Avalon exits 40% interest in Separation Rapids JV

Executive Summary

• Avalon Advanced Materials completed the strategic reorganization of its Separation Rapids joint venture with SCR-Sibelco NV, exiting its 40% stake in Separation Rapids Ltd. in exchange for 100% ownership of the Lilypad cesium project.
• The transaction extinguished approximately $7.5 million in debt and accrued interest without cash or share issuance, eliminating a ~15% potential shareholder dilution overhang and leaving the company debt-free.
• The move sharpens Avalon’s strategic focus on spodumene-based lithium and rare earth assets, aligning its portfolio with its long-term critical minerals platform strategy while positioning the Lilypad project for near-term monetization.

Key Details

• Transaction Structure: Non-cash exchange where Avalon transfers its 40% interest in Separation Rapids Ltd. (SRL) to Sibelco, while Sibelco increases its SRL ownership to 100%. Avalon receives full ownership of the Lilypad cesium project.
• Debt & Financial Impact: Fully extinguished a convertible debenture (~$7.5M in debt and accrued interest) without issuing shares or using cash, removing the risk of ~15% dilution upon maturity.
• Asset Portfolio Shift: Exits petalite-based lithium asset (Separation Rapids) to align with a spodumene-based lithium refinery feedstock strategy; gains 100% control of the Lilypad cesium project.
• Related Party & Regulatory Status: Sibelco holds >10% of Avalon’s shares, making this a related party transaction under MI 61-101. The company was exempt from formal valuation and minority shareholder approval requirements as the transaction value did not exceed 25% of market capitalization.
• Board Approval: Unanimously approved by the board of directors, with Sibelco’s nominee abstaining from voting.
• Filing Timeline: No material change report was filed >21 days prior to closing due to terms being settled shortly before closing and the desire for an expedited closure for sound business reasons.
• Strategic Rationale: Aligns corporate focus with building a fully scaled critical minerals platform (rare earths and lithium), simplifies capital structure, and creates a clear path to near-term value realization for the Lilypad cesium project given limited global supply and rising industrial/tech demand.

Notable Quotes

• Scott Monteith, President & CEO: "This is an important step in sharpening Avalon's strategic focus... We are eliminating a significant source of potential shareholder dilution, simplifying our corporate structure and aligning our asset base with our long-term strategy."
• Lorin Crenshaw, CFO: "Importantly, Avalon emerges debt-free, eliminating approximately $7.5-million of debt and accrued interest -- without issuing shares or using cash and removes a meaningful dilution overhang... This strengthens our financial position, preserves shareholder value and positions the company to pursue future strategic initiatives from a position of even greater strength."
• Nick Traber, Sibelco EVP: "This transaction aligns well with Sibelco's strategy to focus on industrial minerals solutions for ceramics, glass and specialty applications... We also welcome Avalon's continued progress in building a focused lithium and rare-earth platform."