EDITOR: | December 1st, 2016 | 5 Comments

Tesla news bolsters confidence in Canadian graphite project

| December 01, 2016 | 5 Comments
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Northern Graphite Corp. (TSXV: NGC | OTCQX: NGPHF) is a mineral exploration and development company that owns a 100% interest in the Bissett Creek graphite mining project located in eastern Ontario.

Northern’s Bissett Creek mine is an advanced, pre-development stage project that  completed its NI 43-101 Final Bankable Feasibility Study in 2013, and was recently granted it’s major environmental permit. Northern expects to commence construction in 2017, subject to the availability of financing and species-at-risk permit, both reported to be in advanced stages. Their company website states that the Bissett Creek project has the best flake size distribution and highest margin of any new graphite project, with the added advantages of low capital costs and realistic production targets relative to the size of the market.

A significant growth in demand for graphite is expected since it is essential to cell phones, cameras, laptops, power tools, etc. and applications of Lithium-Ion batteries (LIBs) continue to multiply. Both the EU and US have declared graphite a supply critical material. In 2013, the global graphite market was valued at US$ 13.6 billion (including synthetic and amorphous graphite), and is projected to increase at 3.70% CAGR and reach US$ 17.5 billion in 2020.

Tesla Motors’ recently announced plans to manufacture lithium-ion batteries, further indicating at a promising future for Northern’s project as numerous countries strive to increase the uptake of electric vehicles, and experience increased demand for newer technologies such as grid energy storage systems.

China has recognised this dynamic and since 2012 has increased its imports of graphite exponentially, whilst at the same time, global supply actually fell from its peak in 2011 of 450,000 tonnes to 300,000 tonnes in 2015. This has left a gap to be filled by junior miners.

Northern expects that its plant will process up to 2,900 tonnes of material each day from commencement of production in 2018, with over 90% of the contained graphite being categorised as large flake, the highest in the industry. Over 28 years of operation an average of 20,800 tonnes of concentrate will be produced each year, at an average cash mining cost of CDN$795 per tonne. The capital cost to construct the processing plant, power plant and associated infrastructure is estimated at a total of $102m. Northern’s feasibility study in 2013 used a weighted average price of $1,800/tonne to value its concentrates, while prices have since come down, the outlook for graphite is positive, underpinned by solid fundamentals.

With respect to the junior graphite market, the majority are focused on producing flake graphite for batteries. Annual world flake graphite production is 370,000 tonnes,  while it takes around 100,000 tonnes of flake concentrate to produce the anode material for 400,000 Telsa Model 3’s. This implies that the 370,000 tonne flake market will have to increase by around 27% to service Tesla’s requirements alone. Our last assessment was that graphite flake concentrate prices were trading at $780-840/tonne (80 mesh, 94-97% Cg) in October 2016.

Northern announced this year that they have advanced their proprietary purification and coating technologies and joined forces with Elcora Advanced Materials Corp. (TSXV: ERA | OTCQB: ECORF), Nouveau Monde Mining Enterprises Inc. (TSXV: NOU), Metals of Africa Limited (ASX: MTA), Coulometrics LLC and a private industry partner to acquire a micronizing and spheronizing mill to produce spherical graphite (“SPG”), a critical step in the production of anode material used in LIBs. All natural based SPG is currently produced in China and is purified using sulfuric and hydrofluoric acid, the method is unsustainable due to high levels of untreated waste and increasing demand for environmentally friendly alternatives. On October 27th 2016 Northern and its associates announced their mill was installed and operational.

The Bissett Creek project is in a politically stable authority only 15km from the trans-Canada highway and has easy access to the port of Montreal and north-eastern US markets. Its flat geography makes for easy future expansion and Bissett Creek has very attractive economics even at or below current depressed graphite price levels. Graphite deposits generally yield less than 15% XL flake and yet 50% of Bissett Creek’s production will be XL flake, providing the Company with the choice of serving both the LiB and expandable graphite markets.


Lara Smith

Editor:

A Sr. Editor and Analyst for InvestorIntel and Managing Director and Founder of Core Consultants, Lara is an internationally recognized expert in the field of ... <Read more about Lara Smith>


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Comments

  • Tracy Weslosky

    I would like to thank Greg Bowes for sending me the following information. He writes: “The $13.6 billion graphite market number is not really relevant since it includes synthetic and amorphous graphite. All the juniors will produce flake graphite and that is what is required for batteries. The flake market is much smaller and will grow more rapidly.”

    He also writes: “The flake market is 370,000 tonnes….” and goes on to add “US$1,800 was the estimated price for our concentrates at the time of it takes 100,000 tonnes of flake concentrate to make the anode material for 400,000 Tesla Model 3s. That means the 370,000t flake market will have to increase by 27% for Tesla alone.”

    Thank you Greg – am certain this will be the catalyst for commentary….

    December 2, 2016 - 9:03 AM

  • Stephen Riddle

    To Tracy and Greg,

    The most important issue that was not discussed is what is the amount of current worldwide “excess” natural flake graphite capacity plus how much new capacity is being added in the next few years?

    When you add up all the current excess capacity and the new capacity being added there will still be excess capacity even after supplying the next 5 years or more potential growth.

    Flake graphite concentrate prices are continuing to decline and as new capacity is added prices are expected to continue to decline.

    Thus the question or issue Investor should be asking is how difficult will it be for these new graphite mines to develop profitable revenues and remain in the graphite mining business long term. Will they have enough Capital to cover all their losses? If not will the new graphite mining companies repeat what happen in the 1990’s by going bankrupt?

    December 2, 2016 - 1:25 PM

  • Chris

    Hi Stephen,

    Thats very interesting.

    Im curious though, where can one go to find out about the current global production figures of graphite/natural flake graphite and the prediction that these producers will be increasing their output over the next few years in what you state is an already saturated and declining (price) market? As much as I have tried I cant seem to get any definitive figures, Would be grateful if you can point me in the right direction?

    December 3, 2016 - 1:05 AM

  • Stephen Riddle

    Chris,

    Thanks for your question. There is no place you can go to find out this infomation. Most of the natural graphite mining companies are privately owned and do not need to provide thier revenues and capasity to the public. The big benefit of being privately owned graphite mining company is lower production costs mostly comming from much lower overhad costs. Privately owned companied also can increase capasity in a much fsst time frame if and when needed.

    Hope this addresses your question.

    December 4, 2016 - 8:04 AM

  • Peter Clausi

    Tesla is going to suffer through a major class action lawsuit as soon as it corrects its flawed public disclosure. The math on graphite and on cobalt means there is no way Tesla is in control of its critical supply chain.

    December 6, 2016 - 10:04 AM

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