Graphite Miner Makes a Bold Move

Last week Northern Graphite (NGPHF:  OCT/BB; NGC:  TSX.V) announced financing arrangements with Caterpillar to buy up to $17.5 million in mining and power equipment.  Northern intends to outfit its Bissett Creek graphite mine near Ottawa, Canada with company-owned equipment.  Management is confident this is more economical than lease arrangements.

A recent feasibility study found as much as 19 million tons of graphite reserves at Bissett Creek.  The company expects to process more than 4.0 million tons of ore over the first five years of the project and produce as much as 18,600 tons of graphite concentrate each year.  The feasibility study detailed attractive profit scenarios, suggesting the Company could generate significant profits if graphite prices remain.  Graphite prices have been increasing in recent months and over the last couple of years prices have more than doubled for large flake, high purity graphite  -  the type Northern expects to produce from Bissett Creek.  Currently, flake graphite is selling at prices between $1,500 to $3,000 per ton depending upon flake size and grade.  The prices used in four scenarios laid out in the Bissett Creek feasibility study fall near the upper end of this range.

With this financing in place, one of the last obstacles to realizing its strategic plans for Bissett has been cleared.  Northern has applied for construction permits to set up operations.  The construction period is expected to take a year.  That means the company could be bringing graphite to the market in as early as 2014. 

It looks like Northern has the balance sheet to stand on.  Operations during the last year of the current development stage used $1.8 million in cash.  However, the company has no debt and $9.8 million in cash in the bank. 

Northern Graphite’s common stock is quoted on the OTC/BB.  Otherwise investors can go the Toronto’s venture exchange to pick up shares.  On the OTC/BB the stock was quoted in U.S. dollars at $1.18 at the last close.  The stock appears to be little more than an option on the mine.  However, there is still considerable risk in Northern.  There could be a delay in the start of construction or the construction period could require more than a year. 

Then there is the risk that graphite prices do not hold up to levels that will deliver a profit.  It is possible, but not likely that graphite prices will give up much.  The industry is benefiting from an expanded addressable market as designers turn to graphite for its lightweight, flexibility and conductive properties.  What is more, the principal source of graphite, China, has been making moves to protect its supplies for domestic use. 

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.