Focus Graphite Inc V.FMS.WT

NGC: Byron Capital Report

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Recent Price: $1.00 52 Week Range:
.86 - $1.55 Shares O/S: Basic (MM) 31.5 F.D. (MM) 45.6 Market Cap (MM): $31.5 Average Daily Vol. (3 mo.) 86,500 Fiscal Year End: Dec. 31 Cash (Est.) (MM): $3.0 Company Description: Northern Graphite is a mine developer with its 100% owned asset, Bissett Creek, located in Maria Township right off the Trans-Canada highway and approximately 100 km east of North Bay. Northern Graphite plans on bringing the project to production by end of year 2012. July 11, 2011 Rating: SPECULATIVE BUY Northern Graphite Corp. Target Price: $1.90 (NGC – TSXV) All figures in C$, unless otherwise noted. High-Yield of High-Value Battery Material ? Initiating Coverage: We are initiating coverage on Northern Graphite Corp. ("Northern Graphite"), a company with 100% ownership of the Bissett Creek graphite deposit located less than 17 km from Highway 17 near Mattawa, Ontario. In the near term, the advanced project should deliver positive results from a pilot plant, a new resource estimate and a Bankable Feasibility Study ("BFS") on its way to production by early 2013. ? Low Strip Ratio, Shallow Dip and Low Capex: The mineralization is covered by up to 10 metres of overburden and given the flat lying nature of the deposit (approximately 20%), the strip ratio will be less than one; roughly 0.66:1. With logging roads to the site, power and natural gas lines less than 17 km away and a simple flow sheet, capital costs for a 20,000 tonne per annum ("tpa") plant is minimal at approximately $70 million. ? Upcoming Catalysts with Known Metallurgy and an Expanded Resource: Metallurgical work has been performed numerous times, in 1989 and confirmed in 2007, yielding a 95% recovery. A pilot plant test will be done in September of this year to confirm the easy flotation, but more importantly, we believe it will provide test material of its high value large flake, high carbon graphite content graphite for strategic investors. A BFS is expected shortly thereafter in November 2011, which will incorporate the pilot plant work and the new resource from a recent drill program. ? Can Easily Double Production: Northern Graphite can currently double production and still have a 20-year life of mine ("LOM"), and with the upcoming catalyst of incorporating May 2011 drill results into a new resource, Northern Graphite will easily extend the LOM over 20 years. This will help the company meet increased demand of its higher value graphite from the growth in lithium-ion batteries. ? Summary: With known metallurgy, infrastructure in place, a relatively low capex and a short time to production, risk is minimized for the Bissett Creek project that is expected to have $19.5 million per year in gross profit in 2013, with the potential to generate $39 million in gross profit by doubling production to meet demand from growing battery production. We are initiating coverage on Northern Graphite with a SPECULATIVE BUY rating and $1.90 target price based on 1.0x NAV using a 14% discount rate. Jonathan Lee, MBA Battery Materials & Technologies 647.426.1674 [e-mail] Sandy Lam Associate 647.426.0287 [e-mail]