Ann: HPMSM Feasibility Study Update, page-69

Rocket suggests: "Once production is boosted then E25 will lose even more." and "Ask yourself this question, how long will it be before E25 is making a monza from producing battery HPMSM? I'd say 5 years minimum before production is started."

I'd suggest that's part of his agenda to focus on the ore operation not the potential Gem - HPMSM. I'd also suggest on focusing on Iron ore/Manganese and OHM he hasn't understood the wider implications of the Inflation Reduction Act (IRA) on E25. Are E25's ore operations in a challenged situation - Yes. Costs are too high because nameplate hasn't yet been achieved - Yes. Are grades are too low and I suspect there is a lot of rework - yes. Is there a fix - Yes (DMS).

More importantly, can the operations produce ore that can be converted to HPMSM - Yes. Does E25 have a huge resource meaning large volume commitments of HPMSM are possible - YES.

Back to HPMSM. The IRA has the increasing free trade partner sourcing requirements so that US$7,500/car discounts are available if these criteria are met. Cobalt and Nickel will be problematic to source in volume from free trade countries. That means they OEM/Battery makers need to progressively source as close to 100% of their Lithium, Graphite, Copper, Aluminum and Magnesium as possible from free trade countries so that the reducing slice available from non-free trade countries is applied to minerals where there is no choice and continue getting discounts to Dec 2032. For Magnesium there is a choice. Companies like E25 have a proposal that would supply Inflation Reduction Act compliant HP magnesium. What is the competitive position of an OEM going to be if their competitor is $7,500/car eligible and they aren't. An executive in one of these companies responsible for this situation of non-eligible cars/trucks would expect to be fired, and they all know it. To keep their job they need to source new compliant supplies.

Statista has collected forecasts of 1.421m EV sales in America in 2025, increasing to 2.131m in 2027. If 2 million cars/trucks were to meet the EV production sourcing and also meet the maximum income criteria in the IRA (a generous $300k/yr of income for joint filers), the US government would be paying out $15 billion in discounts per year. That carrot is the incentive that is a driver for change. It will mean multiple big OEM's/battery makers who have traditionally sourced materials from China will be looking for someone who can create a suitable HP magnesium product for use in their facilities and have that facility on-line by the start of 2025. That facility can't involve China.

They need someone with a proven technology and the ability to scale. To hit the start of 2025 the company needs to be well advanced with their plans. They have the problem that their first choice of battery (NMC 811) is problematic because the Nickel and Cobalt content may well be impossible to compliantly source. Therefore products like LMFP are highly desirable, even if they need a bit bigger battery (more weight) than desirable to get the range for the US consumers. This needs lithium (that's ok because Canada, Chile-Brine and Australia are all free trade countries), Iron products, and a big source of HP Manganese.

E25 has identified this is a game changer. Their plans were set on Malaysia and they have pivoted to looking at a US plant. There is no option around as Rocket suggests around a plant being 5 years away. If E25 is going to be part of the solution, it has to be completed and fully operational in 2 years otherwise the OEM's are going to be losing billions in discounts if they source from China (but the rest of Asia would be ok re entity of concern considerations). Maintaining the $7,500 discounts requires 80% of the battery from free trade countries, so a US plant is preferred. The scale of the discounts mean the OEM's are basically bluffing in negotiations - they need new sources and an a few hundred million capital costs are not an issue (as long as it's not commercially stupid deal). The big car companies will each lose well over $1 billion in discounts on their sale price if they continue to source Chinese HPMSM (due to the entity of concern provisions).

Well at least that's my understanding. Bits of which are repeated by E25 in their notes from 10 October:


Income thresholds for the IRA