Graphite mining company Northern Graphite (NGC) has been playing the investment wait-and-see game for some time, and may have to wait longer still. It can afford to do so, but its competitors might use the time to leap ahead.
The company is one of several new ventures to start operations in a new and favourable climate for graphite mining. A junior mining company, Northern Graphite is positioning itself to take advantage of swelling demand and declining supply from graphite’s giant, China. As recently as 2011 China closed or nationalized a number of graphite mines that were operating illegally or were environmentally unsound.
The company has had a series of successful stock offerings since its creation. Its initial IPO in April 2011 raised $4 million. It followed that up with an early exercise of 6.2 million warrants by shareholders in November 2011, which raised $2 million. The most recent stock offering in March 2012 of 6.2 million shares raised $10.5 million.
Stock prices for Northern Graphite have had fluctuations not uncommon for a junior mining company. They have risen as high as $2 and fallen as low as $0.53 a share.
Lots of graphite demand
Graphite, though a niche market, is a commodity much in demand currently. It’s used in lithium-ion batteries, in high-heat industrial furnaces, and as a lubricant. It’s also used in pencils.
As a junior mining company Northern Graphite has no cash-flow. Its primary asset is a 100 per cent stake in the Bissett Creek graphite deposit in northern Ontario. Developing the mine and constructing a processing plant will require an investment of $102.9 million, the company estimates. Northern Graphite originally estimated this investment figure could be reached by the end of 2013. This target won’t be reached, CEO Gregory Bowes said. Bowes said he hopes that total capital could be raised by early 2014.
Although it has missed its target, Northern Graphite has had some success in raising funds, signing a $17.5 million equipment loan deal with Caterpillar Equipment. Bowes confirmed that he was still in talks with other potential investors, but was not willing to say who these might be.
Junior miners on the ropes
It’s a tough financial climate for junior mining companies in general, according to Mark Ferguson, a senior mining industry analyst with Halifax-based SNL Metals Economics Group. SNL Metals Economics Group provides research and analytics for financial institutions, real estate, energy, and mining sectors.
“The sector has been hard hit over the past 18 months,” Ferguson said. A study conducted by the Metals Economics Group showed that in 2013 the average mining company budget went down 20-30 per cent compared to 2012, Ferguson said.
Ferguson says it’s not clear when the sector will pull itself out of its slump. “It’s still a wait-and-see game right now.”
Northern Graphite can’t start construction on the Bissett Creek mining facilities until the full $102.9 million is raised, Bowes said. The project will eventually employ about a hundred people, the CEO added.
Meanwhile, competitor Ontario Graphite says it is on schedule to produce by early 2014. Ontario Graphite plans to exploit the re-opened Kearney mine in northeastern Ontario, and already has the major equipment on-site.
Northern Graphite does have several things working in its favour, however.
Graphite prices sliding
Graphite prices have come down since their peak in 2012, but Bowes has said that the company can sell the graphite at $850 a tonne, providing a good profit. There is particular demand for large flake graphite, which the company says composes the majority of the Bissett Creek deposit.
Northern Graphite’s total assets for the nine-month period ending Sept. 30, 2013, are at $15,892,635, compared to $16,485,803 from the same period in 2012. Total liabilities from the nine-month period ending Sept. 30, 2013 were $1,350,468 compared to $800,719 in 2012.
The company’s 2013 major expenses have shifted from 2012 to 2013, two major factors being research spending and detailed engineering expenses. Research expenses capitalized to the company’s exploration and evaluation assets have remained steady, from $2,684,398 in 2012 to $2,782,414 in 2013.
The nine-month report ending Sept. 30, 2013 records a loss of $1,141,624, compared to a loss of $2,759,277 in the same period in 2012. Most of the difference is due to non-cash charges for share-based payments. A decrease in non-cash charges due to lower share-based payments in the first nine months of 2012 resulted in a loss of $1,052,812, compared to $1,293 in 2013.
The company has also been doing its homework. While waiting for significant investment Northern Graphite has formed research partnerships that can help give it an edge in the market. Working with industry partners and the National Research Council of Canada, Northern Graphite has developed a low-thermal chemical purification process for graphite. Purifying the graphite increases the carbon content, which gives the graphite a higher value.
Northern Graphite recently announced a partnership with Coulometrics LLC, an energy storage research and development company based in Chattanooga, TN.
The partnership means research and development on surface coatings for spherical graphite, which, when treated, is used as the anode material in lithium-ion batteries.
“In general there are a lot of graphite companies out there but there are very few advanced stage projects, and we are only ones with a bankable feasibility study and our major environmental permit. So we’ve got a good project and we’ve got a head start,” Bowes said. “So no, I’m not particularly worried.”
Investors might want to take note that if the time isn’t yet right to invest in Northern Graphite, then at least the company isn’t going to disappear.
“In terms of being able to survive, cash in the bank, that kind of thing, pay costs and expenses, we’re fine. As I like to say, graphite’s been in the ground for a billion years. If we have to wait another year or two until conditions are right, we will.”