NGC to reduce cost/tonne with own mining fleet Just to pick up on a few points in the indmin article and recent assay grade issue, I felt required further commentary.
https://www.indmin.com/Article/3081223/Northern-Graphite-to-reduce-costtonne-with-own-mining-fleet.html
Mr Bowes notes a potential reduction in costs from $851/t to $800/t. But this is an average cost for ONLY for the first 5 years of production.
The mine life cash cost is $968 per tonne of dry concentrate over 23 years (BFS table 22.13). That this only relates to the first 5 years of production should imo, be expressly stated, if not I could imply costs are going to be 13.7% less than they actually are in the BFS. Therefore a $50 reduction for operated mining in reality reduces the costs down to $918/t and not $800/t, unless there is an intention to only operate the mine for 5 years?
Indeed the NGC bias to look to the first 5 years generally, where the economics are considerably improved (over 2% grade, rather than under 2% grade) could imo lead investors who did not undertake accurate DD, to think the potential of this project is better than it is.
Next, Mr Bowes talks about competitivity on a global level, with particular reference to China’s export duty and transport costs. Indeed it is true in the current market, but what about the future? We have a host of Canadian and European projects underway. High grade, large flake, no transport costs. For example, if there was another Canadian mine with grades 8 times greater, leading to the likelihood of NGC having costs multiples higher, it could potentially have a serious impact upon the current market landscape within only a few short years.
The article then refers to the current $1,200-$1,500 pricing, with some forecasting further reductions. Mr Bowes rejects this, “Those days are gone”, he notes. Are they? There is certainly not that level of confidence shown in the BFS, indeed it clearly states on page 1-25 “it is near impossible to forecast accurately future prices for Graphite”. This comment in my humble opinion only, looks to be directly at odds with the commentary expressed in the official company FS? Have no doubt, there is considerable risk in pricing, the BFS worst case scenario NPV 8% $46.9m, IRR 13.7% is based on a $2,100 price. Would it not have been prudent to model down at least to $1,500?
Moving on the article then does at least address the mining phases and consequential ore grade reductions, 2.28%, 1.85% & 1.77% and notes the lessor economics of the lower grade production phases.
Finally there is the commentary on NGC initially focusing on traditional markets such as refractories and lubricants. Looking a little deeper, NGC do not appear to be have a flake distribution that particularly lends itself to traditional markets. The general specifications for industrial and high temperature specifications (eg; Refractories) are -40 to +100 mesh flake (from Mega Graphite), this is up to medium flake. Lubricants range from small to large flake, with a utility grade at the powder level. Using expensive ‘jumbo flake’ for these applications is not generally required. Therefore, in traditional market terms, we would be looking at small niche markets and applications here, or selling at prices more in line with medium and large flake products.
I also noticed from the FS release that it appears there has been some issue with the assay procedures related to the published ore grades. It states that locked cycles produced a 12% recovery improvement. Does this mean Bissett is going to become a 8% graded deposit? I did a quick calculation and a 12% improvement on the average mine life grade (not just the first 5 best years) increases the grade from 1.89% to 2.12%.
Difficult to call this one imo. My opinions are my own, so please DYOR.