Evolution Energy Minerals - Pursuing Vertical Integration with Battery Technologies

• Evolution Energy Minerals is developing the Chulala graphite project in Tanzania, now in the project financing phase after signing an agreement with the Tanzanian government.
• A strategic collaboration has been announced with the leading anode company, Batriano (ETR) from China, to assist with financing and a unique downstream collaboration.
• Partnering with Batriano, a significant player with a 60% global market share in natural graphite, will enable Evolution Energy Minerals to become a vertically integrated producer, capturing more value.
• Vertical integration is seen as a way to capture additional margins, and most successful graphite companies globally are vertically integrated.
• There are challenges and negotiations surrounding international partnerships, especially with major players like Batriano, but the goal is to achieve vertical integration and gain a foothold in the rapidly growing market.

Evolution Energy Minerals (ASX:EV1) is developing the high-grade Chilalo graphite project in Tanzania into a vertically integrated producer of battery anode materials. The company recently signed a strategic collaboration with leading Chinese anode producer BTR to provide financing, off-take and help develop downstream processing. This positions Evolution to capture additional margin and become a globally significant vertically integrated natural graphite producer.

Major Milestones Achieved in 2022

• Completed updated Definitive Feasibility Study in March showing strong project economics including 32% IRR and 3.2-year payback period.
• Signed Framework Agreement with Tanzanian Government in April providing fiscal certainty.
• Announced strategic collaboration with BTR in August to develop downstream capabilities. BTR is the world's largest anode producer with a 26% global market share.

Strategic Rationale for Vertical Integration

Evolution's goal is to capture additional margin by becoming vertically integrated into the production of battery anode materials, rather than just selling graphite concentrate. The company has long held a desire to move downstream, evidenced by extensive test work undertaken over the last 18 months with US-based technology partners.

However, new technologies still need to be proven at commercial scale which could take 3-5 years. Partnering with BTR provides immediate access to commercially proven purification and coating technologies, enabling rapid entry into the burgeoning battery anode market. It also provides product validation from a major industry player that Evolution's graphite is suitable for lithium-ion battery applications. This should give investors increased confidence in the project.

Additionally, accessing strategic funding from BTR could significantly accelerate project development timelines.

Key Details of BTR Collaboration

BTR will provide funding and assist Evolution in developing downstream processing capabilities, likely in the USA or Europe. BTR will also purchase graphite concentrate from the project under an off-take agreement to help underwrite debt financing.

The strategic nature of this partnership is underlined by BTR's willingness to take an equity stake in Evolution. Arch Resources already owns 25% of Evolution, so BTR taking a position would bring two strategic cornerstone investors on board. BTR is looking to expand its geographical presence to supply major auto manufacturers in America and Europe. With a 60% market share of natural graphite, BTR requires new sources of supply outside China. Evolution can offer a high-quality development project and team to legitimize BTR's international expansion ambitions.

Progressing Project Funding

Evolution Energy Minerals has appointed debt advisors to coordinate a lending syndicate for the US$120-150 million in required funding. The company is targeting 50/50 debt/equity funding structure.

Multiple European, South African and Tanzanian banks have expressed interest in providing debt finance for the project. Updated due diligence reports are currently being prepared for these potential lenders. A debt funding package is targeted by end of 2022, which will leave a US$75 million equity requirement. BTR has the option to fund this requirement through a direct project-level equity investment, providing funding certainty.

The alternative is proceeding with a traditional equity raising at the Evolution corporate level. However, recent graphite project funding has proven challenging with valuations disconnected from underlying NPVs. This highlights the benefit of securing strategic investment from BTR.

Tanzania Risk Profile Improving

Evolution Energy Minerals has been active in Tanzania for over 9 years and is familiar with the changing policy environment. The current government has welcomed foreign investment through initiatives like the Framework Agreement.

This provides fiscal certainty and stability to underpin the significant capital investment required to develop the Chilalo project. Strong economic project fundamentals including 32% IRR and 3.2 year payback period mean Chilalo remains viable across a range of graphite pricing scenarios.

Outlook for Graphite Market

Natural graphite demand is forecast to grow rapidly driven by expanding lithium-ion battery manufacturing capacity. This is required to supply the surging electric vehicle market over the coming decade.

However, graphite is not yet experiencing the same supply-demand dynamics and price appreciation seen in lithium and cobalt. This is partly because China has ample domestic graphite supply. The opacity around graphite demand, pricing and specifications also contributes to muted investor sentiment towards new projects. Evolution's product validation from BTR should provide confidence that Chilalo will produce high-quality graphite suitable for lithium-ion anodes once operational.

Rising prices are expected over the next 2-3 years as demand absorbs incremental supply. Evolution is positioning to benefit through the current low-pricing environment by developing Chilalo now, with the capacity to fund expansions when prices appreciate. The strategic collaboration with BTR also mitigates Evolution's exposure to spot market pricing by securing access to a major customer.

The Investment Thesis for Evolution Energy Minerals

Evolution Energy Minerals represents an attractive investment opportunity for exposure to the graphite market, with several key advantages:

• High grade, low capex project with demonstrated economics and short payback period.
• Strategic partnership with leading anode producer BTR de-risks project and enables downstream integration.
• Positive fiscal regime in place in Tanzania and strong in-country team.
• Potential for BTR to fast-track development capital through direct project investment.
• Plan to capture additional margin through vertically integrated downstream processing.
• Product validation from off-take agreements with global industry leaders.
• Strong project fundamentals provide resilience across graphite price environments.

Leveraged to EV and battery growth

Graphite is a key component of lithium-ion batteries. As EV adoption accelerates over the next decade, demand for graphite and battery materials will rapidly increase. Evolution is positioned to benefit from this macro trend.

Scarcity value

There are very few near-term graphite projects ready to supply new battery megafactories. Evolution's Chilalo project is shovel-ready with a clear path to production. First-mover advantage in a scarce commodity market.

Margin expansion potential

Moving down the value chain into anode production will allow Evolution to capture an additional profit margin compared to selling a raw concentrate product.

Share price upside

Recent funding challenges have suppressed graphite developer valuations. Successful funding and development of Chilalo provide significant upside potential for a re-rating towards full NPV value. De-risked off-takeStrategic partnership with BTR provides guaranteed customer and revenue stream once operational. Reduces off-take risk and exposure to spot prices.

High-quality concentrate

Testing has shown Chilalo will produce a very high-quality graphite concentrate with excellent expansion and purification properties. This will be in high demand from battery manufacturers.

Financial strength

Potential strategic direct investment by BTR provides funding certainty. Balance sheet strength will allow Evolution to smoothly progress development.

Proven management

The board and management have a track record of successfully developing and financing mining projects in Africa.

Evolution Energy Minerals offers investors leveraged exposure to the battery/EV thematic via a high-quality graphite project with a strategic end-user partnership. First mover potential with limited project competition. Upside re-rating potential as Chilalo gets funded and built. Therefore Evolution is well positioned as an attractive investment opportunity.