industry report //graphite -...

INDUSTRY REPORT

//Graphite

INITIATING SECTOR COVERAGE

A Stress Test on Future Graphite Pricing

S T O R M C R O W

STRONG BUY

RGX TARGET | C$2.00

JUNE 9, 2014

Jon Hykawy, PhD

President

[email protected]

Tom Chudnovsky

Managing Partner

[email protected]

Why This Analysis Should be Regarded as Pessimistic

While this report contains some of the elements of a sector primer, it is not

intended as such. Numerous other organizations and individuals have produced

“Graphite 101” style primers, and we have decided that the market no longer

requires this sort of instructional document. While we have included some

graphite basics herein, the core message in this report is to establish a common

and pessimistic price deck for graphite, so that both fund managers and

individuals can compare graphite companies on an apples-to-apples basis, while

being confident that the worst-case scenario has been incorporated.

In order to arrive at this pessimistic price deck, we have determined the

economic limit of the market. That is, we have derived pricing on the basis of

adding sufficient supply, based on our latent demand projections, such that if

any additional suppliers enter the market, then it is very likely that prices will fall

to the point where some of the suppliers will be forced out. This should provide

comfort to the investor that a realistic, worst-case scenario (with the unrealistic

worst-case scenario being that flake graphite demand disappears) has been

taken into account. We believe, too, that our latent demand projections are

realistic and conservative.

The result is a price deck that provides a stress test for junior graphite

companies, and that a junior that can survive, or even prosper, under this

price deck will stand the greatest chance of being successful in whatever

conditions the market eventually finds itself.

-Stormcrow

See the end of report for important disclosures

mailto:[email protected]


STORMCROW Graphite Sector Initiation

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Summary

Graphite is a very old and very common material that has acquired a new sheen due to its

use in various high technology applications, chief among these being rechargeable lithium

batteries. We see a pending opportunity for a number of juniors to enter the market.

However, we also see that the current understanding of the graphite sector by the financial

industry is missing some key points.

We have taken a slightly novel tack on analysis of the industry, and have derived what we

believe is a defensible, pessimistic assessment of graphite prices through to 2020. Indeed,

we believe this deck is conservative enough that if a company can demonstrate profitability

using this deck and realistic costs, then that company will be financially successful. In

simple form, we believe that while larger flake graphite will be in increasingly tight supply,

with future prices reflecting this shortage, many of the smaller flake size ranges of natural

graphite are likely to see falling prices due to oversupply in the market.

Background — Graphite Basics

Graphite is a simple allotrope, or form, of carbon. Pure coal and diamonds are others. Graphite is a series of (relatively) loosely coupled sheets of carbon atoms, the atoms within the sheets arranged in a hexagonal array. A single-atom thick layer of these same carbon atoms is known as graphene, and has been causing no end of what we would consider, at this time, to be irrationally exuberant interest in the financial community.

Graphite can be obtained from two sources, and we could fill many pages with the details of this but do not feel it is overly relevant save for a few salient points. Graphite can be made from various carbon-rich feedstocks, including petroleum coke. The process is very energy intensive and expensive, with the feedstock being left at very high temperature for a very long time in order to allow the initial random ordering of carbon atoms to shift into the structure of graphite. The resulting synthetic graphite is chemically very pure, and depending on the chosen feedstock may have physical properties that make it of unique interest. For example, synthetic graphite is, at this point in time, the ONLY possible choice for making high-power electrodes, and is the ONLY possible choice for making carbon fiber materials.

Natural graphite can be found in various deposits, and mined. Graphite is always crystalline, but due to use we somewhat arbitrarily classify it as “jumbo” flake (+35 mesh), “large” flake (-35+48 mesh), “medium” flake (-50+100 mesh), “small” flake (-100+200 mesh), “very fine” flake (-200 mesh), amorphous (which also carries the far more technically accurate name “microcrystalline, since graphite is a crystalline material and not actually amorphous) and a final form known variously as “lump”, “vein”, “hydrothermal” or “Sri Lankan”. Amorphous graphite comes almost exclusively from China, and vein graphite’s sole point of production today is in Sri Lanka. Flake graphite deposits can be found worldwide, and vary in both grade and the distribution of flake sizes within the deposit. In general terms, the higher the in situ grade of graphite, the smaller the average flake size within the deposit. Also in general terms, the larger the flake size and the closer to 100% carbon the graphite contains, the higher the price paid.


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Exhibit 1 – Uses for Natural Graphite (2011)

Source: Industrial Minerals

The primary use of natural graphite is in refractory parts. Graphite is able to resist very high temperatures for a very long time because, although this is not obvious when one considers it being a solid lump of carbon atoms, it is able to conduct heat rapidly enough that the heat must effectively peel away the outer layer of carbon atoms, one at a time. Synthetic graphite can be used in this application, as well, but is far more expensive. And in spite of what we have written above with respect to graphite flake costs, most refractory parts are made from a mixture of large and medium flake graphite, as this lowers the quantity of expensive binders that must be used to form the final part and also reduces the amount of time and energy required to convert the part to solid graphite in a furnace. However, if a refractory component requires the highest levels of performance, then the part is made from very fine, very pure flake and a large amount of binder. The use of very fine flake reduces the potential for microscopic voids to form in the part.

Graphite has been known to humans for a very long time, but does deserve renewed interest by investors at present. The least expensive, longest lived and highest performing battery anode known today happens to be graphite. This has been leading many to predict a huge boom in graphite demand in the future, and perhaps this will occur although natural graphite is in competition with synthetic graphite and various inorganic materials for the same application. Even so, with production of graphite being dominated by China, the growing concern regarding supply chain security by end-users and the lack of new graphite mines opened in the last 10-20 years creates the potential for good new graphite mines to make money.

Exhibit 2 – Natural Graphite Production, by Country (2012)



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Of course, a major question that then immediately arises is “but how MUCH money?” And the only way to properly answer that question is to complete an analysis on the markets and to determine just where the prices for various grades of graphite may go.

The Market — How Big and How Soon

The bottleneck in the synthetic graphite industry is not a lack of feedstock, but a lack of manufacturing capacity. Turning petroleum coke feedstock into synthetic graphite can take weeks of high temperature treatment in sealed furnaces. Because of the large energy consumption, and the lack of processing capacity, synthetic graphite is expensive, with various sources conjecturing that, dependent on purity and other physical parameters, the price can range from $7,000-$20,000 per tonne.

Natural graphite comes as flakes of various sizes, down to the microscopic. As mentioned above, the larger the flake size and the higher the purity, the more expensive the graphite. A rule of thumb is that the reason that flake graphite breaks down into smaller flakes is that it is contaminated with some material other than carbon. These contaminants thus are carried at the periphery of smaller flakes, so larger flake sizes tend to have a higher graphite grade. There are both chemical and thermal techniques for purifying natural graphite to arbitrarily high levels, but these also have high associated costs.

The market for graphite powders, which includes all flake sizes down to the microcrystalline, sees competition between natural and synthetic products. According to Asbury, and with both good commercial data and physical reasons for these divisions, the markets for each are as shown in Exhibit 1. Note that “microcrystalline” is also referred to as amorphous graphite (microcrystalline being the technically accurate term). Primary synthetic is the material made within a furnace, while secondary synthetic is what is left over following the machining and processing of primary synthetic into final form.

Exhibit 3 – Suitability of Various Graphite Types for Applications

Source: Asbury Carbon

Application Microcrystalline Flake Secondary Synthetic

Primary Synthetic

Batteries x x x

Carbon brushes x x x

Conductive coatings x x x

Expandable x

Foundry Coatings x x

Friction materials x x x x

Fuel cells x x x

Gaskets and seals x

Pencils x x

Plastics x x x

Powder metals x

Refractories x x

Steel and ironn x x


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Where the above chart shows that natural flake graphite is in competition with synthetic

products, it is obvious that the largest flake and/or highest purities of natural flake are being

used. If it were possible to use the smallest and/or most contaminated flakes, then expensive

synthetic would never be considered. Similarly, where the chart shows natural flake graphite in

competition with amorphous graphite, the smallest and cheapest flake is being used.

It is also important to remember that users of graphite have been attempting to substitute

expensive synthetic graphite with less expensive flake graphite, for any application in which the

substitution is even remotely possible, for a very long time. We should not be eager to predict

a switch (say, from synthetic to natural in batteries, or synthetic to natural in electrodes) without

very good reason.

Ultimately, what we are concerned with now is how much natural graphite, and in what form, is

used in each meaningful application, and how these demands will change with time. In order

to begin this analysis, we need to know how the consumption of natural graphite was

distributed at some point in time. Industrial Minerals has provided us with some of this

information:

Exhibit 4 – Natural Graphite Uses (2011)


There are some natural limits to pricing. For example, it is overwhelmingly large and jumbo

flake sizes that are used in batteries. This graphite must be spheroidized, converted from its

flat natural shape, which could clump together and blind the material to electrolyte exposure in

a battery, rendering it useless, to a rounded shape that will maximize surface exposure.

Spheroidizing wastes graphite, requiring roughly 2.5 times the final mass in initial flake, with

the scraps sold for use in other low-end markets. But this means that if synthetic graphite

costs roughly $7,000-20,000 per tonne, which seems to be a consensus for reasonable quality

synthetic materials, then the price of even the largest and best quality flake cannot exceed

$6,500 per tonne (incorporating our estimate for the costs of chemically purifying the natural

flake graphite to the level necessary for battery use). We would argue that even during the

peak of 2011 prices, the largest flake graphite at purity of 94-97% did not exceed $3,500 per

tonne in price. However, the smallest flake is competing, in many applications, with

amorphous material or secondary synthetic scraps. This means that there is only a very weak


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floor under small flake and fine flake prices. The recent low prices of 2013 likely saw fine flake

graphite priced as low as $500 per tonne. It is conceivable that such prices could go

substantially lower, if sufficient supply enters the market.

The US Geological Survey has given us figures for the production of natural graphite in each of

2011-2013. From the point of view of our analysis, the USGS values do not vary meaningfully

from those generated by other sources, such as Industrial Minerals or Roskill.

Exhibit 5 – Natural Graphite Production, Ktpa

Source: USGS

We have evaluated a cross-section of technical papers on graphite from various parts of the

world, including China, India, Brazil and Canada. We have also combined the USGS

information in Exhibit 5 with information from Industrial Minerals and our own estimates

regarding proportions of amorphous, flake and vein graphite produced per year.

Exhibit 6 – Proportions of Sales of Various Forms of Graphite

Source: Industrial Minerals, Stormcrow

From the above, we have built a bottom-up model of demand. Growth in some industries

mirrors the growth in GDP. For example, flake use in pencils or the catch-all “other” category

are both assumed by us to grow at rates mirroring global GDP (as taken from predictions by the

World Bank and IMF). Rates for consumption in refractories and crucibles are a composite of

expected growth in the steel and aluminum industries (from the World Steel Association and the

International Aluminium Insitute).

Growth in batteries is a more complex issue. We looked to figures for electronic industry growth

from the SEMA and other research groups, but also made our own estimates with respect to the

decline in primary alkaline and other secondary battery technologies versus growth in lithium

battery use. The result is a growth rate that increases to levels of 10-11% per annum, with a

shift toward larger flake sizes of graphite as higher-quality lithium batteries are required.

Year Production

2011 1,150

2012 1,170

2013 1,190

Amorph Flake Vein

2011 55% 44% 1%

2012 50% 49% 1%

2013 49% 50% 1%


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Our figures for graphite demand by application are:

Exhibit 7 – Graphite Demand by Application, by year, to 2020, Ktpa

Source: Stormcrow

With respect to our above discussion regarding Exhibit 3, we make some assumptions

regarding the use of various flake sizes in these industries. For example, pencils likely use

the least expensive graphite possible, since flake is competing with microcrystalline. Hence,

we believe that 100% of the flake graphite used in pencils is very fine flake, with mesh size of

less than 200. Foundry coatings use inexpensive graphite, but there is some need to use

larger graphite flakes to provide necessary physical parameters such as ease of release

while also maintaining low costs. Hence, we believe that foundry coatings use 30% small (-

100+200 mesh) and 70% very fine (-200 mesh).

As a category, batteries, carbon brushes and expandable graphite use a much larger range

in sizes. Particularly in later years in this study, a higher proportion of larger graphite flake

sizes is required as more, larger and higher performance lithium batteries are needed. In

2011, we project that demand in this segment was 10% for jumbo graphite, 40% for large,

40% for medium and 10% combined for small and very fine material. By 2020, this has

shifted to 19% jumbo, 48% large, 24% medium and 8% combined for small and very fine

material. Expandable graphite preferentially uses larger sizes, medium and up, while good

lithium batteries use jumbo and large flake, replacing large and medium used in other battery

types.

Refractories, the largest segment of use across the entire study period, do not utilize jumbo

graphite in our simplified analysis, because they do not need to. Depending on price,

however, large and medium flake graphite provides for a less expensive final refractory

product owing to decreased need for binders and a shorter furnace finishing time. There is

also a proportion of small and very fine flake used, to reduce cost but also to create higher

performance refractories. We believe that the appropriate ratio here is 7% large, 27%

medium, 30% small and 37% very fine flake.

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Refractories 177 163 166 173 180 187 194 202 210 219

Batteries 127 127 129 135 146 158 171 184 199 215

Lubricants/Crucibles

51 48 49 50 52 54 55 57 58 60

Foundry 35 33 33 35 36 37 39 40 42 44

Pencils 20 20 20 21 21 22 23 23 24 25

Other 96 93 96 99 102 105 108 111 115 118


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When all this is combined, we believe that demand for the various flake sizes through 2020 is

reflected below:

Exhibit 8 – Graphite Demand by Flake Sizes, through 2020, Ktpa

Source: Stormcrow

Now, we must look to the supply side. Assuming the sources of production did not change

markedly from 2011 through 2013, the data suggest that the amounts of various flake sizes

produced would be:

Exhibit 9 – Flake Graphite Production, by Size, Ktpa

Source: Stormcrow

Based on projections of output from various regions and firms, we anticipate that the level of

incumbent supply is flat through 2016, and then decreases at a rate of 1% per year beyond

that. There are numerous concerns regarding declining in situ grade and rising costs among

current producers across China, potential consolidation and environmental issues leading to

mine closures in Heilongjiang and Shandong provinces in China, longstanding worries

regarding when the Timcal mine in Canada will cease production, and similar ongoing issues

regarding output from Brazil.

If we examine this profile for incumbent production, we see a supply shortfall of almost

100,000 tonnes in flake graphite output by 2020, between our projections of demand and the

projected incumbent supply. Obviously, this creates the potential for new suppliers to enter

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Change

(2011-2020)

Jumbo 15 15 15 16 18 22 28 37 41 45 31

Large 81 80 82 85 91 99 109 121 131 142 61

Medium 127 123 125 130 135 138 138 135 141 146 19

Small 121 114 117 121 126 130 135 140 145 151 29

Fine 161 151 155 161 167 173 179 186 192 200 38

Total 506 482 494 514 537 563 590 619 651 684 176

2011 2012 2013

+35 15 17 18

-35+48 81 92 95

-50+100 127 143 149

-100+200 121 138 143

-200 162 183 190


STORMCROW.CA 9

the business. It is easy to conjecture that four new mines producing an average of 25,000

tpa each would fill that gap, but the reality is that doing so across all size ranges of flake will

be far more difficult. Our demand projections show an increasing need for larger flake sizes,

and finding projects with this type of production profile is not trivial.

Exhibit 10 – Proportions of Flake Demand, by Year

Source: Stormcrow

We hypothesize that new supply will come from four suppliers. Our intent in a price deck

such as this is to try and determine the economic limit of the market. That is, we bring

sufficient new supply into the market such that the resulting prices allow all the entrants to

maintain positive cash flow, but additional supply would result in prices declining to the point

that at least some of the new suppliers will be forced out of business due to negative cash

flows. For all practical purposes, one can consider this price deck a lower limit, a pessimistic

analysis based on the ability to bring supply into the market as long as the new supply can

generate any positive cash flow at all.

Our list of new suppliers does include Syrah Resources (SYR-ASX) of Australia, and its

Balama project in Mozambique. Syrah has released the highlights of studies that suggest

low costs, but coupled to a very large output, 220,000 tonnes per year, of smaller flake

material. We believe that, with necessary financing, Syrah could begin production in 2017.

Readers should be aware that there are significant risks attached to the Syrah story, in our

minds. One significant risk is the ongoing sale of a very significant amount of lower value

material. While Syrah’s economics look acceptable to us assuming the sale of all its

production at our projected market prices, we have not seen details of the company ’s

announced MoU to negotiate off-take with a Chinese firm for smaller flake material (a final

off-take agreement was expected soon), and most readers would be aware that there are off

-take agreements, and then there are off-take agreements. Syrah management has also

stated publicly that removal of vanadium from the flake graphite is straightforward and easy

to accomplish. We have seen no details, however, regarding the purity of various flake size

grades down to the level of individual metallic contaminants. But our early financial

modeling on the graphite space indicates that Syrah can deliver positive economics,

assuming sale of all of its production and assuming acceptable quality, even at costs of

production per tonne that are significantly higher than those quoted in the company’s JORC

reports.

We also incorporate three other suppliers that can enter the market prior to 2017, and that

are likely to produce greater proportions of larger flake sizes. Our supply model is thus:

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Change

(2011-2020)

Jumbo 3% 3% 3% 3% 3% 4% 5% 6% 6% 7% 212%

Large 16% 17% 17% 17% 17% 18% 19% 20% 20% 21% 74%

Medium 25% 25% 25% 25% 25% 25% 23% 22% 22% 21% 15%

Small 24% 24% 24% 24% 23% 23% 23% 23% 22% 22% 24%

Fine 32% 31% 31% 31% 31% 31% 30% 30% 30% 29% 24%


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Exhibit 11 – Supply Projections by Flake Size, by Year, ktpa

Source: Stormcrow

Comparing Exhibit 8 and 11, it is clear that there is an oversupply of flake graphite on a gross

basis. However, what is more illuminating is comparing potential supply and demand on a

category-by-category basis:

Exhibit 12 – Shortfall in Production by Flake Size, by Year, Ktpa

Source: Stormcrow

Even with an overall excess supply of 350,000 tonnes of flake graphite by 2020, supplies of

jumbo flake graphite remain tight through 2017 and fall into shortfall thereafter. The supply of

large flake material is in surplus, but not at levels high enough to collapse prices. However, all

of medium through very fine flake are in dramatic oversupply under these assumptions, and

prices would be likely to collapse.

Our price projections, detailed below, were used to model earning power of each of the selected

new graphite suppliers. All of them continue to generate positive cash flow throughout the

entire period of our study. However, these producers also have some of the lowest costs and

strongest product baskets of any of the junior graphite companies globally. Should any

additional producers enter the market, the likelihood is that prices will be further depressed, and

some portion of incumbent or new producers will be forced out of business.

What is interesting is that we have recently heard reports that a significant portion of the

graphite producers in Heilongjiang province in China may be shut down for a period of time due

to environmental concerns. This may well be the root cause for the shutdown, but we believe

contributing factors to these shutdowns occurring now are likely declining prices and excess

supply, globally. Simon Moores of Industrial Minerals has estimated that these actions in China

could have impact as large as 90,000 tpa. We suspect that the impact will be limited to lesser

levels for the next two years, and no longer, in order to allow consolidated Chinese suppliers to

better compete against new entrants in 2016 and beyond.

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jumbo 0.0 2.7 3.7 2.8 5.9 8.1 9.7 1.0 -2.6 -6.5

Large 0.0 11.9 17.4 13.8 27.8 26.9 47.1 36.9 29.1 20.4

Medium 0.0 20.8 29.4 24.4 43.8 52.3 110.4 116.5 114.0 111.3

Small 0.0 23.3 31.3 27.0 45.1 48.2 119.9 118.0 115.9 113.6

Fine 0.0 32.2 42.6 37.0 54.2 58.1 112.1 109.5 106.7 103.7

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jumbo 15 17 19 19 24 30 38 38 39 39

Large 81 92 99 99 119 126 156 158 160 162

Medium 127 143 155 155 179 190 248 251 255 258

Small 121 138 149 149 171 179 255 258 261 264

Fine 162 183 198 198 221 231 291 295 299 303

Total 506 573 619 619 714 756 989 1001 1014 1026


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Price Projections

Our modeling is done in a simple-minded way, as data are not readily available to accomplish

anything more. We assume a non-linear price response to supply shortfalls and surpluses, with

an equation of the form:

where A and B are constants, Price is in US$/t and Shortfall is in tpa. Each flake type is

modeled, with known prices from 2011 through 2013 used to generate the model and then

prices projected beyond that using our projected supply and demand levels.

The results are tabulated below:

Exhibit 13 – Price Projections for Flake Graphite Grades

Source: Stormcrow

The data at present show a weak opening to 2014, but with the potential of Chinese mine

shutdowns in Heilongjiang and Shandong, along with the likely supply and demand situation, we

see 2014 graphite prices rebounding, across the range. Unfortunately, we see longer-term

prices for medium, small and very fine flake moving in exactly one direction, down, under the

assumptions that additional supply enters the market. Large flake graphite prices will likely

show significant volatility. Although the market for large flake is sizeable, entry of even one

major producer at a time can significantly move prices. By and large, jumbo flake graphite

prices should move up, and may even reach an economic ceiling by 2020.

What is clear is that low costs are crucial for new mines entering production, much more

important than maintaining recoveries at maximum levels and the like. This will likely put a

premium on projects that have high in situ grades, large flake sizes, simple mining plans and

highly amenable metallurgy. Complex flake graphite projects involving underground mining

likely need not apply, no matter how impressive their other characteristics. The costs of such a

project would likely mean that they are selling their medium and smaller flake at a loss, and this

will likely be a penalty that proves too extreme to overcome.

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Jumbo 3365 2135 1577 1726 1884 1676 1555 2596 3573 6175

Large 2514 1595 1178 1192 976 996 684 811 947 1165

Medium 2138 1514 1025 991 959 867 521 500 508 517

Small 1375 1089 855 874 806 784 476 481 487 493

Very Fine 930 689 505 524 509 493 342 347 353 359


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Conclusions

There is strong reason to believe that the graphite market can tolerate the entry of at least

300,000 tonnes of new production by 2020. Even at these production levels, new entrants are

likely to continue to make money, largely because the prices for jumbo and large flake graphite

in our price deck can carry the operation.

We view this price deck as pessimistic, a worst case scenario. Our projected demand

profiles for areas of use such as batteries are less aggressive than others we have seen, but

also fit within the growing capabilities of the global industry and do not require the construction

of any sort of “Gigafactory” or anything similar. Other areas of projected demand simply depend

on the status quo of technology used in those industries, such as steel, and the demand growth

projected by industry participants.

While we may see less capacity enter the space than our supply projections suggest, fewer

entrants would leave prices high enough to incent additional entrants over time. We are

confident in the long-term direction of the price deck we have outlined, less so (as is always true

with any price deck for any critical material) in the annual average prices shown.

The graphite sector can support a number of new entrants. We will continue to examine the

space to identify the 4-8 projects that can generate earnings in the available pricing

environment.


STORMCROW.CA 13

Keywords

Industry Graphite, mining, critical materials, batteries, battery technology, technology metals

Relevant

Companies

SYRAH RESOURCES — ASX:SYR

NORTHERN GRAPHITE — TSXV:NGC

ZENYATTA RESOURCES — TSXV:ZEN

FOCUS GRAPHITE — TSXV:FMS

FLINDERS RESOURCES — TSXV:FDR

ENERGIZER RESOURCES — TSXV:EGZ

GRAPHITE ONE — TSXV:GPH

STANDARD GRAPHITE — TSXV:SGH

ONTARIO GRAPHITE— TSXV:OGC

MASON GRAPHITE — TSXV:LLG

VALENCE INDUSTRIES — ASX:VXL

ST. JEAN CARBON — TSXV:SJL

LOMIKO METALS — TSXV:LMR

SOVEREIGN METALS— ASX:SVM

EAGLE GRAPHITE— PRIVATE

Why do we use

keywords?

We feel people who could stand to benefit from the contents of this report, are not solely ones

who already follow the specific company or sector discussed herein. As such, we hope to

provide this free service to as wide an audience as possible—and keywords help to this end.

Important Disclosures

Stormcrow Capital Ltd. (“Stormcrow”) is a financial and technical/scientific consulting firm that provides its

clients with some or all of the following services: (i) an assessment of the client’s industry, business plans and

operations, market positioning, economic situation and prospects; (ii) certain technical and scientific

commentary, analysis and advice that is within the expertise of Stormcrow’s staff; (iii) advice regarding

optimization strategies for the client’s business and capital structure; and (iv) opinions regarding the future

expected value of the client’s equity securities so as to allow the client to then make capital market, capital

budgeting and capital structure plans. Stormcrow does not provide securities trading services, equity sales or

distribution services, securities underwriting services, or investment banking services. Stormcrow does publish

research reports for general and regular circulation. With the consent of Stormcrow’s client, the client and/or its

industry sector may be the subject of an investment or financial research report, newsletter, bulletin or other

publication by Stormcrow where such publication is made publicly available at www.stormcrow.ca or elsewhere

or is otherwise distributed by Stormcrow. Any such publication is limited to generic, non-tailored advice or

opinions and should not be construed as investment advice that is suitable for the reader or recipient.

Stormcrow does not offer personalized or tailored investment advice to anyone and its research reports should

not be relied upon in making any investment decisions. Rather, investors should speak with their personal

financial advisor(s).

http://www.stormcrow.ca


STORMCROW.CA 14

Stormcrow intends to provide regular market updates on the affairs of the Company or sector discussed herein (at

Stormcrow’s discretion) and make these updates publicly available at www.stormcrow.ca. Readers who wish to

receive notice when such updates become available, should email to [email protected] with the subject heading

“Get Update Notifications”.

All information used in the publication of this report has been compiled from publicly available sources that Stormcrow

believes to be reliable. Stormcrow does not guarantee the accuracy or completeness of the information found in this

report and Stormcrow may not have undertaken any independent investigation to confirm or verify such information.

Opinions contained in this report represent the true opinion of Stormcrow and the author(s) at the time of publication.

The securities described in this research report may not be eligible for sale in all jurisdictions or to certain categories of

investors. This report and the content herein should not be construed by anyone as a solicitation to effect, or attempt

to effect, any transaction in a security. This document was prepared and was made available for information purposes

only and should not be construed as an offer or solicitation for investment in any securities mentioned herein. The

securities referred to herein should be considered speculative in nature and should be considered to involve a high

amount of financial risk where investors may lose all of their investment.

Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of

future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks,

uncertainties and other factors which may cause the actual results, performance or achievements of their subject

matter to be materially different from current expectations. No representation is being made that any investment or

security will or is likely to achieve the return or performance estimated herein. There can be sharp differences

between expected performance results and the actual results.

Dissemination of Research

Since Stormcrow does not rely on earning commission fees from institutional agency trading services, or investment

banking revenues, this research report is widely available to the public via its website: www.stormcrow.ca

Investment Rating Criteria

STRONG BUY—The security represents extremely compelling value and is expected to appreciate significantly from

the current price over the next 12-18 month time horizon.

BUY—The security represents attractive value and is expected to appreciate significantly from the current price over

the next 12-18 month time horizon.

SPECULATIVE BUY—The security is considered a BUY but in the analyst’s opinion possesses certain operational

and/or financial risks that may be higher than average.

HOLD—The security represents fair value and no material appreciation is expected over the next 12-18 month time

horizon.

SELL—The security represents poor value and is expected to depreciate over the next 12-18 month time horizon.




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