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In 2011,Peter Epstein, CFA, left a $3 billion hedge fund where he was a senior analyst to help increase awareness of a number of natural resource companies in which he's invested in. PLEASE FOLLOW ME ON TWITTER: @peterepstein2 Mr. Epstein formed MockingJay, Inc., a consultancy for companies in... More
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  • Big North Graphite In Production NOW, Peers Maybe In 3-5 Years... 2 comments
    Aug 22, 2013 2:40 PM | about stocks: BNCIF, FLNXF, FCSMF, GRPH, GPHOF, NGPHF, ZENYF
    Big North Graphite Beats Peers to Market, Huge Growth Lies Ahead


    Thursday, August 22, 2013 · Posted in Graphite, Graphite Companies · by Peter Epstein

    In the July 25th publication of the widely read online newsletter, "The Energy Report," I highlighted a junior graphite company that was poised to make its first big sale. The BIG day has arrived. Here is an update on this up-and-coming company!

    Big North Graphite (NRT.V) announced its first sale of graphite. The Company sold 200 metric tonnes of amorphous graphite, mined from the Company's Nuevo San Pedro mine and additional feed mines located in Sonora Mexico. The graphite sold was a run-of-mine, semi-processed product with an average grade of 68% Cg. In July, the Company announced that it had mined, shipped and stockpiled 160 tonnes of graphite.

    In addition to being Big North's first commercial sale, the fact that the buyer was happy to take semi-processed product speaks volumes about the potential demand for the Company's graphite. Globally, ~1.1 million tonnes of natural graphite was produced last year. Slightly more than half was the amorphous variety. Key to the Big North story is that about 90% of the world's amorphous graphite comes from China. Mexico is currently the only source of North American amorphous graphite production. Read that sentence again…the, "only source of amorphous graphite in North America."

    Transportation Advantage = Low Delivered Cost = Security of Supply

    That's hugely important, as it means Big North has a very valuable transportation advantage into Mexico and the U.S. The Company has a virtually unlimited growth opportunity before new competition takes hold. Still, there's plenty of room for a few small producers. In fact, end users want multiple sources of supply instead of one or two sources from China. As important as the transportation advantage is, even more important is security of supply.

    Shipping from China can take several weeks and it's not cheap! Big North will be able to deliver product within a 1,000 mile radius in less than a week, for a fraction of the cost. That radius includes a good portion of the southern U.S. Therefore, Big North's growing business is a win-win-win for the Company, customers and shareholders.

    How Big an Opportunity Does Big North Have?

    Big North has virtually no competition or constraint to growth. Next year, I believe that the Company could reach run-rate sales of 10,000 tonnes of amorphous graphite in Mexico and the U.S. alone. The demand is certainly there, it's just a question of mining and augmenting production with purchased third-party run-of-mine material. I asked President Spiro Kletas about my 10,000 tonne estimate for 2014, Spiro replied,

    "A key thing that I hope investors realize is that there is a real opportunity to capture scalability at a low capital cost. We are currently working the Nuevo San Pedro project, but we also own 100% of two other mines, La Fortuna and Caraples, that have not yet been touched. Hopefully, 10k tonnes is a just starting point not a finish line."

    Therein lies the risk, scaling up the mining, purchasing, processing, sales and marketing functions. However, Big North is in discussions for term contracts that would greatly reduce the sales and marketing risk. Importantly, the biggest risk facing any emerging miner is behind us now- sales have commenced, cash burn is declining and soon the business will be cash flow positive (before success based growth cap-ex).

    By my rough calculations, 10,000 tonnes could produce cash flow of $1mm-$2mm per year. If Big North can reach a run-rate at that level, then the Company is worth $6 million to $12 million. Again, just rough numbers. I see a 3x-5x return possible by the end of next year.

    Conclusion:

    This is an exciting time for the Company and shareholders. My understanding is that interested parties are seeking out Big North, not the other way around. A wide range of strategic initiatives are presumably being contemplated.

    President Spiro Kletas has said that the graphite business is a race to the finish line, Big North just won the race, but the hard work is far from over. Yet, with a declining cash burn profile, strong demand, and a compelling transportation advantage that offers both low delivered costs and security of supply to customers, Big North Graphite is becoming bigger by the day.

    Disclosure: I am long OTCPK:BNCIF.

    Themes: graphite Stocks: BNCIF, FLNXF, FCSMF, GRPH, GPHOF, NGPHF, ZENYF
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Comments (2)
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  • Great write-up Peter. I own NRT. Cash flow is key!
    2 Sep 2013, 03:19 PM Reply Like
  • This is a very interesting junior. I like the practicality of their approach.

     

    The graphite space is getting crowded with exploration outfits looking for the big score and burning $$ drilling holes. Which is OK and how things are done normally, but with the capital markets dry for resource exploration right now it also means that I have no idea how much paper will printed on top of mine tomorrow..

     

    NRT should be able to be in the money within a year. At which point they can set the pace, self-finance their own exploration and keep the float tight. Also, by then, I agree with your numbers, they should be at $6m-$10m market cap, the stock at ~$0.15, not a bad little gain in 6-8 months... Bonus!

     

    Sure, acquiring, upgrading and restarting existing mines (shut down when graphite was too cheap, but now profitable again) sounds too much like real work and not enough like a sexy super-discovery story. Which is exactly why this stock has been below radar this long.

     

    I d like to know more about the upside though. What will max the first mine and other local producers? 20,000 tonnes? 30,000 tonnes?
    And then, what is the production potential for the other two properties? And, are there more existing mines nearby to be acquired?
    What is a reasonable ceiling to this model?
    9 Sep 2013, 12:57 AM Reply Like
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