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ALPE: Zacks Initiates Coverage of alpha-En Corp.

07/25/2018
By Steven Ralston, CFA

OTC:ALPE

READ THE FULL ALPE RESEARCH REPORT

alpha-En Corp (OTC:ALPE) is a technology development company, primarily focusing on the development of a commercially viable process for the production of high-purity lithium metal and of a thin film lithium anode for use in the next generation of lithium high-energy batteries. The company’s core intellectual is a patent portfolio that has been broadened and strengthened since 2013 and now includes filings for several international markets (Australia, Canada, China, Europe, Japan, India, Korea and Hong Kong). The company is embarked upon the preliminary steps to scaling-up the development and manufacturing design of both processes. alpha-En has entered into research agreements with Princeton University, Argonne National Laboratory and Cornell University so that battery manufacturers can properly consider alpha-En’s technology for inclusion into the next generation of batteries with lithium metal anodes.

The company’s development programs are pursuing several opportunities as the lithium battery market evolves toward lithium metal and solid state batteries:

Production process of high-purity lithium metal
     ◦ Patent-pending process to produce high-purity lithium metal at room temperature without toxic chemicals. Not only is the method dramatically lower in cost than conventional high temperature production processes, the lithium metal produced is very pure with respect to base metals content, which is considered an important pathway toward the next generation of lithium batteries.

Thin-film lithium anode
     ◦ Among the technological advancements being pursued to produce the next generation of lithium batteries is the use of a lithium anode. Most lithium batteries today utilize a carbon anode, usually in the form of graphite. Alpha-En has a thin-film lithium anode process under development that appears superior to other lithium anode alternatives, especially by helping surmount a major technological hurdle (the formation of dendrites).

• Pursuit of using the company’s lithium purification process in the lithium recycling industry
     ◦ The recycling process produces a pregnant leach solution with dissolved lithium carbonate and other lithium salts, which are suitable feedstock for the company’s process to produce high-purity lithium metal.

Strategic Research Partnerships

Management pursues potential research, licensing and manufacturing partners to help accelerate the process of commercializing the lithium processes and products that the company is developing. Currently, alpha-En is engaged in collaborative research programs with academic and scientific institutions of Princeton University, Argonne National Laboratory and Cornell University. In order to enhance its internal development program, the company opened its own laboratory in Yonkers, New York on May 31, 2017. The permitting process was completed in April 2018, and now the laboratory is fully operational and capable of manufacturing samples for research partners and potential customers.

Under a cooperative research program that began in January 2015, The City University of New York (CUNY) conducted research on behalf of alpha-En. The CUNY verified the patent claims, replicated alpha-En’s high-purity lithium metal production process, manufactured samples and advanced the IP portfolio further.

In April 2016, alpha-En became an affiliate member of the Joint Center for Energy Storage Research (JCESR), a public/private research consortium established by the Department of Energy in 2012. The organization focuses on creating the next-generation battery technologies by promoting collaboration among government, academic and industrial researchers. Partner organizations include Argonne National Laboratory, Dow Chemical, Northwestern University, United Technologies and the University of Michigan. In addition to the 15 partner organizations, there are five funded collaborators (Harvard, MIT, University of Notre Dame, University of Utah and University of Waterloo). In order to accelerate innovation, the affiliate program gives more than 100 small and large businesses (including alpha-En), non-profits, universities and national laboratories, the opportunity to engage with research projects and network with each other.



View Exhibit I

In July 2018, alpha-En and Cornell University entered into a Cooperative Agreement to conduct sponsored research on alpha-En’s lithium thin film production process. The research project is focused on creating a better understanding of the electrochemical properties of alpha-En’s thin film lithium metal deposition process, particularly in terms of quantifying capacity and providing a visual, real-time demonstration of the deposition process so that battery manufacturers can properly consider alpha-En’s approach as part of their development of next generation of rechargeable batteries that utilize a lithium metal anode.

The Alpha-En Process of Producing High-Purity Metallic Lithium

alpha-En has developed a new process technology to produce high-purity lithium metal with a cost effective method (at room temperature) and in an environmentally friendlier manner without the use or emission of toxic/hazardous products (mercury/chlorine). This disruptive technology is highly differentiated from current conventional lithium extraction techniques by offering several significant advantages.

• Process temperature of only 25° C – room temperature (lower manufacturing costs)
• Feedstock of lithium carbonate or other lithium mineral salts (lower production costs)
• Produces high purity lithium with respect to base metals content (up to 99.997% in laboratory tests)
• Flexible process that is able to deliver lithium in a variety of desirable form factors for thin film applications
• No necessary use of halide salts (eliminating the emission of chlorine gas)
• No use of mercury
• No need to handle molten lithium salts

alpha-En’s Electro-Deposition Method for Lithium Metal Anodes

alpha-En plans to utilize its electrolytic deposition process for the production of high-purity lithium metal to create a thin-film layer of high-purity lithium onto a copper substrate. The process also allows for the control of various parameters that can yield uniform, densely-packed, high-purity lithium metal nanorods. The combination of the high purity of the lithium metal and the uniformity of the lithium morphology is anticipated to both inhibit the formation of dendrites and improve the battery’s performance.

alpha-En’s electrolytic deposition process yields a layer of extremely pure lithium metal onto a myriad of different conductive substrates. The technology involves an electrochemical process that sources lithium metal from an aqueous lithium source (lithium carbonate or other lithium salts) through a selective permeable (yet lithium-ion conducting) barrier and film. The deposited lithium layer is without nonconductive impurities and with a dramatically reduced presence of trace metals/undesired substances (up to 99.997% pure lithium metal in laboratory tests). Purity of lithium anode material is expected to be a key element to the successful development of a lithium anode battery.

alpha-En’s process permits the regulation of certain parameters, which allows for the precise control of lithium morphology for the formation of a well-defined, densely-packed and uniform nanostructure of dendrite-free lithium metal nanorods. An ordered nanostructure of the lithium metal anode is expected to improve battery performance. As an aside, nano technology refers to manipulating matter at a size ranging from 1 to 100 nanometers (10-9 to 10-7 meters).



View Exhibit II

First, the mechanical and cycling stability of the anode increases by shifting the particle size of the metallic anode material from macro-scale (size of a flea) to nano-scale (size of a virus). Nano-scale structures almost always advance the performance of an energy system. Second, the geometry of nanostructured lithium creates bright domains of ion-conducting pathways, enhancing the electrochemical process, thus supporting ultra-rapid charging and discharging and improving cycling characteristics. And third, the homogeneous and uniform surface of the lithium anode is expected to suppress the formation of dendrites. All these benefits are in addition to the leap in energy density from utilizing a lithium metal anode.

alpha-En is putting forward a new construct with an electrolytic process that optimizes the relationship between electrochemical properties and the structure. Not only the does the extreme pure lithium metal, but also the uniform deposition of lithium metal enhance the electrochemical processes and suppress the formation of dendrites.

alpha-En continues to develop and aims to commercialize components in the next-generation of high-energy density lithium batteries that will improve battery performance in a numerous ways, from increasing the life of batteries in consumer devices (by increasing the number of charging cycles) to increasing the range of electric automobiles (by increasing energy density).

Attributes of a Disruptive Technology

alpha-En’s innovative process not only has a friendly environmental footprint and lowers operating costs, but also has disruptive technological attributes of very high-purity metallic lithium along with the flexibility to adjust the morphology from amorphous to a uniform nanostructure depending on the application. In the quest for the next generation lithium battery, which most scientists consider a viable lithium anode, the enabling technologies appear to be the purity and/or the structure of lithium deposited on the anode’s substrate. Very high purity lithium with respect to base metals content, with well-defined morphologies and reduced surface roughness, may be the key to dramatically inhibit dendritic growth, which is thought to be the main cause of capacity loss/reduced cycle life in lithium metal anode battery technologies. It also appears that the degree of improvement in the next generation of high energy density lithium batteries can be enhanced through the use of nanostructured lithium electrode materials. Alpha-En’s process is flexible and has the capability for the manufacture of lithium metal with a relatively uniform nanostructure, which could be a crucial element for the successful advancement and commercialization of the lithium metal anode.

Alpha-En has advanced its process of manufacturing metallic lithium through the early stages towards commercialization.

• Bench-scale testing in the laboratory at CUNY.
• Independent validation of proof of process at CUNY, Princeton and Argonne National Labs.
• Production of samples for potential partners and customers on a batch scale at Argonne National Labs.

The Opportunity

Rechargeable lithium-ion batteries have become ubiquitous, powering electric vehicles (EVs), grid-scale energy storage units and portable electronic devices, such as smartphones, cellphones laptops, tablets, etc. The current growth in these applications, as well as the latent potential demand for more advanced versions, is driving the research into the next-generation of electrochemical energy storage cells. Lithium continues to be a leading candidate as a key material for the next-generation of rechargeable batteries due to the metal’s unique attributes of high energy density, high voltage (∼3.6 V nominal), no memory effects and relatively low self-discharge.

The burgeoning growth of devices and systems dependent on electrical storage devices demands the development of the next generation of batteries. The advancement of these devices and systems is being hindered by significant limitations of current battery technology. First, the need for longer life spans and more rapid recharging times for high-performance consumer devices, such as smartphones, cell phones, digital cameras, wearables, etc. Second, the requirement for greater energy capacity in certain battery applications, such as electric vehicles, wind turbines, solar farms and power grids. In addition, wind power and photovoltaic power sources also have special requirements to cope with the fluctuation of power generation and the stabilization of the electrical power grid. Third, electric vehicles (EVs) require enhanced capabilities for rapid discharge in order to accelerate quickly and for rapid recharge to improve consumer convenience and acceptance.

According to BIS Research, the market for EV batteries is estimated to grow at a 20% CAGR between 2016 and 2026 and reach $93.94 billion, which implies a $78.3 billion market in 2025. Bloomberg forecasts that sales of EVs will increase from 1.1 million worldwide in 2017, to 11 million vehicles in 2025. These estimates may prove conservative given that the next generation of battery will have a significantly higher energy density so that the adoption of EVs may accelerate more than currently expected as the vehicle range per charge extends to over 500 km. Utilizing projected global market shares for the automobile, consumer and energy storage segments that are available from Frost & Sullivan, we estimate that for valuation purposes the energy storage systems market in 2025 will be generating $91.1 billion in revenues, and the consumer space would add $62.4 billion for a total of $283.8 billion from all three segments.

Valuation

Valuation analysis of companies that are advancing new disruptive technologies is a very challenging exercise, especially when they are pre-revenue entities in the development stage.

The leap in performance of rechargeable batteries by successfully utilizing a lithium metal anode would have broad impact with significant economic consequences. The next-generation battery would become even more ubiquitous than today since the advancement would further transform life, business and the global economy. The profound impact would rival those of the development of synthetic rubber, the transistor, the integrated circuit, the microprocessor, the PC and its operating system, which enhanced the fortunes of Bayer, AT&T (Bell Labs), Texas Instruments, Intel, IBM and Microsoft, respectively. The developer of the next-generation battery technology (or any proprietary owner of a component of its core technology, such as alpha-En), would garner significant market share in multiple fast-growing industries, including electric vehicles, personal electronic devices and power grid storage batteries.

Our valuation approach for a company advancing a disruptive technology utilizes a scenario approach that estimates the size of the potential market, makes some critical assumptions concerning market penetration and other factors, adjusts for risk by applying a probability of success and then applies anticipated dilution from capital offerings and the exercise of options and warrants to fund the company’s developmental efforts.

Utilizing projected risk-adjusted annual revenues of $93.7 million in 2025 with the expectation that alpha-En’s stock will trade at a P/S ratio of 4.3 at that time, the share price target would be $10.21 in 2025. However, to translate that value to a current target price, we employ a net present value (NPV) calculation that utilizes a 15.5% discount rate to reflect the risks associated with this development project.

Therefore, our risked-adjusted valuation target of alpha-En for 2018 is $3.70 with upside potential of up to $6.50 if one of alpha-En’s partners announces a go-to-market plan utilizing alpha-En’s lithium metal technology.

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