Mr. Scott Monteith reports

AVALON ANNOUNCES C$63M STRATEGIC INVESTMENT BY SIBELCO TO CREATE A VERTICALLY INTEGRATED LITHIUM STRATEGIC PARTNERSHIP IN ONTARIO

As part of its strategic transformation to become a leading North American vertically integrated lithium producer, Avalon Advanced Materials Inc. has signed a binding term sheet to create a new joint venture with SCR-Sibelco NV, a global leader in materials solutions. Avalon has issued to Sibelco, on a non-brokered private placement basis, 109,692,764 common shares of Avalon for aggregate proceeds of $10-million and a secured convertible debenture in the principal amount of $3-million.

The $63-million transaction results in Antwerp-based Sibelco owning approximately 19.9 per cent of the issued and outstanding common shares, and provides Avalon with a first tranche of financing to advance the company's lithium production and processing goals across its suite of lithium mineral assets, led by Separation Rapids in Northwestern Ontario. This new joint venture is expected to accelerate Avalon's core business objective of building a mid-stream lithium-hydroxide processing facility in Ontario.

"This strategic partnership represents a significant step forward in scaling our business towards full vertical integration of our lithium production," said Scott Monteith, chief executive of Avalon. "Sibelco's investment is a major vote of confidence in our vision, resources and capabilities by a respected and established international operator -- and now partner."

"Our partnership with Avalon will focus both on the clean energy growth agenda and the technical glass and ceramics markets in which Sibelco has deep and time-tested expertise," Hilmar Rode, Sibelco chief executive officer, said. "This dual-market strategy combined with a cash-generative business plan will lay the foundation for accelerated growth, and ultimately the venture's sustained success going forward."

Overview of transactions

Strategic financing

Pursuant to the terms of the private placement, Sibelco purchased: (i) 109,692,764 common shares at a price of approximately 9.1164 cents per common share for gross proceeds of $10-million which resulted in Sibelco owning approximately 19.9 per cent of the issued and outstanding common shares; and (ii) the debenture, which is a secured convertible debenture, providing for two advances to Avalon: (i) $500,000 on the date hereof; and (ii) $2.5-million subject to the satisfaction of certain conditions precedent. The debenture bears interest at 7.115 per cent per annum and the principal and interest are payable on maturity, being two years from the date of the debenture. To the extent not repaid at maturity by Avalon, Sibelco will have the right to convert the outstanding principal amount of the debenture and all accrued and unpaid interest thereon into either additional common shares at a conversion price equal to the per-share price, or an additional 5-per-cent interest in the joint venture corporation, as more particularly described below. The debenture is a secured obligation, secured by a pledge of the shares of a subsidiary of Avalon subject to replacement security at defined milestones.

Avalon also granted to Sibelco, for so long as Sibelco holds not less than 10 per cent of the issued and outstanding common shares on a non-diluted basis, the right to nominate one member to the board of directors of Avalon (or up to two nominees if the size of the board is increased to nine directors or more), and the right to participate in future equity offerings so that it can maintain its pro rata percentage ownership in Avalon. Sibelco also agreed to a 12-month standstill and certain resale restrictions placed on its holdings in Avalon.

The proceeds from the private placement will be used by Avalon to finance the acquisition of industrial land for a lithium-hydroxide processing facility in Thunder Bay, Ont., and repayment of up to $1.9-million of existing debt, and for working capital and general corporate purposes.

Joint venture

Subject to the terms and conditions of the binding joint venture term sheet, Avalon and Sibelco have agreed to establish a joint venture with respect to Avalon's lithium projects, including Separation Rapids and Lilypad in Northwestern Ontario. Sibelco, which will act as operator of the joint venture, has committed to invest 35 million euros (approximately $50.4-million) into the joint venture. Of this amount, five million euros is to be advanced concurrently with the contribution by Avalon of its interests in the Separation Rapids and Lilypad projects, with an additional 30 million euros to be advanced in tranches to finance the development of the joint venture mineral projects, including facilities and related infrastructure. After total cash contributions of 35 million euros by Sibelco, each of the parties will make any further cash contributions on a pro rata basis (with dilution to a non-contributing party's interest). While the initial participating interests to be held on the formation date of the joint venture by Sibelco and Avalon will be 60 per cent and 40 per cent, respectively, such participating interests may change to 65 per cent and 35 per cent, respectively, if on the maturity date of the debenture Avalon fails to pay the full principal and accrued interest and Sibelco elects to exercise the JV election.

The joint venture term sheet is binding on the parties. Avalon and Sibelco will work together to enter into a long-form joint venture agreement as soon as practicable with a view to execution on or before Aug. 31, 2023, but in any event not later than Sept. 30, 2023.

New strategy, new vision

Avalon's new strategic goals are focused on both organic growth of its lithium portfolio, consisting of a suite of critical-mineral mining projects across Canada, as well as developing new related opportunities. The company's mission is to vertically integrate lithium processing in Ontario, positioning the province as an integral part of a North American supply chain for electric vehicle batteries.

"We are thrilled to execute on a plan to reliably produce a key resource required for North America's clean-energy transition -- and, in so doing, deepen ties between Canada and the European Union in this geo-politically sensitive sector," noted Zeeshan Syed, president of Avalon. "We are keenly attuned to the strategic imperative among G7 economies to build domestic critical-mineral processing capacity, and we intend to do just that."

The joint venture will facilitate phase 1 of Avalon's new strategic growth plan, which includes:

1. The purchase of industrial land for a lithium-hydroxide processing facility in Thunder Bay, Ont.;
2. Financing to advance upstream lithium production operations across Avalon's various projects, led by the Separation Rapids and Lilypad sites, as well as further the development of the promising Snowbank discovery;
3. Enabling the Avalon-Sibelco joint venture to execute on a dual-market strategy targeting significant growth in both the glass and ceramics market and the EV clean energy market.

"Avalon's vision for an integrated lithium play is exciting and will enable Sibelco to play an important role in this business segment," Ian Sedgman, Sibelco chief strategy and business development officer, said. "We see a tremendous opportunity to complement our core business by partnering with a proven lithium asset holder led by an experienced management team."

About Avalon Advanced Materials Inc.

Avalon Advanced Materials is a Canadian mineral development company aimed at vertically integrating North America's lithium supply chain. The company is currently focusing on developing its Separation Rapids lithium project near Kenora, Ont., while continuing to advance other projects, including its 100-per-cent-owned Lilypad spodumene-cesium-tantalum project located near Fort Hope, Ont. Social responsibility and environmental stewardship are corporate cornerstones.

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