Abakan Q2, 2014 Newsletter

$5M financing, 90% Acquistion of MesoCoat, Initial Sales in Mexico

To our Valued Shareholders,

It has been an exciting 2014 so far, and we only expect it to get better. We have secured close to $5 million of funding commitments in grants and low-interest loans to scale-up our manufacturing operations, qualify existing products and develop new high-value products for large markets. We also continue to engage potential customers and partners across the globe. We are currently far along in negotiations with significant prospective strategic partners interested in collaborating on the development, qualification, and manufacturing of our clad pipe products and advanced metal coatings. We are also close to completing 100% of the acquisition of MesoCoat, which has always been our goal. Per our recently issued press release, we increased our ownership position in MesoCoat from 72% to 90% and have approved the basic terms of an agreement to finalize completion of the MesoCoat acquisition by August 31, 2014.

Our vision is to focus on the enormous metal coating and cladding market, where there is already a huge existing need for our products. We believe that focused efforts towards commercializing our PComP™ metal coatings and CermaClad™ metal cladding solutions, coupled with our anticipated collaboration with LIMO to develop laser coating systems, will allow us to gain a significant  share of the multi-billion dollar metal coating and cladding market.

Several important initiatives and milestones which have occurred over the past year should give you a good indication of our implemented growth strategy. We commissioned our first clad pipe manufacturing facility to complete qualification of our CermaClad™ clad pipes for the offshore oil and gas industry. We are currently scaling-up our PComP™ powder production by six-times, with a further five-fold production scale-up expected in the next 6 months and begun initial sales of powders in Mexico. We initiated the establishment of a wear-resistant clad pipe development facility in Alberta and initiated discussions to incorporate LIMO’s laser coating systems with our own to address the smaller diameter pipe cladding market.

MesoCoat is consistently ranked by eminent organizations and publications as a top U.S. material science company. Numerous Federal and State awards from NASA, EPA (Environmental Protection Agency), DOE (Department of Energy) and others, coupled with investment in technology development from the largest South American oil and gas company, Petrobras S.A., (NYSE: PBR) and the world’s largest heavy equipment manufacturer, Caterpillar, (NYSE: CAT), along with sales and development activities with some of the largest companies in the world, are a testament to the vast potential of MesoCoat’s portfolio of products. The potential is huge, the promise enormous, and we believe that 2014 is the year we will start delivering on the promise and the potential.

Sincerely,
Robert Miller
CEO, Abakan Inc.

Abakan Increases Direct Ownership in MesoCoat to 87.5%

Abakan increased its ownership position in its majority owned subsidiary, MesoCoat, to a 87.5% direct and 89.9% direct and indirect ownership. The increase is the result of: a) Abakan converting an additional $6,200,000 that it has invested in MesoCoat to equity; b) Abakan exchanging 21.0% of its 40.5% ownership in Powdermet for 65.3% of Powdermet’s shares of MesoCoat; and c) by issuing 2,000,000 restricted shares of Abakan to Powdermet, Abakan intends to acquire those remaining shares of MesoCoat held by Powdermet in exchange for those remaining shares of Powdermet which it holds and the issuance of additional shares of Abakan, to the extent necessary, on receipt of independent business valuations of MesoCoat and Powdermet on or before August 31, 2014.

Stephen Goss Appointed as the new CEO of MesoCoat

Abakan director, Stephen Goss, will replace Andrew Sherman as CEO of MesoCoat effective immediately. Mr. Goss brings operational discipline and commercial focus, in a shift away from the technology development focus to commercial expansion. Mr. Sherman will remain in a technical role, while Mr. Goss will provide the focus and disciplined management needed for near term profitability and commercial success.

Mr. Goss stated "Getting our important products to market is the focus of our immediate efforts at MesoCoat. Our products are necessary to meet the ever expanding demand for downtime reducing cladding and coating materials in connection with corrosion and wear protection for oil and gas activities, mining concerns, metal processing, and eventually infrastructure applications. With our renewed focus on manufacturing scale-up, cost reduction, and quality control, we believe that our disruptive CermaClad™ products will be ready for market in the near term, joining our PComP™ product family that has been accepted in the market and where demand currently outstrips our ability to supply. Our decision to focus on MesoCoat in connection with today’s announcement will strengthen our overall operations, which when combined with our world-leading technology should deliver significant results."

Abakan Begins Initial Sales in Mexico

Abakan, along with its Central American partner, Metallurgic Solutions, SA de CV (“MetalSol”), has secured initial sales and test orders for PComP™ coatings from some of Mexico’s largest steel manufacturers. Abakan and MetalSol have also made significant progress in driving the oil and gas industry in Mexico towards early commercial adoption of Abakan’s CermaClad™ pipe cladding products. Mexico’s energy sector is currently in the process of expanding its offshore developments to greater depths in the Gulf of Mexico. Expansion in the Gulf of Mexico and around the world is exacerbating the acute need for superior cladding products. Abakan expects that if an accelerated qualification process can be determined and met, that Mexico may well prove to be the commercial entry point for CermaClad™ pipe cladding products worldwide.

NASA funds MesoCoat to develop Coatings for Extreme Environments

NASA funded two separate technology development proposals proposed by MesoCoat, under its Small Business Innovation Research (SBIR) program, over thousands of competing proposals. The NASA funding will enable MesoCoat to advance the development of two unique coatings solutions: 1) advanced coatings that self-lubricate to minimize friction and wear in extreme environments, and; 2) advanced nanocomposite coatings that can withstand extreme heat and facilitate high heat transfer for an extended period of time. MesoCoat has secured $4.6 million in awards and low interest loans from federal and state agencies in just the past 3 months. The current NASA funding enhances MesoCoat's ability to scale-up commercialization efforts and continue the development of our product portfolio.

Abakan Appoints Upstream Oil and Gas Veteran to Board of Directors

Abakan has appointed oil and gas industry veteran, Dr. Ryan Owen, PhD, to the Company’s Board of Directors. Dr. Owen has over 13 years of industry experience with BP, both domestically and internationally in upstream oil and gas, and has worked for Woods Mackenzie as a managing consultant. "I look forward to working with the Abakan team. I am confident that my multi-functional, global expertise in the oil and gas industry will add great value to Abakan as it transitions from early stage adoption to rapid commercialization," said Dr. Owen.

After completing his PhD in Bio-Chemical Engineering at the University of Cambridge, Dr. Owen began his career with BP in 1997 as a Concept Engineer based in Norway. Dr. Owen then progressed into a number of engineering and operations roles on large developments in the North Sea, Angola and the Gulf of Mexico. In 2007, Dr. Owen was promoted to working directly for BP’s Head of Upstream Technology, where he developed a deep understanding of the broad challenges associated with the energy industry and how to build capability and organize resources to solve challenges. After his tenure at BP, Dr. Owen worked for consultants Wood Mackenzie and GlobalData advising industry players, government organizations and service providers on key strategic issues facing the industry. He currently continues to play an advisory role with leading energy technology incubators, at the Houston Technology Center (HTC) and at the Texas A&M Clean Energy Institute.

Thermal Spray Coating of Zinc Pot Rolls at MesoCoat using long-life PComP™ M Coatings

Click here to see the video.

Abakan's PComP™ W tungsten carbide coatings have already been applied on production components for the largest steel manufacturer in Mexico; and one of the top five steel manufacturers in Mexico has placed an order to coat its zinc pot rolls used in the galvanizing process with Abakan's PComP™ M coating. Currently, zinc pot rolls must be replaced every few days due to degradation of the roll surface and bearings causing dross pickup. This consumes a tremendous amount of energy, as the rolls must be heated up slowly over a period of days to weeks to the proper temperature, and this consumes the majority of energy in galvanizing lines. In addition, this means stopping the production lines every few days to replace these zinc pot rolls leading to millions of dollars in downtime and maintenance losses. In testing, Abakan's PComP™ M coatings have shown 6X longer life in liquid metal corrosion environment compared to the current state of art coatings, especially in components used in galvanizing baths, which means that the zinc pot rolls now can be replaced every few months instead of a few days. Abakan has also recently coated zinc pot rolls for a leading steel manufacturer in California, and the roll is currently under field testing at their galvanizing line.