South Star Battery Metals Announces 2023 Year in Review, Santa Cruz Construction Update, Qualification for Corporate Income Tax Exclusion and 2024 Catalysts
South Star Battery Metals Announces 2023 Year in Review, Santa Cruz
Construction Update, Qualification for Corporate Income Tax Exclusion and
2024 Catalysts
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Vancouver, Canada, April 03, 2024 – South Star Battery Metals Corp. (“South Star” or the “Company”) (TSXV:
STS) (OTCQB: STSBF), is please d to provide the Company’s 2023 year in review, a Santa Cruz Phase 1
construction update and the anticipated 2024 catalysts for Santa Cruz and BamaStar . Additionally, under the
Brazilian regional development incentive program administered by the Superintendência do Desenvolvimento
do Nordeste (“SUDENE”), South Star ’s Santa Cruz project has also been granted eligibility to receive certain
income tax exemptions, including a 75% corporate income tax reduction for ten years.
Overview
South Star had a very exciting and eventful 2023. While we are pleased with our overall progress, we are never
satisfied as we advance bringing Santa Cruz Phase 1 operations online in Brazil and transitioning from a
development company to the first new graphite miner/processor in the Americas since 1996 . Santa Cruz had
zero lost time accidents in 2023, and the overall construction advanced significantly. However, equipment
supplier delays (mills), contractor workforce shortages , and weather all contributed to an overall Phase 1
construction delay of 6 months (June 2024) compared to the original schedule. While most of the delays are not
in the Company’s control, t he team has put significant time and effort into minimizing the risk and associated
impacts while ensuring continued advancement safely and responsibl y. The delays are disappointing, but the
positive news is that Santa Cruz should still be able to produce close to our original goals of 5,000 tonnes (“ t”)
of graphite production and sales in 2024, assuming the team can ramp up to the plant nameplate production
capacity of 1,000 tonnes per month (“ tpm”) in Q4 of 2024. BamaStar also advanced significantly over the year,
and the project continues to show promise and be derisked with the continued favorable results of the studies .
Two drilling campaigns were completed, and a National Instrument (“ NI”) 43 -101 technical report with the
maiden resource estimate during the year was issued, again with no loss time accidents . The contracts for the
NI 43-101 Preliminary Economic Assessment (“PEA”) were recently released in March 2024, and this should be
completed in approximately 3-4 months.
While equity markets have been extremely challenging in 2023, South Star outperform ed the S&P500 (26.3%
return), TSX (8% return), and S&P/TSX Capped Materials (-1.3%). South Star was the best -performing graphite
stock of the 40 publicly listed companies on the TSX/ASX /AIM/US exchanges that our finance team tracks, with
an outstanding return of 36% in 2023. Despite challenging headwinds, t he Company has successfully raised
capital in progressively less dilutive, non -brokered private placements while also attracting significant
institutional capital partners who are invested for the long term.
The team is working hard to continually raise the profile of the Company and expand our retail investor
network. We ended 2023 with C$ 6.5M in cash on our balance sheet, no debt, and a clear path to positive cash
flow in 2024. It’s also important to highlight that approximately 50% of Santa Cruz’s Phase 2 estimated CAPEX is
already arranged under the Sprott Streaming Agreement. Once the Santa Cruz Feasibility Study is completed
and the Brazilian mining licenses are approved, the Company's goals are to make an investment decision quickly
and advance to a detailed design so the operations can scale , given positive economic s and commercial
scenarios. There is also a scenario where Phase 2 is skipped, and both Phases 2 and 3 are advanced in parallel.
This 2023 review will start by looking back at the stated milestones for the year to see what was achieved versus
our stated goals from the end of 2022. Subsequently, we will go through 2023 financial results and close by
looking forward to 2024 goals and catalysts.
2023 Goals/Catalysts Santa Cruz Graphite Mine (Brazil)
• Phase 1 Construction: Contractor mobilization and earthworks began at Santa Cruz in mid -December
2022, and a 12 -month construction schedule was planned, followed by a 30 -45 day commissioning
schedule. Currently, substantial completion is scheduled for June 2024, followed by a 45-day ramp-up
and commissioning schedule . The delays are caused mainly by holdups in equipment fabrication,
structural steel manufacturing/deliveries, contractor labor shortages, as well as delays in specialty
electric/hydraulic parts. In addition, weather delays from heavy rains impacted some of the earthworks
and structural steel assemblies. Currently, the delivery of the mills is scheduled for April/May 2024, and
this is the last major equipment outstanding. A total of 425 days and over 177,204 manhours have been
completed without lost time accidents during the construction , which is a real accomplishment . While
delays are never ideal, the stated goal was to produce and sell 5,000 t onnes/year (“tpy”) in 2023, and
that remains the overall financial target. The revised 2024 budget still considers selling nearly 5,000
tpy by assuming the Phases 2 & 3 mining licenses are approved in Q2 2024 , and the team ramps up
production to 1,000 t/month in Q4 2024.
✓ Environmental Permitting for Phases 2 & 3 : Permitting documents for Santa Cruz Phase 2 (25,000 tpy
concentrate) and Phase 3 (50,000 tpy concentrate) for eight of the mining claims were submitted in
mid-2023 in Itabela, Bahia. Subsequently, the permits were approved in February 2024, including all the
main areas required for Phases 1 and 2.
• Definitive Mining License for Phases 2 & 3 : All life-of-mine (“LOM”) licensing documents for the 13
current claims have been submitted to the Brazilian Mining Agency (“ANM”) in 2023 and are in review.
Six of the claims, including all areas required for Phases 1 and 2 operations, have been technically
approved by the regional office in Salvador, Bahia, and sent to Brasilia for final review. The goal is to
have the definitive mining licenses for the main areas approved for Phases 2 and 3 in Q2 of 2024 so that
all permits and licenses are approved, and decisions on scaling production can be made.
• Commercial Sales Agreements: South Star has advanced several commercial conversations and has
several signed LOIs for both domestic and global sales for refractory, steels, friction products, and other
industrial applications. Several potential clients have technically approved kilogram samples of Santa
Cruz concentrates and are waiting for the start of commercial production and the ability to deliver 1 to
5-tonne samples for industrial-scale tests. The team should be able to produce large scale samples
while Phase 1 is commissioning , and our commercial team continues to pursue firm commercial
agreements for our near-term production.
2023 Goals/Catalysts BamaStar Graphite Project (U.S.)
✓ 2022 Drilling Campaign : In January 2023, the team completed a 12-hole (506m) maiden drilling
program confirming at or near-surface mineralization.
✓ NI 43-101 Maiden Resource Estimate : In March 2023, the maiden resource estimate was completed,
resulting in a pit-constrained resource estimate (1.1% Cg cut-off) of 22Mt at an average graphitic carbon
(“Cg”) grade of 2.4% for a total in -situ graphite estimate of 520,000 t of graphite. The maiden mineral
resource estimate and initial open pit optimization confirms the deposit is amenable to open pit mining
operations with at-surface mineralization and low strip ratios.
✓ 2023 Drilling Campaign : In November 2023, the 2023 drilling program, which totaled 1900 meters of
diamond drilling in 15 holes, was completed, including final laboratory analytics. All the holes confirmed
graphite mineralization with promising intersections. The results will be incorporated into a n updated
resource estimate as part of the upcoming NI 43-101 Preliminary Economic Assessment.
✓ Mineral Rights and Surface Rights Extension : The main mineral rights and the surface access rights
have extended the current agreements on the Project for an additional two years beyond the initial five-
year term of the original agreements.
5- to 7-Year Strategic plan – Vertically Integrated production in the Americas
South Star’s 5- to 7-year strategic plan forecasts Santa Cruz and BamaStar each producing approximately 50,000
tpa of high-quality graphite concentrates. Part of this production will be directed to a value -add plant in the
southeast corridor of the U.S. producing 50-70,000 tpa of following value-add products:
• Micronized, purified graphite;
• Coated/uncoated SPG; &
• Expandable/Expanded graphite.
The concentrate plants will be modular to allow for the standardization of the supply chain and maintenance
requirements. The modular design will reduce OPEX and accelerate construction while guaranteeing continuity
in CAPEX and the quality of the finished product. The development will be phased so we can ensure our CAPEX
is financeable, profitability, and leverage our future balance sheet with a reasonable cost of capital to minimize
dilution. The goal is to deliver a broad range of diversified products that can be profitably produced and provide
a risk -reduced return on our investments. The location of the value -add plant will be a function of required
power type and costs, logistics , as well as supply chain considerations. Ideally, it will be located near our
BamaStar project, which will supply most feedstock.
South Star has scalable, low capital intensity assets, with first quartile OPEX, and fantastic access to existing
infrastructure and logistics, entering the production stage in strategic , Tier 1 jurisdictions when supply and
demand are essentially out of balance in the coming years . The Company also has the right team of builders
and operators in place to deliver high -quality products to the markets. Production and cash flows will begin in
2024 at Santa Cruz and the Company’s goals are to scale as quickly as possible with a very reasonable cost of
capital based on a risk -averse, disciplined approach. BamaStar provides the next project in the pipeline in a
fundamental strategic jurisdiction, with production planned for 2027.
The team is working hard to position the Company to deliver genuine, long -term, sustainable returns for
shareholders and partners based on producing safely, responsibly, and profitably while bringing good value to
the marketplace and stakeholders. Safety, environmental compliance, community involvement, cash flows,
P&Ls, and balance sheets will be the scorecard.
In Aug ust 2023, South Star strengthened the team by adding Roger Mortimer as a board member, an
experienced capital-markets executive and global climate/energy-transition fund manager. He will also serve as
an advisor to the Company. In addition, Tyler Dinwoodie, a graphite industry veteran, senior corporate advisor,
and specialist in Li-ion battery materials, has joined the executive team as a senior technical/commercial
advisor and the Company's Chief Commercial Officer.
Share Structure, Stock Performance & Share Liquidity
Shareholders had a great year in 2023 with an overall return of 36.4%, while the S&P returned 23.8%, iShares
Micro-Cap ETF (IWC) was up 9.1%, and EQM’s Lithium and Battery Tech Index was down 9.2% . The team
tracks about 40 graphite or graphite -related companies listed on TSX/ASX/AIM in our database. STS was the
best-performing graphite company out of the group, where the average annual 2023 return was (-34.4%).
The Company’s market capitalization has grown from C$1.9M(C$0.25/sh) at the close of 2020 to
C$31M(C$0.75/sh) at the close of 2023. While it's important to maintain perspective and try never to get too
high or too low based on the whims of the markets, junior mining markets are notoriously volatile.
Nevertheless, it's essential to have a scorecard for our peer group to track overtime, and investors/stakeholders
deserve to see value delivered and earnings growing over time. South Star's executive management team and
Board see themselves as the stewards of the shareholder's capital and balance sheet. Management is
constantly challenging ourselves and are very focused on keeping the cost of capital low, dilution to a minimum
and investing only in opportunities that present a high return on capital invested.
• In November 2022, South Star successfully closed a non-brokered private placement for total proceeds
of C$2.33M as well as closed on the US$10M financing from Sprott Private Resource Streaming and
Royalty Corp so that Santa Cruz Phase 1 construction was fully financed. An additional non -brokered
private placement for a total of C$230,166 was closed in January 2023
• In July 2023, South Star successfully closed an oversubscribed, non -brokered private placement for
total proceeds of C$4.52M.
• In November 2023, South Star was awarded a US$3.2M grant from the Department of Defense (“DoD”)
under the Defense Production Act (“DPA”) Title III authorities utilizing funds appropriated by the
Inflation Reduction Act, to advance a National Instrument 43 -101 Feasibility Study (“FS”) for the
BamaStar Graphite Project, South Star’s flagship graphite project in the USA, located in central
Alabama.
• In December 2023, South Star announced a non -brokered private placement for C$5M. Subsequently,
this was upsized and closed in March 2023 for a total of C$6.7M.
• South Star's share price started 2023 at C$0.55 and finished the year at C$0.75, or an overall annual
return of 36%.
• The 2023 average TSX.V daily trading volume was around C$31,300, with a maximum of C$75,000
during the year . A positive trend in November and December developed where the average daily
volumes increased to around C$64,250. The trading in the US markets continues to be a very small
percentage of the overall liquidity. See Figure 1 below.
• STS.V market capitalization has progressed as follows: C$2.15M at EOY 2020, C$33.7M EOY 2021,
C$18.5M EOY 2022, and C$31M EOY 2023 . Insiders own approximately 1 0% of shares outstanding. See
Table 1 below.
Figure 1: Share Liquidity 2023
Table 1: South Star Cap Table December 2023
Balance Sheet & Expenses
Despite challenging equity and capital market conditions, South Star is closing 2023 in excellent financial shape,
with near -term cashflows beginning in 2024 . The Company closed 2023 with C$6.5M in cash and a current
account surplus of C$4.4M. This total doesn't include the most recent private placement with gross proceeds of
C$6.7M. There is zero debt on the debit side, and the Company will make the final payment on the farm where
all the Phase 1 operations are planned. Commercial production and the start of revenues are scheduled for
August 2024, scaling to 1,000 tpm of production in Q4 2024.
In 2023, the Company has a ne t loss from operations of C$4.2M while also investing C$12.8M into the Santa
Cruz Phase 1 Plant, Property, and Equipment , as well as land purchases. The result is a 2023 basic loss per
share of C$0.14, compared to C$0.21 in 2022. The finance team has done an excellent job on FX with a positive
C$629,000 impact on our cash in 2023. The team continues to evaluate adding key executive management and
technical staff as we scale operations in Brazil to production and advance BamaStar. The three categories of
most significant expenditures in 202 3 included the CAPEX investments and owners team expenses of Santa
Cruz, the BamaStar project development expenses, and corporate G&A/IR.
The Company continues to work diligently on investor relations, business development and raising the profile of
the Company. While extremely challenging market conditions moderated investor engagement efforts, South
Star has been successful in growing awareness and building a core investor base that enabled us to have
progressively less dilutive private placements, while attracting strategic institutional investors who believe in
the strategic vision of the company, the team and are invested for the long -term. We are confident that our
efforts will result in a fair valuation as we continue to advance quickly to positive operating cash flows at Santa
Cruz and emerge as one of the first new graphite producers in the USA in the great state of Alabama, with
production estimated in 2027.
Market Supply/Demand & Graphite Pricing
Overall, graphite pricing declined in 2023 due to the continued oversupply of cheap fines and a slowing of EV
sales growth. Graphite prices are near 5-year lows. The biggest news occurred in October when China published
the requirements for export licenses for graphite products . It's unclear how this will impact pricing until the
actual effects of this potential restriction are made clearer. However, current pricing doesn’t change the
fundamentals of the impending market imbalance that is in the making, but it probably won't make an impact
on pricing until 2025. Graphite market highlights from Benchmark Mineral Intelligence and other sources
follow:
• 2023 saw the -100#/95% graphite concentrate prices decrease around 32%, and it appears prices are
near the marginal cost of production for fines. Two ex -China graphite suppliers stopped production for
several months during 2023 because of growing inventories and lack of pricing power /profits. See
Figure 2.
• Demand for natural flake graphite continues to grow at about >20% CAGR.
• Global demand for graphite grew by 52% between 2018 and 2023 and is forecast to grow 70% between
2023 and 2028.
• Natural graphite anode material supply will grow by 95 percent by 2030, with demand increasing by
450 percent over the same period.
• Global graphite concentrate production grew to approximately 1.4M tpy in 2023 and is expected to
grow to around 1.65M tpy in 2024. The supply deficit is expected to widen over the next 4 -5 years and
likely require 8-10 years to resolve.
• The U.S. markets alone will require around 700 -900k tpa of graphite concentrates by 2030 while
current production is zero tpa.
• Permitting and licensing projects continue to be a global bottleneck and constrain near -term
production, while current pricing is a real barrier to financing new production.
In summary, a significant imbalance in supply and demand is coming in the near term. A CAGR of approximately
>20% is estimated in graphite markets over the next decade, which suggests that 10 -15 new average -sized
mines must come online to meet demand by 2025 and then double again by 2030. Benchmark Minerals
estimates that 97 average-sized mines are needed to come online by 2035 to meet demand. Whatever the final
number, it still takes 8 -12 years to bring a typical mine into production from discovery. Supply will continue to
be constrained for the foreseeable future.
Given this bullish outlook, it is an exciting time to deliver on our commitment and bring Santa Cruz online to
deliver very high -quality material in a proven producing district. The team is working towards bringing
BamaStar online a few years behind Santa Cruz, with the first production planned for 2027. We expect to be
one of the first movers in new production and to be in the first quartile of costs. Santa Cruz is projected to
generate operating profits during Phase 1 and grow more profitable as Phases 2 and 3 scale.
China & the rest of Asia will continue to dominate the battery metals supply chain for the foreseeable future
and graphite is no exception. The region produces roughly 70% of global graphite concentrates and nearly 100%
of all LiB active anode materials. This major macro trend took 30 years to occur and will take time to evolve. It’s
also conceivable that the price of fines will overtake the price of midsize fraction in the near term, which could
add pressure to industrial applications as more miners grind their medium flake material to deliver fines for
battery applications.
Figure 2: December 2023 Graphite Concentrate Pricing
SUDENE - Corporate Income Tax Exemptions Under Regional Development Program
South Star is also pleased to announce that it was granted eligibility to receive tax incentives and exemptions
under an economic development program administered by SUDENE, a Brazilian federal government agency.
The main tax benefits under the SUDENE program include a 75% federal corporate income tax reduction for 10
years after the Company reaches more than 20% of its annual production capacity and incentivized accelerated
depreciation of assets. The tax incentives will decrease the project's effective tax rate to around 15.25%. There
are additional tax incentives for products that are exported as well. The SUDENE tax incentives can be renewed
for additional 10-year periods.
2024 Catalysts Santa Cruz/BamaStar
2024 will be an eventful year for South Star with significant catalysts that should create value for our
communities, clients, and our shareholders. Projected milestones include:
Santa Cruz BamaStar
• Phase 1 - Substantial Completion and Start of
Commissioning
• Phase 1 – Start of Commercial Production
• NI 43-101 PEA Results
• Preliminary Environmental Characterization
• BamaStar Preliminary Characterization for
Value-add Applications
• Phase 1 - Commercial Agreements & Sales • Battery Testing Results
• 4,000 Drilling Program • Site Selection for Value-Add Plant Facility
• NI 43-101 Resource/Reserve Update • NI 43-101 FS Kickoff
• NI 43-101 Feasibility Report incorporating
Phase 3 production
• Approval of Phases 2 & 3 Definitive Mining
License
• Value-Add Optimization and Continued
Product Development
Concentrate Production Targets (Totals tpy)
• Phase 1 Production (5,000 -13,000 tpy) –
Q3/Q4 2024
• Phase 1 Production (25,000 tpy) – 2027
• Phase 2 Production (50,000 tpy) – 2028/2029
• Phase 2 Production (25,000 tpy) – 2026
• Phase 3 Production (50,000 tpy) – 2028
Value-Add Production Targets (Totals tpy)
• Phase 1 Production (7.5k-10,000 tpy) – 2027 with Feedstock from Santa Cruz
• Phase 2 Production (27.5k-40,000 tpy) – 2028 with Feedstock from Santa Cruz/BamaStar
• Phase 3 Production (47.5k-70,000 tpy) – 2029 with Feedstock from Santa Cruz/BamaStar
Conclusions
South Star will have a transformational year in 2024 as Santa Cruz emerges as the first new graphite production
and sales in the Americas since 1996, and the BamaStar PEA is published with graphite concentrate and battery
anode production in the contiguous U.S. planned for 2027. The team will continue to be focused on safe,
responsible production as the Company transitions from development into production and on profitable
execution of our business plan and growth initiatives.
The Company has two great, scalable assets in strategic, stable Tier 1 jurisdictions and a strong team executing
an exciting 5 - to 7 -year strategic plan that is sustainable, realistic, financeable, and demonstrates strong
financial metrics. The goal is to produce a vertically integrated, diversified range of high-quality products for the
battery metals and industrial sectors. Management and Board are focused on risk management, good
governance, and intelligent capital allocation. With construction and operations underway, the team will
remain dedicated to a culture of responsible operations, health & safety, social integration into the
communities in which the Company operates, and being a positive environmental steward for future
generations.
South Star is just getting started, and the team is excited about the bright future ahead of us. In closing,
Winston Churchill's quote often comes to mind, “Success is not final, failure is not fatal; it is the courage to
continue that counts." The Company will continue to focus on putting one foot in front of the other and
delivering value to our communities, clients, partners, and shareholders. As always, thanks to everyone for their
continued interest and support of South Star during 2024 and our continued journey together.
ABOUT SOUTH STAR BATTERY METALS CORP
South Star Battery Metals Corp. is a Canadian battery metals project developer focused on the selective
acquisition and development of near -term production projects in the Americas. South Star’s Santa Cruz
Graphite Project, located in Southern Bahia, Brazil is the first of a series of industrial and battery metals projects
that will be put into production. Brazil is the second -largest graphite-producing region in the world with more
than 80 years of continuous mining. Santa Cruz has at-surface mineralization in friable materials, and successful
large-scale pilot-plant testing (> 30t) has been completed. The results of the testing show that approximately
65% of Cg concentrate is +80 mesh with good recoveries and 95% -99% Cg. With excellent infrastructure and
logistics, South Star is fully funded for Phase 1, and the construction and commissioning are underway . Santa
Cruz will be the first new graphite production in the Americas since 1996 with Phase 1 commercial production
projected in Q2 2024. Phase 2 production (25,000 tpa) is 2/3 funded and planned for 2026, while Phase 3
(50,000 tpa) is scheduled for 2028.
South Star’s second project in the development pipeline is strategically located in Alabama in the center of a
developing electric vehicle, aerospace, and defen se hub in the southeastern United States . The BamaStar
Project is a historic mine active during World Wars I & II . A NI43-101 technical report with the maiden resource