chemicals.

Successful Product Testing

A series of laboratory tests of AGC’s

CPSG material as well as initial testing by

prospective customers indicate that

AGC’s proprietary process delivers a

graphite material suitable for lithium ion

batteries. Tests conducted in early 2017,

confirm AGC has a achieved a purity level

of 99.99997% carbon by weight.

Successful testing has left the Company

with a backlog of requests from prospective customers for additional

product samples to be used in electrochemical testing and performance

verification. Earlier in 2017, the Company laid out plans to produce a

stockpile of 120 kilograms its primary CSPG and 35 kilograms of Purified

Micronized Graphite, a by-product of the CSPG process.

A second pilot plant is planned to support production of the stockpile as

well as completion of final feasibility study.

RECENT DEVELOPMENTS MARKET DATA

Price: $0.10 (8/21/17)

52 Wk Hi-Lo: $0.17 - $0.09

Ave. Volume: 500K

Short Interest: <1%

Beta: NA

All Market Data in USD$

VALUATION

Price/Sales: na

Price/CFO: neg

Price/EPS: neg

Price/Book Value: 2.8 X

Based on TTM ending 5/31/17

Consensus EPS FY2017: NA

Forward PE: NA

Consensus EPS FY2018: NA

Forward PE: NA

EQUITY SECURITIES

Common Shares Out: 146.4 M

Insiders: 4.5%

Float: 139.8 M

Institutional: 1.0%

5% Holders: na

Warrants and

Options Outstanding: 45.2 M

As of 7/31/17

Source: Company Reports and

Crystal Equity Research estimates

INVESTMENT HIGHLIGHTS

Positives

Growing demand for high-purity graphite intended for lithium-ion

batteries and other advanced technology applications in military and

aerospace industries

Exclusive ownership of previously proven natural flake graphite re-

source in Alabama; potentially first domestic U.S. graphite producer

Experienced management team with successful track record in min-

eral resource development and industrial materials production

Positive preliminary economic assessment of primary mining and

secondary processing of high-purity graphite material based on low

capital requirements and economical operating structure

Consistently positive tests of graphite material product confirming

99.9999% ultra high-purity required for battery-grade applications

Progress toward milestones needed for commercial operation, in-

cluding feasibility study and environmental permitting

Negatives

Numerous competitors to supply high-purity graphite for advanced

applications with numerous new declarations for new graphite mines

Developmental stage company with no historic operations or reve-

nue and expectations for continued net losses in near-term

Limited financial resources and significant capital requirements to

establish mining and processing operations

Additional potentially dilutive issuance of equity or use of leverage

may be needed to finance strategic growth plan

Unseasoned security with modest trading volume and wide bid-ask

spreads that could lead to immediate loss of capital

OUTLOOK

We believe investors may be

overlooking the merits of Ala-

bama Graphite’s strategic po-

sition. As the only domestic

U.S. producer of a critical

material, AGC is presented

with the possibility of signifi-

cant demand for its high-

valued added graphite mate-

rials.

Execution risk is often a fac-

tor in early stage companies.

We believe the management

team’s lengthy hands-on ex-

perience in graphite resource

development and materials

processing has been key to

originating and perfecting the

Company’s proprietary refine-

ment process. The steady

march forward with a feasibil-

ity study, environmental per-

mitting and customer testing

also signals management’s

ability to successfully execute

on AGC’s strategic plan.

We are encouraged by the

Company’s successful capital

raise in May 2017. Granted

the Company will need addi-

tional capital to reach com-

mercial stage. However, it

appears investors have be-

come more receptive to the

graphite materials story in

recent months, making it

possible to achieve more fa-

vorable valuation levels.

In our view, AGC’s stock is

undervalued and is an inter-

esting target for risk tolerant

investors with an interest in

materials technology, re-

source commodities or the

renewable energy industry.

STOCK CHART

Alabama Graphite Corporation August 22, 2017

Source: Toronto Venture Exchange in Canadian Dollars


Coosa Property - Coosa

County, Alabama - 41,535

acres under renewable 5-year

lease

Chestnut Creek Property -

Chilton County, Alabama -

1,160 acres under 5-year re-

newable lease

Bama Property - Chilton

County, Alabama - 200 acres

under 5-year renewable lease

RESOURCE ASSETS

BUSINESS OVERVIEW

Alabama Graphite Corporation (AGC) is a developer of graphite re-

sources with plans to produce ultra-high-purity graphite material using

a cost effective, environmentally-friendly process built on the Com-

pany’s proprietary knowhow. AGC has exclusive control of a qualified

graphite feedstock resource located in Coosa County, Alabama.

AGC plans to mine the flake graphite and process it into spherical

graphite material suitable for use in lithium ion batteries. Recent tests

of graphite sourced from the Coosa site and purified with the AGC proc-

ess achieved 99.99997% carbon by weight.

High-value Added Products

High-purity, spherical graphite commands higher selling prices, poten-

tially offering greater profit margins and more ample returns on capital

investment. Benchmark Minerals Intelligence, an industry research

firm, reports that coated, spheronized purified graphite like the Com-

pany’s CSPG is priced in a range of US$10,000 to US$12,000 per met-

ric ton. Micronized graphite selling prices were near US$7,000 per

metric ton. AGC’s ’process further’ business model should make it pos-

sible for the Company to capture more value in the supply chain than

the typical graphite concentrate producer.

Domestic Supplier of Critical Military Material

As the exclusive domestic producer in the United States, the Company

would command a strong competitive position. The DOD has declared

graphite a critical material for military and defense use. Graphite has

taken on more strategic value as the country shifts to fossil fuel alter-

natives such as electric power stored in high-capacity lithium ion bat-

teries. DOD leaders are keen to support domestic producers to avoid

reliance of foreign suppliers.

Prospective customers have begun sampling what the Company calls

‘Coated Spherical Purified Graphite’ or CSPG. Particular interest is ap-

parently coming from manufacturers of lithium-ion batteries. In early

May 2017, Physical Sciences, an approved government contractor, de-

clared CSPG a “candidate for use in Department of Defense and De-

partment of Energy funded projects.” Physical Sciences is among a

dozen potential customers receiving samples from AGC.

Flake Size Does Not Matter

Conventional wisdom in the graphite materials industry is that the lar-

ger the natural graphite flake, the higher the purity or the greater the

intensity of carbon content in the untreated graphite. There are nu-

merous industry rankings of graphite development projects by flake

measures. For AGC, flake dimensions are irrelevant.

It is costly to convert large flakes into smaller particles needed for ultra

-high purity graphite material suitable for the lucrative battery market.

AGC management is side-stepping the issue of flake size and avoiding

excess costs through its proprietary secondary process. The AGC proc-

ess can be applied to all flake sizes, but the smaller flake size from the

Coosa project is particularly suitable AGC’s unique methods.

Previously exploited high-

quality flake graphite asset

Extraction through low-cost

surface mining method

Proprietary, low-cost graphite

purification process

Low-cost standard mining and

process equipment require-

ments

Supportive community with

well-qualified labor pool

Availability of water, natural

gas and electrical inputs re-

quired for processing steps

Access to market through well

maintained roads, ports

FOUNDATION

In July 2017, Alabama Graphite commissioned a feasibility study for its

initial graphite project located in Coosa County, Alabama. The study

will determine whether the Company’s plan is economically feasible to

produce coated spherical graphite from graphitic material in the Coosa

project. An experienced independent engineering firm, AGP Mining

Consultants, has been chosen to complete the study.

AGP engineers are already familiar with the project, having completed a

preliminary feasibility study in 2015. Now additional trenching and

drilling will be completed to retrieve more graphite samples. The new

study will put a finer point on measures of the mineral resource to cal-

culate the size of the indicated mineral resource.

Investors who are well schooled in the mining industry will already be

familiar with the typical feasibility study steps noted below. However,

the study for the Coosa project will differ significantly from most such

studies in the graphite industry. The scope of study for the Coosa pro-

ject will include an analysis of AGCs proprietary secondary processing

steps. After the usually crushing, grinding and flotation work that all

graphite companies complete to produce graphite concentrate, AGC will

refine and purify its Coosa graphite. Those secondary processing steps

include purification, micronization, spheronization, and coating.

The feasibility study will include a materials flow sheet for both primary

and secondary processing steps. Additionally, the cost estimation and

financial evaluation will include the costs and expenses for all steps and

use selling prices for the upgraded and refined materials the Company

plans to sell under the names CSPG, PMG, EXDG and DEXDG. We note

that other graphite developers often tout the revenue opportunity in

battery grade graphite material but fail to include in estimates the full

costs required for in-house or contracted processing.

EXPANDED FEASIBILITY STUDY


FEASIBILITY STUDY STEPS

Geology and Resource - drilling and sampling

Mine Design and Mineable Reserve - most economic resource exploitation

Metallurgy and Process Facilities - selection of most representative mate-

rials samples and development of materials flow sheet for mining, primary

processing and AGC’s proprietary secondary processing

Tailings Disposal - plans for disposal of left over materials

Infrastructure Development - plant buildings, access roads

Power Supply - total power required and cost

Water Supply - water demand, sources and cost

Environmental Impact - clearance by environment authorities

Cost Estimation - capital and operating costs

Financial Evaluation - costs and expenses weighed against revenue

Sensitivity Analysis - impact of changes in selling prices and costs

Coated Spherical Purified Graphite (CSPG)

Purity: 99.9999% wt% C

Conductivity Enhanced Graphite

Purified Micronized Graphite

(PMG)

Expanded Graphite (EXDG)

Delaminated Expanded Graph-

ite (DEXDG)

Battery components

Fuel cell components

Defense technology

Aerospace electronics

Nuclear reactor components

TARGET MARKETS

PLANNED PRODUCTS

Soft and slippery

Nontoxic with metallic luster

Heat resistant, slows neu-

trons

Good conductor of electricity

Resistant to chemicals

GRAPHITE PROPERTIES

Technology news flow has been dominated in recent months by succes-

sive announcements of plans for large lithium ion battery manufacturing

plants. Dubbed a ‘gigafactory’, at least ten new lithium ion battery

plants were announced in the first six months of 2017. Tesla, Inc.

(TSLA: Nasdaq), which originated the idea, is already well along in

building its first gigafactory in Nevada. When completed it will have the

largest footprint of any manufacturing facility in the world. Now Tesla’s

CEO Elon Musk has suggested Tesla may build as many as four addi-

tional battery plants. As consequence global battery-making capacity is

expected to more than double by 2021, reaching 278 gigawatt hours per

year. This compares to a current capacity just over 100 gigawatt-hours.

Selection of gigafactory announcements in first half 2017:

Daimler Chrysler’s Accumotive announced it will expand its current

production capacity of 80,000 lithium-ion battery units to 320,000

units per year.

Boston Energy and Innovation has assembled a team for its gigafac-

tory, including graphite resource developer Magnis Resources. The

group plans a factory in New York with a 15 gigawatt hour capacity

and may team up with Eastman Kodak for another plant of a similar

size in Queensland, Australia.

Energy Absolute is planning a new factory in Thailand with initial ca-

pacity for 1-gigawatt hour per year followed by expansion to 50 gi-

gawatt hours by 2020.

Energy Renaissance revealed plans for a one gigawatt-hour factory

near Darwin in Australia’s Northern Territory.

Most of the new battery production capacity is expected to be soaked up

by demand for electric car batteries. Along with added capacity, battery

makers are expected to achieve critical cost reductions through econo-

mies of scale. According to Bloomberg New Energy Finance, the current

average price per kilowatt hour is near US$275. Lithium ion attery

prices are expected to fall to as low as US$75 per kilowatt hour by

2030. The efficiencies that battery producers deliver to the electric ve-

hicle supply chain will likely accelerate adoption of vehicle electrification.

GIGAFACTORY FEVER


Electric vehicle adoption us-

ing lithium ion batteries with

high graphite content

Expanding use of graphite in

fuel cells

Adoption of nuclear reactor

design with high-purity

graphite in ‘pebble-bed’

New applications for graphite

in defense technology using

advanced metal allows

Intensifying applications in

wind energy technology

Increasing use of graphite in

electronic devices

GROWTH DRIVERS

Source: Heitkamp & Thumann Group, contractor to Tesla, Inc.

Tesla Gigafactory Production Floor

BATTERY GRAPHITE

Large electric vehicle batter-

ies require as much as 25

kilograms (55 pounds) of

graphite material for the an-

ode battery component. An-

ode materials need to have

excellent porosity and con-

ductivity, which is why

graphite is the go-to mate-

rial used by battery produc-

ers. Graphite is also com-

patible with common cath-

ode materials. The anode

material has to be durable

for good length of use and

light weight to give end-

users more design flexibility.

Low cost is another factor

that makes graphite popular

for batteries.


GRAPHITE MARKET GROWTH

Graphite selling price developments

may have helped boost the invest-

ment case of natural flake graphite

resource developers around the

world. As noted on page 7 of this

report, several graphite developers

have been successful in raising capi-

tal. In May 2017, Great Lakes

Graphite raised CDN$177,000 at

CDN$0.08 per share through the

sale of 2.2 million shares. Although

the actions of Alabama Graphite are

not included on the list, in the same

month AGC raised CDN$1.1 million

(US$965,000) through the sale of

8.8 million stock-warrant units.

Following news of higher graphite

selling prices it appears investors are

becoming more receptive to the

graphite story. In early August

2017, SRG Graphite raised CDN$3.0

million and Focus Graphite raised the

first CDN$2.9 million of a planned

CDN$5.0 million private placement.

Great Lakes Graphite also came back

to the capital markets with a much

larger offering of 4.0 million equity

units for CDN$2.0 million.

Even early-stage resource developer

Global Li-Ion Graphite found a

friendly reception for its Chedic pro-

ject near Carson City, Nevada. Its

proximity to Tesla’s gigafactory most

likely added embellishment to an

otherwise highly speculative story.

Nouveau Monde Graphite appears

encouraged by the warm breezes

coming off the capital markets. In

early August 2017, Nouveau an-

nounced plans for a CDN$10 million

private placement of common stock

and warrants at CDN$0.30 per

share. Scheduled to close in Sep-

tember 2017, the proceeds will sup-

port development of the company’s

Matawinie graphite mine.

In April 2017, Allied Market Research released a report predict-

ing US$18.8 billion market value for graphite industry by 2022,

implying compound annual growth near 5.4%. Industry growth

predictions appear to be driven largely by new demand from the

lithium ion battery market. Benchmark Minerals Intelligence, an

industry research firm, recently issued new estimates of de-

mand for graphite for lithium ion batteries at 230,000 metric

tons by 2020, compared to current demand near 130,000 metric

tons.

CAPITAL MARKET SENTIMENT

GRAPHITE PRICING TRENDS

Graphite prices appear to be firming up mid-year 2017. Devel-

opments in the China graphite market have been favorable

given the dominance of China in the global graphite market.

Supply of natural flake graphite from China continues to be con-

strained, but selling prices are rebounding and exports are up

year-over-year. The encouraging news appears to be the result

of a let up in environmental inspections that had been restrict-

ing mining activity and suppressing prices. The China central

government also cancelled an export tax applied to flake graph-

ite concentrate. Average prices were $632.00 per metric ton in

June 2017, which was lower compared to last year but higher

than the previous month. Concentrate price changes typically

filter through value-added derivative graphite over time.

In July 2017, Benchmark Minerals Intelligence, an industry re-

search firm, reported that coated, spheronized purified graphite

was selling for US$10,000 to US$12,000 per metric ton. Mi-

cronized graphite pricing was near US$7,000 per metric ton.

Prices appeared to have firmed up slightly in recent months as

China has worked through its inventory.

The next shoe to drop for China

as the dominant graphite pro-

ducer is an anticipated environ-

mental levy. China production

may remain constrained as min-

ers must invest to clean up op-

erations or pay an expensive

tax. The new pollution tax is

expected to come into effect on

January 1, 2018.

We note that while the export duty applied to only flake graphite

concentrate and not to the value-added derivatives such as

spherical graphite, the environmental levy will impact all graph-

ite production. This the impact of the environmental levy may

have a different impact on selling prices when the tax bills begin

coming through in 2018.


GRAPHITE INDUSTRY PEERS

Bass Metals (formerly Stratmin;

BSM: ASX)

Eagle Graphite (EGA: TSX)

First Graphite Ltd. (FGR: ASX)

Focus Graphite (FMS.T)

Global Li-Ion Graphite (LION:

CSE)

Graphit Kropfmuhl (AMG: GK)

Graphite India (GRAPHITE.BO)

Graphite One (GPH.T)

Great Lakes Graphite (GLK.T)

Imerys Graphite & Carbon

(NK.PA)

Kibaran Resources (KNL: ASX)

Leading Edge Materials (LEM:

TSX.V)

Lincoln Materials (LML: ASK)

Lomiko Metals (LMR.T)

Magnis Resources (MNS: ASX)

Mason Graphite (LLC.T)

NextSource Materials (formerly

Energizer Resources, NEXT: TSX)

Northern Graphite (NGC.T)

Nouveau Monde (NOU.V)

SGL Carbon SE (SGL.GR)

Sovereign Metals (SVM: ASX)

Syrah Resources (SYR.AX)

Talga Resources (TLG: ASX)

Triton Minerals (TON: ASX)

Valence Industries (VXL: ASX)

Zenyatta Ventures (ZEN: TSX.V)

August 2017 - Focus Graphite announces closing of private

placement of common stock to raise CDN$3.0 million

August 2017 - SRG Graphite announces non-brokered private

placement of 7.5 million common stock and warrant units for

CDN$3.0 million in gross proceeds

August 2017 - NextSource Materials trademarks

‘SuperFlake’ in European Union for its graphite concentrate

product; similar applications planned in North America and Asia

August 2017 - Northern Graphite releases metallurgical test

results showing improved yield of large flake graphite from its

Bissett Creek project

August 2017 - Nouveau Monde Graphite signs lead agent for

syndicated sale of CDN$10 million common stock and warrants

July 2017 - Syrah Resources Ltd. enters long-term R&D pact

with Cadenza Innovation for graphite anode technology; claims

90% construction of Balama mine project, Mozambique

June 2017 - Graphit Kropfmuhl GmbH, a division of Ad-

vanced Metellurgical Group NV (AMG: GK) commissions its An-

cuabe graphite mine in Mozambique

June 2017 - Lincoln Minerals granted 21-year lease for

Kookaburra Gully natural flake graphite project in South Austra-

lia’s Eyre Peninsula; targets 40,000 metric ton product annually

June 2017 - NextSource Materials updates feasibility study

of its Molo project in Madagascar to reflect reduction in graphite

prices over last two years

June 2017 - Great Lakes Graphite ships 50 kilograms of high

-purity micronized natural flake graphite for customer testing

May 2017 - Imerys Graphite & Carbon sets new target pro-

duction goal of 20,000 tons per year at its Olijiwarongo graph-

ite mine in Namibia after production begin in April 2017

May 2017 - Magnis Resources signs supply agreement with

developers of gigafactory planned in state of New York

April 2017 - Kibaran Resources increases estimate of its

Epanko graphite project in Tanzania by 40% to total of 31 mil-

lion metric tons at 9.9% total graphite content

March 2017 - Syrah Resources Ltd. signs non-binding agree-

ment to supply graphite to BTR New Energy Materials, a pro-

ducer of battery anode materials

February 2017 - Japanese battery anode producer, Nippon

Power Graphite, is acquired by Imerys Graphite & Carbon

January 2017 - First Graphite announces US$3 million capital

raise to support graphene development work

INDUSTRY DEVELOPMENTS

BALANCES

BALANCES

Alabama Graphite recently reported financial results for the

quarter and nine months ending May 2017. Of course, the net

loss of CDN$696,266 (US$511,960) in the quarter was as ex-

pected for the early stage company that has not yet begun to

generate revenue. Net loss for the year-to-date was CDN$2.6

million (US$1.9 million) or CDN$0.02 (US$0.02) per share.

Cash flow from operations provides a more valuable measure

for the Company. In the first nine months of fiscal year 2017,

AGC has used CDN$2.0 million (US$1.4 million) to support op-

erations. The difference between the net income loss and cash

used by operations is largely attributable to the inclusion of

$721,265 in non-cash expenses related to share-based pay-

ments. The Company also used cash to pay down certain cur-

rent liability accounts.

Additional cash was used to move its Alabama graphite project

forward. In the first nine months of the fiscal year the Com-

pany used CDN$437,930 (US$322,007) to support exploration

and evaluation of the Company’s graphite resources. This

compares to CDN$1.2 million (US$903,876) in the same period

the year before. Total cash usage in the first nine months of

fiscal year 2017 was CDN $1.1 million (US$805,184).

CASH USAGE

OPERATING COMPARISONS

The Company ended the May 2017 quarter with CDN$1.2 mil-

lion (US$875,525) in cash. The cash was provided by the pri-

vate sale of common stock valued at a total of CDN$3.4 million

(US$2.5 million) over the first nine months of fiscal year 2017.

The issuance of common stock brought total share capital to

CDN$16.8 million (US$12.4 million) by the end of May 2017.

The Company also has CDN$4.2 million (USD$3.1 million) in

contributed surplus that is related to the fair value of out-

standing warrants and options. If the derivatives are exercised

the contributed surplus will be transferred to common stock.

In the meantime, it helps offset the Company’s accumulated

deficit of CDN$12.8 million (US$9.4 million). Total equity was

CDN$8.2 million (US$6.1 million) at the end of the most re-

cently reported quarter.

Subsequent to close of the May 2017 quarter, warrants expired

for a total 1.1 million common shares. We estimate that there

are now approximately 31.7 million warrants outstanding with

an average exercise price of CDN$0.23 per common share

(US$0.17 per share). Additionally, there are 13.5 million op-

tions outstanding with an average strike price of CDN$0.18 per

share (US$0.13 per share). We estimate potential dilution

from derivatives is 31% of the current share base.

Canadian Dollars 8/31/16 5/31/17

Cash $ 0.096 $1.191

Current assets $ 0.315 $1.326

Exploration assets $ 6.866 $7.304

Equipment $ 0.002 $0.002

Total assets $ 7.184 $8.633

Accts. Payable $ 0.521 $0.392

Current Liabilities $ 0.521 $0.392

Notes Payable $ -0- $ -0-

Deficit ($10.174) ($12.759)

Total Equity $ 6.663 $ 8.241

Shares Outstanding 119.3 145.3

Warrants/Options 24.8 46.3

Dollars, shares and derivatives in millions

Source: Company Reports and Crystal Equity

Research Estimates

Canadian Dollars

As Reported

9 Mos 16 9 Mos 17

Sales $ -0- $ -0-

Oper. Loss ($1.333) ($2.596)

Net Loss ($1.310) ($2.584)

CFO ($0.945) ($1.968)

LPS ($0.01) ($0.02)

As Adjusted for Non-cash Charges*

9 Mos 16 9 Mos 17

Sales $ -0- $ -0-

Oper. Loss ($1.086) ($1.874)

Net Loss ($1.063) ($1.862)

CFO ($0.945) ($1.968)

EPS ($0.01) ($0.02)

Dollars in millions; Fiscal year end 8/31

*Company Reports and Crystal Equity Research

Estimates


BALANCES

As AGC moves forward with a feasibility study, environmental

permitting and a second pilot plant for its Coosa graphite pro-

ject, the Company’s capital requirements become more impor-

tant elements than ever in our investment case.

Near-term Budget

We have estimated that the current development activities may

require as much as US$6.0 million to complete. This includes

an estimated US$2.0 million for the ongoing feasibility study

and another $500,000 for environmental permitting. The Com-

pany has also set a goal of establishing a second pilot plant and

producing a sufficient quantity of graphite materials for cus-

tomer testing and validation. The pilot plant and production

could each require another US$1.0 million. These steps will

require eight to ten months to complete, during which time the

Company will need adequate working capital for general and

administrative expenses. Based on the Company’s recent pace

of cash usage to support operations, we estimate the Company

will need as much as US$1.5 million for working capital.

Management Confidence

The capital raise completed in May 2017, in which the Company

raised approximately US$975,000, fell far short of our budget

estimates. Management has recently expressed confidence in

finding economies that would allow the Company to reach de-

velopment milestones with a more modest budget than our es-

timates suggest. In our view, management’s confidence in

moving forward with relatively modest financial resources, pro-

vides shareholders an important cue regarding AGC’s pros-

pects, at least in the eyes of management. We believe only

strong interest by potential customers and encouraging product

test results could give management the conviction to move

ahead with the next development steps on a limited budget.

Construction, Commissioning and Operations

Completion of a feasibility study and environmental permitting

will open the doors to extraction of graphite from the Coosa

project. With that milestone just months away, the AGC man-

agement must begin preparing for the next phase of its strat-

egy - constructing and commissioning its mining and process-

ing operation. The preliminary feasibility study outlined a

budget of US$43.2 million in initial capital required to set up

surface mining operations, power and transportation infrastruc-

ture and the primary and secondary materials processing steps.

The budget is based on a plan for an annual production capac-

ity of 5,000 metric tons of high purity graphite. We expect the

Company to use both new equity and equipment financing.

CAPITAL REQUIREMENTS

EARNINGS COMPARISONS


US Dollars 8/31/16 5/31/17

Cash $0.071 $0.881

Current assets $0.233 $0.981

Exploration assets $5.081 $5.405

Equipment $0.002 $0.002

Total assets $5.316 $6.388

Accts. Payable $0.386 $0.290

Current Liabilities $0.386 $0.290

Notes Payable $ -0- $ -0-

Deficit ($7.529) ($9.442)

Total Equity $4.931 $6.098

Shares Outstanding 119.3 145.3

Warrants/Options 24.8 46.3

Dollars, shares and derivatives in millions

Source: Company Reports and Crystal Equity

Research Estimates

US Dollars

As Reported

9 Mos 16 9 Mos 17

Sales $ -0- $ -0-

Oper. Loss ($0.986) ($1.921)

Net Loss ($0.969) ($1.912)

CFO ($0.699) ($1.456)

LPS ($0.01) ($0.02)

As Adjusted for Non-cash Charges*

9 Mos 16 9 Mos 17

Sales $ -0- $ -0-

Oper. Loss ($0.804) ($1.387)

Net Loss ($0.787) ($1.378)

CFO ($0.699) ($1.456)

EPS ($0.01) ($0.02)

Dollars in millions; Fiscal year end 8/31

*Crystal Equity Research Estimates


OWNERSHIP

Common Stock (in Millions)

Insiders:

Baxter, CEO 2.9

Bolton, CFO 0.1

Dinwoodie, EVP 1.5

Edmundson, SG 0.2

Pamplin, VP 1.1

Depatie, Chairman 0.6

Goffaux, Director 0.1

Hatch, Director 0.1

Total Insiders* 6.6 M

As % of Shares

Outstanding 4.5%

*Insiders hold warrants and options

for an additional 11.2 million shares

Source: Company Reports and

Crystal Equity Research Estimates

LEADERSHIP CAPITALIZATION

Recent Price: $0.10

Shares Out: 146.4 M

Market Capital: $14.6 M

+ Preferred Stock -0- M

+ Debt -0- M

- Cash 0.9 M

Enterprise Val: $13.7 M

Book Value: $ 6.1 M

Working Capital: $ 0.7 M

Balances as of 7/31/17

All figures in US Dollars

KLM Geoscience - geophysical survey and engineering services

ActLabs - mineral assay services

SGS Labs - engineering services, including pilot plant design, construction

and operation in Lakefield, Ontario

AGP Mining Consultants, Inc. and Metal Mining Consultants - eco-

nomic feasibility study and assessment of graphite resources

Thomson Engineering - environmental permitting

RELATIONSHIPS

Don

Baxter

President,

CEO Engineering

Douglas

Bolton CFO

Finance,

Accounting

Tyler

Dinwoodie

Executive

VP

Business

Development

Jean

Depatie

Chairman,

Director

Mining and

Engineering

Daniel

Goffaux Director

Mining and

Engineering

Gareth

Hatch Director

Mining and

Engineering

Alabama Graphite held its annual meeting at the end of May 2017. The

vast majority of shareholders re-elected the board of directors. The

firm UHY McGovern, Hurley LLP were approved as auditors.

Perhaps more important than the formalities of the shareholder meet-

ing are recent actions by the Company related to advisory relation-

ships. In late June 2017, Dr. Robert Cook was appointed as strategic

advisor to the Company. Cook is a widely recognized geologist with

knowledge of the geology of Alabama and the surrounding region. His

specialties are mineral exploration, environmental geology and mining.

Cook is Professor Emeritus at in the geology department at Auburn Uni-

versity in Alabama.

Cook joins other distinguished mining, engineering and technology ex-

perts advising AGC, including Randy Moore, CEO of ZAF Energy Sys-

tems, a producer of advanced batteries. The Company appears to be

building a team with expertise highly specific to its business model.

CORPORATE UPDATE

CER Focus Reports are published by Crystal Equity Research, an

alternative resource for company-specific research on small-

capitalization companies in selected industries. Our mission at

Crystal Equity Research is to provide our investing clients with

alpha-generating analysis of a company's investment potential.

We offer a non-consensus examination of financial performance

as well as value-creating due diligence on recent events and the

company's competitive position.

The work of Crystal Equity Research, LLC is guided by the Code

of Ethics and Standards of Professional Conduct set by the Char-

tered Financial Analyst Institute. We adhere to the Best Practices

Guidelines Governing Analyst/Corporate Issuer Relations adopted

by the CFAI and the National Investor Relations Institute.

New York, New York

www.crystalequityresearch.com

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are subject to change without notice. Information contained herein comes from independent sources believed

reliable, but accuracy is not guaranteed. This publication is not an offer or solicitation to buy or sell any securi-

ties. This publication does not address specific investment objectives, financial situations or particular needs of

any recipient. The information herein is provided for general information purposes only and should not be con-

sidered an individualized recommendation. The security or industry discussed in this report may not be suitable

for all investors.

All investments involve risk. All recipients are encouraged to use multiple sources of investment information and

to actively monitor their holdings. Investors may review information concerning the profiled companies available

at the web sites of the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory

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Disclosures: Neither Crystal Equity Research nor any of its employees or affiliates have a beneficial interest in

the securities of the company profiled in this publication unless otherwise specifically disclosed here.

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Crystal Equity Research received compensation for coverage of the company profiled in this publication. The

CER Focus Report subscription fee of $7,500 was paid in cash in advance by Alabama Graphite Corporation.

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