Northern Graphite Announces Third Quarter 2023 Results
Ottawa, November 30, 2023 - Northern Graphite Corp. (TSXV: NGC) (OTCQB: NGPHF) (FSE: 0NG) (XSTU: 0NG) (the "Company" or "Northern") is pleased to provide an operating and financial summary of results for the three and nine-month periods ended September 30, 2023. The Company's Financial Statements and Management's Discussion and Analysis are available on SEDAR+ and on its website.
Quarter Highlights
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Operational and Financial Highlights for the Third Quarter:
- Revenue of $4.9 million generated on 2,587 tonnes of graphite concentrate sold at an average realized sales price of $1,907 /tonne (US$1,422 /tonne) (1); Sales volumes increased by 28.3 percent in Q3 2023 compared to Q2 2023;
- Positive cash flow from operating activities of $1.7 million;
- Cash costs of $1,335 (US$995) per tonne of graphite concentrate sold; (1)
- Income from mine operations of $0.7 million; operating loss of $2.1 million;
- Cash position improved to $2.2 million as at September 30, 2023 compared to $0.7 million as of June 30, 2023 as a result of working capital management measures, improved sales volumes and additional financing;
- As at September 30, 2023 the Company had working capital of $17.0 million (December 31, 2022 - $19.4 million) including $22.4 million in inventory valued at cost. Inventory includes 5,476 tonnes of graphite concentrate and 147,672 tonnes of ore stockpiles containing approximately 9,198 tonnes of recoverable graphite;
- A net loss of $6.8 million ($0.05 per share).
(1) The Company reports the non-IFRS financial measures of average realized sales price per tonne of graphite concentrate sold and cash costs per tonne of graphite concentrate sold to manage and evaluate its operating performance. See "Cautionary Note Regarding Non-IFRS Performance Measures" below.
Chief Executive Officer Hugues Jacquemin commented: "Global graphite markets became more favorable in the third quarter. Customers who had been on the sidelines for much of the first half of the year became buyers again as China, the world's leading producer and exporter of graphite, reinstated EV subsidies and incentivized domestic demand. Global supply dynamics were further impacted after China announced new export controls for graphite on October 20 and put a spotlight on Northern, the only natural graphite producer in North America. This added new vigour to our conversations with existing and prospective graphite customers, from EV battery makers to the industrial clients we have been supplying for over 20 years. Stronger demand continued into the fourth quarter and while we are cautious about the state of the global economy, we are hopeful that strong demand continues into next year."
Graphite Markets
Sales volumes increased by more than 28 percent during the third quarter of 2023 compared to the second quarter amid tightening global graphite markets after China reinstated subsidies on domestic EVs and less graphite was available for export. Markets tightened further after China announced that it would start imposing controls on certain graphite exports for battery-making as of December 1. China is the world's largest producer of graphite, a key component of batteries for electric vehicles and widely used in industrial markets.
Lac des Iles Mine
The Lac des Iles ("LDI") mine and plant were temporarily shut down for the second and third quarters of 2023 while the Company served customers and preserved cash by selling down inventories. As of September 30, 2023, care and maintenance costs of $4.7 million were incurred. Inventories of finished goods have decreased by 2,419 tonnes to reach a total of 5,476 tonnes as of September 30, 2023, as a result of increased sales combined with the care and maintenance program at the LDI site. As at September 30, 2023, the Company had produced 2,966 tonnes of graphite concentrate and sold 6,416 tonnes of graphite concentrate in the first nine months of the year. The Company realized an average sales price of $2,009 per tonne in the period, with cash costs of $1,407 per tonne sold and mine operating income of $1.8 million. The plant was restarted on October 30, 2023 and Northern currently plans to restart the mine in the spring of 2024 in order to meet increasing market demand.
After a detailed review of historical studies and mine plans and the results of an airborne geophysical survey, the Company carried out a drill program to explore previously untested areas of the LDI property with the objective of extending the life of the mine. The program was financed from the proceeds of the Company's $2.25 million charity flow-through private placement completed on April 27, 2023. The program, which consisted of 7,890 meters of drilling in 88 holes, identified significant, near-surface graphite mineralization which is still open at depth and confirmed the potential to extend the life of LDI. New resource and reserve estimates for LDI are expected to be available in the first quarter of 2024.
Namibia
On August 28, 2023, the Company published the results of a new PEA that evaluated moving the processing plant for its Namibian operations, currently located at Okorusu, to the Okanjande mine site rather than rehabilitating the mill in its current location. The PEA indicated that economics remain attractive under the new plan, with higher capital costs but lower operating costs. In addition, greenhouse gas emissions are reduced, sustainability is improved, and the expansion potential of the project is substantially enhanced.
Key results of the PEA included average annual production of 31,000 tonnes of graphite concentrate to be sold in U.S. and European markets, production costs of US$666 per tonne, a Post Tax IRR of 36 percent, a Post Tax NPV of US$70 million and a payback of under four years. Results were based on a 10-year mine life and a weighted average graphite price of US$1,550/tonne. A technical report in respect of the PEA was prepared in accordance with NI 43-101 and was filed under the Company's profile on SEDAR+.
The Company is evaluating options to fund the Okanjande project through the use of a royalty/stream/debt structure with equity contributed by a strategic partner. In the interim, Namibian operations have been downsized to project mode, resulting in the retrenchment of 32 employees while 15 employees continue to advance the project. This resulted in care and maintenance expenses of $0.4 million. A full development schedule can be executed within 12- to 14 months once financing is available, with the intent to resume production by the end of 2024.
Increasing graphite resources and reserves is a key catalyst for Northern as the Company executes on its strategy of becoming a long-term, sustainable, integrated, mine-to-market-to-battery supplier to North America's widescale EV revolution, energy transition and march to Net Zero 2050.
South Okak
The Company elected not to make a payment of cash and shares required under the terms of its option agreement, which is therefore no longer in effect. The Company is currently in the process of negotiating a new agreement.
Mine-to-Market Strategy
The Company is working toward building a 200,000 tonne-per-year Battery Anode Material ("BAM") plant in Baie-Comeau, Quebec, which is a key component of its mine-to-market strategy. Discussions are ongoing with automakers and EV Battery manufacturers to secure long-term purchase agreements. In the third quarter, testing conducted by Heraeus Battery Technology demonstrated that BAM produced from LDI graphite samples has the potential to perform at or above the standards of commercially available reference materials.
Improved Cash Position
During the third quarter, the Company improved its cash position, reporting cash and equivalents of $2.2 million as at September 30, 2023, compared to $0.7 million as of June 30, 2023, as a result of working capital measures, improved sales volumes and additional financing.
The Company is pursuing a number of initiatives to raise financing for working capital and its development programs without having to go to the market at current share prices. On September 27, 2023, Northern closed the sale of an additional 0.5 percent gross revenue royalty ("GRR") on the Bissett Creek project for $0.95 million in cash proceeds. Subsequent to September 30, 2023, the Company obtained additional financing of US$ 3.0 million from Sprott Resources and Royalties for working capital purposes and to fund the restart of LDI milling operations in Q4 2023, with mining anticipated to restart in the second quarter of 2024. The financing consisted of:
- An increase in the amount of the existing Senior Secured loan by US$ 1 million (from US$12 million to US$13 million), and,
- An increase in the amount of the current Royalty Financing by US$2 million (from US$4 million to US$6 million) through an additional 4 percent graphite sales revenue royalty on LDI, reducing to 0.25 percent once the additional royalty has been paid on 45,000 tonnes of sales.
As at September 30, 2023 the Company held cash of $2.2 million (December 31, 2022 - $5.1 million), $1.9 million of restricted cash (December 31, 2022 - $2.1 million) and had working capital of $17.0 million (December 31, 2022 - $19.4 million). Working capital includes $22.4 million (December 31, 2022 - $18.3 million) in inventory, consisting of 5,476 tonnes of graphite concentrate (December 31, 2022 - 8,743 tonnes) and 147,672 tonnes of ore stockpiles as well as materials and supplies. The ore stockpile contains approximately 9,198 tonnes of recoverable graphite (December 31, 2022 - 2,251 tonnes).
Selected Interim Financial Information (Unaudited)
Statement of Profit & Loss as of September 30, 2023
| Three months ended Sept 30, | Nine months ended Sept 30, | ||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||
| Revenue | $ | 4,933 | $ | 4,483 | $ | 12,889 | $ | $ 8,176 | |||
| Cost of sales | |||||||||||
| Production costs | 3,453 | 3,357 | 9,028 | 5,620 | |||||||
| Depletion and depreciation | 778 | 359 | 2,094 | 469 | |||||||
| Total cost of sales | 4,231 | 3,716 | 11,122 | 6,089 | |||||||
| Income from mine operations | 702 | 767 | 1,767 | 2,087 | |||||||
| Expenses | |||||||||||
| General and administrative | 2,177 | 1,779 | 6,611 | 3,410 | |||||||
| Share-based compensation | 175 | 80 | 1,124 | 1,324 | |||||||
| Project evaluation, acquisition, and integration | - | 365 | 45 | 2,056 | |||||||
| Foreign exchange (gain) loss | 407 | (556) | 510 | (616) | |||||||
| Total expenses | 2,759 | 1,668 | 8,290 | 6,174 | |||||||
| Operating loss | (2,057) | (901) | (6,523) | (4,087) | |||||||
| Loss (gain) on marketable securities | 200 | (70) | 130 | 230 | |||||||
| Foreign exchange (gain) loss on financing instruments | 1,098 | 3,057 | (97) | 3,375 | |||||||
| Finance cost | 1,188 | 656 | 3,793 | 1,742 | |||||||
| Interest income | (17) | (71) | (52) | (115) | |||||||
| Impairment loss | - | - | 209 | - | |||||||
| Care and maintenance | 2,305 | - | 5,096 | - | |||||||
| Okorusu moving costs | 83 | - | 515 | - | |||||||
| Loss before taxes | (6,914) | (4,473) | (16,117) | (9,319) | |||||||
| Current tax expense | (20) | 282 | 300 | 535 | |||||||
| Deferred tax expense (recovery) | (67) | 68 | (738) | (11) | |||||||
| Net loss | (6,827) | (4,823) | (15,679) | (9,843) | |||||||
| Other comprehensive loss | |||||||||||
| Foreign currency translation | 976 | (816) | (2,172) | (1,488) | |||||||
| Other comprehensive loss | $ | (5,851) | $ | (5,639) | $ | (17,851) | $ | (11,331) | |||
| Loss per share - basic and diluted | (0.05) | (0.04) | (0.12) | (0.09) | |||||||
| Weighted average shares outstanding - basic and diluted | 130,032,152 | 107,770,249 | 128,081,100 | 104,060,036 | |||||||
Selected Interim Financial Information (Unaudited)
Statements of Cash Flows as of September 30, 2023
| Three months ended Sept 30, | Nine months ended Sept 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Operating activities Net loss | $ | (6,827) | $ | (4,823) | $ | (15,679) | $ | (9,843) | ||||
| Items not affecting cash | ||||||||||||
| Depletion and depreciation | 1006 | 545 | 2,285 | 671 | ||||||||
| Income taxes | (89) | 350 | (207) | 524 | ||||||||
| Share based payments | 228 | 80 | 1,147 | 1,324 | ||||||||
| Interest expense and accretion | 1,041 | 525 | 3,398 | 1,510 | ||||||||
| Accretion of reclamation provision | 22 | 94 | 99 | 169 | ||||||||
| Impairment loss | - | 209 | - | |||||||||
| Foreign exchange loss | 2,882 | 2,649 | 1,211 | 2,967 | ||||||||
| Loss (gain) on marketable securities | 200 | (70) | 130 | 230 | ||||||||
| Loss on derecognition of ROU assets | (143) | - | (85) | - | ||||||||
| Expenses settled in shares | - | - | 142 | |||||||||
| Changes in non-cash working capital items | ||||||||||||
| Receivables, prepaids and deposits | 822 | (1,718) | (343) | (6,452) | ||||||||
| Inventories | 3,245 | (1,342) | 2,504 | (1,994) | ||||||||
| Accounts payable and accrued liabilities | (673) | 1,348 | 1,796 | 4,618 | ||||||||
| Net cash provided by (used in) operating activities | 1,714 | (2,362) | (3,535) | (6,134) | ||||||||
| Investing activities | ||||||||||||
| Cash paid in LDI acquisition | - | - | - | (25,636) | ||||||||
| Cash paid in Namibia acquisition, net of cash acquired | - | - | - | (20,003) | ||||||||
| Restricted cash and deposits | 212 | (43) | 219 | (8,592) | ||||||||
| Land and building use lease payments | - | - | - | (2,948) | ||||||||
| Exploration and evaluation costs | (607) | (261) | (1,403) | (623) | ||||||||
| Cash received on sale of assets | - | - | 220 | - | ||||||||
| Additions to property, plant, equipment, mineral property and intangibles | (227) | (1,479) | (2,626) | (2,027) | ||||||||
| Net cash used in investing activities | (622) | (1,783) | (3,590) | (59,829) | ||||||||
| Financing activities | ||||||||||||
| Private placement, net of costs paid | - | - | 2,250 | 21,394 | ||||||||
| Proceeds from exercise of warrants | - | - | 2,093 | 174 | ||||||||
| Sale of Bissett Creek royalty | 950 | - | 950 | - | ||||||||
| Proceeds from exercise of options | - | 151 | 378 | 151 | ||||||||
| Proceeds from senior secured debt, net of costs | - | - | - | 14,690 | ||||||||
| Proceeds from deferred revenue stream | - | - | - | 25,658 | ||||||||
| Proceeds from royalty financing, net of costs | - | - | - | 4,992 | ||||||||
| Royalty payments | (326) | - | (1,233) | - | ||||||||
| Lease payments | (133) | (113) | (395) | (186) | ||||||||
| Net cash provided by financing activities | 491 | 38 | 4,043 | 66,873 | ||||||||
| Effect of exchange rate changes on cash | (65) | 237 | 248 | 230 | ||||||||
| Net increase (decrease) in cash and cash equivalents | 1,583 | (4,107) | (3,082) | 910 | ||||||||
| Cash and cash equivalents, beginning | 724 | 8,588 | 5,076 | 3,578 | ||||||||
| Cash and cash equivalents, ending | $ | 2,242 | $ | 4,718 | $ | 2,242 | $ | 4,718 | ||||
About Northern Graphite
Northern, the only graphite producing company in North America, is a Canadian, TSX Venture Exchange listed company that is focused on becoming a world leader in producing natural graphite and upgrading it into high-value products critical to the green economy, including anode material for lithium-ion batteries/EVs, fuel cells and graphene, as well as advanced industrial technologies.
Northern expects to become the third-largest natural graphite producer outside of China when its Namibian operations come back online. The Company also has the large-scale Bissett Creek project in Ontario, and substantial additional measured and indicated resources in Namibia and the Mousseau property in Quebec, which are expected to be sources of continued production growth in the future. All projects have "battery quality" graphite and are located close to infrastructure in politically stable jurisdictions.
For media inquiries contact
Pav Jordan, VP of Communications
Email: pjordan@northerngraphite.com
For further information contact
Guillaume Jacq, CFO
Telephone: (613) 271-2124
Email: info@northerngraphite.com
Qualified Person
Gregory Bowes, B.Sc. MBA P.Geo, the Chairman of Northern, is a "qualified person" as defined under NI 43-101 and has reviewed and approved the content of this news release.
For additional information
Please visit the Company's website at www.northerngraphite.com/investors/presentation the Company's profile on www.sedarplus.ca our Social Channels listed below or contact the Company at (613) 271-2124.
YouTube
Cautionary Note Regarding Non-IFRS Performance Measures
This news release includes certain non-IFRS performance measures that do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). The Company believes that these measures, in addition to measures prepared in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company and to compare it to information reported by other companies. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers. The calculation and an explanation of these measures is provided in the Company's Management's Discussion and Analysis and such measures should be read in conjunction with the Company's Management's Discussion and Analysis and financial statements.
Cautionary Note Regarding Forward-Looking Statements
This news release contains certain "forward-looking statements" within the meaning of applicable Canadian securities laws. Forward-looking statements and information are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "potential", "possible" and other similar words, or statements that certain events or conditions "may", "will", "could", or "should" occur. Forward-looking statements in this news release include statements regarding, among others, plans for extending the mine life and output at LDI, bringing the Company's Namibian operations back online, advancing other developments projects to production, developing the capacity to manufacture value added products and raising the financing to complete all or any of these initiatives. All such forward-looking statements are based on assumptions and analyses made by management based on their experience and perception of historical trends, current conditions and expected future developments, as well as other factors they believe are appropriate in the circumstances. However, these statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected including, but not limited to, unexpected changes in laws, rules or regulations, or their enforcement by applicable authorities; the failure of other parties to perform as agreed; social or labour unrest; changes in commodity prices; unexpected failure or inadequacy of infrastructure and the failure of ongoing and contemplated studies to deliver anticipated results or results that would justify and support continued studies, development or operations, and the inability to raise the required financing. Readers are cautioned not to place undue reliance on forward-looking information or statements.
Although the forward-looking statements contained in this news release are based on what management believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with them. These forward-looking statements are made as of the date of this news release and are expressly qualified in their entirety by this cautionary statement. Subject to applicable securities laws, the Company does not assume any obligation to update or revise the forward-looking statements contained herein to reflect events or circumstances occurring after the date of this news release.
Neither the 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 news release.
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