Northern Graphite Announces Updated Feasibility Study Economics

Northern Graphite Announces Updated Feasibility Study Economics 
Resource increase and lower costs more than offset graphite price
declines 
OTTAWA, ONTARIO -- (Marketwired) -- 09/23/13 -- Northern Graphite
Corporation (TSX VENTURE:NGC)(OTCQX:NGPHF) announces that the
economics in the previously released bankable Feasibility Study
("FS") for its 100% owned Bissett Creek graphite project have been
updated to incorporate a new and larger resource estimate, some
modifications to the capital and operating cost assumptions, and
lower graphite prices. The update was prepared by AGP Mining
Consultants. 
Gregory Bowes, Chief Executive Officer, commented that: "Despite
graphite prices being at the bottom of the cycle, the update confirms
that the Bissett Creek project still has solid, attractive economics
to go along with low resource, technical and political risk." He
added that "Production will be almost entirely large and extra large
flake concentrates which gives us a substantial advantage over
deposits that will produce a high percentage of small flake and -150
mesh fines as these products have experienced greater price declines
and they have significantly greater marketing challenges." Mr. Bowes
will host a conference call to discuss the FS update at 11:00 a.m.
Eastern Standard Time (EST) on Monday, September 23. Shareholders,
analysts and investors are invited to participate by dialing 1 800
695-1004. 
The Bissett Creek project has a pre-tax internal rate of return
("IRR") of 19.8% (17.3% after tax) and a pre-tax net present value
("NPV") of $129.9 million ($89.3 million after tax) in the base case
which uses a weighted average price of US$1,800/tonne for the
concentrates that will be produced. This represents a substantial
improvement in project economics over the FS which had a 15.6%
pre-tax IRR at a price of US $2,100/t. The project has significant
leverage to higher prices as the pre tax IRR increases from 19.8% to
25.7% and the pre- tax NPV from $129.9 million to $201.1 million at a
price of US $2,100/t. 


 
Table 1                                                                     
Summary of updated Feasibility Study Results                                
                                                        Update   Original FS
                                                                            
Probable reserves (million tonnes)                   28.3Mt(i)        19.0Mt
Feed Grade (% graphitic carbon)                       2.06%(i)         1.89%
Waste to ore ratio (excl. low grade stockpile)            0.79          0.50
Processing rate (tonnes per day - 92%                                       
 availability)                                           2,670         2,300
Mine life(i)                                          28 years      23 years
Mill recovery                                            94.7%    92.7-94.7%
Average annual production                              20,800t       15,900t
Capital cost ($ millions - including 10%                                    
 contingency)                                          $101.6M       $102.9M
Cash operating costs ($/tonne of concentrate)(i)        $795/t        $968/t
Mining costs ($/tonne of ore)                            $5.63         $5.79
Processing costs ($/tonne of ore)                        $8.44         $9.60
General and administrative costs ($/tonne of ore)        $2.50         $2.94
CDN/US dollar exchange rate                               0.95          1.00
                                                                            
(i) Includes 24 million tonnes ("Mt") grading 2.20% Cg and 4.0 Mt grading   
1.26% Cg of low grade stockpile ("LGS") to be processed at the end of the   
mine life. An additional 12.5 Mt LGS grading 1.26%Cg is stored in the pit   
and is available for processing through a future expansion or at the end of 
the mine life. The waste to ore ratio is 0.24 if the low grade stockpile is 
processed. All grades are diluted.                                          
                                                                            
                                            Original FS      Updated FS     
                                                       ---------------------
                                                            (base case)     
                                                                            
Graphite prices (US$ per tonne)                  $2,100 $2,100 $1,800 $1,500
Pre tax Net Present Value @8% (CDN$                                         
 millions)                                        $71.7 $201.1 $129.9  $58.7
Pre tax IRR (%)                                   15.6%  25.7%  19.8%  13.6%
After tax Net Present Value @8% (CDN$                                       
 millions)                                        $46.9 $138.1  $89.3  $36.3
After tax IRR (%)                                 13.7%  22.3%  17.3%  11.9%

 
Project Description 
The proposed development of the Bissett Creek graphite deposit is as
described in the FS and consists of an open pit mine and a processing
plant with conventional crushing, grinding and flotation circuits
followed by concentrate drying and screening. The capacity of the
plant has been increased slightly to 2,670tpd (based on 92%
availability) and the update assumes that compressed natural gas
("CNG") will be trucked from the main Trans Canada line,
approximately 15 kms away, rather than brought in by pipeline. These
changes had minimal effect on estimated capital costs. The processing
plant includes a sulphide flotation circuit to remove enough
sulphides to make approximately 97% of the tailings benign. All
sulphide and non-sulphide generating waste rock will be backfilled
into mined out areas of the pit after five years of operation, and
all sulphide tailings after eight years, resulting in low final
closure costs. 
Production and Reserves 
Probable mining reserves for the Bissett Creek deposit were
established based on measured and indicated resources of 69.8 million
tonnes ("Mt") grading 1.74% graphitic carbon ("Cg") based on a 1.02%
Cg cutoff as announced on May 7, 2013. The resource estimate was
prepared by Pierre Desautels, P.Geo., Principal Resource Geologist,
and Gordon Zurowski, P.Eng., Principal Mining Engineer, both of AGP
Mining Consultants and Qualified Persons under NI 43-101 who are
independent of the Company. 
AGP established a breakeven cut-off grade ("COG") and ran optimized
Whittle pits on the measured and indicated resources based on a
number of parameters including those outlined in Table 1. The final
mine plan only contemplated a 25 to 30 year operation and resulted in
probable reserves of 28.3 Mt of ore grading 2.06% graphitic carbon
based on a COG of 0.96%Cg. Probable reserves include 24.3 Mt grading
2.20%Cg that will be processed first and 4.0 Mt grading 1.26%Cg from
a low grade stockpile ("LGS") that will be processed at the end of
the mine life. In order to increase head grades in the initial years
of production while maintaining a reasonable stripping ratio,
measured and indicated resources grading between 0.96%Cg and 1.5%Cg
will be stockpiled, largely within the mined out areas of the pit.
The total LGS will be 16.5 Mt grading 1.26%Cg and will provide a
great deal of flexibility in future operations as it will be
available for processing at a later date, either through an expanded
facility or at the end of the mine life. It also represents a low
cost source of ore that could be processed during periods of
depressed prices. The mine plan was also designed to supply blasted
rock and glacial till for tailings dam construction during
pre-production and to allow for sulphide and non-sulphide waste
disposal in mined out areas by year five. Sulphide tailings may also
be stored in the mined out pit starting in year eight. Contact
dilution was estimated at 1% overall. Due to the gradational nature
of the deposit, contact block grades were queried and utilized in
individual block dilution calculations. A 1 metre dilution skin was
assumed between waste and ore with negligible grade dilution except
along the base of the deposit. The resulting global dilution was
determined to be 1%. Backhoe support will be utilized to minimize
dilution along this and other contacts. 
Over 28 years of operation an average of 20,800 tonnes of graphite
concentrate at 94.5% Cg will be produced yearly compared to an
average of 15,900 tonnes in the FS. The increase is mainly due to
higher grades and slightly higher throughput. 
Operating and Capital Costs 
Cash mine operating costs will average CDN$795 per tonne of
concentrate (compared to $968/t in the FS) over the mine life. The
decline in operating costs is mainly due to a switch from contract to
owner mining, increased grades and throughput, and shorter haul
distances in the new mine plan. 
The capital cost to construct the processing plant, power plant and
all associated mine infrastructure is estimated at $101.6 million
including a $9.3 million contingency, compared to $102.9 million in
the FS. Increased capital costs of approximately $6.5 for mining
equipment due to the switch from contractor to owner mining were
largely offset by the removal of costs for detailed engineering which
is already under way ($4.5 million), modifications to the SAG mill
drive and discharge ($1.3 million), switching to a mobile crusher
($1.0 million) and removal of a redundant mill circuit ($750k). 
The Company is required to deposit a financial assurance of $2.3
million with the Province of Ontario ($800,000 is already deposited)
to guarantee its obligations with respect to the Mine Closure Plan
("MCP"), compared to the $3.57 million estimate used in the FS. The
Company will be discussing additional financial assurance
requirements relating to the new mine plan with government ministries
and has included an additional potential provision of $2.5 million
over four years in the updated FS economics. 


 
Sensitivities (pre-tax)                                                     
                                      $2,100        $1,800        $1,500    
                                   ------------- ------------- -------------
                                    NPV(i)   IRR  NPV(i)   IRR NPV(i)    IRR
                                   ------------- ------------- -------------
Base Case                           $201.1 25.7%  $129.9 19.8% $58.7   13.6%
Grade +10%                          $250.6 29.7%  $172.3 23.4% $93.9   16.8%
Grade -10%                          $151.6 21.6%   $87.6 16.2% $23.6   10.3%
Operating costs -10%                $218.8 27.1%  $147.6 21.3% $76.5   15.2%
Operating costs +10%                $183.4 24.2%  $112.2 18.3% $41.0   11.9%
Capex -10%                          $212.3 28.4%  $141.2 22.0% $70.0   15.3%
Capex +10%                          $189.8 23.4%  $118.7 18.0% $47.5  
 12.2%
(i)$ millions @ 8%                                                          

 
Project Opportunities 


 
1.  There is scope to reduce capital costs through the purchase of used
    equipment, lease financing of the mining fleet and natural gas
    generators, and additional permitting of lower cost tailings options. 
2.  The Company has initiated a Preliminary Economic Assessment to show the
    economics of doubling production in three or four years based on
    measured and indicated resources only to meet the anticipated growth in
    graphite demand. Due to the flat lying nature of the deposit, production
    can be expanding without a significant increase in the stripping ratio
    or capital and operating costs and can take advantage of lower grade
    material currently planned to be stockpiled in the mined out pit. 
3.  The Company has carried out extensive purification testing over the last
    two years and is developing a commercial process to produce and sell
    high purity (99.95%Cg+) products. 
4.  The Company has successfully upgraded Bissett Creek concentrate for use
    in Lithium ion batteries. Testing to define the capital and operating
    costs of constructing an upgrading facility is underway.

 
No revenues or costs associated with mine expansion or upgrading and
purifying to sell into value added markets are included in the FS or
the FS update. 
Graphite M
arkets and Pricing 
After more than tripling from 2005 to 2012, graphite prices have
fallen back 50% or more due to the slowdown in China and a lack of
growth in the US, Europe and Japan. Recently it has been reported
that Chinese flake production has fallen 27% and that the only North
American producer has suspended operations which indicates that
current prices are close to the marginal cost of production for many
producers. These shutdowns have helped stabilize prices for the last
six months and should limit further price declines. 
Mining projects are commonly evaluated using three year trailing
average prices. Recently, graphite projects have been evaluated using
12 and 24 month averages as the three year figure was not
representative due to a rapid increase in prices. However, 12 and 24
month averages are also no longer relevant as they are now higher
than current prices. Current prices are probably at or near the
bottom as the market is experiencing the "worst case scenario" in
terms of demand. Accordingly, current prices represent a conservative
and realistic long term level for evaluating graphite projects and
have been used in the updated FS. 
Flake graphite is sold based on 80% meeting the required
specification. Therefore, smaller flake sizes can be blended into
larger as long as the carbon content is maintained. The -100 flake
concentrate produced by Bissett Creek is at least 94%Cg and t
herefore
is suitable for this purpose. Accordingly, 60% of Bissett Creek
production will be +50 mesh and a third of this material is actually
+32 mesh, 97-98%Cg. Because of the latter, the price for the +50 mesh
concentrates has been estimated at US$2,100/t. Current prices of
US$1,400/t have been used for the 35% of production that will be +80
mesh, 95%+Cg and US$1,200/t has been used for the 10% that will be
+100 mesh, 95-97%Cg. Therefore, the weighted average price that would
be realized by Bissett Creek concentrates in the current market is
estimated at US$1,800/t. Small flake with 94%Cg is currently selling
for well under US$1,000/t and -150 mesh, less than 90%Cg for
significantly less than that, assuming markets can be found.
Sensitivities are presented at US$2,100/t to facilitate comparison
with the original FS and at US$1,500/t to show the effects of lower
prices. 
Qualified Persons 
Gordon Zurowski, P.Eng., Principal Mining Engineer, of AGP Mining
Consultants and Qualified Persons under NI 43-101 and who is
independent of the Company, prepared and authorized the release of
the updated economics for the Feasibility Study. Readers should refer
to the NI 43-101 technical report relating to the FS for further
details with respect to the Bissett Creek Project. 
Northern Graphite Corporation 
Northern Graphite Corporation is a Canadian company that has a 100%
interest in the Bissett Creek graphite deposit located in eastern
Ontario. Graphite demand is expected to rapidly increase in the
future due to strengthening economies and the growth in new
technologies such as lithium ion batteries, particularly due to their
use in hybrid and all electric vehicles. Northern Graphite is well
positioned to benefit from this compelling supply/demand dynamic with
a high purity, large flake, scalable deposit that is located close to
infrastructure. A copy of this press release which includes detailed
cash flows for the updated economics, as well as additional
information on Northern, can be found at www.sedar.com and
www.northerngraphite.com. 
CONFERENCE CALL: MR. Bowes will discuss the FS update at 11:00am EST
on Monday, September 23. Shareholders, analysts and investors are
invited to participate by dialing 1 800 695-1004. 
This press release contains forward-looking statements, which can be
identified by the use of statements that include words such as
"could", "potential", "believe", "expect", "anticipate", "intend",
"plan", "likely", "will" or other similar words or phrases. These
statements are only current predictions and are subject to known and
unknown risks, uncertainties and other factors that may cause our or
our industry's actual results, levels of activity, performance or
achievements to be materially different from those anticipated by the
forward-looking statements. The Company does not inte
nd, and does not
assume any obligation, to update forward-looking statements, whether
as a result of new information, future events or otherwise, unless
otherwise required by applicable securities laws. Readers should not
place undue reliance on forward-looking statements. 
Neither TSX Venture Exchange nor its Regulation Services Provider (as
that term is defined in the policies of the TSX Venture Exchange)
accepts responsibility for the adequacy or accuracy of this release.
Contacts:
Northern Graphite Corporation
Gregory Bowes
CEO
(613) 241-9959 
Northern Graphite Corporation
Stephen Thompson
CFO
(613) 241-9959
www.northerngraphite.com
 
 
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