Northern Graphite Announces Updated Feasibility Study Economics
September 23 2013 - 7:30AM
Marketwired Canada
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 Markets 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 therefore 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 intend, 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
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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