Evolution Energy Minerals - New DFS & Good NPV8, US Downstream Ideas

• Evolution Energy Minerals (EV1) is a Tanzanian graphite developer focused on coarse flake graphite and aims to supply battery anode materials, initially targeting the U.S. market.
• Their recent Definitive Feasibility Study (DFS) indicates a 17-year mine life, producing over 50,000 tons of concentrate annually. The Net Present Value (NPV) is over $330 million with an IRR of 32%.
• The project has faced delays in the past due to financial restructuring and global events, but is now development-ready. Tanzania's improved investment climate and the growing graphite market make it a promising venture.
• EV1 plans to venture into downstream graphite processing in the U.S., tapping into potential non-dilutive government funding. This aligns with the U.S.'s goal to diversify its graphite supply chain, currently dominated by China.
• Upcoming milestones for EV1 include releasing drilling results, and sustainability reports, signing an agreement with the Tanzanian government, and making key appointments for their downstream ventures.

Tanzanian Graphite Developer Poised for Growth

Evolution Energy Minerals develops world-class graphite projects, pursues vertical integration in the US

Evolution Energy Minerals (EV1) is a graphite development company focused on bringing its flagship Chilalo project in Tanzania into production to supply high-quality flake graphite concentrate to traditional markets and the rapidly growing lithium-ion battery sector.

The company recently completed an updated definitive feasibility study for Chilalo, outlining robust project economics including a post-tax NPV of $332 million and an IRR of 32% over a 17-year mine life. The manageable initial capex requirement of $120 million positions Chilalo as one of the most attractive new graphite projects globally.

Importantly, Chilalo contains a high proportion of valuable coarse flake graphite which generates strong margins compared to finer flake products. The company has also secured a binding offtake agreement covering 70% of concentrate production.

Beyond the mine development, Evolution Energy Minerals is pursuing an exciting vertical integration strategy focused on producing battery-grade graphite products in the United States to capitalize on strong demand growth from EVs and secure non-dilutive government funding support.

Definitive Feasibility Study Confirms Robust Economics

The recently completed definitive feasibility study outlines a conventional open pit mine and processing plant producing 60,000 tpa of high-quality graphite concentrate over a 17-year mine life.

Key results from the study include:

• Post-tax NPV of US$332 million and IRR of 32% based on conservative long-term graphite prices of US$1,650/t for coarse flake concentrate
• Low initial capex of US$120 million plus US$23 million contingency
• Opex of US$722/t of concentrate resulting in an EBITDA margin of 70%
• High proportion of valuable coarse flake sizes make up 44% of production. These larger flakes achieve substantially higher prices than smaller flakes.

The competitive economics are driven by Chilalo's unique geology containing a high-grade coarse flake component, as well as Evolution's detailed engineering work to optimize the flow sheet.

Management expects the initial capex to be funded 50/50 through debt and equity. The company is currently engaged with banks and aiming to finalize debt arrangements in 2023 to allow construction to commence.

Offtake Secured for Majority of Production

In January 2022, Evolution Energy Minerals signed a binding off-take agreement with UK-based Gredmann Group for the supply of 70% of coarse flake production from Chilalo.

This agreement provides cash flow certainty for a significant portion of the project's revenue. Gredmann will pay a market price benchmarked to independent reporting agencies.

The offtake agreement is for an initial 5-year term from the commencement of commercial production, with an option to extend for a further 5 years.

Prices for EV Battery-Grade Graphite Set to Increase

While industrial uses have traditionally been the major demand source for flake graphite, batteries are becoming an increasingly important part of the market. Currently, around 50% of graphite demand comes from the lithium-ion battery industry, powering the exponential growth in electric vehicles. This is expected to increase to over 70% by 2025.

As the demand share from batteries continues to grow, it is likely to have an impact on graphite pricing as has already occurred in the lithium and cobalt markets. Benchmark Mineral Intelligence suggests that graphite is currently at the same critical inflection point that sparked significant price increases for lithium and cobalt around 2018.

This demand shift should place Evolution Energy Minerals in an ideal position to benefit from rising prices as Chilalo ramps up production in the coming years.

Vertically Integrating with US Downstream Processing

Beyond the core mine development, Evolution Energy Minerals has a vision to become a vertically integrated producer by establishing downstream processing capabilities to manufacture battery-grade anode material.

This strategy offers substantial additional margin potential compared to only selling the concentrate product. The company's fine flake production from Chilalo is suitable for further processing into coated spherical graphite and purified graphite required for li-ion battery anodes.

Initial test work and analysis indicate that by leveraging the natural advantages of the project's flake distribution and purity, Evolution Energy Minerals can be cost-competitive with existing Chinese and Japanese producers.

The company plans to undertake a detailed study in 2022/23 to assess the potential for constructing a processing plant in the United States close to renewable energy supply. The excellent margins in coated spherical graphite provide the opportunity to create significant incremental value for shareholders.

Importantly, the location in the US also opens up the potential to utilize government grants and funding that are being made available to onshore critical mineral processing. This non-dilutive funding can significantly enhance project returns.

Strengthening Sustainability Credentials

Evolution Energy Minerals places a strong emphasis on ensuring its operations are sustainable and ethically produced. This focus makes the company an attractive partner for environmentally conscious customers and investors.

The 100% renewable grid power supply in Tanzania provides a significant sustainability advantage over graphite projects reliant on fossil fuel power sources.

For the US processing plant, Evolution is targeting locations with access to affordable renewable energy to maintain its low-carbon credentials.

The company is also assessing ways to reduce its environmental footprint across the entire supply chain. This includes switching to more sustainable reagents, maximizing recycling and re-use, and utilizing renewable energy sources.

Evolution Energy Minerals aims to position itself as one of the most sustainable integrated graphite producers in the Western world. These sustainability credentials are becoming increasingly important for end-users in the battery supply chain.

Supportive Environment for Investment

Since listing in 2021, Evolution Energy Minerals has made excellent progress transitioning from explorer to developer while advancing its downstream integration plans. This work provides a clear pathway to production and cash flow over the next 2-3 years.

The company is also benefitting from an improved operating environment in Tanzania following a change of president in 2020. The new administration has implemented a more favorable policy for international miners. Evolution is on track to finalize a Framework Agreement with the Tanzanian Government in Q2 2022.

With graphite demand forecast to surge on the back of EV adoption, now appears an opportune time to get exposure to this vital battery mineral. Evolution Energy Minerals provides a unique opportunity to gain leverage to both the attractive upstream mining project and growing value-added downstream processing business.

The near-term milestones, competitive advantages and supportive macroeconomic trends provide a compelling investment case as Evolution Energy Minerals progresses towards becoming a globally significant vertically integrated graphite producer.

The Investment Thesis for Evolution Energy Minerals

Favorable Project Economics

• The definitive feasibility study outlines attractive economics including a post-tax NPV of $332 million and a 32% IRR. These metrics are driven by the high-grade coarse flake component of the Chilalo deposit.
• Initial capex is a manageable $120 million with key items like plant equipment already priced. This reduces execution risk compared to larger projects.
• Strong forecast EBITDA margins of 70% highlight the profitability potential at conservative long-term graphite pricing. There is significant upside if prices increase in-line with growing battery demand.

Clear Pathway to Production

• Chilalo has all key permits and agreements in place, providing a clear line of sight to development over the next 2-3 years. Construction could commence in 2023 once financing is secured.
• The experienced management team has successfully financed and built graphite mines before, providing confidence in their ability to execute on Chilalo.

Vertical Integration Upside

• The proposed US processing plant adds significant potential upside and could be a company-maker. Evolution is well positioned in the race to onshore production of battery anode materials.
• Government funding support improves the economics of the downstream plant. Off-take agreements will help de-risk the large project.

Ideal Market Backdrop

• Graphite demand from lithium-ion batteries is forecast to grow rapidly as EV adoption accelerates. This should lead to tighter supply and higher prices.
• Chilalo will enter production just as major supply deficits are forecast to emerge in natural graphite. The project can help fill rising demand from Europe and North America.
• Tanzania is a stable mining jurisdiction and provides ra enewable power supply - both key advantages over projects in other countries.

Evolution Energy Minerals provides exposure to a high-quality graphite development project with robust economics at the early stage of a major commodity upcycle. The company also has tremendous blue-sky potential from its proposed US downstream processing strategy targeting the burgeoning EV battery sector.