* Says talking to prospective partners in Japan, Korea
* Says IPO may occur by end of February
* Sees mine construction by year-end, production in 2012
By Pav Jordan
TORONTO, Feb 2 (Reuters) - Northern Graphite says it may launch a first issue of shares in Toronto by month's end as it targets starting construction of a long-planned graphite mine in northern Ontario before the year is through.
The company, which has no operating mines, is also considering doing a second share issue in the coming months and may sign on a joint-venture partner, Chief Executive Greg Bowes told Reuters in an interview this week.
"The ideal scenario for the company is to do a small IPO just to get listed and to get a valuation in the market," CEO Greg Bowes said. "We hope that later this year, when the shares perform well and the market is strong enough, we will do a much larger equity raise at a higher price."
Northern's Bissett Creek graphite project in northern Ontario has the potential to produce about 20,000 tonnes of flake graphite a year, the company says, which would make it the source of nearly 5 percent of the world's annual supply.
The mine is a bet on the global proliferation of lithium ion batteries - which use 10 times as much graphite as they do lithium - as well as on fuel cells and nuclear power.
Flake graphite, a black to steel-grey-colored substance, is used largely in the manufacture of the carbon electrodes, plates and brushes required in the electrical industry, and in dry cell batteries. All grades of graphite are used as lubricants.
Bowes said building permits for the Bissett Creek mine should be issued by the end of the year, and that the mine could be operating by late 2012.
Graphite prices have more than doubled in recent years in concert with rising demand for all species of industrial minerals from Asia, including the increasingly popular rare earth elements.
While graphite is not a rare earth, the market is tightly controlled by the Chinese, much like the rare earth market.
China, which produces more than 95 percent of the world's rare earths, has cut export quotas in recent years, sending prices for individual rare earth oxides soaring.
It also controls 80 percent of the global graphite market.
"The Chinese control supply but they are running low of reserves. Prices are going up and quality is going down," said Jon Hykawy, a clean technologies analyst at Byron Capital Markets.
Bissett Creek will cost as much as C$70 million ($70.7 million) to build, so Northern said it will need to go back to market for more funds after its IPO, which is likely to raise just C$3 million.
Bowes sees non-equity financing coming from either bank debt or a strategic partner involved in lithium-ion battery manufacturing.
He said he has visited South Korea and Japan to talk to prospective partners. Ideally a partner would commit to 40- to 60-percent financing in exchange for the same amount of production.
"There are a number of discussions going on, shall we say, and there have been a number of visits to the site by interested parties," Bowes said.
He said he preferred not to go into further detail, but said the ideal partner could be a battery manufacturer.
"If you are going to spend hundreds of millions of dollars on manufacturing facilities, you need a stable, secure, long-term supply of lithium and graphite," he said. "We've already seen a number of car companies and battery companies do deals with lithium producers and we hope to be one of the first ones to do a deal on the graphite side."
($1=
.99 Canadian) (Additional reporting by Julie Gordon; editing by Peter Galloway)