Mackie Analyst Update - Jan. 12,2012 Positive Pilot Plant Results Announced
EVENT – Pilot Plant Test Results Confirm Metallurgy
Northern Graphite press released its pilot plant test results after the close.
IMPACT – Positive Metallurgical Results Advance Bissett Creek
The announcement is positive as it validates that 50% of the flake graphite produced
from Bissett Creek will be the jumbo size (+48 mesh), and of very high purity (98%).
The 90-94% recovery rate result provides further indication that our assumption will
be achieved for a recovery rate of 94-95% at the full scale plant. It’s also encouraging
that the pilot plant results are in line with preliminary metallurgical test results that
the Company released on September 23.
This large flake content will allow the project to receive premium pricing, likely
towards the upper end of the $2,500-$3,000 per tonne range that standard premium
product garners in the market.
We are not surprised or concerned that the timeline for completion of the feasibility
study has been pushed back to the end of Q1/2012 from the end of January, 2012.
Long lead times at metallurgical consultant facilities is a theme that we have been
continually hearing from other companies that we cover, so this is largely beyond
NGC’s control.
The Mine Closure Plan continues to be guided towards completion in Q1/2012 so
the Company will be in a position to initiate construction subject to positive results
from the FS and availability of financing.
ACTION – Price Weakness Could Present a Buying Opportunity
Bissett Creek is one of the most highly prized graphite development projects in the
world due to its unique metallurgy. The large flake content will allow it to realize
premium pricing. With a cash cost of $1,000 per tonne, and the long-term average
graphite price of $2,500 per tonne that we have used in our model, NGC continues to
provide evidence that it is on track to build one of the most profitable new graphite
mines in the world. Because of this, NGC should be able to sign an off-take
agreement in the near future, and emerge as a leading supplier of graphite into the
battery manufacturing industry. In addition, a number of catalysts are expected in
the near-term. The timeline for bankable feasibility study completion is Q1/12. The
Company intends to be in a position to start construction by mid-2012, and begin
commercial operations towards the middle part of 2013.
We maintain our SPEC BUY rating and $2.10/sh target price.