Update: Flinders Resources Buys Big North Graphite

Sep. 2.14 | About: Leading Edge (LEMIF)


Flinders Resources just announced that it will buy Big North Graphite in exchange for stock: each 9 Big North shares will be exchanged for one Flinders share.

I had not anticipated this deal in my July article, but it fits the company's MO of restarting past producing projects as it just did with Woxna.

Flinders is not wasting any time after getting Woxna into production, and I remain convinced that Flinders--more so than its peers--has turned graphite from a story into a business.

Flinders Resources (FLNXF) just announced its intent to buy Big North Graphite (OTCPK:BNCIF). Flinders has agreed to exchange 1 Flinders share--worth about C$0.99 for 9 Big North Graphite shares. This comes less than a month after Flinders announced production at its Woxna Project in Sweden. I had recommended Flinders shares just before the company announced production at its Woxna Project based on the fact that the company was inexpensive relative to the value of its discounted cash flow, but more specifically because it stood out--and still does--in the space as the one producing company in the west, and as the one graphite company that doesn't need capital.

Flinders is undoubtedly interested in Big North's El Tejon Project in Mexico, which, like Woxna, is a past producing mine with a mill and infrastructure largely in place. Like Woxna it stopped producing around the turn of the century as the Chinese had flooded the market with cheap graphite depressing prices. Now that the graphite market is turning around it makes sense for investors with means and knowledge to bring these projects back into production, and Flinders seems to be that investor. Investors should also note that the company has a couple of exploration projects in Canada, and surprisingly a small producing asset in Sonora, Mexico. Keep in mind that this is an amorphous graphite project, and amorphous graphite doesn't command the premium that flake graphite does, nor does it have the anticipated demand increase that we see with flake graphite.

Investors are being given a great opportunity to buy Flinders inexpensively, as the stock has pulled back on the dilution. It is a great long-term play for graphite investors, and it is the only Western graphite company to my knowledge that has gone beyond the story-telling phase and into the cash-flow generation phase of its business. I should also note that investors may want to consider buying Flinders through Big North Graphite, which is trading at about $0.08/share while it should be trading at closer to $0.11/share. Arbitrageurs should have a field day.

Disclosure: The author is long FLNXF.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.