NGC.V · 2024-08-29 12:00:00

Northern Graphite Announces Second Quarter 2024 Results

Financials

Northern Graphite Announces Second Quarter 2024

Results

August 29, 2024 8:15 AM EDT | Source:

Northern Graphite Corporation



Strict cost control measures implemented to preserve working capital and

bolster balance sheet



Increased output from cornerstone Lac des Iles mine to boost operating income



Near record graphite sales amid push into new markets

Ottawa, Ontario

(Newsﬁle Corp.

August 29, 2024)

Northern Graphite

Corporation

(TSXV: NGC) (OTCQB: NGPHF) (FSE: 0NG) (XSTU: 0NG)

(the "

Company

" or

Northern

") is pleased to provide an operating summary and ﬁnancial highlights for the

three and six month periods ending June 30, 2024. The Company's Financial Statements

and Management's Discussion and Analysis for the period have been ﬁled on SEDAR+ and

posted

to the Company's website.

"In the second quarter we took decisive action to manage our cash position to ease the

strain on our working capital and provide us with greater ﬂexibility to pursue our growth

catalysts, including strict overhead cost cutting measures and the sale of inv

entory that

came with the acquisition of the Lac des Iles (

"LDI"

) mine in 2022, and these eorts are

bearing fruit, " said Northern

Chief Executive Oicer Hugues Jacquemin

. "At the same

time, we increased our operating income by ramping up production at L

DI and achieving

near

record sales volumes to industrial customers for a third consecutive quarter,

including sales in new geographies. However, commodity and ﬁnancial markets remain

diicult and in the second quarter the Company was not able to meet all

the ﬁnancial

covenants for its senior secured loan and royalty ﬁnancing, including making the required

interest and royalty payments. All defaults have been waived by the lender and royalty

holder and discussions are ongoing with respect to amending the

terms of our senior

secured loan and royalty ﬁnancing. While the current situation is challenging, the long term

outlook for our strategy to sell to the EV battery space remains strong and we continue to

implement measures to enable the Company to weathe

r the prevailing environment and

carry us through until graphite markets recover. "

Operational Highlights: Driving Our Growth Catalysts



To meet increasing customer demand amid continued

near

record sales

and to

increase operating income, in April the Company moved the plant at its LDI mine to

a seven days per week operation, targeting annual nameplate capacity of 25,000

tonnes per year (

"tpy"

). Management is also aggressively pursuing new

markets/customer opportunities in North America and Europe in order to balance

liquidity with the amount of working capital tied up in inventories, and to create a

market for future expected Namibian producti

on;



After a successful 2023 drilling campaign and a

new resource estimate

showed

potential to signiﬁcantly extend the life of LDI, the Company is running operational

scenarios to open

a new pit

toward the end of the year and is also planning

second drilling program

in 2024 with the goal of further increasing production

through successful exploration;



In June the Company received support from Québec's Ministère des Ressources

Naturelles et des Forêts ("

MRNF

") in the form of a grant for a total of $0.4 million to

pay 50 percent of eligible expenses for geo

metallurgical and geo

environmental

drilling to be carried out this year on the LDI mining lease;



The Company continued to work on

advancing its mine

market

battery

strategy

in the quarter, signing non

disclosure agreements with top

tier global

battery manufacturers from South Korea, China, and several Western countries who

are keen on utilizing Porocarb® , our patented, high

performance macro

porous hard

carbon, as a performa

nce additive in lithium

Ion batteries or as a protective carbon

coating for All

Solid

State

Battery ("ASSB") anodes;



The Company actively

engaged in the quarter with the

White House

battery

makers and other graphite producers

to explore ways to build a sustainable

graphite industry that protects the strategic interests and energy security of the

West; we also met with G7 countries plus Australia and others in Ottawa to discuss

how to establish secure critical mineral supply ch

ains to support the EV and energy

transitions and better compete against China; and



The Company is in ongoing

, active discussions with various government

organizations

at the federal and provincial level, and internationally, to gain support

for its projects and to speed up development of the battery anode supply chain.

Financial Highlights: Record Sales Trend Continues, Focus on Cash Management



Revenue of $5.5 million based on 2,772 tonnes of graphite concentrate sold at an

average realized sales price of $1,972 per tonne (US$1,441 per tonne), 6% above the

ﬁrst quarter, due to a favorable product mix;



Sales volumes in the second quarter of 2024 remained strong, 38% higher

compared to the second quarter of 2023, but 7% lower than the ﬁrst quarter of

2024;



Total sales revenue for the third quarter of 2024 is expected to be above the ﬁrst and

second quarters of 2024 due to eorts to sell additional volumes to customers,

including inventory spot sales:



Cash costs of $1,560 (US$1,198) per tonne of graphite concentrate sold, slightly

lower compared to the ﬁrst quarter costs of $1,628 per tonne (US$1,140). Costs

have been negatively impacted by the ramp up of operations which created

ineiciencies and une

xpected breakdowns, as well as training of new sta and

shutdowns due to weather conditions

;



Income from mine operations was $0.1 million, compared to a loss from mine

operations of $0.5 million during the ﬁrst quarter of 2024, due primarily to improved

average realized sales prices;



General and administrative expenses decreased by 15% during the second quarter

compared to the ﬁrst quarter of 2024, and by 10% compared to the second quarter

of 2023, as a result of the implementation of strict overhead cost control measures;



The LDI plant was in full production during the second quarter, with production

volumes of 4,082 tonnes, increasing by 59% compared to the ﬁrst quarter of 2024

(2,574 tonnes). Mining operations were restarted at LDI on April 25, 2024;



An impairment loss (non

cash) of $3.5 million was incurred due to lower anticipated

prices on conﬁrmed sales of concentrate for the second half of 2024 which

consisted of a net realizable value impairment of $0.8 million on the Company's

stockpile invento

ry and $2.7 million on its ﬁnished goods inventory;



A net loss of $9.4 million ($0.07 per share) which included signiﬁcant non

cash

charges relating to depletion and depreciation, share

based compensation,

capitalized ﬁnance expenses, impairment expenses and drawdown of inventories.

Cash provided by opera

ting activities was $0.1 million;



29,602,050 share purchase warrants expired, leaving 1,680,000 warrants

outstanding with an exercise price of $0.75;



Reclassiﬁcation of $18.5 million of the senior secured loan and $3.9 million of

royalty ﬁnancing from non

current to current liabilities as a result of the Company

not meeting all of the covenants related to these instruments. All defaults have been

waiv

ed by the lender as at June 30, 2024 and as at August 27, 2024, and the

Company is currently in discussions with the lender relating to amending the terms

of its senior secured loan and royalty ﬁnancing;



Cash and working

capital: positive cash provided by operating activities ($0.1

million), a signiﬁcant improvement compared to Q1 ($ 1.7 million used in operating

activities)

Cash and equivalents of $0.7 million as at June 30, 2024, in line with March

31, 2024 ($0.7 million);

Accounts receivable were reduced by $1.8 million compared to March 31,

2024, as a result of cash collection eorts, negotiation of more favorable

terms and collection of tax receivables in Namibia; and

The above noted senior secured loan and royalty reclassiﬁcations to current

liabilities ($22.4 million), the Company's working capital optimization eorts

and inventory impairments ($3.5 million) and drawdowns resulted in a

negative working capital of $2

5.6 million as at June 30, 2024.

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Northern is continuing to work towards its goal of becoming a vertically integrated, mine

market supplier to traditional downstream customers and to the emerging

market for

battery anode material (

"BAM"

) as well as for next generation All Solid State battery

chemistries. The main catalysts of our strategy include growing graphite production from

our cornerstone LDI mine, restarting the Okanjande mine in Namibia, developing

downstream capacity to produce

advanced BAM for use in Lithium

Ion batteries and EVs in

North America and Europe, and upgrading graphite mine concentrate into value added

industrial products.

Mining Operations

As the only producer of natural ﬂake graphite in North America, Northern has a ﬁrst mover,

competitive advantage in supplying Western markets with graphite for the EV revolution.

The Company's projects in Canada and Namibia are all battery grade, and can

be scaled in

a relatively quick, low

cost manner by leveraging existing permitting and infrastructure at

both LDI and at its Okanjande mine in Namibia.

Lac des Iles Mine

Quebec

Northern is boosting output from the LDI mine and processing plant to meet growing

demand from industrial customers and coming demand from North American battery

makers. In April, the Company restarted mining operations and moved its plant to a seven

days

a week schedule to be able to meet customer orders in the cornerstone U.S. market

as well as new demand from new clients in other markets. Output from the plant, where

the Company is targeting nameplate capacity of 25,000 tpy, ro

se 59 percent in the period to

4,082 tonnes, from 2,574 tonnes in the ﬁrst quarter, and the Company is working to

increase output further in the second half of the year as further eiciencies are

implemented.

A new resource estimate based on a strong 2023 drilling campaign showed potential to

extend the life at LDI by approximately eight years, which will be conﬁrmed and quantiﬁed

through an updated mineral reserve estimate and life

mine plan that will be

available

later in 2024. The Company is currently ﬁnalizing the study of dierent operational

scenarios to open a new pit by the end of the year or early in 2025. According to the mineral

resource estimate prepared in the ﬁrst quarter by SLR Consulting

(Canada) Ltd., Indicated

Mineral Resources now total approximately 3.29 million tonnes ("Mt") at an average grade

of 6.4% graphitic carbon ("

"), containing approximately 213,000 tonnes of Cg. Inferred

Mineral Resources total approximately 1.43 Mt at an average grade of 7.4% Cg, containing

approximately 106,000 tonnes of Cg. Existing stockpiles at the mine site are not included in

the updated mi

neral resource estimate. The updated mineral resource estimate assumes

an open pit mining scenario and a long

ter

m average ﬂake graphite concentrate market

price of US$1,550 per tonne. Mineral resources are constrained within an optimized pit

shell at a cut

o grade of 2.3% Cg. A second program is planned for this fall with the

objective of further expanding resour

ces, identifying resources with a lower strip ratio and

spending $$1.85 million to meet the Company's obligations under its 2023 ﬂow through

share ﬁnancing. The program will be ﬁnanced in part by an exploration grant from Québec's

MRNF to pay 50 percent

of eligible expenses for geo

metallurgical and geo

environmental

drilling.

Okanjande Project

Namibia

The Company continues to evaluate options to fund the Okanjande project through the use

of a royalty/stream/debt structure and equity contributed by a strategic partner without

having to go to the market at current share prices. During the third quarter of

2023,

Northern placed Okanjande on care and maintenance except for engineering and activities

relating to moving the plant from its site at Okorusu to Okanjande. The timing of the restart

is subject to the availability of project ﬁnancing. A technical report in respect of the PEA

prepared in accordance with National Instrument 43

101

Standards of Disclosure for

Mineral Projects

NI 43

101

") was ﬁled under the Company's proﬁle on SEDAR+

(

www.sedarplus.ca

) on August 28, 2023. The PEA indicated that the economics are

attractive under a plan to move the processing plant from Okorusu to the mine site with

higher capital costs but lower operating costs. In addition, greenhouse gas emissions are

reduced, sustai

nability is improved, and the expansion potential of the project is

substantially enhanced.

Mine

Market Strategy

The Porocarb® Promise

The Company continued to work towards advancing its mine

market

battery strategy

in the second quarter, signing non

disclosure agreements with top tier battery

manufacturers from South Korea, China and several Western countries who are keen to

use Po

rocarb® , its patented, high

performance porous hard carbon material that enhances

the eiciency and speed of energy storage mechanisms as a performance additive in

lithium

ion batteries or as a protective co

ating for ASSB anodes. While timing will depend

on the qualiﬁcation process with battery makers, talks are in an advanced stage, and

Porocarb® has the potential to provide signiﬁcant revenue to the Company sooner than

natural graphite lithium

ion BAM pro

ducts.

Northern launched its battery materials division, NGCBM, in the ﬁrst quarter to help lead

its strategy to use battery

grade graphite from its operations to become an integrated

supplier of BAM, the lead component of lithium

ion batteries, to the electric

vehicle

industry. Led by global battery experts and armed with a fully functional, state

the

art

laboratory in Frankfurt, NGCBM specializes in advanced material analytics and

electrochemical techniques for carbon and battery materials and

enables Northe

rn to

produce BAM from its graphite and build and test batteries in its lab

, allowing it to

provide tailored solutions to makers of current

state and next

generation battery

chemistries. The group was formed through the acquisition of the assets and R&D team of

the battery division of Germany's Heraeus Group and includes licensed

IP to develop,

produce and sell Porocarb® .

NGCBM is able to produce BAM from its graphite and test it under realistic conditions by

assembling and characterising batteries in its lab

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Under the leadership of NGCBM, the Company is also pursuing eorts to integrate

downstream by further processing its graphite for use in lithium

ion batteries by adding

shaping, puriﬁcation and coating technologies to produce BAM in Baie Comeau. This is

expected to be done in partnership with companies that are industry leaders in these

technologies, and in modular phases as demand for BAM increases. A ﬁrst phase for the

BAM plant, expected to cost in the range of $500 million, is targeted for completion

in 2027,

subject to ﬁnancing, regulatory approvals and certain other conditions, and is eligible for

potential assistance under programs oered by the province of Québec, the Canadian and

U.S. governments, as well as other assistance by the Manicouagan

region and potential

Plan Nord incentives. The Company has been actively involved in discussions and

negotiations with technology and original equipment manufacturer ("

OEM

") partners in

both the U.S. and Europe who want to collaborate with a quality suppli

er of graphite that

has current production, immediately available inventory and the capacity to support future

growth. Discussions center on volume requirements and the timing thereof and plans for

downstream conversion facilities in both North America and

Europe. Numerous, active

discussions are ongoing with respect to strategic partnerships and otake agreements and

there continue to be many positive developments in the EV/battery/critical minerals space.

The Company is also engaged with various governme

nt organizations at both the federal

and provincial level to gain support to speed up the development of the battery anode

supply chain, with a particular focus on Ontario and Québec.

Market Commentary

Graphite markets are responding to looming global supply pressures in the face of

sustained geopolitical tensions with China, the world's leading producer and processor of

the leading component in lithium

ion batteries. As non

battery consumers look

increa

singly to the West to supply their needs, Northern has seen sustained demand

growth since the second half of last year that has been reﬂected in near

record sales for

three consecutive quarters. Sales revenue for the third quarter of 202

4 is also expected to

be favorable and above the ﬁrst and second quarters of 2024 as a result of eorts to sell

additional volumes to customers, including inventory spot sales for cash management

purposes. Management has been aggressively pursuing new ma

rkets/customer

opportunities in North America and Europe in order to balance liquidity with the amount of

working capital tied up in inventories, and to create a market for future expected Namibian

production. Industry forecasts for graphite markets to go

into deﬁcit in 2025 have been

reinforced following actions by the U.S. government to impose taris on Chinese natural

graphite imports starting in 2026, and to mandate OEMs to source battery grade graphite

domestically starting in 2027 if their vehicles

are to qualify for U.S. Inﬂation Reduction Act

IRA

") tax credits. Canada, the United States and Europe have all announced taris on EV

imports to support their automotive industries and better compete with China.

As a member of the North American Graphite Alliance, which represents North American

and Canadian producers of battery

grade natural and synthetic graphite, both of which are

critical and a leading component in the production of lithium

ion batteries, Nort

hern is

engaging in discussions with the White House, OEMs and other producers to ﬁnd ways to

protect and stimulate the region's nascent graphite industry and stringently impose the

new two

year certiﬁcation requirements for OEMs under the IRA's Section

30D Clean

Vehicle Tax Credit, which encourages automakers to source domestic components,

including critical minerals within lithium

ion batteries, so that consumers can receive a

maximum $7,500 tax credit when purchasing an eligible EV .

Balance Sheet Commentary

The Company took decisive action in the quarter to better manage its cash position, bolster

its balance sheet and optimize its working capital, including strict overhead cost controls,

sales of inventory, optimization of accounts receivable and ramping up

output at LDI in

order to increase operating income and improve its cash position. The Company reported

in the quarter a positive income from mine operations ($0.1 million) and a positive cash

provided by operating activities ($0.1

million). While the expansion is increasing operating

income, it has also required additional investments in working capital that are straining the

Company's resources. On May 27, 2024, the Company sold its 2,000,000 shares of Electric

Royalties Ltd. for

$0.4 million in cash, and in June the Company announced a grant from

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