Monday, 26 July 2021 RESEARCH REPORT

The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent, and objective views about any and all of the companies and securities that are the subject of this report discussed herein. For important information, please see the Important Disclosures on page 37 & 38 of this document.

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Monday, 26 July 2021

RESEARCH REPORT

NOVONIX (NVX.ASX) is developing a synthetic graphite anode material plant in Chattanooga, Tennessee and a cathode pilot line in Nova Scotia. There are two forms of graphite used in Li-ion batteries (LIBs): natural and synthetic. Despite the US having around 6.3Mt of natural graphite resource there is NO reserve and, consequently, NO production. Further, there is NO processing of ultra-pure synthetic graphite for LIBs either. As a result, the US imports 100% of its anode and 100% of its cathode materials primarily from China. With up to 185lbs or 85kg of graphite in an average Electric Vehicle’s (EVs) anode, this reliance on China for most of the battery supply chain risks limiting the US’ electrification aspirations. Global demand for LIB anode materials was 250kt in 2020 and BMI suggests this could grow to almost 3,000kt by 2030 and a remarkable 6,750kt by 2040. With totally exposed supply chains; Europe is moving to secure its battery materials; so pressure must be building for the US to do the same. NVX has first mover advantage as the only qualified local supplier of battery grade anode materials.

Producing the world’s highest performance anode – NOVONIX Anode Material (NAM) is a qualified synthetic graphite powder targeting EVs and energy storage systems in the US. NVX has a conditional sales agreement with Samsung SDI and a non-binding Memorandum of Understanding with Sanyo. Sales to Samsung from its Chattanooga demonstration plant start end 2021. Capacity is forecast to ramp to 2kt in 2022, 10kt by 2023, 40kt by 2025 and 150kt by 2030 making NVX the first, and possibly only, US producer of battery-grade synthetic anode material before 2025.

The world’s greenest synthetic anode – Producing synthetic graphite anode material in China is energy intensive resulting in high CO2 emissions, as inefficient open-pit furnaces take weeks at very high temperatures to convert coal/petroleum coke to synthetic graphite anode material. NVX’s partnership with furnace leader; Harper International Inc. has created an enclosed induction furnace, the first of its kind in the world. The furnace operates at lower temperatures, making production quicker and both water and energy efficient, whilst still maintaining NAM’s superior performance and lower cost benefits. From an ESG perspective Tennessee’s grid power is greener being 59% carbon free versus some 70% sourced from coal in China.

Tennessee supports first supply of US battery anode powders – Tennessee is a growing hub for EV activity. Volkswagen (VW) has been there for 20-years and will sell EVs from 2022 and LG Energy Solutions (LG, the battery arm of LG Chem) is building a 30GWh battery cell plant, with first production due in 2023. Interestingly, LG and General Motors (GM), its partner, need anode and cathode powders and given VW is transitioning to a synthetic anode material for their LIBs; NVX could be in the right place, with the right products, at the right time. US Department of Energy (DOE) Funding and Government grants – Funding is usually a big challenge for small/mid cap companies. However, the US is following Europe with significant grants, loans, tax credits and other incentives to support the build out of the EV supply chain in the US.

Valuation upside mirrors EV demand– NVX is already a qualified commercial producer and as positive announcements are made, our model will de-risk and the 12-month target price will increase. The key mid-term driver is the 3-phase anode business. Each phase is risked under 3 separate scenarios. Under scenario-1, using a blended nominal terminal NPV8 and an EV/Ebitda multiple of 12x, we value NVX 12-months out at US$5.50/share. However, as NVX de-risks its business, production will rise and the 4-year value could rise beyond $8/share. (Refer page 25). With a NASDAQ listing expected in coming months, we consider a discount to the 12-month target price, which we would normally apply, is not warranted. The reason…no other company is qualified to sell battery grade anode materials in the US. Simply put the US needs this project to meet EV demand.

Analyst: Di Brookman (BSc Hons) [email protected]

Company Information

ASX Ticker NVX

OTC Ticker NVNXF

ASX Price (/share) A$2.63

52-week Range (/share) A$0.96-$4.23

Position Relative to 52-week High -38%

Shares on Issue 404.6m

Fully Diluted Shares on Issue 432.1m

Market Capitalisation A$1,064m

OTC Av. Daily Volume (1yr) 272,000

Source Factset

Market Model versus Intrinsic Model

Current Market Capitalisation A$m 1,064

-Cash A$m 122

+Debt A$m 2

Current Enterprise value (EV) A$m 946

Current Intrinsic Value (dcf based) A$m 2,470

Net Cash % market cap % 7%

Source: Corporate Connect Research

Board, CEO & Advisors

Dr Chris Burns CEO Tony Bellas Chairman & NED Andrew Liveris (AO) NED Admiral Robert J Natter ED Trevor St Baker NED Robert Cooper NED Greg Baynton NED Dr Jeff Dahn Scientific Advisor Dr Mark Obrovac Scientific Researcher

Source: NOVONIX

NVX PRICE Chart

Source: Factset

NOVONIX Limited Application for NASDAQ listing made in May Only qualified US supplier of battery grade anode materials

Share Price & Estimated Future Price

Price in 12-months* $5.50 Current Price $2.63 Implied Change +109% * Price at end FY21/beginning FY22


NOVONIX LIMITED

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Company Summary - Building a Strong US Anode Supply Chain The only qualified supplier of graphitic anode materials in the US There is no way of getting around it - graphite is derived from fossil carbon and makes up some 25% of the EV battery by weight. Until other less carbon intensive anode options, like solid-state lithium metal or silicon, become competitive, commercial and scalable, the graphitic anode remains. It is worth considering hat it can take 10-20 years to commercialise a new battery material at scale. LIB was launched 28 years ago and Lithium Phosphate 24 years ago. BMI suggests graphitic anodes will still make up some 90% of LIBs by 2030, as solid-state and others, struggle to find scale in a market growing 10x.

The transition from Internal Combustion Engine (ICE) to EV relies on a carbon anode. Waiting for a carbonless new technology to scale is not an option.

There are two types of graphite for LIBs - natural graphite, which is mined and synthetic graphite, which is processed from carbon precursor that otherwise would have been burned as heavy or bunker fuel. China produces around 85% of the world’s natural anode and 68% of the world’s synthetic anode and, given over 64% of its energy is coal fired; both come with a high carbon footprint. With the US importing 100% of its anode and cathode requirements, primarily from China, its battery chain vulnerability is a value proposition for NVX.

Investment thesis – using a local by-product to synthesise a cleaner high performance anode material NVX is presently the only qualified supplier of synthetic graphite anode materials in the US and with its advanced cell chemistries and unique furnace technology it aims to clean up, speed up and simplify the process flowsheet to bring a low carbon, low water, low waste, light footprint, relatively low-cost and high-value battery anode material to market. To do this, NVX will be commoditising a by-product. The Tennessee Demonstration plant is under construction and conditional sales to Samsung SDI are expected to begin by the end of 2021. Sanyo, a subsidiary of Panasonic, has a non-binding Memorandum of Understanding (MOU) with NVX for undisclosed quantities. Scaling of modular furnaces could lift capacity to 2kt in 2022, 10kt by 2023, 40kt by 2025 and 150kt by 2030. NVX is also developing premium cathode powders using proprietary technology, which is undergoing product qualification with Tier-1 battery cell makers.

Recent notable corporate announcements; • Expansion of the NOVONIX Anode Materials Business (NAM, June’21) • NOVONIX seeks NASDAQ listing (May‘21) • Equity Raising for Scale up of NOVONIX Anode Materials production (Feb’21) • Emera and NOVONIX Partner on Innovative Battery Technology (Feb’21) • New 5-year R&D Sponsorship Signed with Dalhousie University (Feb’21) • US$5.57m award from the US Department of Energy (Jan’21) • Appointment of Dr Jeff Dahn as Chief Scientific Advisor (Jan’21) • Strategic Alliance with Harper on Specialised Furnace Technology (Dec’20) • Expanded Collaboration with Samsung SDI re Next Generation Furnace technology (Dec’20)

Catalysts - timeline (source Corporate Connect Research)

An EV has a direct current (DC) battery with two electrodes. In a lithium ion battery, the anode is the oxidative and thus negative electrode and the cathode is the reducing thus positive electrode. The anode is made up of graphite, whilst the cathode is made up of metals such as nickel, manganese, cobalt, aluminium and iron. The electrolyte is the medium that helps the lithium ions move from one electrode to the other during charge and discharge cycling.

Lithium ions are sourced from the cathode and stored in the graphite anode until discharge is required. Graphite is highly conductive and is all about how much energy it can store (energy density) and release energy and for how long it can keep doing this at a high level.


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Key Themes - The US Relies on Chinese Imports for Every Link in the Battery Chain • China effectively controls the price of a US EV – Put simply, the US has NO graphite production and NO natural or

synthetic graphite anode material processing thus, it imports 100% of its anode materials requirements. To complete the picture, the US also imports 100% of its anode, 100% of its cathode and 90% of its battery cell requirements and these imports primarily come from China. It is clear, China controls the supply chain for battery manufacturing and its stated goal to reach 25% of global EV sales by 2025, is a significant risk to price and supply; and thus the build-out of EVs in the US. To complicate things, BMI thinks the US needs 500kt of anode material by 2030 from a standing start of zero today.

• NVX could be the largest US supplier of synthetic anode materials by 2030 (refer p5) – NVX plans to ramp production of its NOVONIX Anode Material to 2kt within 12 months and onto 10kt by 2023, 40kt by 2025 and an ambitious 150kt by 2030. This could give NVX a 60% share of the US high performance synthetic graphite anode materials market by 2030.

• Expect more Tier-1 off takers – Already NVX has secured a non-binding MOU with Japan’s Sanyo and a conditional sales agreement with South Korean Samsung SDI. Together, these top two battery makers comprise 30% of the global market. CCR suspects other Tier-1 manufacturers, which are also customers of NVX’s battery technology arm, could seek deals with NVX. Could LG, the battery spin-off from LG Chem, the world’s fastest growing manufacturer, be next?

• NVX looks well placed to supply a growing EV ecosystem in Tennessee (refer p8) – The South Korean LG Solutions is building a 30GWh battery plant near Nashville, less than 100km’s from NVX’S anode materials plant in Chattanooga. Also, VW produced its one-millionth vehicle in 2020 from its Chattanooga plant and is spending US$800m to expand into EV production from 2022. The semi-conductor shortage hit the plant hard in 2021, so securing a local supply chain must be a priority for both VW and LG. NOVONIX Anode Material should outplay China with its greener, lower waste and superior-performing locally grown product; with proximity to both LG’s battery cell plant and VW’s EV plant.

• NAM will be one of the greenest and highest performing synthetic graphite anode materials on offer – CO2 emissions/t of production are much lower than Chinese producers due to a cleaner grid-energy mix, lower energy intensity of the NVX process, and no toxic chemicals used like hydrofluoric acid; as used in the Chinese graphite refining process.

• Cycle life supports way more than 1 million miles (refer p11 & 15) –NVX shows that after 1,000 cycles there is only a 6% fade/loss of battery capacity. NAM supports thousands of cycles, which easily supports a 1.5 million mile battery. Similar outcomes have also been recorded for the cathode. In combination improved cycle efficiency lowers the overall carbon footprint and cost of ownership. Longer life battery life = lower depreciation= slower annual decline in EV price.

• The optionality within NVX is significant. We talk mainly of the NOVONIX Anode Materials business as a key mid-term driver. However within 12 months, we suspect visibility will clear around its exciting cathode business, which we then can model in a similar fashion. This quality longer dated option lends support to our value trajectory for NVX as does the recent raising by privately listed Sila Nanotechnologies in January 2021. Sila, a Canadian silicon anode company, raised US$590m yielding a US$3.3Bn post money valuation. Sila’s product has yet to be qualified however, NVX has a qualified and scaling product and a market capitalisation of only A$1.06Bn (or US$0.78Bn).

Corporate valuation - NOVONIX Anode Materials business is key driver to valuation growth (refer page 25-28)

Scenario-1 is our preferred base case

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in A$ per share (refer page 25-28 for details)


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EV Supply and Demand – A Megatrend; 10x Growth by 2030 and 30x Growth by 2040

EVs require a graphite anode – there is no other scalable, commercial anode option at this time Graphite is the anode material in current lithium-ion battery (LIB) chemistry and is the single largest component by weight. The anode, or the negative electrode, contains up to 95% graphite derived from either natural or artificially made graphite.

In order, Turkey, China and Brazil have the largest reserves of graphite and yet 68% of global graphite production occurs in China and is then processed into 100% of the world’s high-grade spherical graphite. With access to vast coal and petroleum coke it also makes 68% of the world’s synthetic graphite. After its natural graphite is purified and purchased petroleum coke undergoes graphitisation, China’s share of global anode materials production sits at a jaw-dropping 87%.

It is obvious China sets global prices and with graphite a central tenant of EV, storage, iPhone and tablet batteries, it is no surprise that the US and Europe, which both import 100% of their anode and cathode requirements from China, include their associated precursor materials in their critical elements list. China’s cathode market share is still material close to 60%.

Natural graphite is mined carbon and often associated with impurities requiring purification to yield high quality battery-grade graphite with a purity of 99.95%, whilst high purity synthetic graphite is produced from carbon by-products of the petroleum and coal refinery process. Coking the residue remaining from petroleum refining results in a high purity form of carbon, called needle coke, so when NVX acquires the petcoke, no additional purification is required. However, graphitisation, a high temperature and energy-intensive process, is still required. Enter Harper, NVX’s technology partner, with its energy efficient furnace.

The unique furnace technology combined with NVX’s patented DPMG methodology enables semi-continuous graphitisation at lower temperatures - without loss to battery performance. From an ESG perspective, lower temperatures consume less energy and water/t of output and Tennessee’s grid power is 59% carbon free versus China’s, which is majority coal fired.

In North America there is one operating graphite mine in Quebec, however the mine is nearly depleted. There are a few new vertically integrated mine/anode projects in Canada and the US, which are under consideration. However, the path to qualification and production is often long and product performance, in most cases, remains unknown. To adhere to the US Government’s “Made in America” policy, a big focus on graphite will be necessary as it makes up to 25% of the EV battery by weight and as suggested by both BNEF and BMI, will remain the dominant anode chemistry for the next decade.

First mover advantage will be very important for prolonged and sustainable production of US-based anode powders.

Global EV stock is low; and supply chains are very China centric

In Europe, there are 500m people and 3.1m plug in passenger EVs in stock, whilst in the US there are 330m people and 1.8m EVs in stock. Uptake to date has been slow, but as costs come down and European bans on new ICE sales from 2025-2030 become effective, demand for battery materials will only become more frantic as there were only 12m EVs in the global fleet (incl. hybrid, trucks, vans and buses) at the end of June 2021. BNEF suggests the fleet could rise towards 170m by 2030. That is an extraordinary growth of 158m in EV fleet size in less than 8.5 years.

Globally, BMI has a line of sight to 211 gigafactories supporting battery capacity of 3,971GWh by 2030. As electrification is really about EVs, grid storage and personal tech, BMI forecast total LIB demand for 2030 at 2,430Ghw, suggesting a capacity utilisation factor of just 61%. This suggests there is room for the market to grow. So where is the problem? Again it seems to be with the battery precursors. If global utilisation were to rise towards 100% of capacity then some 4.7mt of anode material could be required. If LIB demand forecasts were met then 2.9mt would be required. The problem is only 600kt was produced in 2020. This is only half the story, as growth also collides with shifting supply chains and absent local supply.

The system could be de-stressed if solid-state batteries are commercial at scale by then. However, as discussed earlier, BMI considers solid-state could just account for 10% of supply in 2030.

The average size of a new gigafactory is 30GWh. A GWh of battery capacity requires 1.2kt/year of anode. Thus, the average 30GWh plant would require 36kt of anode materials to make 0.5m EVs/year. The issue is, the yield for natural graphite is just 40% 60%, so around 2kt-3kt of mined graphite is required to yield 1kt of natural anode powders. Using the proprietary DPMG process, NVX has achieved recoveries of nearly 100% in the lab for its anode and cathode materials.

Gigafactories 2030 (As of May 2021)

Source: Benchmark Minerals Intelligence & CCR

3 7 14 25

70

181211

0

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2015 2016 2017 2018 2019 2020 2021


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Electrification is about EVs, grid storage and portable electronics. Globally, BMI forecasts 211 gigafactories by 2030 supporting a battery capacity pipeline of 3,791GWh and a demand forecast of 2,430GWh. Within this picture, BMI suggests EVs could account for 1,928GWh or 79% of global battery demand by 2030. BMI suggests the US could require 500kt of battery grade anode material by 2030. This certainly seems a challenge from a standing start of just zero today. BMI also forecasts that synthetic anode could comprise 45% of total US anode material demand by 2030. This suggests, NVX’s target of 150kt could see them producing 60% of US synthetic demand by 2030. However, as we stand today – NOVONIX are the only qualified anode materials supplier in the US and its exciting cathode business is only 2-3 years behind. A combination of single crystal technology and the DPMG processing method will support a long battery cell life.


NOVONIX LIMITED

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Global EV demand – Demand up 137% year on year, but EV sales still only 5% of all cars sold

Despite the COVID pandemic and a 14% fall in total passenger car sales in 2020, BNEF suggests global passenger EV + hybrid sales grew 39% to 3.1m units. By the end of 1Q21, global growth was up 137% year on year (yoy) and BNEF forecasts suggest global sales for 2021 could rise to 4.4m units, representing an increase of 41% yoy. Despite this strong improvement, global EV sales represented only 5% of all new car sales. So, we really are talking about strong growth from a low base.

Within these numbers, US EV plug-in passenger sales increased 4% to just 0.3m, whilst total car sales declined 15%. In Europe the switch to EV was greater with passenger plug-in EV sales increasing an amazing 137% to 1.3m, whilst car sales declined 24%.

A couple of things here to note: • Peak ICE sales occurred in 2017 and will take decades to get to zero emissions across the transport sector; and • The US with 0.3m units lags Europe and China, which sold 1.4 and 1.35m passenger EVs respectively in 2020.

In a recently released BNEF report titled ‛Electric Vehicle Outlook 2021’, it forecast global passenger plug-in EV annual sales could rise strongly from 3.1m in 2020 to 14m in 2025, 30m in 2030 and 65m by 2040. This would increase the global EV inventory from 12m today to 56m by 2025 and 169m by 2030. This represents huge growth of 13x in 9 years.

However, it gets worse. Under a zero emissions target scenario to 2050, run by BNEF for the first time, it sees 218m passenger EVs required by 2030 to ensure the 2050 zero emissions target can be met. That is a massive growth of 17x in 9 years.

In this context, BNEF suggests the global EV segment could represent a US$7Trillion market opportunity by 2030, growing to US$46Trillion by 2050 - this is unquestionably a systemic megatrend. The rub here, unfortunately, is that from an anode and cathode precursor perspective, it is not just EVs that are going electric. There will be continuing demand for electronics, trucks, commercial vehicles and long-life storage systems. Such is the challenge for some and the potential reward for others.

Looking at batteries to fuel the electrification of all, NVX believes the important drivers of growth centre on coulombic efficiency, cycle life and price (refer p11, 15 & 20). When the price is right, the broader population will accept EVs.

EVs in Europe – 3m EVs in stock and aiming for 30m by 2030 • Europe’s battery manufacturing capacity was just 28GWh at end 2020. However: • Europe is currently fastest growing EV market – with 42% of global EV sales in 2020 and 30% of EV + hybrid stock; and • Strong policy support fuels growth – aiming for 30m EVs by 2030, that is growth of 10x.

Europe’s battery capacity was 28GWh in 2020 and if all battery capacity in the pipeline is developed BMI suggests 601GWh could be built by 2030, which would require around 720kt of battery anode materials capacity.

Currently, Europe has no battery grade graphite or synthetic graphite production so it imports 100% of its battery grade anode as well as 100% of its cathode requirements. NVX has indicated interest in European anode and cathode materials markets through local partnerships.

What drove the European market in 2020? Tough emissions regulations and impressive Government incentives clipped the economics of the ICE and made Europe the fastest growing EV centre globally, where EV sales rose an impressive and rather surprising 137%, despite total car sales declining 23% during the pandemic. Momentum is clearly shifting away from the ICE?

What did the European market look like in 2020? The European plug-in passenger EV fleet size at the end of 2020 was 3.1m against a population of 500m, yielding a penetration rate of <1%. Thus, to meet the European Commission target of 30m zero-emission cars by 2030, with 90% of this supply to be sourced from within Europe, there is much work to be done.

How did this compare with China and the US? In 2020, China’s EV sales increased a more subdued 12% against just 4% in the US. Looking at battery capacity, China accounted for 72.5% of LIB capacity, against the US at 9.2% and Europe at just 5.4%.

EVs are now a core business segment for German car manufacturer VW, which plans to expand aggressively into Europe and the USA. In Europe, it plans to construct six 40GWh battery plants, which could consume some 290kt of anode materials/year.

Recently, the EU announced new car regulations, which include mandatory recycling and CO2 footprint declarations on new passenger car sales from 2024. The EU wants to also achieve a recycle efficiency of 65% by 2025 and 70% by 2030. Recycled content declarations will be needed by 2027 and minimum recycle content must be made available by 2030. Currently, a car records fuel consumption details but from 2024 details on CO2 footprint will also be required and from 2026 carbon intensity labelling will be required. This could become important for NVX if it sells product into Europe, as petroleum coke, the feedstock for synthetic graphite, is considered a by-product of petroleum refining, which would otherwise be burned as bunker fuel.

https://bnef.turtl.co/story/evo-2021/?teaser=yes


NOVONIX LIMITED

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EVs in the USA – currently imports 100% of anode and cathode materials requirements • US LIB capacity was 42GWh at end 2020; sales were sluggish and fleet size remains very low • High growth potential as supply chains localise away from China, and EV costs approach parity with ICE • NVX to produce superior local synthetic anode & cathode powders; and • Expected to pick up more grants and Government loans to fund substantial growth

If BMI’s forecast for US battery capacity of 409GWh by 2030 is met, then some 500kt of locally processed battery anode materials could be required. If 50% of that supply is sourced from synthetic graphite, then NVX could be the sole producer of synthetic anode material in the US. We are currently not aware of any other party looking to produce battery grade synthetic anode material in the US and are intrigued that the volume referred to by BMI in the adjacent chart, looks similar to the 150kt that NVX seeks to have installed by 2030.

The global trend towards EVs in 2020 was also evident in the US, where EV sales rose by 4% to 0.3m units and total passenger car sales declined by 15%. However, with a US EV fleet size of only 1.8m and a population of 330m, there is much work to be done.

Despite global growth potential of 9-10x, BNEF suggests the US share of global battery manufacturing capacity could decline from 9% in 2020 towards 6% in 2030 as European demand surges on the back of tough European emissions regulations and China continues to set prices and dominate global supply by 2030. BMI explained it well; ‘China is building one battery gigafactory a week, the US one every four months’. The US has little supply chain resiliency and that is its vulnerability. The greater demand is for EVs within China, the greater the risk that its anode, cathode and battery-cells are NOT available for export to the US.

How dominant is China? 100% of natural anode and 68% of global synthetic anode is refined in China. In short, China controls the global midstream battery chain by controlling 60% of global chemical refining, 87% of global anode manufacturing, 61% of global cathode manufacturing and 73% of global battery manufacturing. It is battery supply and price domination at scale.

How reliant is the US? The US presently imports 100% of its natural and 100% of its synthetic anode powders, as well as 100% of its cathode powders and 90% of its battery cell requirements. Remember, BMI suggests graphite could still make up 90% of the anode market by 2030. Also, there is risk the US might be vulnerable to political, environmental and social interruptions that could hinder the build out of its locally grown supply chains.

Is there time to secure local supply chain? The bottleneck is the time and cost it takes to develop locally grown battery materials; a problem as the US has no graphite, nickel, cobalt and very little lithium production. Development can take 5-10 years and building scale even longer. However, securing contractual offtake agreements with friendly countries would reduce supply vulnerabilities. As for NVX, the US is the worlds largest producer of petroleum coke; a feedstock for its synthetic anode.

In 2021, the US already has the following 5 battery plants in production:

• Tesla Gigafactory (Sparks, Nevada) • Tesla Pilot Plant (Fremont, California) • Envision AESC (Smyrna, Tennessee) • LG Energy Solution (Holland, Michigan); and • SK Innovation (Commerce, Georgia).

To meet forecasts, the US is building-out its EV battery ecosystem across 3 battery hubs:

• Hub 1: Tesla West • Hub 2: New Detroit; and • Hub 3: EV South (NVX is located in this hub).

BMI tries to remain upbeat despite the looming challenge ahead: “The good news for the US is that four of the 6 tier-1 lithium ion battery makers are already operating in the USA”. BMI considers that, “Between now and 2030, the U.S. needs to build 20 more battery plants, maybe 10 if they’re really big,” to serve automotive demand. “That means you need them established by 2027, which means you have to start work on them in 2023.”

Future Synthetic Anode Capacity (t/year)

Source: Benchmark Minerals Intelligence & CCR (As of May 2021)


NOVONIX LIMITED

Page 08 of 38

The Biden administration has declared a “clear emphasis on a low-carbon or zero-carbon future.” It is seeking to align with Europe’s mission for the first time in many years, however further policy support will be required across Government and through the battery supply chain. To date, the US President has pledged to:

• Convert the 650,000 Government-owned vehicles to EVs • Convert 500,000 school buses into EVs made in the USA • Invest US$5Bn into battery research and build 500,000 charging stations by 2030; and • Commit to carbon-free electricity by 2035.

In a clear showing of what can happen when policy support aligns with customer needs, GM announced the very next day it would ban the sale of new ICE vehicles by 2035 and commit US$27Bn to bring 30 new models to market and by the end of that week, carmaker Ford revised upwards its investment from US$22Bn by 2023 to US$30Bn by 2025. Further, VW recently announced plans for 50% of its US sales to be electric by 2030. Refer below section to see how NVX may get involved.

The Tennessee connection - VW plant, LG Energy Solutions’ 30GWh battery plant and NVX battery powders

In 2020, VW produced its one-millionth vehicle from its Chattanooga plant in Tennessee. In Europe, VW has been using pouch cells from SKI and LG Energy Solutions (the battery arm of South Korean LG Chem). However, as a result of a recent legal battle between the two South Koreans, VW now plans to switch to a prismatic cell format. LG Energy Solutions (LG) has shown interest in supplying prismatic cells, which they also plan to produce for GM. Like others, VW’s Chattanooga plant has been suffering semi-conductor supply issues. As a result, VW is likely to prefer locally made battery cells over imports in its US$800m Chattanooga expansion.

With highly automated EV production planned from 2022, supply chain issues fresh in mind and a preference for synthetic anode materials, it seems likely that VW would buy local synthetic anode materials over lower quality imports from China. As we have seen with the pouch cell and superconductor saga, diversification and localisation of the supply chain is critical.

Ultium is a Joint Venture (JV) between GM and LG. The JV plans to build four battery cell plants in the US. The first 30GWh plant will be located in Ohio, with a start date of 2022, and the second US$2.3Bn 30GWh battery cell plant will be located near Nashville Tennessee, with a production start date of 2024. The battery will be made in Tennessee and likely transported to GM’s auto plant in Detroit.

Samsung SDI is considering establishing its first battery cell plant in the US. What is interesting from Tennessee’s perspective is that Samsung is the only party to qualify the NVX product, and has a conditional sales agreement to receive 500t of anode material from NVX. Will Samsung sign a long-term contract…most likely…will Samsung build a battery cell plant in Tennessee…maybe.

Whatever, Samsung finally decides, it is clear that a battery ecosystem is building out in Tennessee and co-location is a popular thematic driving partnerships:

• LG is the second battery manufacturer, after Panasonic, to put its batteries in a Tesla vehicle. It has been reported that LG, alongside Panasonic, is manufacturing the cylindrical 4680 format cells for Tesla

• LG licenses its NCM battery technology from 3M, a large US company, which sponsored Dr Jeff Dahn’s NMC patent in 2015. Thus, LG and Dr Dahn are well known to each other. Dr Dahn is also Chief Scientific advisor at Tesla. He also, holds the same role at NVX; and

• LG has a multi-year 2170 cylindrical battery cell format supply contract with Lucid Motors, which has a plant in Arizona. The Chairman of Lucid Motors is also a Non-Executive Director of NVX

Tesla’s 4680-battery cell can take NVX anode and cathode materials During Tesla’s Battery Day in September 2020, Tesla indicated it would make the bigger cylindrical 4680-battery cell format in-house.

However, given the high demand and skill set required, it also looks set to use LG, which makes cylindrical NCMA 2170 cells for the Tesla Model Y at the gigafactory in Shanghai.

NVX have suggested that their proprietary DPMG process would be expected to work in any cell format including the exciting 4680-battery cell format.


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Page 09 of 38

The Supply Chain – Localising Supply Chain and Focus on the Circular Economy

De-globalisation of supply chains is colliding with a generational shift in demand

A confluence of factors is driving EV demand, such as the regionalisation of supply chains, the EV approaching the cost of the ICE, policy support, legislative change, a growing number of EV models and a growing customer and investor consciousness that points to a systemic change in thinking and behaviour.

It is clear in the short to medium term that there is a paradigm shift to the e-mobility megatrend brought about by Environmental and Social Governance (ESG) and clean tech investments and the desire to localise supply chains in the shortest time possible. These powerful and concurrent drivers are enabling disruptive technologies across the entire battery supply chain. NVX, with its technology partner Harper, is positioned well to capitalise on material that is necessary to ensure gigafactories have commercial and scalable quantities of anode material to meet industry forecasts for EVs. Solid-state batteries still have performance hurdles to clear. When that job is done, scaling up to meaningful quantities could take another 5 years.

It is clear, the EV industry can’t wait for solid-state to be commercial; it must move forward with a graphitic anode; in the most sustainable way possible. The same can be said for the cathode; although carbon is not in the cathode the precursor metals often carry their own trail of carbon. Each link in the mining and processing chain must take responsibility to do better.

Investors should be looking at companies who are bringing new mining and processing technologies to market, which better enable the EV to compete with the ICE, not just on a price basis but at a socially-conscious level as well.

China has a clear advantage over all in the strategic lithium ion battery space

Source: White House – 100-Day review under executive order 14017

Supply chain localisation is required to better manage input pricing

Whenever a supply chain is controlled by a monopoly or foreign country, the greater the supply and price risk to the third party. Managing exposure risk to China is paramount and the localisation of supply chains is key to achieving this.

In December 2020, BMI forecast 181 EV gigafactories globally by 2030. However, recent forecasts have already risen to 211 and continued policy support and forecasts only appear to have upside. The problem is, only 12 of these gigafactories are currently planned for the US, 22 for Europe and 156 for China. Only 21 gigafactories are located outside of these locations.

The Department of the Interior & White House now recognise synthetic graphite in own category

The US Department of the Interior recently reviewed the Critical Minerals List (CML) ‛https://pubs.er.usgs.gov/publication/ofr20211045’. The Department and the White House, in its 100-Day Review ‛100-Day Reviews under Executive Order 14017’, de-emphasised the importance of natural graphite in the CML instead expanding the graphite reference to include both natural and synthetic graphite.

Why? It seems they both see a pathway where the US could become a significant supplier of synthetic anode materials.

This seems strange, as there is no current battery-grade synthetic graphite produced in the US. However, there is one qualified US supplier of synthetic graphite, which plans to produce material volumes of anode powders, and that is NVX.

Is this what the White House is referring to?

23%

80%66% 73%

0%

25%

50%

75%

100%

Upstream mining Mid Stream Chemical; Refining Mid Stream Anode & Cathode Downstream LIB Cells

https://pubs.er.usgs.gov/publication/ofr20211045

https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf

https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf


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Battery Technology Solutions (BTS) • NVX believes it has the most accurate proprietary ultra-high precision battery testing equipment • Is able to grade battery materials 75% faster than its competitors • Can manufactures pouch or cylindrical cells through its in-house cell manufacturing pilot line • New Dry Particle Microgranulation methodology lowers processing costs of anode and cathode materials • Single Crystal technology lengthens battery cell cycle life – leaving room for large 2nd life applications (V2G)

BTS, located in Halifax, Nova Scotia, was co-founded by Dr Chris Burns in 2013 using technology spun out of Dr Dahn’s lab at Dalhousie University in 2010. Dr Dahn, who is Chief Scientific Advisor at Tesla, joined NVX as its Chief Scientific on 1 July 2021. Dr Dahn will retain his role at Tesla but will be assisted by additional scientists, freeing him up for the NVX challenge. NVX has also renewed its 5-year partnership with Dalhousie battery researcher, Dr Obrovac.

The advanced battery testing system forms the centrepiece of BTS a 100% subsidiary of NVX. The technology allows BTS to accelerate the development of new battery chemistries and qualify battery precursors chemistries in weeks rather than months.

NVX believes its Ultra-High Precision Coulometry, “is the most accurate battery materials and cell testing technology in the world” and its global Tier-1 client base lends support to its claims. NVX’s proprietary process is used to diagnose battery chemistry stability enabling reliable comparisons and predictions of the lifetime performance of lithium-ion cells; providing results in weeks rather than months. Importantly, this Ultra High Precision technology supports a more rapid progression through battery R&D and NVX indicates this enables, “researchers to characterise lifetime and evaluate the impact of small changes to battery design on long-term performance in short-term experiments”.

BTS undertakes cell design, testing and prototyping for clients and can manufactures pouch or cylindrical cells through its in-house cell manufacturing pilot line. Demand for the cell line and R&D services has been strong. Recently, NVX successfully tested Lakes Resources Ltd lithium carbonate when it manufactured a NCM622 cell for in-house performance qualification.

NVX is particularly excited about using its patented DPMG processing technology in both the anode and its SC NMC 622 cell chemistries. The DPMG method reduces waste by increasing yields to nearly 100%. Given the cathode and anode account for nearly 50% of the battery cost, this is expected to have a material impact on cell manufacturing costs.

BTS’s R&D, in conjunction with its partnership with Dalhousie University, has seen patents submitted for: 1. DPMG – new manufacturing method for anode and cathode battery cell chemistries 2. Single Crystal Cathode (SCC); and 3. Advanced Electrolyte.

Single Crystal (SC) technology + DPMG across cathode and anode = superior whole battery performance • Tesla and Samsung are looking at using single crystal cathode • SC cathode leads to less particle cracking and less capacity loss, leading to longer cycle life; and • Proprietary outcome use - DPMG to synthesise a single crystal, very little fade, patented process

When Dr Dahn’s Dalhousie team wrote a paper on SCC in late 2019 titled ‛A Wide Range of Testing Results on an Excellent Lithium-Ion Cell Chemistry to be used as Benchmarks for New Battery Technologies’, it referred briefly to single cell NMC pouch cell chemistries capable of doing over one million miles and lasting over 20 years in grid storage.

In a recent interview with the Nickel Institute titled ‛A Conversation with Prof. Jeff Dahn’, Dr Dahn repeated the findings of the above paper saying they, “…had taken SEM images of single crystals materials after 5,300 cycles and we don’t see any evidence of microcracking”. With that initial work done 3 years ago, Dr Dahn suggests the SC NMC532 cells are still running noting “the room temperature cells are out now to about 9,500 cycles with less than 10% loss so they are really pretty incredible”.

If CCR assumes a range of 300 miles/cycle, then 9,500 cycles could support a battery life of 2.85m miles; with only 10% battery degradation and not the 20% that results in fade and often signals the end of a battery’s use in an EV.

Dr Dahn explains the significance of a SC: “A single crystal particle, by contrast, is one crystallite that might be a two to three-micron particle. That’s an entire single crystal where there are no grain boundaries at all, so the whole thing expands and contracts as a unit”. This compares with conventional polycrystalline materials where multiple particle sizes lead to multiple particle boundaries, side reactions and large volume changes during battery charge/discharge cycling, resulting in cracking and capacity loss with time. Capacity loss leads to reduced cycles and this to reduced battery life.

https://iopscience.iop.org/article/10.1149/2.0981913jes

https://iopscience.iop.org/article/10.1149/2.0981913jes

https://nickelinstitute.org/blog/2021/january/single-crystal-ni-containing-cathodes-a-conversation-with-prof-jeff-dahn/


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When asked, Dr Dahn suggested the cell had a 100% depth of discharge (DOD) cycling for 3 years at a rate of 1C/1C…meaning 1- hour charging followed immediately by a 1-hour discharge all the way down to 0%. This is tough on the battery but Dr Dahn suggests single cell chemistry stabilises the cathode and will probably outlast him. It is clear there is already an EV battery capable of lasting well over 20 years and explains NVX’s interest in long-life Vehicle to Grid (V2G) applications (refer p22).

A key difference between the two: Dr Dahn’s used a single crystal NMC532 chemistry, compared to NVX’s nickel-rich single crystal NMC622 chemistry. NVX also cycles at 3C/5C, using an 80% DOD at a temperature of 40 degrees Celsius.

The benefits of a high cycle / long lasting battery: • Supports a lengthy 2nd life of battery, required for grid and V2G storage • Supports robo-taxis, long-haul trucks and transit buses • Better manages the carbon shock/GWh associated with EVs • Reduces capex/GWh, thus significantly reducing the cost of the EV • Lower capex means lower depreciation, which enables battery to hold value for longer; and • Reduces the amount of battery waste for recycling and should work in all NMC chemistry settings.

In October 2020, Dr Mark Obrovac introduced DPMG in the article titled “All-Dry Synthesis of Single Crystal NMC Cathode Materials for Li-Ion Batteries”. This proprietary process is owned by NVX under a research partnership with Dr Obrovac. Co-precipitation has been the standard process used to generate a single crystal. This is the process Dr Dahn’s team used in its work to synthesise the SC NMC cathode precursors. The DPMG process introduced by Dr Obrovac has a similar capacity, first cycle efficiency and low polarisation as other commercial single NMC crystal cathodes (refer p20), whilst also gaining certain processing efficiencies. The cathode enables the use of metal oxides rather than toxic metal sulphates.

So what can an NVX cell achieve? NVX’s work below clearly shows that under all circumstances the single crystal SC NMC622 cathode provides a superior cell capacity and greater cycle life compared to the standard polycrystalline NMC622 cathode.

Also, when the NAM materials product and NVX-patented electrolyte is used alongside the NOVONIX Cathode Materials (NCM), the capacity of the cell shows significant outperformance. It seems the addition of its anode material to the anode, increases battery life from just over 1 million miles to 1.5 million miles. NVX suggests its complete battery has a cycle range of 330miles at 40 degrees Celsius. Back calculating suggests NVX’s complete cell can achieve a very impressive 4,545cycles.

We note that NVX is basing its results on a temperature of 40 degrees Celsius against Dr Dahn’s work on a single cell NMC532 cathode done at 25 degrees Celsius. The higher the room temperature during cell testing, the lower the cycle life of the cell. This may account for some of the difference in Dr Dahn and NVX’s work. Bottom line – they are both very long-life batteries.

The results suggest NVX has a complete cell technology, which gives it a significant performance and, thus, market advantage.

https://iopscience.iop.org/article/10.1149/1945-7111/abbcb1

https://iopscience.iop.org/article/10.1149/1945-7111/abbcb1


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NOVONIX Anode Materials (NAM) – Aims to be a Tier-1 Supplier of Anode Powders • Only qualified US-based supplier of synthetic anode material • Replace Chinese supply, cheaper, energy efficient and better performance; and • Proprietary process no purification required, no acid and strong ESG focus

Next generation anode materials – Only qualified US producer of battery grade anode materials

NVX aims to create a synthetic graphite anode supply chain in the US by producing a high performance, environmentally friendly, cost competitive, synthetic anode material under the brand name NOVONIX Anode materials (NAM).

Graphitic materials/powders make up to >95% of the anode and is composed of layers of carbon atoms that lithium ions move in and out of during charging and discharging. Natural graphite undergoes speroidalisation to improve its coulombic efficiency. This is not necessary with petroleum coke, which is a more consistent material than natural graphite. Although there have been recent material improvements in the consistency of natural anode product; its performance against synthetic materials still lags.

So, to get the best out of an anode, manufacturers often use a blend of synthetic with natural graphite anode materials to balance performance with cost. However, VW has indicated a preference for 100% synthetic anode materials as it moves forward with 2nd- life or long-life V2G applications.

Making synthetic anode can be an expensive, energy-intensive business. However, NVX is balancing this out with:

• DPMG manufacturing method, combined with • Energy efficient furnace technology; and • Renewable and nuclear-sourced power.

NVX expects DPMG processing combined with the new furnace technology will increase yield recoveries from 75% to over 90%, compared with 40%-60% currently achieved in China. Lab testing has DPMG yield recoveries at 100%, however we assume some loss in our model to minimise scaling risk.

With the aid of renewable power and its new furnace technology, NAM will be one of the world’s most energy efficient and greenest synthetic anode powders on the market.

LFP chemistries have come a long way in the last 12-18 months due to silicon doping of the graphite. Silicon absorbs up to 10x more lithium than graphite, leading to an increase in energy density. However, silicon expands up to 300-400% when a current is put into it and contracts when the current leaves, thus destroying fine particles, leading to a significant decline in cycle life.

As cycle life is key, NVX considers silicon could become an unnecessary distraction, as there is no storage cell with silicon in it at present.

The NAM product is currently not doped with silicon. However, given NVX holds a patent from work performed by Dr Obrovac on the silicon infusion of graphite particles, we remain confident it will be leading the science in this space if required.

When a cell fades to 80% of its original capacity it can be repurposed for its second cell life within grid energy storage systems.

This extension to operating life below 80% of its capacity, allows for a more efficient amortisation of the carbon footprint associated with the LIB and this goes a long way to reducing concerns around high lifetime emissions when compared to the ICE.

So, how much graphite goes into an EV? BMI suggests a 30GWh battery gigafactory consumes 36kt of battery anode materials and a Tesla Model S 75kWh battery pack contains up to 85kg of graphite in the anode. Even a smaller 50Kwh battery carries some 60kg of graphite in the anode and, not to be forgotten, a hydrogen fuel cell also requires around 85kg of graphitic anode materials. However, each FordF150 Lightening truck requires a massive 450lbs or 204kg of graphitic materials in the anode.

Over the next 8 - 10 years, demand for battery-grade anode will certainly be high and first mover advantage will be paramount.

As the only qualified synthetic graphite anode materials supplier in the US and the undeniable superiority of its synthetic anode materials product branded as NAM, NVX appears to be in the driver’s seat.


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The NOVONIX Anode Materials (NAM) – mass production lines are operating and scaling

• Agreement with two of the world’s largest manufacturers • Generation-3 furnace is due end 2021, furnace qualification and Samsung re-qualification early 1H22; and • Anode material processed by Generation-3 furnace, has already been internally qualified by BTS

The 100% owned NOVONIX Anode Materials subsidiary was established in 2017 to commercialise its synthetic anode product. A 40,000sqft plant in Chattanooga, Tennessee will support contractual sales to Samsung SDI from end 2021. A recent lease option was exercised lifting floor space at the site to 120,000sqft. NVX has suggested prior that this increase in floor space could lift production capacity towards 5kt of product. Samsung is presently looking at building its first cell plant in the US and given co-location is an important thematic in establishing an EV ecosystem – Tennessee cannot be ruled out as the chosen location.

NVX is under contract to purchase and retrofit the 400,000sqft “Big Blue” plant previously owned by ALSTROM. This 2nd plant, in Chattanooga will underwrite at least another 8kt of productive capacity, meeting the NVX target of 10kt in by end 2023. NVX is also currently in the planning and engineering stage for another 30kt of capacity, which would lift Phase-2 capacity to 40kt.

In summary, NVX targets production capacity will ramp-up to 10kt by 2023, 40kt by 2025 and an ambitious forecast of 150kt by 2030. Volumes over 10kt will require an additional property acquisition/lease arrangement.


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Supply agreements with Tier-1 buyers that make up 30% of global market

• Sanyo (Japan) is a division of Panasonic Corp, which is the principal supplier of cells to Tesla. NVX signed a non-binding MOU with Sanyo at end 2019. Qualification of product is ongoing.

• Samsung SDI (South Korea) – Samsung has a conditional sales agreement with NVX for 500t. Despite already qualifying the product Samsung has exercised its right to re-qualify product produced from the new furnace. This is expected to occur throughout CY1H22. NVX has already qualified the product internally and since there is R&D collaboration between the two parties, the requalification of the anode material might already be well underway.

Sanyo (subsidiary of Panasonic) currently buys its anode materials from Hitachi in Japan as the quality is high, and so is the cost. Given 25% of the battery by weight is the anode and cost is a driver for mass take-up of the EV, it is not difficult to see why Sanyo signed a non-binding MOU with NVX – to test its product. Given Tesla uses a mix of synthetic and natural graphite and purchases this from Panasonic, CCR expects Sanyo to become a material buyer of NVX’s high-performance US product.

In earlier press, there were comments that Kore Power had been evaluating NVX’s anode materials since July 2019. Kore Power is a US-based developer of battery cell technology. As recently as mid 2020, Dr Chris Burns was a member of Kore Power’s Advisory Board. Kore Power is planning a 12GWh plant to build batteries for EV and grid applications. Location undecided.

Benefits of the new patented DPMG manufacturing process The Solid Electrolyte Interface (SEI) - lithium ions become very reactive forming films at the interface with the graphite. Over time the graphite starts to form micro-cracks, which consumes some of the charge and leads to battery fade. To support extremely long cycle life it is necessary to control the loss of lithium from the graphite. DPMG enables this process and others:

• It is made from a by-product from the petroleum industry and is relatively low cost • Uses a dry process that produces NO waste water and is energy efficient • It enables waste material to be gathered and reprocessed into product particles lifting the yields to 100%. Natural anode,

materials on the other hand have a yield of 30-50% where 1kg at the start of processing equals 0.3- 0.5kg at the end • Reduces and controls side reactions, which cause cracking at the cell level, thus increasing thermal stability • The process has fewer steps, thus the flowsheet is simpler reducing units opex and capex costs; and • NO solvents and NO chemicals are used or required.


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The NOVONIX Anode Materials product performance is superior to natural and imported synthetic anodes

The NOVONIX Anode Material (NAM) is all about energy density, which is all about battery life and driving range. BTS tested its synthetic anode against various other anode materials. The results show NAM had the highest coulombic efficiency, which means it retains a high cycle life with minimal degradation, compared to the Chinese samples.

Given the superior performance, ESG benefit and local US production, it seems the US would be able to take whichever synthetic anode NVX can produce. Interestingly, the chart below shows the NVX product outperforming the anode used by Tesla.

In the charts below, the coulombic efficiency, the electrochemical stability in the battery was measured at 40 degrees Celsius and is shown to be more stable than the natural and other synthetic materials measured in the anode. Also notable was the NVX cell showed coulombic efficiency marginally better than the Tesla Model S battery, believed to be a NCM622 2170 cell. Tesla’s Nevada gigafactory uses around 36,000t of anode/year split 70%/30% synthetic to natural anode materials.

The number of charge/recharge cycles a battery cell can make; is where the rubber hits the road. A few notable features of the chart below are:

• Synthetic graphite (including NAM) materials exhibit a significantly greater cycle life than natural anode materials • Natural anode materials struggle to achieve greater than 1,000 cycles • NAM has a significantly longer life than the other leading synthetic anode materials • The life of the battery cell using NAM in the anode is multiples longer than the Tesla Model S; and • If an extension line is drawn from the NVX sample to the “x” axis it is obvious the synthetic anode materials in the anode

can operate for thousands of cycles yielding a long second life in Vehicle to Grid (V2G)

This last point is significant as it mirrors the long-life data evident in its single crystal NCM622 cell (refer p11).


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DPMG manufacturing method enables synthesis of low cost anode and cathode materials • New technology patent process for use in manufacture of anode and cathode • DPMG leads to higher yields, lower waste, expanded margins and a simplified flowsheet; and • In the cathode cheaper metal oxides replace more expensive and energy intensive metal sulphides

A patent application in 2019 and paper by Dr Obrovac, lead researcher at Dalhousie University, sheds much light on DPMG. The article titled ‛Engineered Particle Synthesis by Dry Particle Microgranulation’. DPMG can be applied to both anode and cathode chemistries and due to the research partnership between Dr Obrovac and NVX the technology is proprietary to NVX.

Key differentiating aspects of the DPMG manufacturing method:

• Leads to superior battery performance • Technology can be used for anode as well as cathode • Enables the use of metal oxides rather than metal sulphates in the cathode • Yields approaching 100% beat industry average closer to 50% in the anode; and • Dry process that is simpler, quicker, more energy efficient and lower cost.

The DPMG process aggregates and granulates submicron-sized particles, which would otherwise be lost to waste, into larger particle sizes that can then be synthesised into unique and uniform particle shapes. The process leads to the bulk synthesis of materials resulting in “near 100% yields” leading to less waste, lower costs and greater margins. NVX has since confirmed the DPMG manufacturing method results in a superior battery performance compared to spheroidal battery-grade graphite.

In a recent presentation, NVX suggests DPMG is coming shortly to its synthetic anode and cathode products. We assume in our model that yields will rise from 75% towards 95% with the arrival of the Generation-3 furnace and first sales to Samsung SDI at end 2021. These yield rates will be almost twice what competitor anode materials operations are able to achieve.

Dr Obrovac also suggested in the same paper that the DPMG process could be used to make higher, yielding lower cost cathode powders. Interestingly, the conventional Continuous-Flow Stirred Tank Reactor (CSTR) process uses metal sulphides for its cathode precursor materials. Replace the CSTR with the NVX flowsheet and less expensive Class 2 nickel oxide and NVX suggests nickel costs could be reduced by 30%. The ability to use cheaper oxides over sulphides will be a key differentiator for NVX cathodes. Dr Obrovac also states, “A typical production facility making 6,500 kg NMC per day can consume 99,000 L/day of water”. The DPMG manufacturing method is a dry process and uses almost zero water.

https://www.cell.com/cell-reports-physical-science/pdfExtended/S2666-3864(20)30057-6


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Low sulphur needle coke – feedstock for furnace

• Petroleum needle coke is a premium by-product of petroleum refining • Offtake contract with Phillips 66, the largest needle coke supplier in the world; and • High quality product means no expensive purification required and no hydrofluoric acid used

In the US, the preferred feedstock for synthetic graphite is petroleum needle coke whilst in China, the preferred feedstock is predominantly cheaper, dirtier coal coke. Coke is a by-product of both the coal and petroleum industries.

So, to ensure NVX maintains a social license to operate, it will use a local premium quality coke, which requires absolutely no purification before it feeds into a unique energy-efficient furnace system to yield the cleanest synthetic graphite on the market.

Purification is an important and often-toxic step required to remove impurities present in natural graphite and Chinese battery- grade synthetic anode material. NVX will bypass this expensive and toxic process by purchasing a high purity by-product yielding a purity of 99.99% against a minimum battery standard of 99.95%. With NO mining, initial milling, purifying or use of acids required, the simplicity of the NVX flowsheet shows many cost, ESG and performance advantages over China’s product.

NVX is negotiating a needle coke supply off-take contract with US company Phillips 66. NOVONIX has demonstrated a strong relationship with Phillips 66, which is the largest petroleum-based needle coke manufacturer in the world, per their DOE award with Harper International. In 2019, the US produced 67% of the worlds needle coke from its Louisiana-based refineries. At this stage, NVX plans to use Phillips 66 for phase-1 production to 10kt. As its demand for premium coke increases, NVX may use others as well. Currently, Phillips 66 has needle coke capacity for 370kt/year, of which around half is produced in the US.

In the US, refined petroleum by-products, such as needle coke, yields an ultra-pure product, which is low in toxic sulphur and has antioxidant properties, leading to lower oxidation in the anode. Also, high temperature resistance makes it easier to graphitize.

As China currently produces 70% of the world’s synthetic anode material, it should come as no surprise that it is also the world’s largest consumer of coke. To purify the often very impure coal coke in China, acid leaching is popular, which involves using toxic hydrofluoric acid. The NVX DPMG process does not use chemicals.

NVX has indicated its COGS will be competitive with Asian manufacturers; at US$4-5/kg. Needle coke’s price of approximately $1/kg, suggests the feedstock constitutes some 25% of the raw material costs in the manufacturing of synthetic anode.

Demand for graphite in steelmaking and lithium-ion batteries is expected to result in strong demand growth for graphite and, in particular, needle coke in view of the new IMO 2020 restrictions, which came into action in early 2020. Further, a decline in heavy sulphur-rich crudes is likely to tighten needle coke supply. This has been further exacerbated by the fact that no greenfield or large-scale brownfield needle coke projects, required by battery manufacturers, are presently planned outside of China.


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First in the world to use an enclosed induction furnace system

• Designed a semi-continuous feed furnace technology with strategic alliance partner, Harper • World first Generation-3 furnace arrives end 2021, enabling deliveries to Samsung • Costs will slide down the cost curve; whist superior performance maintained; and • Induction furnace technology supports the manufacture of both anode and cathode materials

Synthetic anode material is considered more expensive, energy intensive and less energy-efficient than natural anode materials. For this reason, it is largely forecast that use of synthetic anode will decline from 60% today towards 50% by 2030.

Whilst natural graphite requires mining, separation, milling and purification to reach 95% purity, it may or may not require energy intensive graphitisation to produce battery-grade anode powders. NOVONIX Anode Material does not require purification but does undergo energy intensive graphitisation to get the right crystal structure. This is the story for NVX; it does not require purification and believes that by applying its DPMG technology it can achieve yields near 100%, be cost competitive and increase its energy efficiency/unit of production, whilst still retaining its superior anode performance.

In October 2020, NVX formed a strategic partnership with Harper, a world leader in thermal processing technologies, to create an improved furnace system for the graphitisation of its synthetic graphite and in January 2021 the DOE awarded NVX a US$5.7m grant to fund some 94% of the NVX project contribution.

NVX will receive the new enclosed semi-continuous feed Generation-3 furnace towards the end of 2021 and commence supplies of its anode materials product to Samsung, which will then commence a 9-month qualification process. This will be the principal furnace used in the production ramp to 40kt of anode materials product by 2025.

As a unique, enclosed semi-continuous feed system the key benefit of the Generation-3 furnace is its ability to control the environment inside the furnace. This ability to control the atmosphere and temperature within the furnace and the consequent duration of heating required to graphitise the coke, leads to a materially cheaper, energy-efficient and high purity product. It is estimated the enclosed system might require 15kw/kg of precursor material, compared to around 20kw/kg for the open pits.

The Generation-3 technology is proprietary to Harper. However, since NVX developed a simpler graphitisation flowsheet before working with Harper, all of the anode technology is owned by NVX. They believe this IP gives them an advantage over others that may license the Harper Generation-3 technology.

Being able to better control the temperature inside the enclosed furnace leads to:

• Better control at the surface of the graphite, making it less reactive • Lower reactivity suggesting the SEI is less corrosive, yielding a higher purity material; and • A high first cycle efficiency and a longer cell life.


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A cleaner and more efficient furnace system than used in China

• Semi-continuous feed/graphitisation leads to an energy, capital and cost-efficient furnace system • Produces a more consistent and pure product, no chemicals used; and • Yields are around 75% and NVX is aiming for nearly 100%; against natural graphite in the 40-60% range

China produces 85% of the world’s synthetic graphite using energy-inefficient open pits, which burn impure coke at very high temperatures leading to a release of heat and ash, and yields an inconsistent lower quality product. China’s efforts to clean up its furnace systems will not be easy as the Chinese open pits are very large and cannot be refurbished to an enclosed system.

The yield for anode materials using CSTR is 30-50% and NVX estimate they can achieve a yield of 99.7% with the introduction of the Generation-3 furnace. High yields result in lower by-product and water waste and greater margins/t of anode materials produced. Corporate Connect Research (CCR) believes China will not be able to compete against NVX into the US market.

These open-pit furnaces also use and lose vast volumes of heat and are both energy intensive and energy inefficient. This is of significant interest to the ESG community, as close to 60% of electricity generated in China is coal fired. Instead, energy used in Tennessee is largely nuclear and hydro, giving the domestic US anode materials operation a very significant ESG advantage.

In addition, most furnaces produce product in batches. In China the batch sizes are large at around 30t each and as the open-pits make it difficult to retain heat, graphitisation can take up to 6 months to make synthetic anode materials, with processes including baking and re-baking to convert the coke into anode. The Harper technology reduces graphitisation to just hours. NVX will use the new technology, using smaller sub 1t rates, so the process is quicker. The benefit of semi-continuous small feeds is the furnace can operate at lower temperatures, so the machine does not need to cool down before commencing the next batch, unlike the high temperatures and large prolonged batching sizes used in China. This is a key differentiator for NVX.

Producing synthetic graphite also creates a by-product known as secondary synthetic graphite. It is considered a low-cost synthetic anode material and some forms of it can compete with natural graphite material in applications like brake linings and lubricants. As NVX aims to lift its yield from 75% to nearly 100% with the use of its patented DPMG technology, it has no plans to market the low energy equivalent carbon graphite materials in the interim as it aims for yield recoveries of nearly 100%.

In summary, the furnace processing facility being built has many benefits over the open-pit technology used in China, as it has: • A smaller system footprint that can be easily scaled • A purer product, which leads to less waste and an improved battery performance • A rapid semi-continuous feed rather than slower batch baking, leads to improved capital efficiencies and lower costs • A lower operating temperature leads to higher energy efficiencies and lower power usage; and • Access to carbon free nuclear and renewable power (59% of Tennessee Valley Authority grid)


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NOVONIX Cathode Materials (NCM) – Market is 30% Bigger than the Anode Market

Demand for cathode forecast to increase 10x by 2030 • Cathode pilot line operational scaling to demonstration plant size • High nickel, single crystal technology using DPMG processing method • Real intellectual effort going into products - includes Dr Dahn and Dr Obrovac; and • DPMG significantly reduces costs as nickel oxide feedstock replaces need for nickel sulphate

NVX has recently secured a new facility in Halifax, Nova Scotia, dedicated to developing its long-life cathode materials business.

DPMG can be used in all NCM and LFP battery chemistries, including solid state where NCM is used in the cathode. However, at this stage, given BMI considers NCM will dominate cathode chemistries increasing from 44% in 2020 to 74% of by 2030, NVX’s focus will lie with NCM cathode precursors.

• High first cycle efficiency • High safety purity, developed in a chemical-free manner

Dr Obrovac’s paper titled ‛Engineered Particle Synthesis by Dry Particle Microgranulation’ oncluded the DPMG NMC cathode‘s performance was comparable to other commercially available cathodes. At first, this analyst did not see the significance of this statement however, with time has come to realise its importance (refer charts below).

Commercial cathodes use metal sulphate ores, which have undergone more extensive processing under a very energy-intensive system. The result is, DPMG ends up with comparable first cycle efficiency to commercial materials, despite using cheaper metal oxides as cathode precursors.

The significance here is that metal oxides come out of the processing system early as intermediate/by-products and are often discarded as waste. The processing of the precursors results in lower capex, lower carbon footprint, less waste and quicker outcomes and, finally, as oxides are considered scrap, the cost of the nickel is much lower.

Metal purities are not a problem so much here as they are simply recycled back through the DPMG process to arrive at lab recoveries of 100%. In our modelling, we assume maximum recoveries of 90% from 2023.

https://www.cell.com/cell-reports-physical-science/pdfExtended/S2666-3864(20)30057-6


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Nickel is dirty business – but new manufacturing method may light up the space

• Tesla wants more nickel, but Class 1 nickel supply is thin • Class 2 nickel oxides considered intermediate by-product of complex High Pressure Acid Leaching (HPAL) process; and • Nickel oxide is thermally stable; has a cleaner footprint and lower cost base

Tesla wants more nickel and recently completed a deal with Vale to purchase lateritic nickel ore from New Caledonia. Since Elon Musk’s plea, nickel sulphate has been in a bull market with prices for battery-grade nickel sulphate reaching US$38,000/t in February 2021, before falling to US$33,000/t in March. So, what happened?

Around 70% of the world’s nickel is classified as Class 2 and is found in weathered laterite deposits. The HPAL process is used to extract nickel from the laterites. However, the process is capital intensive, energy inefficient, unreliable and carries a complex flow sheet often resulting in significant delays and cost over-runs. A question frequently asked is; there must be a better way?

Enter the DPMG manufacturing process, which will likely compete head to head with HPAL.

The DPMG manufacturing process is far quicker, greener and sits way down the cost curve compared to HPAL. Further, HPAL produces nickel sulphate and an intermediate mixed oxide precursor has around 66% nickel content. This by-product is often considered as waste and used in industries where a lower nickel content and lower purity is accepted, such as stainless steel and alloy steel applications.

The DPMG manufacturing method does not require a super pure product as the manufacturing method naturally improves the purity and yields towards 100%.

We are watching this development closely, especially as Dr Obrovac suggested in his 2020 paper that enabling the use of Class 2 nickel in NMC production could reduce capex costs substantially. Given Dr Obrovac developed the DPMG process and NVX presentations refer to nickel oxide being used, we assume NVX has found a way to “enable” nickel oxide.

So what could the cost savings look like? NVX suggested that using oxides in the NMC chemistry could lower the price by around 30%. BMI suggests the cathode accounts for 50% of battery cell costs; this would suggest savings in the order of 15%. This is a material benefit to operating costs. However, the real benefit is in the cost of capital savings. HPAL costs at least US$2Bn to complete.

Interesting China has recently gone in the opposite direction to NVX by announcing they have identified a pathway that enables them to convert Nickel Pig Iron (NPI) to nickel matte - a precursor to nickel sulphate.

As NPI has less than 15% nickel it is not used in batteries. Instead, China converts nickel laterite to NPI for use in the steel industry. However, China’s Tsingshan announced it is now able to convert NPI to higher-grade nickel matte, and onto nickel metal or sulphate for use in EV batteries. This implies nickel, as a resource available to the battery materials market, just got significantly larger. As a result, the price of nickel fell.

The issue is that by introducing another energy-intensive pyrometallurgical step in the refining process, the emission intensity increases, making China’s product potentially even dirtier, if largely coal based grid power is used.

If this is where China is heading, then NVX’s mission to sell into the US and Europe will be realised. Then it really is all about volume; and how much NVX can produce in the quickest possible timeframe.

Nickel Carbon footprint Where will NOVONIX Cathode Material (NCM) sit S&P Global suggests:

• A competitor direct nickel extraction process, using class 2 lateritic nickel yields a 3.4t CO2/t. • Class-1 nickel sulphide to nickel sulphate incurs around 5-10tof CO2/t of nickel • HPAL hydrometallurgical technology uses Class 2 laterites (oxides) and incurs 15-30t of CO2/tonne of nickel. The range is

large as the NPAL technology has production reliability issues and uses a lot of energy; and • The NPI to matte conversion, suggested by China, is energy intensive and thought to incur 50-70t of CO2, depending on

grade used. If renewable energy is used this number may come down but still likely to find it difficult to compare with cleaner options now appearing.


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Emera technologies Vehicle to Grid (V2G) applications - forming micro utilities

• Partnership with Canadian Emera Technologies, a subsidiary of Utility Emera Inc. • Aim to manufacture community microgrids; and • New community living, which is under construction, will be targeted

Affordable rechargeable batteries are also making it possible to store electricity and harvest nuclear and renewable energy, thus lowering the carbon footprint of the energy system. In February 2021, NVX announced a partnership with Emera Technologies (Emera) a subsidiary of Emera Inc., one of the largest utilities in North America, to develop and manufacture energy storage systems for community microgrids. The NVX BTS unit has been working with Emera to create battery packs that are able to support its BlockEnergy microgrid.

The BlockEnergy microgrid platform puts solar, a battery and a smart controller into every home within new communities, linked to a shared network, which is linked to a central controller that then connects in front of the meter to the microgrid. This ensures power is available at the best price, thus supporting a resilient power system and improved customer experience.

Emera’s focus on V2G will centre on new residential construction. Emera considers some customers want to be off the grid or want a better utility experience. Emera aims to run new construction on 70-80% renewable energy and, as owner of the system, would install and maintain the system and, thus have access to power during low usage times.

The aim is to build resilient renewable energy communities where consumers can generate and distribute local power generated via a microgrid and an interconnected community via the use of a digital platform. Digitisation enables a shift from a centralised to a distributed energy model, giving consumers control over their own cost of energy through improved time management.

The BlockEnergy microgrid is currently being implemented and trialled in a new residential community in the US. V2G is expected to help utilities reach their sustainability targets.

As mentioned, when a battery’s coulombic efficiency falls below 80%, the battery can start its 2nd life as part of a microgrid where bi-directional energy can be used during the night or, when required, during a power outage. As Dr Dahn has said, “…you need a really long-lifetime battery if you want to tie into the grid.” We know where he might find one.

Batteries for microgrids require cycle life of many thousands of cycles. At this stage, only LIBs are capable of providing cycles capable of providing a long 2nd life.

Between 2017 and 2020, the Tesla energy storage division deployed 6GWh to balance grids. Tesla is integrating a V2G technology into the electrical architecture of the Model 3 and VW’s modular electric drive matrix (MEB) will be V2G capable from 2022.

V2G - Enables customers to earn revenue from car whilst it is not being driven

Source: EDF


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Financial Flexibility - modularisation supports possible recycling of equity • With the execution of a binding sales and purchase agreement and/or a quality partnership; a re-rating should follow • Export/Import Credit Agencies and DOE grants a likely source of funds • NVX has filed to list on the NASDAQ; expected 2H21 calendar year; shares diluted in advance

Pricing – aims to be the greenest and lowest cost synthetic graphite in the world

Prices have historically been driven by steel and industrial applications. However, it is now clear that the next phase will be driven by LIB demand. However, there is poor price discovery in the broader graphite market due to lack of product and price transparency. We suspect this situation will not change with the signing of confidential contracts. However, these contracts could be expected to contain a minimum 5-year term with reasonable “take or pay” level clauses included. This type of agreement protects both the producer and the offtaker. The producer has an obligation to supply a certain volume and the offtaker has an obligation to take a certain volume at a certain and often-undisclosed price. For instance, the terms of the current 500t offtake from the Demonstration plant by Samsung SDI are unknown.

During the pandemic, with demand for oil/gasoline down and refinery operations shut-in or stalled, supply of needle coke became tight; just as global demand for EVs surged. With insufficient supply, needle coke prices in China also surged. In order to restore balance to the market and encourage imports of battery grade needle coke into China, the Chinese Government dropped the 25% tariffs on US coke to increase US imports into China. With refineries back online balance is expected by year-end.

It is ironic that China imported US needle coke to refine into battery grade synthetic graphite anode material, which they then exported back to the US. NVX plans to change this, by using US needle coke to feed US demand for NOVONIX anode material.

Our real price deck lies towards the low end of published guidance and industry research. Although the spot price is presently around US$11/kg, we recognise that market balance could be restored by year end and that China is also adding significant synthetic anode capacity and continues to set the marginal price We also consider that prices might decline from 2030, as solid-state batteries or other new battery technologies begin to scale more rapidly. Offsetting this, we do recognise that the purity and superior performance of the NOVONIX Anode Material could justify a significant price premium. So, to balance these forces, we model a flat real price to 2030 before falling to US$8/kg (refer sensitivities p29).

CCR REAL Price Deck

The P+L, Cashflow & Balance Sheet

Of the three businesses NVX has, only the BTS business is generating funds today and is run un-risked through the P&L etc. The synthetic graphite anode business is not expected to be commercial until mid 2022 and the cathode business is running around 2-3 years behind the anode business.

Normally, when assessing inherent optionality within projects that are in pre-Final Investment Decision (FID) mode, funds are risked and included within the valuation but not the P&L etc. Instead, funds only flow through the P&L etc., once FID is declared.

However, that model does not work here as growth represents over 90% of NVX value. To do so only limits the P&L to the BTS business. Instead, CCR runs the highly likely scenario-1 assumptions for Phase-1, -2 and -3, for the anode materials business through the P&L, cashflow and balance sheet. This method provides insights into highly likely earnings, cashflow and balance sheet outcomes.


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As catalysts are announced, value is crystallised. This is particularly relevant to the synthetic graphite anode materials business, where modelled outcomes that could generate sufficient cashflow over the next 2.5 years to underwrite the development of Phase-2. Further, if anode material prices are exceeded and costs contained, there is a reasonable possibility that NVX will not need significant debt funds until a decision to proceed with Phase-3 and/or the cathode business proceeds to development.

Currently, the cathode material business, which is running some 2-3 years behind the anode material business, is valued in line with the market capitalisation of Nano One Materials Corp. (Nano One; refer p25).

Funding – provided by NASDAQ listing as well as Government loans & grants

To create a sustainable business, NVX is de-risking its operating exposure by acquiring additional warehousing in Chattanooga Tennessee. NVX is under contract to purchase, retrofit and deploy capital equipment in a warehouse often referred to by locals as “Big Blue”. This expansion to 10kt is already fully funded from cash reserves at end December 2020, an equity issuance of A$115m as well as a Director’s Placement for an additional A$16.45m. A small grant of US$5.57m grant from the DOE in early 2021 underwrites development of the Generation-3 furnace. The upcoming NASDAQ listing is expected to raise at least US$100m, which in addition to internally generated cashflows from Phase-1 will part fund the next expansion to 40kt.

Funding can be challenging at any time but particularly so if you are not a large company. Companies without a credit rating risk having access limited to more expensive money; like project financing. Unfortunately, this usually comes with a slew of associated operational and financial caveats that risk restricting a companies operating leverage. This “chicken and egg” presents as substantial headwinds to investment.

Funds from the Export/Import Bank of the US, provides a pathway to access less expensive funds.

The US Government has proposed US$174Bn to “win EVs back’. Of this, US$100Bn includes tax incentives and rebates to encourage the use of EVs. However, this outlook could increase demand for battery materials and that could prove challenging.

In 2008 a US$25Bn Loan Program was funded by Congress and has since lent over US$8Bn in loans. However, some monies lent during the Great Financial Crisis (GFC) will never be paid back to the US Government. As the Loan Program has already had congressional approval, CCR suspects funds could be deployed relatively quickly; subject to due diligence.

Current Government programs that may be of assistance to NVX include;

• The DOE’s Vehicle Technology Office $200m R&D funding grants for EV, battery and connected vehicle projects at 17 national laboratories, as well as for new partnerships to support EV manufacturing and innovation. The aim of this R&D funding is to develop innovations that will decarbonise the transportation sector.

• Advanced Technology Vehicles Manufacturing (ATVM) Direct Loan Program The Loan Program Office lends debt funds to quality auto manufacturing projects. – The attraction is easy to see. Long duration, senior secured, fixed rate debt at US Treasury bond rates with no credit spreads included. Basically, Government backed loans for pre-production assets at rates similar to those received by AAA corporates like JNJ and MSFT. Thus, making NVX appear substantially more attractive/less risky to a Tier-1 customers banks.

As business de-risks, NVX could qualify for a loan package around 2023. The ATVM website states an eligible company must;

• Be in the automotive industry and must use funds to build new or expand existing manufacturing facilities • Have a qualified product, in this case qualified advanced materials. We note that NVX is the only qualified synthetic

anode producer in the US • Support the processing and manufacturing in the critical minerals or metals space • Be located in the US; and • Have a strong cashflow, and must have a reasonable prospect of repaying funds lent.

The last factor will be the most challenging as NVX may only be some 80% sure it is going to proceed with the 110kt capacity expansion around 2023. The timing here could be critical as NVX is fully funded to 10kt in 2023. However, this is when NVX could need new funds and given the operation will have been scaling for 3 years, cashflows will be better understood.

In addition to DOE funding opportunities, there are a variety of state, local, and federal incentives, including tax credits, listed on the Alternative Fuels Data Centre that support the use of alternative fuel vehicles and infrastructure.

The most recent grant was received by NVX from the DOE, was for US$5.57m early in 2021. The funds were awarded to assist with the development of its unique induction furnace technology.


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VALUATION SUMMARY and METHODOLOGY

The NVX valuation is based on 3 separate business units;

• The underlying Battery Testing Solutions (BTS) business; includes JV with Emera for residential energy storage • The NOVONIX Anode Materials (NAM) business, which includes a 3 phase development under 3 separate scenarios; and • The NOVONIX Cathode Materials (NCM) business.

Corporate Valuation (in A$/share)

1. Battery Technology Solutions (BTS) – is modelled using a blended terminal dcf and EV/Ebitda multiple.

• (A) Terminal dcf value – BTS has grown strongly each year with income for 2020 of $4.6m up 15% from 2019. Given strong demand forecasts for EVs to 2030, demand for NVX battery testing is expected to remain strong. We apply a revenue growth rate of 15% and cost growth rate of 10%. The terminal growth rate is based on a 2030 exit post tax unlevered free cashflow, a perpetual growth rate of 3% and a Weighted Cost of Capital (WACC) of 8%.

• (B) EV/Ebitda value- When assessing the EV/Ebitda, we use an 2030 exit Ebitda and EV/Ebitda ratio of 12x; and

• (A+B) Blended valuation These two methods are then blended on a 50%/50% basis to yield a $234m valuation

2. NOVONIX Cathode Materials business – too early to model; use market cap of comparable listed business • The line of sight into this business is not clear at the moment. The science appears to have an edge and with the pilot

line complete the product is presently undergoing early qualification with Tier-1 customers

• We have looked at peers and consider that Nano One with its enclosed “One Pot Process” offers the best comparison to NVX at this stage, given the NOVONIX Cathode Materials business is running 2-3 years behind the NOVONIX Anode Materials business (refer below). Like NVX, it is a Canadian technology company; its cathode process is patented modular and thus scalable. Nano One is also looking at producing single crystal cathodes only and not anodes, thus it provides insights into the potential value of the NOVONIX Cathode Materials business; and

• Nano One currently has a market capitalisation of C$407m or A$440; valuing the NCM business at $0.92/share.

3 NOVONIX Anode Materials business – is modelled using a blended terminal dcf and EV/Ebitda multiple

NVX has announced 3 phases of development. They are; Phase-1 to 10kt of capacity in 2023, Phase-2 with an incremental 30kt of capacity by 2025 and Phase-3, with an incremental 110kt of capacity - taking total installed capacity to 150kt by 2030.

Around this 3-phase development, we run 3 probabilistic scenarios. However, only scenario-1 goes through our P&L, cashflow and balance sheet as CCR’s favoured base case. As catalysts occur and probabilities rise, we progress towards scenario-2. We present scenarios2 & 3 as pathways to growth; as presented by NVX on p13. We do continue to risk outcomes given unknowns.

When production has stabilised, we calculate the terminal value by blending the dcf and EV/Ebitda methods on a 50%/50% basis. Firstly, we take the risked post tax, unlevered free cashflow for 2030 and apply a WACC of 8% and a perpetual growth factor of 2.25% and secondly we take the 2030 exit Ebitda and apply a conservative 12x multiple.

It is clear that NAM drives mid term value for NOVONIX. Using our base case scenario-1 the blended terminal value for the anode materials business yields a value of $4.07/share for the anode business; rising to $7.06/share by 2030 (Refer p27).


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The three phased development is considered below in the context of scenario-1 (refer p27 & p28)

Phase-1 – has an 80% chance of success. Thus, all funds, modelled under a phase-1 development, are discounted by 20%

This phase is already fully funded to 10kt by 2023 and includes 2 sites in Chattanooga Tennessee. Tennessee is already an auto hub, employing around 30% of the states workforce and as there is momentum to build a local EV presence in Tennessee, we ascribe a 80% probability that Phase-1 will be developed. The catalyst for the development is likely to be binding sales and purchase agreement with Samsung SDI and/or Sanyo. It is also possible LG will seek to qualify the NAM product as they are building a 30Gwh battery cell plant nearby in a JV with GM near Nashville, Tennessee.

By the time FID is declared, the project might be considered 85% de-risked. Ultimate, de-risking could occur with a successful commissioning of the project. This forms the base case of our Phase-1 valuation.

Phase-2 – has a 50% chance of success. Thus all funds, modelled under a phase-2 development are discounted by 50%

NVX is currently in the planning and engineering stage for another 30kt of capacity, which would lift total installed capacity to 40kt by 2025. This incremental 30kt tranche will require an additional property acquisition/lease arrangement for it to proceed. The economics of this have been included in our model, based on the price/foot proposed for the existing “Big Blue” plant being acquired in Chattanooga.

The risk attached with a Phase-2 development is greater than Phase-1, thus the inherent optionality is larger and needs to be de-risked, by executing contracts and partnerships, through time. Given the strength of the EV megatrend and growing EV ecosystem in Tennessee, we attach a 50% probability that Phase-2 will be successfully developed.

Phase-3 – has a 20% chance of success. Thus all funds, modelled under a phase-3 development, are discounted by 80%

In the 5-years to the end of the decade, NVX has an ambitious goal to bring an incremental 110kt of capacity to market, which would take total capacity to 150kt Obviously, this is an aspirational target; however from a macro economic perspective; it is entirely possible…as the product is needed (refer p21) to fuel EV growth.

So, can they get the job done and can their R&D develop fast enough to keep the NVX product relevant? Given Dr Dahn and Dr Obrovac are on team NVX, gives us comfort that this risk can be managed.

However, until a clearer line of site to the development funding and potential offtakers is achieved, we consider Phase-3 might only have a 20% chance of being developed. A substantial Government backed loan would significantly reduce risk and increase the chance that a larger expansion eventuates.

Some additional assumptions used the CCR investment model include;

• Taxes – We assume company and state taxes totalling 27.5%. Corporate tax could rise under Bidens’ Made In America Tax Plan. However, we suspect Government incentives to encourage clean tech manufacturing, could offset upside risk.

• Asset depreciation – is modelled on a straight-line basis over 10-years

• Initial capex – is modelled to production of 2kt at US$10,000/t of installed capacity. Thereafter, capex is modelled at a lower US$8,000/t (or US$8m/kt) of installed capacity. Manufacturing efficiencies could provide for additional upside.

• Sustainable capex – is modelled at 2% of capex cost/t of installed capacity. We lag maintenance capex by 4 years

• Cost of goods sold – Include the cost of purchasing the petroleum coke, grid power labour and processing. On an un-risked basis, COGS is modelled at US$4,500/t. Synergies are expected to kick in during Phase-3 as an additional 110kt of production is added at marginal COGS of US$3,500/t.

• Funding – this is where the debate occurs. The lowest cost source of funds could be a Treasury based loan from the Advanced Technology Vehicles Manufacturing (ATVM) Direct Loan Program. We assume 50% of funds required by NVX, to meet capex forecasts, will be debt funded with the remaining from equity sources. Currently, a Treasury based Government loan might accrue an interest rate of 1.5-3% versus corporate bonds at around 10-12.5%.

As we consider NVX will execute a binding sales agreement with a Tier-1 offtaker, we also assume a government backed loan will be secured. This will reduce financial risk for the offtaker and ensure the project has the best chance of completing. DOE grants could also continue to be a source of funds; and

• Capital Management - Due to the scalability and modular nature of the build-out, we consider that cashflow generated could be recycled from one modular development to the next. This could work well if dividends and buybacks are not considered during the ramp up. The end result is that the call on equity could be reduced.


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Scenario Analysis for the NOVONIX Anode Materials business ONLY

We run three scenarios with varying levels of risk applied to each of the three development phases of the synthetic anode business. As catalysts are executed, the probability of each phase goes up. As this occurs, scenario-2 becomes more likely and as production is commissioned, the probability associated with the second and third phases rises to reflect falling development risk. SCENARIO-1 this is the current CCR investment model . Includes an 80% probability for Phase-1, 50% Phase-2 & 20% phase-3.

Scenario–1 Installed Capacity Risking assumes capacity will only be 22kt by 2025; and 45kt by 2030

Production Capacity utilisation rates of 95%; suggests production at 42.8kt in 2030

SCENARIO-2 Assumes Phase-1 & Phase-2 are fully developed and Phase-3 is risked at 50%

Scenario–2 Installed Capacity Risking assumes capacity will be 40kt by 2025; and 95kt by 2030

Production Capacity utilisation rates of 95%; suggests production at 90kt in 2030

SCENARIO-3 - Assumes all phases are fully developed, we are no where near this scenario at this stage

Scenario3 Installed Capacity

Risking assumes capacity will be 40kt by 2025; and 150kt by 2030 is installed

Production Capacity utilisation rates of 95%; suggests production at 142.5kt by 2030


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SCENARIO 1; Models Phase-1 at 80%, Phase-2 at 50% & Phase-3 at 20%; Optionality declines as catalysts occur; lifting value

SCENARIO 2: Models Phase-1 at 100%, Phase-2 at 100%; this de-risks Phase-3 as it becomes more likely; Phase-3 at 50%

SCENARIO 3: All upside optionality is exercised. Models Phase-1 at 100%, Phase-2 at 100% & Phase-3 at 100%

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APPENDIX

1. TECHNOLOGIES UNDER DEVELOPMENT NVX considers its NMC622 battery performance is better than solid state to date and they are working on an extreme fast charge proposition, which it suggests is in R&D at the moment.

Battery500 consortium aims to replace a graphitic anode with lithium metal

The consortium, made up of various national testing labs and universities, is seeking to develop a next generation battery lithium metal anode that can deliver an energy density of 500Wh/kg at competitive cycle rates.

The consortium suggests it is sitting at 350Wh/kg with a cycle life of 350cycles. The NOVONIX Anode Material (NAM) also delivers 350-360Wh/kg but has a cycle life of >4,000 cycles. A long life is important for ESS, autonomous vehicles and large transport.

It seems the consortium has been working towards 500Wh/kg since 2017 and requires a major breakthrough in battery materials science to make the quantum leap required.

Maxwell suggested its dry battery electrode technology has an energy density of 300Wh/kg and with a pathway to >500Wh/kg.

VW to pursue V2G, 100% synthetic materials in its anode and solid-state batteries

VW hopes to move to solid-state by 2025. It also plans to use 100% synthetic graphite materials in its anode. Its announcement to do so on Power Day was a surprise to the market, which had been moving away from synthetic anode towards natural anode materials. The VW move to synthetic anode materials appears based on its desire to move to V2G. Solid-state batteries however will need to increase their number of cycles substantially to compete with synthetic materials in its anode in the V2G space. VW is expected to continue to get its synthetic anode materials from China, as there is no synthetic materials producer in Europe.

Quantumscape (QS) is looking to bring around 90GWh on line by 2030, into a >3Twh capacity market. This would give them an estimated 3% market share if its capacity were producing at 100%.

Solid-state is one to watch, scalability and commerciality need work

Solid-state batteries have been studied since the 1950’s. There is no graphite anode in a solid-state battery; instead the anode is lithium metal. As there is NO liquid electrolyte, these batteries show a faster charging time, but cycle life remains low.

Li metal is expensive and power intensive to make. However, if cost is not an issue, this may suit premium luxury EVs.

There are over 1,000 patents on solid-state batteries and the Japanese Government has agreed to invest US$19.2Bn in a green fund. MIT has developed a small solid-state battery that can last 3 days in a mobile phone. It seems the battery is still in the experimentation stage. It needs to scale considerably moving from the iPhone to the EV before it can even consider the grid.

The current leaders in the space are Solid Power and QS. The latter has spent 10 years and $300 min R&D to date. They may have a micro solid-state pouch cell, but cycling is low and ultimately VW wants to move to V2G. Increasing cycle and hence cell life and then scaling to a commercial battery will take time, but much work is being done.

Both VW and Toyota hope to have a solid-state battery in some EVs by 2025. However, Dr Shirley Meng (Professor; NanoEngineering at University of California) says Technology will take time; at least 4-5 years before it is, “on the right path for commercialisation”.

Scaling manufacturing will be a big challenge. For this reason solid-state is not expected to materially impact the graphite anode materials market until after 2030 and, by that time, the anode market is expected to be 10x larger. As mentioned already, this view seems backed up by both BMI and BNEF, which both only see a small market presence by 2030.

Partnerships are being formed. VW has joined QS, BMW and Ford has joined Solid Power, Panasonic has joined Toyota and Mercedes has joined Hydro Quebec.

Solid Power’s battery – has a solid electrolyte and some 250 cycles when tested at 25 degrees Celsius in small 2Ah pouch cells. Aiming to pass 400Wh/kg in 2022. Lift the temperature to 40 degrees Celsius–the testing temperature that NVX subjects their batteries to–and the cycles could be even lower.


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Solid-state advantages over lithium ion batteries:

• An energy density that is 2-8x the regular battery meaning high storage • A greater range allows the battery to go further in between charges • A lower fire risk. Heat generated in a solid-state battery is 70-80% less than a regular battery, less space required to

cool, is lighter and avoids toxins present in electrolytes • An ultra-fast charge. Toyota says it can do a 0-80% charge in 10 minutes; and • Minimal use of toxic materials.

Solid-state disadvantages over lithium ion batteries: • A cost curve issue • When operating in cold weather there is damage from dendrite formation (needle-like structures that form on the actual

anode); and • Low cycling, which limits battery life.

Musk believes that “current battery modules should last 300k to 500k miles (1,500 cycles and not many do)”, suggesting a solid -state battery will need to do more work before it can compete on cost with a Tesla EV, as Musk has suggested its technology revealed on Battery Day in 2020 should be enough to get the cost of an EV down to US$50/kwh.

Aluminium-silver solid-state battery

The Samsung solid-state battery will use an NMC cathode. There will be no lithium metal, instead a layer of silver (Ag) and carbon that reduces dendrite formation, thus increasing the conductivity of the lithium-ions. It has a high sulphur solid electrolyte, and an aluminium current collector.

The unresolved issue at this stage is that the battery does not appear to work below 80 degrees Celsius. The thinking is that dendrites become a problem again.

The Ag interacts with the lithium to form a perfect smooth layer of lithium on the anode. The NMC cathode remains unchanged. This prevents dendrite growth by the lithium and has a useful cycle life of around 1,000 cycles and an energy density >900Wh/L. The coulombic efficiency is stable/flat at 99.8%.

Tesla had an energy density of 680Wh/L (specific energy of 239.5Wh/kg) in 2017 and expects to achieve the 900wh/L by 2020. Silver costs around US$558/kg, compared to natural anode materials at approximately synthetic graphite at around US$9-11/kg. An expensive option for little gain it seems?

Lithium sulphur anode materials

Sulphide based solid-state electrolytes appear to prevent dendrite growth and show a highly conductive and regulated lithium ion at room temperature. The current collector on the anode side is made of stainless steel.

Aluminium-ion graphene batteries

These batteries have aluminium anode materials and graphene cathode materials. This is a promising technology, with a very long cycle life (around 2,000 cycles) and very high power density at 7,000watts/kg; enabling fast charging.

The battery chemistry holds a very high thermal conductivity that, from a safety perspective, is a big positive as it can reduce the need for heavy cooling systems, which should reduce the weight of the battery. Unfortunately, at this stage its cell level energy density appears low at around 150-160Wh/kg (1.7volts) compared to Tesla’s 4680 cells at 360-380Wh/kg and the NVX NMC622 cell format at 350-360Wh/kg. Charging may be fast, but it could also be frequently required. This may suit low range vehicles. Subject to cost, this could bring the Aluminium-ion battery head to head with the cheaper LFP battery, which is also safe, and has a good short range.


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2. BOARD and MANAGEMENT

Tony Bellas Chairman and Non-Executive Director

Tony Bellas is Chairman and Non-Executive Director of NVX. Mr Bellas has spent 5 years on the Board of NVX and holds over 30 years’ experience across both the government and private sectors. Formerly, Non-Executive Chairman of Australia’s ERM Power, Corporate Travel Management, an international corporate travel company based in Brisbane, and Shine Lawyers Ltd. Mr Bellas was also CEO of Ergon Energy and CS Energy and was Queensland’s Deputy under-treasurer. Mr Bellas is a CPA.

Andrew Liveris Non-Executive Director

Andrew Liveris is a recognised global business leader. He is currently Chairman of Lucid Motors, a Board member of Saudi Aramco, IBM and Deputy Chairman of Worley. Mr Liveris is a former Chairman and CEO of Dow Chemical and a former Executive Chairman of DowDuPont, which had a US$153Bn market capitalisation in 2018. He is also on the advisory board of Sumitomo Mitsui Banking Corporation and NEOM, an initiative driven by Saudi Vision 2030. Mr Liveris is also a special advisor to the Public Investment Fund (PIF) of Saudi Arabia, one of the largest sovereign wealth funds in the world. Mr Liveris is an international advocate for the criticality of manufacturing to the long-term health of national economies and was Executive Committee Member and Past Chairman of the US Business Council. Mr Liveris is a Chemical Engineer with first class Honours and is a large shareholder of NVX; refer page 35 for details.

Retired Admiral Robert J Natter Executive Director

Retired Admiral Robert J Natter had a prominent 41-year navy career serving as the Commander in Chief of the US Atlantic Fleet and as the First Commander of US Fleet Forces Command, overseeing all Continental US Navy bases, facilities and training operations. Admiral Natter is a Non-Executive Director of BAE Systems Inc., Non-Executive Director of Allied Universal, the largest US Security and Security Systems company, is also a Non-Executive Director of Corporate Travel Management, and Chairman of the US Naval Academy Alumni Association. Admiral Natter is also a Board member of Regents of Washington DC, based at the Potomac Institute for Policy Studies.

Robert Cooper Non-Executive Director

Robert Cooper is currently the CEO of CopperChem Limited and Exco Resources Limited, both of which are 100% owned subsidiaries of the WH Soul Pattinson Group. Mr Cooper was appointed as a Non-Executive Director of ASX-listed Rum Jungle Resources on 1 July 2016. Mr Cooper is a mining engineer with more than 25 years’ industry experience, having held leadership roles across a diverse range of metalliferous commodities, both in Australia and overseas.

Greg Baynton Non-Executive Director

Greg Baynton founded GraphiteCorp in 2012, with the aim of securing high-quality graphite deposits as an initial entry strategy into the Lithium Ion Battery materials supply chain. Experienced in identifying technology innovations and growing companies, he was a founding Director of NEXTDC Limited (ASX: NXT), PIPE Networks (ASX: PWK), Asia Pacific Data Centre Limited (ASX: AJD), and Coalbank Limited (ASX: CBQ). Mr Baynton is currently a Director of telecommunication company Superloop Limited (ASX: SLC). His career spans both government and private sectors, including appointments in investment banking, infrastructure investment, M&A, IPOs, public company directorships, Queensland Treasury Corporation and The Department of Mines and Energy. Mr Baynton holds a Master of Economic Studies (University of Queensland), an MBA in New Venture Management (QUT), a Post-graduate Diploma in Applied Finance and Investment (SIA), and a Bachelor of Business (Accountancy), and is a substantial holder of NVX; refer page 35 for details.


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Trevor St Baker Non-Executive Director

Trevor St Baker is a key investor and director of TRITIUM, a global mobility and EV charging infrastructure company. The Australian company is seeking a listing on the NASDAQ. Mr Baker is also Chairman of US NthDegree Worldwide Technologies Inc., Chairman of US Printed Energy, Director of US CareWear Corp and founding Director of Australia’s SMR Nuclear Technology. Mr Baker was founder of ERM Power, which was sold to Royal Dutch Shell PLC and is joint owner of Delta Electricity, one of the leading electricity generator and retailers on the east coast of Australia. Trevor is NVX’s largest shareholder; refer page 35 for details.

Dr Chris Burns Group CEO

Dr Chris Burns is Group CEO of NVX. Dr Burns co-founded NVX (in Canada in 2013) and was prior COO of NVX, BTS and PUREgraphite. Dr Burns co-developed the breakthrough Ultra-High-Precision-Coulometry (UHPC) technology with Dr Dahn, the current Chief Scientist for both Tesla and NVX. Dr Burns also manages the research partnership with Dalhousie University and is formerly a Senior Research Engineer with TESLA. Dr Burns holds a Doctorate in Philosophy, majoring in Physics from Dalhousie University.

Nick Liveris Group CFO

Nick Liveris is Group CFO of NVX. Mr Liveris was previously operational CFO for PUREgraphite and BTS and VP Business Development for the NOVONIX Group. Mr Liveris was previously a Senior Engagement Manager at McKinsey leading industry transformation programs and an Investment Banking analyst at Merrill Lynch focused on the transportation sector. Mr Liveris holds an MBA from the Wharton School of the University of Pennsylvania.

Radasha Buttar Senior Vice President & General Counsel

Radasha Buttar is Group Senior Vice President & General Counsel. Before joining the Company in April 2021, Ms. Buttar served as Senior Vice President - General Counsel & Corporate Secretary of Foresight Energy LP from 2011 to 2017. Ms. Buttar served as Vice President, Associate General Counsel and Corporate Secretary of Patriot Coal Corporation from 2007 to 2011 and Assistant General Counsel and Assistant Corporate Secretary of TALX Corporation from 2003 to 2007. Ms. Buttar received her Juris Doctor from Saint Louis University School of Law and her undergraduate degree in Russian and Eastern European Studies and Political Science from Saint Louis University.

Suzanne Yeates Group Financial Controller

Suzanne Yates is Group Financial Controller and Company Secretary of NVX. Suzanne was formerly CFO of NVX on part time basis 2015 – 2020. She is a Chartered Accountant with more than 20 years’ experience in the industry.


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3.TECHNICAL ADVISORS

Dr Jeff Dahn Chief Scientific Advisor

Professor; Dr Jeff Dahn is Chief Scientific Advisor and a leading researcher in the field of lithium-ion batteries and materials and currently holds the title of NSERC/Tesla Canada Industrial Research Chair with Dalhousie University. Dr Dahn has a long career across both industry and academia, and has spent the last 25 years as a professor at Dalhousie University, with support from 3M Company and most recently, from Tesla. Dr Dahn, joins the NVX team as Chief Scientific Advisor, the same role he continues to hold at Tesla, from 1st July 2021. Dr Dahn has co-authored 730 papers and has 73 inventions with patents issued or filed, including some of the early patents related to Li[NiMnCo]O2 (NMC) cathode material in 2001.

Dr Mark Obrovac Sponsored Researcher

Professor; Dr Mark Obrovac is a sponsored researcher and a leading researcher in the field of lithium-ion batteries and materials with a strong background in new material synthesis, completing his PhD under Dr Dahn’s supervision in 2001. He has career experience across both industry and academia, with eight years at 3M Company working on silicon anode materials and nickel-based cathode materials. He has been a Professor at Dalhousie University since 2010 and began his partnership with NVX in 2018 as the NVX Industrial Research Chair. NVX has commenced a new five-year sponsorship with Dr Obrovac, who has co-authored 90 papers and has 27 inventions with patents issued or filed spanning anodes, cathodes, electrolytes and binder materials for lithium-ion batteries.

4. TOP 20 SHAREHOLDERS comprise 53% of total shareholders

Shareholder Name m shares % St Baker Energy Managers Pty Ltd 64.22 15.88% Gregory Baynton 36.75 9.09% Phillip St Baker and Peta St Baker 17.57 4.34% Washington H. Soul Pattinson and Company Limited 14.73 3.64% Argo Investments Limited 13.30 3.29% NCH Capital Inc 13.30 3.29% Andrew Liveris 9.13 2.26% Carpe Diem Asset Management Pty Ltd 9.05 2.24% Green Benefit AG 4.40 1.09% George Chapman 4.17 1.03% Mutual Trust Pty Ltd 4.13 1.02% Regal Funds Management Pty Ltd 3.98 0.98% David Stevens 3.84 0.95% Apollan Pty Ltd 3.32 0.82% Mingmin Lu 3.25 0.80% John Christopher Burns 2.33 0.58% Maria Bellas 2.30 0.57% Anthony George Bellas 2.15 0.53% Robert Joseph Natter 2.03 0.50% Robert Cooper Syndicate 0.59 0.15% Top 20 Shareholders 214.52 53.04%

Source: Factset

Board & Key Management currently hold 33.3% of company shares on issue

Report Generated on end June-2021


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5. COMPANY RISKS Significant risks are associated with the development and commissioning of any operation. The main risk areas include the scaling of technology, the effectiveness of the Generation-3 furnaces, and the availability of needle coke as its supply expands environmental and policy support, and a clear path for EV expansion in the US. We have yet to see a project risk assessment, which will be required to better assess project and corporate risk.

This outstanding, we assess key risks as:

• Political Risk – Over the next 3 years political risk, as far as the environment and EVs, is relatively low in the US. However, a change in government could have a negative impact on EV demand. Already the US is running behind China and Europe in terms of global EV output forecasts, which are currently surging. Tesla, as we all know, is doing a fantastic job all on its own. But Musk knows it is not enough - more needs to be done. GM, Ford, VW etc. are welcomed into the EV space and required. The US has a chance to build out their automotive industries in belts where unemployment is high. The US should grab the once-in-a-generation chance to revitalise its economy. NVX can lower its own political risk by ensuing it is the cleanest in breed.

• Market Risk – Mitigated by the surge in EV demand and the current use of graphite in the anode, which makes up 50% of the battery. Further, EV demand forecasts are surging, supply chains localising are away from China and EV green deal initiatives in Europe and the US are building momentum.

• Forex and Commodity Price Risk – Fluctuations in graphite prices and currencies may adversely impact the company’s earnings and valuation.

• New Disruptive Technology Risk – NVX is a battery materials disruptor. The risk around any technology alteration is mitigated by its technology partnership with Dr Obrovac’s team at Dalhousie University and Dr Dahn, the Chief Scientists for both Tesla and NVX. The risk is further mitigated through its 100% subsidiary Battery Technology Solutions, which uses proprietary technology to accelerate its R&D from years to weeks. Customers include, Samsung, Sanyo, SK Innovation, LG Energy Solutions, KorePower and CATL, amongst others.

• Scaling Risk – Remains as it does with all operations and is, in part, mitigated through the use of modules that are identical to those used in the successful pilot plant.

• Coke Supply Risk – In the early stages of development, this risk is mitigated by the current contractual arrangement with US company Phillips 66, which is the largest producer of needle coke in the world. As NVX’s demand for needle coke increases, new contracts will be required. This tail risk is mitigated by its current relationship with Phillips 66, however it could be in the best interests of the company to diversify supply options as volumes expand.

• Project Risk – The US requires this project as all current graphite/synthetic graphite and anode materials supply is located outside of the USA. The US Government has listed graphite as a critical mineral and the current Biden Administration has signalled strong policy and financial support for strong business models in the EV space. On this basis, the strong project economics modelled by CCR helps to mitigate project risk.

• Funding and Dilution Risk – This is mitigated, in part, by the high quality Board, commitment by the DOE to facilitate funding through loans and grants. The DOE commitment is subject to due diligence, which is why strong purpose, robust project financials, 100% ownership of its subsidiaries is important. Additional funds can also be raised through project equity sell-downs, the issuance of new equity and structured off-take deals.

• Country Risk – Is low and mitigated by the Standard & Poor’s AA+ rating for the USA. Other ratings agencies, like Moody’s and Fitch, still rate the USA a AAA but have it on a negative watch.

• Demand for Battery Cell Risk – Following the US ban on SK Innovation, there was a risk the US battery cell supply chain could be under increasing pressure to import cells rather than meet demand domestically. However, the action against SK Innovation has been resolved. This action, however, may slow down the entrant of other battery cell manufacturers from overseas. The in-house production of cells by OEMs (like Tesla and VW) will help to better manage this risk.

• Technology/Substitution Risk – This risk is real as it is the job of science to improve on what already exists. However, given that NVX has Dr Dahn and Dr Obrovac on its team, it is in a good position to drive the science forward. Further, its DPMG patent will ensure it stays involved no matter what the cathode or anode chemistries.

• COVID Risk – This continues to fluctuate as it does around the entire world. The on-site Demonstration Processing Plant in Chattanooga is expected to commission 2H 2021. There is risk that this commissioning could be further delayed and that this delay could push out already delayed first supplies to Samsung. The vaccination rollout will, in part, mitigate further interruption risk and the rotation to Generation-3 furnaces should be complete by then.

• Liquidity Risk – This risk will be reduced with an announced intention to list on the NASDAQ in 2021.


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Corporate Connect Research Pty Ltd Independent Research Report Disclaimer General disclaimer and copyright

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