NGPHF: A North American-based source of the largest component of EV batteries attempting to become a vertically integrated supplier

·15 min read

By Brian Lantier, CFA


Northern Graphite Corporation (OTCQB:NGPHF) (TSXV:NGC) is a graphite mining and processing company currently operating the only significant graphite mine in North America. The Canadian-based company resulted from the combination of a small operation with a graphite claim in Ontario (“Old Northern Graphite”) and the graphite mining and processing operations of Imerys, SA (PAR:NK.PA). The combined company (“New Northern Graphite”) is operating an existing operating mine in Lac Des Isles, Quebec, investing in its graphite mining and processing operation in Namibia targeting production in 2024 and eventually, developing an additional claim in Ontario.

Demand for natural graphite has experienced steady growth in recent years in parallel with demand for electric vehicles (EVs) and their batteries that use graphite as the anode material (ie, negative electrode). However, by the end of the decade, demand for natural graphite is expected to have increased 6.5 times from 400,000 tonnes to 3.0 million tonnes annually driven by drastically higher EV penetration rates according to Benchmark Minerals Intelligence1. While much of the conversation around the EV battery industry has been focused on cathode materials – principally lithium and cobalt due to their scarcity – increasingly the industry has begun to examine the graphite supply chain which is currently very dependent on Chinese production, where roughly 80% of global graphite is produced2. Synthetic graphite production has helped meet demand in the EV industry so far but it is more expensive and less environmentally friendly than natural graphite.

Graphite: A multifaceted industry

As noted, most natural graphite production today occurs in China and much of that production is finding its way into the market for EV batteries and other lithium ion cells. Unlike other critical minerals required to produce an EV battery - namely, lithium and cobalt - graphite is not a particularly scarce resource globally with large deposits in Turkey, China, Brazil and several African nations, though not all natural graphite is created equally (as we will discuss later).

For many years the natural graphite market was overlooked by the investment community and investment in new projects was limited. End demand was essentially flat and global production was close to unchanged from 2010 to 2020. During this period, many Chinese companies were flooding the market with graphite which depressed the price globally and further limited outside investments in new projects. Given the long lead times required to permit and commence operations of new mines, there has been a noticeable absence of new natural graphite capacity despite the anticipated growth in demand through the end of the decade. To meet the recent surge in demand for graphite there has been a significant increase in the production of synthetic graphite. In 2021, it was estimated that over 75% of the graphite used in battery anode materials was synthetic graphite.3

Growth Drivers of Graphite Demand

There are several potential growth drivers that will combine to drive demand over the balance of the decade to 3.0 million tonnes by 2030, but clearly most of the anticipated growth will be a direct result of increased production of lithium ion batteries for electric vehicles (EVs). Average lithium ion batteries for EVs typically contain roughly 70kg of graphite, making graphite the most significant single mineral in a lithium ion battery.

The Inflation Reduction Act of 2022 is expected to spur a massive wave of construction of new battery manufacturing capacity in the US. In 2021, US EV battery capacity was just about 55 GW, but by 2030 the Department of Energy now predicts that capacity in the US will be 1,000 GW – an 18 fold increase.4

The expectation is that this added battery capacity will enable the US to produce somewhere between 10 and 13 million EVs per year. At 70kg of graphite per EV battery, this means that US EV market would require between roughly 700,000 tonnes and 900,000 tonnes of graphite per year. It is important to note that this forecast is only for the US market and it does not include demand from Asia, Europe or Africa. As a reminder, today, China is by far the global leader in production of natural graphite with nearly an 80% market share producing 820,000 tonnes.

The US has had no domestic graphite production since 1990 and yet, the expectation is that the US EV battery market could require 700,000 to 900,000 tons of graphite annually by 2030.

To review: it is anticipated that:

• Auto manufacturers will make significant new investments in domestic battery production for EVs over the next decade

• Domestic demand for natural graphite by the end of the decade could be 70-90% current global production while the US has no domestic production of graphite.

Northern Graphite: Building a business to meet surging demand

Northern Graphite has been active for over 20 years but prior to 2022 the business had no production and was effectively just its claim on a graphite deposit in Northern Ontario. In May 2022, the company completed the acquisition of Lac des Iles graphite mine (referred to as “LDI”) from Imerys Group (Paris:NK.PA) and the Okanjande graphite mine and Okoruso processing plant in Namibia also from Imerys and a JV partner. The company financed this acquisition with a combination of debt, equity issuance and royalty stream payments totaling roughly $58 million USD.

Today, LDI is the only significant graphite mine in North America. The acquisition of LDI instantly gave Northern Graphite a revenue stream, an existing customer base and roughly 100 experienced employees. It is worth noting that LDI is nearing the end of its useful life with roughly 1-2 years of reserves remaining at this point. The company believes that the LDI facility is capable of producing up to 25,000 tonnes of graphite per year but the company plans to operate at a lower rate of production in order to extend the life of the facility.

In order to leverage the processing infrastructure at the LDI location after it is fully mined the company purchased another property named “Mousseau West” in October 2022 for roughly $1 million dollars in cash and stock. The company plans to quarry the mine and transport the materials roughly 80km from the Mousseau property to LDI for processing. The company believes that over time, the additional mined material from Mousseau West could help the LDI facility return to peak production of 25,000 tonnes/year.

As part of the acquisition from Imerys, Northern Graphite acquired property known as the Okanjande deposit and a processing facility at Okoruso in Namibia. As a result of some delays of equipment that was ordered for the processing facility, the company has reevaluated their original plan and now expects to transfer much of the equipment from Okoruso to the Okanjande deposit to reduce transportation costs from the mine to the processing site. The relocation of equipment is expected to delay the startup of the Namibian operations, but the company still expects to be in production by 2024 at a run rate of over 30,000 tonnes/year. The company has indicated that based on sampling data, this could be a much larger mine over time and their long-run projections are for 100,000-150,000 tonnes of graphite per year from this facility. Given the proximity of these operations, it is likely that much of the production from this facility will be destined for European markets.

The company also owns 100% interest in the Bissett Creek mining area and surrounding claims west of Ottawa, Canada. The company has been conducting feasibility studies on this site for several years but the anticipated sharp jump in North American graphite demand that is now forecast for the balance of the decade makes this a very attractive property. Geographically, this project sits very close to road, rail and shipping corridors that lead to the emerging Battery Belt in the US (from the Great Lakes region down to Tennessee). The company will likely use its experience at LDI and the Namibian project to help it secure the substantial funding that will be needed to complete all phases of this project (capex is forecast to be in excess of $100 million USD). We don’t have clear picture of how the company will eventually finance Bissett Creek, but it will likely be some combination of debt, equity and potentially royalty streams, so potential investors should be aware that the capital structure may change in the future.

Based on the acquisitions completed in 2022 and the anticipated production coming online, the company has stated that with LDI, Mousseau and the Namibian operations they anticipate annual production of between 40,000-50,000 tonnes per year. At this level of production, Northern Graphite would be the third largest natural graphite producer outside of China.

An interesting aspect of the Northern Graphite story is the fact that despite its relatively short operating history since the acquisition from Imerys, the management team has a deep understanding of the graphite market. Northern Graphite’s CEO and CFO ran the graphite division within Imerys before those assets were sold to Northern Graphite so their understanding of the operations, their customers and the market landscape is significant. In some ways, the Northern Graphite acquisition of the Imerys graphite operations resembles a SPAC, as most of the assets, management, employees and the current operating activities resided in the acquired company.

An overview of the graphite market

There are three types of naturally occurring graphite – amorphous, flake and vein. Amorphous graphite is the most common form of graphite making up roughly half of the global reserves, however, it also requires the most processing, is generally considered the lowest grade and yields between 20-40% graphite when mined. Applications for amorphous graphite include brake linings, steel production or lining blast furnaces.

Vein graphite is principally found in Sri Lanka but there are examples in the United States and the United Kingdom. While vein graphite is of very high quality, the limited number of global sources has prevented wider use.

Finally, we get to flake graphite which has formed over time in deposits of carbon subject to high pressure and temperature. Flake graphite has numerous applications and all deposits are not created equal but Northern Graphite will most likely focus on delivering small flake size (under 100 mesh) to the market as that can most easily be converted into spherical graphite for the lithium ion battery market.

As noted earlier, synthetic graphite has helped battery manufacturers meet battery makers’ needs despite the limited amount of natural flake graphite available in the market today. Synthetic graphite is produced through a complex process involving taking a raw material like petroleum coke and baking it at extremely high temperatures (up to 2800C). The resulting product is usually very high quality but is also quite expensive relative to natural graphite and requires significant energy inputs which make it unappealing for from an environmental perspective. Over the balance of the decade there is an expectation that natural flake graphite will gain market share relative to synthetic graphite due to its lower cost and the better environmental profile.

The process to create spherical graphite from natural flake graphite as required by lithium ion battery manufacturers is costly today and does not scale very well. Natural flake graphite is introduced to a series of plates that crush and grind the graphite until it reaches a specified diameter and it moves on to the next stage in the process. This process results in 60-70% waste in the form of dust so it may take up to 2.5 – 3.3 tonnes of raw material to produce 1 ton of spherical graphite. There are additional steps involving purification of the spherical graphite which further adds to the costs and ultimately, reduces the industry gross margins for spherical graphite produced in China to roughly 15%. In order to attract more North American suppliers to enter market we believe North American battery manufacturers are going to have pay higher prices for spherical graphite or government incentives will be needed to improve operating margins for graphite processing.

This brings us to a final point on the graphite market. Unlike most other commodities, there is no traditional spot market for graphite as companies negotiate pricing with customers directly. There are several additional factors such as flake size and purity that impact the final price paid by the customer. This model may eventually change but building long-term financial plans as a miner is challenging when the price of your final product is not easily determined in the market.

Recent News:

In early January 2023, Northern Graphite announced that it had entered into an agreement with Innovation et Development Manicouagan (“IDM”) at Baie-Comeau, Quebec (an economic development agency) – to evaluate potential sites for a processing plant that would convert flake graphite into coated spherical graphite. The plant, if constructed, would be one of the largest in the world with the capacity to handle 200,000 tons of material per year at the site. Locating a finished processing facility like this at the port zone of Baie-Comeau makes a great deal of sense because the port would be capable of shipping to global markets through a year-round port and when the St. Lawrence Seaway is open (typically nine months a year from March to December) it provides direct access via ship to the emerging “battery belt” surrounding the Great Lakes. This location also appears to have access to hydro-electric power which would enable the plant to operate with a smaller carbon footprint and potentially lower operating costs, depending on the terms that are offered.

The plant envisioned by Northern Graphite would have capacity far in excess of current Canadian graphite production, so in order to hit these production goals it will likely require expansion by Northern Graphite or additional mines to begin production.

The company has partnered with Graphex (NYSE:GRFX) to work on the site evaluation. Graphex has experience in converting mine raw materials into battery anode materials.

On February 13, 2023, Northern Graphite announced it had entered into an agreement to acquire up to 33.3% of NeoGraf over the next 6 months for an undisclosed sum. NeoGraf is a provider of specialty and value-added products made from natural graphite, has over 100 employees, a strong customer base and a deep IP portfolio. This transaction seems to fit with Northern Graphite’s vision of integrating more downstream value-added production into their operations. Investors will likely want to see further details around the pricing of the transaction, as the private equity firm that structured the deal, Edgewater Capital, only acquired their interest in NeoGraf two weeks before this transaction was announced.

Potential Risks

There are obviously several risks facing the company as they operate in a global commodity market but one of the principal risks is that they are attempting to build mining and processing capacity in North America in anticipation of significant additional demand coming from numerous new EV battery plants announced. Potential delays in the completion of the EV battery plants will be a risk given the substantial investment that the company will need to make in mines and processing facilities. Timing the company’s expansion to meet the anticipated increase in demand for graphite in the second half of the decade will be a challenge.

While the company is the only significant graphite miner in North America today, we do not expect that to remain the case for very long. North America does not have a significant share of the proven global graphite reserves, but the need for a regional supply of anode material to serve new EV battery facilities means that additional capital will likely be attracted to this market. We have recently seen press releases from a handful of new graphite operations in the US and Canada, so while Northern Graphite has an advantage in the market today, we anticipate new entrants into the North American market soon.

In the coming decade, there could also be significant expansion of mining in regions with substantial reserves of flake graphite–like Africa. Since graphite is not a scarce resource around the globe and given the anticipated demand that is foreseen, the industry will have to be careful not to saturate the market and depressing prices for all market participants.

Lastly, given the very long lead time in this market before much of the anticipated demand for graphite materializes in the battery market for EVs it is worth noting that there are several companies working on alternative anode materials (principally silicon-based alternatives). There is also the possibility that a meaningful breakthrough in solid state battery technology could materialize in the coming decade and some early prototypes appear to replace the graphite anode with lithium. If the industry rapidly shifted to a new anode material it would drastically impact the potential demand for graphite.


Demand for spherical graphite that can be used in lithium ion batteries for EVs is poised to explode higher in the coming decade around the globe. In the US alone, there could be a need for 700,000-900,000 tons of graphite while current domestic production stands at effectively zero.

While North America is not a major source of natural flake graphite deposits there are some viable operations as Northern Graphite has demonstrated. Barring a breakthrough in EV battery technology, graphite will remain a significant component of lithium ion batteries for the balance of the decade and beyond. Northern Graphite’s business model of using small scale production to finance greater expansion of its North American production seems like a reasonable approach and reflects management’s many years of graphite industry experience. The build out of North American EV battery production and the mining of graphite for these batteries in North America is likely to play out over many years but we will be watching Northern Graphite as an early mover in this industry and a company that has delivered on plans to date.