Bit long but here's tonight's Pescod with NGC. Vanadium mentioned as key element as well.
AN INTERVIEW WITH GREGORY BOWES
CEO and DIRECTOR with NORTHERN GRAPHITE
(As of March 27, 2012)
We are here with Greg Bowes of Northern
Graphite which on the markets, is
one of the few success stories in that
it’s been going up in a junior market
that hasn’t been that generous. Greg
is kind of pleased because the company
has just raised a bunch of money
and he’s refreshed after a quick dash
down to Myrtle Beach.
David Pescod: So Greg, you mention
that there are still a lot of people that
don’t understand graphite. Why don’t
you give us some background to this commodity that suddenly
you need for different reasons.
Greg Bowes: Okay Dave. I guess first of all graphite was one
of the last commodities to respond to the ‘super cycle’ if you
want to look at it that way, basically because there was excess
production capacity in China until about 2005. So it kind
of flew under everybody’s radar screens and of course it’s
always been considered a boring, industrial mineral. Then a
couple of things happened to change that situation. One was
that the whole commodity super cycle gradually used up that
excess production capacity in China, supply started getting
tight and prices have tripled since about 2005 and that’s basically
just growing industrial demand – the mundane stuff –
steel, automotive and traditional uses.
The second thing that has happened is that there have been a
number of new applications come out that use a lot of graphite.
So that has created a lot of excitement in terms of potential
future demand. The most obvious one is lithium ion batteries.
They are growing at 20% or 30% a year and coincidentally,
it takes 20 to 30 times as much graphite as it does lithium
to make these batteries, so they should really be called
lithium graphite batteries. The world needs a lot more
graphite even if we take a very conservative view of the future
success of electric vehicles and hybrid electric vehicles.
Fuel cells, vanadium redox batteries and pebble bed nuclear
are also big users of graphite and the use of these technologies
is increasing.
The third factor that kind of came together is that surprise,
surprise – China produces 70% to 80% of the world’s
graphite, they are tired of selling us their cheap graphite,
they are running out of it actually (mines are getting
deeper and higher cost) they want to do a value-added
processing there, so a very similar story to rare earths.
There is a 20% export duty on graphite now, and a 17%
VAT, you have to meet a certain size test to export, so that
is creating supply concerns in the rest of the world and
basically graphite has gone from a boring, industrial mineral
to a strategic mineral in the space of three or four
years. In fact both the European Union and the good old
USA have named it a supply critical mineral. The British
Geological Survey has ranked it right behind rare earths
and well ahead of Lithium in terms of supply criticality.
DP: The important part too is the size of the flakes. I understand
that Northern Graphite has the prettiest flake in
the crowd?
GB: Thank you very much for the compliment. Yes, the
big thing that people/investors have to understand is that
the big difference between industrial minerals and base
and precious metals is that your gold is the same as my
gold; my copper is the same as your copper; everybody
gets the same price. In industrial minerals, that is not
true. You also have to look at the physical and chemical
characteristics of the product that you produce. So you
can have 20 different graphite producers that get 20 different
prices because of the quality of their product. In the
case of graphite, two things matter. One is flake size
(larger is better) and the second is the purity of the concentrate
that you produce. Graphite is basically carbon –
we are selling carbon. If you are under 90% carbon in your
concentrate, you have got a problem. If you are over 94%,
you are going to get a premium price and our Bissett
Creek deposit has the highest percentage of large flake
and the highest concentrate purity in the industry.
Grade is also not nearly as important with industrial minerals.
What really matters is what you can extract economically
from that grade and sell. That means the metallurgy
must be right because without metallurgy you don’t
have anything. Our metallurgy has been proven through
lab work, bulk sampling and pilot plant testing.
DP: For the status of your project now, you actually hope
to be in production within a year. That’s pretty aggressive.
GB: It is. It is probably going to be a little longer than
that, but I think the important take-away here is that this is
not an exploration story.
We have already done the drilling, we have already done a preliminary economic assessment and we expect to have a
bankable feasibility study done and full permitting done by the end of the second quarter this year. Subject to financing
we can start construction in the third quarter of this year and it will take about one year to build the mine, so late 2013 we
hope to be in production.
DP: I understand as far as how much money you need, you are not talking hundreds of millions, but it is something like
$70 million and maybe another $10 million if you added a circuit.
GB: It is a little higher than that. The preliminary economic assessment was $62 million which was done a couple of
years ago. We are fairly advanced on the bankable feasibility – I think it’s going to be up closer to $80 million. If we add
an upgrader to create a specialty product for the lithium ion battery market, that is going to be an additional smaller
capex on top of that. I don’t know whether it’s $10 or $15 million, but something of that order of magnitude, but no where
near the capex that you see with the lithium or rare earth companies and there are a couple of reasons for that. This is
an open-pit mine with a very low strip ratio so conventional drill, blast, haul. The mill is a standard flotation concentrator
– there is nothing funky about the metallurgy. We are located 15 km from the Trans-Canada highway between North Bay
and Ottawa, so good access to infrastructure. All of that stuff leads to much more reasonable capital costs.
DP: Right about now, I’m sure Ontario would like to see the jobs?
GB: Absolutely, especially in the upper Ottawa valley as many small towns in the north of Quebec, Ontario, the Maritimes,
the Prairies, most of the young people have gone elsewhere because there is nothing for them to do there, so yes
there is probably going to be 70 jobs at the start and the affect on the local communities (I think the mining association
of Canada usually uses a multiplier affect of two to three times) so it will have a big impact on the local economy.
DP: Now surprise, surprise! There has been a shocking development here with Northern Graphite. You had a couple of
analysts following your stock and it’s been shocking that your stock has met all analyst targets!
GB: We had three research reports come out when we were between $0.75 and $1.00 a share and most of them had
$2.00 targets and we have hit a little over $3.00, but yes we have exceeded all their expectations, so I guess that is a
good thing.
DP: So when you are revising targets now, can you work out preliminary expectations for cash flows a year from now?
GB: I can give you a very rough estimate of what it is going to be. The weighted average price for the concentrate that
we are going to produce right now is between $2500 and $3000 a ton. Our costs are $1000 a ton to produce, so we are
going to generate between $1500 and $2000 per ton assuming prices stay at these levels. We are going to produce
20,000 tons a year of concentrate at the start with the ability to expand in the future based on resources we have already
drilled. So, if it is $1500 a ton, that’s $30 million a year in cash flow on a $90 million investment so, you don’t really have
to do a discounted cash flow. That generates a pretty good internal rate of return and a pretty good net present value.
DP: We always end these interviews this way...we ask you to give us a stock selection (other than your own) so what
would it be?
GB: I will have to declare my conflict up front, but I have been involved with Orezone Gold (ORE); I was senior vice
president of Orezone for many years and I really like their latest deposit in Burkina Faso, so that would be my pick on the
gold side.
DP: Well since we have you, we might as well ask you where gold will be this Christmas?
GB: I am a gold bug. Gold is still at a pretty reasonable price, but many of the stocks have lost their momentum obviously
and haven’t done that well. But I don’t think the problems in Europe have gone away at all and I think they are going
to get worse, so I am going to say $1800 to $1900.
DP: Thank you very much Greg! |
