Alabama Graphite to merge with Westwater Resources

Dec 14, 2017

2017-12-13 17:14 ET – News Release

Dr. Gareth Hatch reports

WESTWATER RESOURCES, INC. TO ACQUIRE ALABAMA GRAPHITE CORP.

Alabama Graphite Corp. has entered into a definitive agreement with Westwater Resources Inc., pursuant to which Westwater will acquire all of the issued and outstanding securities of Alabama Graphite.

Both Westwater and Alabama Graphite are mineral exploration and development companies with advancing American green energy minerals and materials projects. Westwater is an explorer and developer of mineral resources that are materials essential to 21st century clean energy production. Westwater holds dominant mineral rights positions in the Western United States and the Republic of Turkey for both lithium and uranium deposits, as well as licensed production facilities for uranium in Texas. Alabama Graphite is focused on the exploration and development of its flagship Coosa graphite project in Coosa county in Alabama — the most advanced flake graphite project in the contiguous United States — and its Bama mine project in Chilton county in Alabama. The Coosa graphite project represents the largest indicated mineral resource (1) of flake graphite in the United States. Alabama Graphite is also an aspiring battery materials production company. Alabama Graphite’s intent is to commence small-scale mining and primary processing operations in Alabama, and, subsequently, divert 100 per cent of primary production to secondary processing, specialty graphite production (namely, coated spherical purified graphite or CSPG, and purified micronized graphite or PMG) for use in lithium-ion and other battery markets.

(1) Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Management and the boards of directors of both Westwater and Alabama Graphite, and the special committee of the Alabama Graphite board of directors, are unanimously in support of the proposed business combination. “This combination is an excellent strategic fit,” noted Chris Jones, president and chief executive officer of Westwater.

“The timing of this transaction could not be better,” added Jean Depatie, chairman of Alabama Graphite. “Alabama Graphite’s Coosa graphite project is at the feasibility study stage, and Westwater, having excellent management and financial resourcefulness, has the experience and ability to advance our projects and enhance shareholder value at a pace and in a manner we would not have been able to achieve on our own. Furthermore, this transaction provides Alabama Graphite with much needed interim financing that protects our shareholders from equity dilution and going-concern risk.”

Highlights of the acquisition

The boards of directors of Westwater and Alabama Graphite consider the acquisition to be a compelling and fair transaction, which is expected to provide significant strategic and financial benefits to the shareholders of both companies.

Key benefits of the acquisition include:

The combination of Westwater’s in-house technical abilities and operational expertise in the production of a wide range of commodities with the mineral resources controlled by Alabama Graphite near Sylacauga, Ala., provides strategic corporate experience and a stronger balance sheet for a fast-track route to expected low-cost, specialized graphite intended to supply the existing and growing battery markets;
Provides the shareholders of both companies with exposure to an extensive project portfolio consisting of near-term and midterm resources to support the fast-growing transportation battery market through the near-term Coosa graphite project and the midterm Westwater lithium exploration properties in Nevada and Utah, as well as long-term leverage to the expected rise in the uranium price with Westwater’s uranium property portfolio;
Greatly improved access to and greater appeal for global equity capital markets through Westwater’s current listing on the Nasdaq Stock Market;
Establishment of a strong platform to continue developing a leading energy materials, exploration and development business through both organic growth and/or further corporate transactions.

Terms of the acquisition

Westwater and Alabama Graphite plan to complete the acquisition by way of a court-approved plan of arrangement pursuant to the Business Corporations Act (British Columbia), whereby each issued and outstanding Alabama Graphite common share will be purchased by Westwater, and the holder thereof will receive 0.08 of one Westwater common share, which represents a value of approximately 11.7 Canadian cents per Alabama Graphite common share based upon the closing price of Westwater’s common shares on the Nasdaq on Dec. 11, 2017. The share exchange ratio represents a discount of approximately 2.3 per cent to the closing price of Alabama Graphite’s common shares on the TSX Venture Exchange on Dec. 11, 2017. Westwater has also agreed to provide Alabama Graphite with a secured loan of up to $2-million (U.S.) to remedy Alabama Graphite’s current working capital deficit, to pay outstanding payables and to finance its essential operations until the close of the acquisition, which is targeted for April, 2018.

Holders of Alabama Graphite common share purchase warrants and stock options shall receive replacement warrants or options issued by Westwater. Pursuant to the terms of the acquisition, management, staff and directors of Alabama Graphite have agreed to surrender 8,241,000 stock options and 4,883,337 warrants so that Westwater is not required to issue replacement securities for these Alabama Graphite securities.

Currently, Alabama Graphite has 145,315,187 common shares issued and outstanding, and Westwater has 27,640,324 common shares outstanding. Upon the closing of the acquisition as currently proposed, Westwater will have 39,265,539 issued and outstanding common shares, of which approximately 70 per cent will be held by Westwater’s current shareholders and approximately 30 per cent will be held by Alabama Graphite shareholders.

The arrangement agreement also provides for, among other things, a non-solicitation covenant on the part of Alabama Graphite, subject to customary “fiduciary out” provisions that entitle Alabama Graphite to consider and accept a superior proposal, a right in favour of Westwater to match any superior proposal and an entitlement for expense reimbursement upon termination for Westwater of up to $1.5-million (U.S.), under certain circumstances.

All of Alabama Graphite’s directors and officers have executed voting and support agreements indicating their support for the acquisition and their intention to vote to approve the acquisition at Alabama Graphite’s upcoming shareholders meeting.

The acquisition is subject to all requisite regulatory approvals, court approval, obtaining all securityholder approvals required by applicable laws and such other conditions as are customary in transactions of this nature. Alabama Graphite will be seeking shareholder approval of the proposed acquisition in a meeting to be held on or before March 30, 2018. Westwater will be seeking shareholder approval of the proposed acquisition in a meeting to be held on or before March 30, 2018. The acquisition is also subject to the approval of the Supreme Court of British Columbia.

Secured loan agreement

In order to finance Alabama Graphite’s current working capital deficit, to pay outstanding accounts payable and to provide sufficient cash resources to enable the corporation to carry on its business until the closing of the acquisition, concurrent with the execution of the arrangement agreement, Alabama Graphite and Westwater also agreed to the terms of a secured loan from Westwater to Alabama Graphite for up to $2-million (U.S.). The secured loan will carry a 3-per-cent interest rate and is convertible into common shares of Alabama Graphite at Westwater’s election using a conversion price to be determined following the announcement of the acquisition. The secured loan remains subject to TSX Venture Exchange review and approval.

Should the arrangement agreement become terminated, the secured loan will become repayable on June 30, 2018; however, it would become repayable immediately if Alabama Graphite withdraws its support for the acquisition and recommends a competing transaction.

The promissory note issued by Alabama Graphite to Westwater and, if converted, the underlying common shares of Alabama Graphite convertible from the secured loan are subject to a restricted period of four months and one day, which will end on April 14, 2018, in accordance with National Instrument 45-102, Resale of Securities.

Benefits to Alabama Graphite shareholders

During the past several years, Alabama Graphite has always been able to operate and develop its business without the financial support of any revenues from its operations. It has been able to continually do this due to Alabama Graphite’s ability to procure new funds for itself, primarily from the equity capital markets. During the fall of 2017, Alabama Graphite considered a variety of financing sources and alternative financing techniques, and also considered a traditional discounted equity private placement. Alabama Graphite recognized that the capital required for its sustainability, and especially for its desired growth and project development plans, while considered feasible if pursued determinedly, would likely result in significantly discounted and dilutive financing solutions that would not be consistent with maximizing shareholder value. Accordingly, one of the important considerations of Alabama Graphite’s special committee and its board of directors in regard to pursuing and approving the transaction with Westwater was to obtain the non-dilutive interim loan financing and join forces with an impressive company with, among other strengths, superior financial resourcefulness. Pursuant to the acquisition, Westwater will add Alabama Graphite’s graphite assets to Westwater’s portfolio of green energy mineral projects in order to develop these important 21st century assets and unlock value for shareholders at a pace that Alabama Graphite would not likely have been able to do on its own. Alabama Graphite’s board of directors is unanimously pleased with Alabama Graphite’s much improved prospects for the enhancement of shareholder value over both the near and long terms.

Alabama Graphite shareholders will derive many benefits from the acquisition, including:

An expected immediate improvement in upside equity valuation potential as compared with other alternatives that were considered;
An expected significant increase in daily share trading liquidity;
Leverage the skills and know-how of Westwater’s experienced mining and operations teams;
Benefits of a higher profile through Westwater’s Nasdaq listing in the United States;
Benefits from both diversification and product synergies related to Westwater’s lithium and uranium project portfolios;
Improved short-term and long-term financing capabilities and resourcefulness.

As part of the transition period prior to the expected upcoming completion of the acquisition, Alabama Graphite’s president and chief executive officer, Donald Baxter, has agreed to resign from his officer and director positions with Alabama Graphite with immediate effect. Alabama Graphite’s board of directors appreciates Mr. Baxter’s efforts and contributions. Dr. Gareth Hatch, a director of Alabama Graphite, has been appointed as its interim CEO. Executive vice-president and corporate secretary Tyler Dinwoodie has been appointed as Alabama Graphite’s president and will assist Dr. Hatch with duties and responsibilities during the transition period. Alabama Graphite’s audit committee now comprises Mr. Depatie, Daniel Goffaux and Dr. Hatch.

Benefits to Westwater shareholders

Westwater’s shareholders will also realize many benefits from the acquisition, including:

Exposure to a new green energy commodity, which is in high demand as transportation batteries increase production;
The postmerger management team will work to further optimize the project, working in conjunction with Alabama Graphite’s customary product development laboratories in the U.S. and Canada;
The potential for Westwater to be recategorized as a mining producer sooner than may otherwise have been the case by relying on its uranium and lithium production timeline expectations alone.

The board of directors of Westwater unanimously recommends Westwater shareholders approve the issue of all consideration securities to Alabama Graphite securityholders. Westwater’s Mr. Jones commented: “This is a transformational merger for our shareholders that positions our combined company as having assembled a formidable portfolio of American ‘must-have’ green energy mineral projects, with the Coosa project being our new priority core asset. We will be meeting with all stakeholders and state regulatory entities shortly, and we are full speed ahead with development of the project in Alabama.”

Benefits for both Alabama Graphite and Westwater shareholders

In addition to the strong benefits expected for each group of shareholders, there are a number of benefits that both companies’ shareholders may enjoy, including:

More extensive portfolio of projects, ranging from potential near-term production assets (Coosa) to grassroots exploration opportunities, which better equip the postmerger company to respond to changing commodity market conditions;
Geographical concentration — the United States, as preferentially sourced graphite and other battery materials from domestic sources and companies. The postmerger company will be headquartered in Centennial, Colo., a suburb of Denver;
Expected increase in attractiveness to both retail and institutional investors;
Expected increase in trading liquidity and coverage by green energy sector analysts;
Establishment of a stronger platform from which the combined business may pursue future growth opportunities;
Cost savings due to the elimination of duplicate head office and management expenses.

Advisers

Roth Capital Partners LLC has provided an opinion to the Westwater board of directors that the exchange ratio is fair, from a financial point of view, to the Westwater shareholders. As well, Echelon Wealth Partners Inc. has provided a fairness opinion to the special committee of the Alabama Graphite board of directors, indicating that the consideration to be received by Alabama Graphite shareholders is fair, from a financial point of view, to Alabama Graphite shareholders. Westwater is represented by Hogan Lovells LLP in Denver, Stikeman Elliott LLP in Toronto, and Balch & Bingham LLP in Alabama. Alabama Graphite is represented by Miller Thomson LLP in Toronto, Dorsey & Whitney LLP in Toronto and Minneapolis, and Dominick Feld Hyde, PC, in Alabama.

About Alabama Graphite Corp.

Alabama Graphite is a Canadian-based flake graphite exploration and development company, as well as an aspiring battery materials production and technology company. Alabama Graphite operates through its wholly owned subsidiary, Alabama Graphite Company Inc. With an advancing flake graphite project in the U.S., Alabama Graphite intends to become a reliable, long-term U.S. supplier of specialty high-purity graphite products. Alabama Graphite is focused on the exploration and development of its flagship Coosa graphite project in Coosa county in Alabama and its Bama mine project in Chilton county in Alabama, as well as the research and development of the manufacturing and technological processing of battery materials.

About Westwater Resources Inc.

Westwater (formerly Uranium Resources Inc.) is focused on developing energy-related metals. The company has developed a dominant land position in three prospective lithium brine basins in Nevada and Utah in preparation for exploration and potential development of any lithium resources that may be discovered there. In addition, it remains focused on advancing the Temrezli in situ recovery (ISR) uranium project in Central Turkey when uranium prices permit economic development of this project. Westwater controls extensive exploration properties in Turkey under eight exploration and operating licences covering approximately 39,000 acres (over 16,000 hectares) with numerous exploration targets, including the potential satellite Sefaatli project, which is 30 miles (48 kilometres) southwest of the Temrezli project.

Qualified persons

Dr. Hatch, CEng, FIMMM, FIET, is a qualified person as defined by NI 43-101 guidelines, and has reviewed and approved the scientific and technical disclosure in this news release.

Jesse R. Edmondson, PG, project geologist of Alabama Graphite, is a qualified person as defined by NI 43-101 guidelines, and has reviewed and approved the geology and mineral resource estimation disclosure in this news release.

We seek Safe Harbor.

http://alabamagraphite.com/news-releases-2017/