Northern Graphite Corporation holds a 100% interest in the Bissett Creek mining leases and surrounding claims which are located 17km from the Trans Canada Highway between the cities of Ottawa and North Bay, Ontario, Canada. The site can be accessed by a good quality all weather road and labor, natural gas, equipment and supplies, rail lines and water are all readily available. The project is five hours from the port of Montreal and one days’ transport to major markets in northern United States.
A full feasibility study was completed on the property in 1989 by such prestigious engineering firms as Kilborn and Cominco Engineering based on extensive drilling and metallurgical work. It estimated a proven and probable reserve and concluded that the project was economic but it was never developed due to a subsequent decline in graphite prices. Historical information is presented for informational purposes only. The feasibility study and reserve estimates were not completed in accordance with NI 43-101 and therefore should not be relied upon.
Northern Graphite re-activated the project due to higher prices and renewed interest in graphite projects. An additional 6,600m of drilling in 118 holes has been completed bringing total drilling on the project to approximately 12,200m in 275 holes. Resources have been more than doubled and upgraded and currently stand at 69.8 million tonnes of measured and indicated resources grading 1.74% graphitic carbon ("Cg") and 24 million tonnes of inferred resources grading 1.65%Cg (both at a 1.02%Cg cutoff grade) and mineralization has not been closed off by drilling. The Bissett Creek deposit occurs at surface and covers an area of approximately 1.5 by 0.5 kilometres. There is minimal overburden and the maximum depth of the resource is about 80m. Bissett Creek is a very unique deposit in that approximately 90% of the contained graphite will be categorized as large and extra large flake which is believed to be the highest ratio in the industry.
The Company intends to develop the Bissett Creek graphite deposit in two phases. In 2012 a full Feasibility Study ("FS") was completed with respect to the Phase 1 development and an NI 43-101 Report was filed. The FS was updated in 2013. Phase 2 consists of doubling production after three years of operation as described in an Expansion Preliminary Economic Assessment ("PEA") which was completed in 2013 and filed on SEDAR. The PEA is the current NI 43-101 Report with respect to the project. Shareholders, investors and other interested parties should refer to the PEA for a complete description of the project.
The Company's Mine Closure Plan has been filed and accepted by the Provincial Government and is the main approval required. A number of other operational approvals and permits are required and all are expected to be received in 2019. The Company anticipates being in a position to commence construction in late 2019, subject to financing, and to commence production in late 2020.
Phase 1 consists of an open pit mine and a 2,900tpd processing plant with conventional crushing, grinding and flotation circuits. Electricity for the plant will be generated by compressed natural gas (“CNG”) fuelled generators. CNG will be trucked from the main Trans Canada line, approximately 15 kms away. The processing plant includes a sulphide flotation circuit to remove enough sulphides to make approximately 97% of the tailings benign. All 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.
Probable mining reserves were established based on, and are a subset of, measured and indicated resources of 69.8 million tonnes (“Mt”) grading 1.74% “Cg” based on a 1.02% Cg cutoff. 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%Cg 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.
Over 28 years of operation an average of 20,800 tonnes of graphite concentrate at 94.5% Cg will be produced. Cash mine operating costs will average CDN$795 per tonne of concentrate (US$636/t at current exchange rates). The Phase 1 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.
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 updated FS base case which uses a weighted average price of US$1,800/tonne for the concentrates that will be produced. When the FS was completed, the oil price was over US$100/bbl, natural gas prices were 50 per cent higher and the US/CDN exchange rate was 1.05. Using current graphite prices and exchange rates of approximately US$1,700/t and 1.25 respectively, the project has a pre-tax IRR of 24.2% (21.1% after tax) and a pre-tax NPV of $183 million ($125.6 million after tax). This sensitivity analysis assumes capital and operating costs remain the same as in the FS Update. The Company is currently in the process of updating all of the FS metrics. The project has significant leverage to higher prices. At a graphite price of US$ 2,000/t and current exchange rates, the after tax IRR increases to 26.6% and the after tax NPV to $183.8 million.
The potential mine life is currently over 80 years based on measured and indicated resources only. Due to the flat lying nature of the deposit, production can be expanding without a significant increase in the stripping ratio and mine capital or operating costs. The expansion PEA contemplates a Phase 2 doubling of production after three years of operation. At current graphite prices and exchange rates, the Project has a pre-tax internal rate of return of 30.3% (25.4% after tax) and a pre-tax net present value of CDN$292.5 million (CDN$192.2 million after tax) using an 8% discount rate. Cash operating costs over the first 10 years of operation are estimated at US$547/t using current exchange rates. The initial capital cost estimate to construct the processing plant, power plant and all associated mine infrastructure under the PEA, which includes Phases 1 and 2, is $144.6 million.
The PEA uses the same mine plan as the FS Update but accelerates the mining of the high grade ore and processes all of the LGS thereafter. There are an additional 27.3 million tonnes of measured and indicated resources grading 1.62 %Cg which are not included in the mine plan and 24 million tonnes of inferred resources grading 1.65%Cg which are treated as waste. Also, resources have not yet been closed off by drilling and therefore further expansions are possible. Over the first ten years of operation almost 44,200 tonnes of graphite concentrate would be produced yearly.