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Northern Graphite Announces First Quarter 2024 Results

  • Lac des Iles mine production ramping up to meet customer demand and increase operating income

  • Record first quarter sales volumes and revenues

  • Strict cost control measures being implemented to preserve working capital

Ottawa, Ontario--(Newsfile Corp. - May 31, 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 month period ending March 31, 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 website.

"While we are pleased to be able to report record sales volumes and revenue in the first quarter amid strong demand from our customers that started in the second half of last year and has continued this year, clearly there is more work to be done to support our growth catalysts," said Chief Executive Officer Hugues Jacquemin. "The level of production at Lac des Iles ("LDI") since its acquisition has not been sufficient to sustain the Company on a cash flow basis, and operating deficits have had to be mitigated by external financings and the sale of inventories. In order to address this situation and make the Company self sustaining, LDI's production is being ramped up to nameplate capacity of 25,000 tpy to meet growing demand stimulated by EV sales, Chinese export controls and US tariffs on Chinese graphite. While the expansion will increase operating income, it also requires an additional investment in working capital that is straining the Company's resources. As North America's only flake graphite producer, we have a sound plan to increase production and upgrade it into battery anode material in time to supply the EV revolution, but our efforts to secure support from federal, provincial and US government agencies as well as EV and battery manufacturers have yet to be successful, despite the critical need to establish a North American supply chain."

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Operational Highlights: Driving Our Growth Catalysts

  • Following a successful 2023 drilling campaign, a new resource estimate with the potential to significantly extend the life of LDI, North America's only flake graphite producer, was announced in January. The Company is planning a second program in 2024 with the goal of further increasing LDI production through successful exploration and/or the potential to process material from the Company's Mousseau Project;

  • Amid record sales in the first quarter and in order to meet rising demand and to improve financial performance, the Company moved the LDI plant to a seven days per week operation, targeting annual nameplate capacity of 25,000 tpy;

  • The Company advanced its mine-to-market-to-battery strategy with the launch of the NGC Battery Materials Group ("NGCBM") in February. NGCBM will oversee construction of our planned 200,000 tpy Battery Anode Material ("BAM") plant in Baie-Comeau. Northern has signed multiple non-disclosure agreements with battery and automakers with respect to potential offtake agreements;

  • 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; and

  • Northern continued to bolster in-house expertise, adding key operations personnel in the quarter and welcoming a new Board member in January in Ms. Samantha Espley, an industry veteran who has a history of making transformation happen at some of the world's most important mining companies.

Financial Highlights: Record Sales

  • Record sales in the first quarter of 2024 both in terms of volumes and revenue. Sales volumes were 64 percent higher compared to the first quarter of 2023 and revenues were up 39 percent, driven by robust customer demand and market share gains. This favorable trend is continuing in the second quarter of 2024;

  • Revenue of $5.5 million based on 2,968 tonnes of graphite concentrate sold at an average realized sales price of $1,864 per tonne (US$1,382 per tonne);

  • Cash costs of $1,628 (US$1,207) per tonne of graphite concentrate sold;

  • Loss from mine operations of $0.5 million, mainly due to lower average sales prices and increased cash costs as part of the ramp-up to higher production levels;

  • An operating loss of $2.8 million which included $1.4 million in non-cash charges relating to depletion and depreciation and share-based compensation;

  • The LDI plant was in production for the full quarter with production volumes of 2,574 tonnes during the three month period ended March 31, 2024, increasing by 99% compared to the fourth quarter of last year (1,295 tonnes). Since there was no mining during the first quarter, costs of $0.6 million were recorded as Care and Maintenance;

  • Mining operations restarted on April 25, 2024 and the Company moved to a seven-days-per week operation in the second quarter of 2024, targeting nameplate capacity of 25,000 tpy to increase operating income;

  • During the third quarter of 2023, most of Okanjande was put on care and maintenance except for engineering and activities relating to moving the plant from its site at Okorusu to Okanjande. The site remained on care and maintenance in the first quarter of 2024, resulting in a care and maintenance expense of $0.5 million;

  • A net loss of $8.8 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 used in operating activities was $1.7 million;

  • Cash and equivalents of $0.7 million as at March 31, 2024, compared to $3.1 million as of December 31, 2023;

  • Working capital of $3.3 million as at March 31, 2024, including current inventory of $13.1 million at cost (there is an additional $2.6 million of non-current finished goods inventory);

  • In order to preserve working capital, the Company is implementing strict overhead cost control measures; and

  • Subsequent to March 31, 2024, 29,602,050 of the Company's share purchase warrants expired, leaving Northern with 1,680,000 warrants outstanding with an exercise price of $0.75 at April 29, 2024.

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Northern is advancing toward its goal of becoming a vertically integrated, mine-to-market supplier to traditional downstream customers and to the emerging ‎‎market for battery anode material. The main catalysts of that strategy include growing graphite production from its cornerstone Lac des Iles mine, restarting it's Okanjande mine in Namibia, developing downstream capacity to produce 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
Northern's projects provide it with a competitive advantage in terms of both current production and the ability to increase output in a relatively quick, low cost manner by leveraging existing permitting and infrastructure at both LDI and Okanjande.

Lac des Iles Mine - Quebec
Based on the success of a 2023 drill program, financed from the proceeds of a $2.25 million charity flow-through private placement, an updated mineral resource estimate was prepared in the first quarter by SLR Consulting (Canada) Ltd. The new resource estimate creates the potential to extend the life of LDI by approximately eight years, which will be confirmed and quantified through an updated mineral reserve estimate and life-of-mine plan that will be available later in 2024. Indicated Mineral Resources now total approximately 3.29 million tonnes ("Mt") at an average grade of 6.4% graphitic carbon ("Cg"), 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 mineral resource estimate. The updated mineral resource estimate assumes an open pit mining scenario and a long-term average flake graphite concentrate market price of US$1,550 per tonne. Mineral resources are constrained within an optimized pit shell at a cut-off grade of 2.3% Cg. The Company is planning a second program in 2024. To meet increasing customer demand, operations were resumed on October 30, 2023, and the plant produced 2,574 tonnes during the first quarter of 2024. Mining operations restarted on April 25, 2024 and the plant is now running on a seven days a week basis.

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, sustainability is improved, and the expansion potential of the project is substantially enhanced.

Mine-to-Market Strategy
The Company advanced its mine-to-market-to-battery strategy in the first quarter with the launch of its new battery materials division, NGCBM. Led by global battery experts and armed with a fully functional, state-of-the-art laboratory in Frankfurt, NGCBM specializes in advanced material analytics and electrochemical techniques for carbon and battery materials and enables Northern 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®, a patented high-performance porous hard carbon material that enhances the efficiency and speed of energy storage mechanisms, including both lithium-ion and All Solid State Batteries ("ASSB"). The Company has signed non-disclosure agreements with top tier battery manufacturers from South Korea, China and several Western countries who are keen to use Porocarb® as a performance additive in lithium-ion batteries or as a protective coating 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 battery anode material products.

Under the leadership of NGCBM, the Company is pursuing efforts to integrate downstream by further processing its graphite for use in LiBs 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 offered 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 US and Europe who want to collaborate with a quality supplier of graphite that has current production, immediately available inventory and the capacity to support future growth. These discussions center on volume requirements and the timing thereof, and plans for downstream conversion facilities in both North America and Europe. Discussions are also being held with various government 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
In the face of geopolitical tensions with China, the world's leading producer and processor of graphite, non-battery industry consumers of graphite are looking increasingly to the West to supply their needs. This helped drive Northern's sales volumes and revenue to a record first quarter, continuing a trend that began in the second half of 2023. Based on current orders and customer forecasts, and continued geopolitical supply chain pressures, the trend is expected to continue in coming quarters as industrial customers, Lithium-Ion battery makers and OEMs turn increasingly to non-Chinese graphite supply to fulfill their needs. The Biden administration announced a decision on May 3 that granted OEMs a two-year "transition" period to source Battery Anode Material from China while North American production is established. In the interim, the decision requires OEMs to show meaningful progress toward reaching long-term supply agreements with local producers. The Biden Administration also said it would place a 25 percent tariff on natural graphite from China, starting in 2026, and announced the reinstatement of a 25 percent tariff on three natural and synthetic forms of graphite from China which are used to make Lithium-Ion battery anode material. The rulings are designed to make North American graphite companies more cost competitive with China and help drive an independent North American supply chain.

Northern is a member of the North American Graphite Alliance ("NAGA"), 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. NAGA has been advocating for the intervention of the US government to protect 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.

In closing, Mr. Jacquemin commented:
"Amid challenging financial markets, especially given our current share price, we are implementing strict overhead cost control measures as well as considering other financing or strategic alternatives to sustain the Company as we ramp up production and sales, whilst building out our battery anode material capabilities to be ready to supply the North American market when the new IRA requirements come into effect for OEMs in 2027."

About Northern Graphite
Northern, the only flake graphite producing company in North America, is a Canadian, TSX Venture Exchange listed company that is focused on becoming a world leader in producing natural graphite and upgrading it into high-value products critical to the green economy, including anode material for lithium-ion batteries/EVs, fuel cells and graphene, as well as advanced industrial technologies.

Northern expects to become one of the largest natural graphite producers outside of China when its Namibian operations come back online. The Company also has the large-scale Bissett Creek project in Ontario and substantial additional measured and indicated resources in Namibia and the Mousseau property in Quebec which are expected to be sources of continued production growth in the future. All projects have "battery quality" graphite and are located close to infrastructure in politically stable jurisdictions.

For media inquiries contact
Pav Jordan, VP of Communications
Email: pjordan@northerngraphite.com

For further information contact
Guillaume Jacq, CFO
Telephone: (613) 271-2124
Email: info@northerngraphite.com

Qualified Person
Gregory Bowes, B.Sc. MBA P.Geo, the Chairman of Northern, is a "qualified person" as defined under NI 43-101 and has reviewed and approved the content of this news release.

For additional information
Please visit the Company's website at www.northerngraphite.com/investors/presentation the Company's profile on www.sedarplus.ca our Social Channels listed below or contact the Company at (613) 271-2124.

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Cautionary Note Regarding Non-IFRS Performance Measures
This news release includes certain non-IFRS performance measures that do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS"). The Company believes that these measures, in addition to measures prepared in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company and to compare it to information reported by other companies. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers. The calculation and an explanation of these measures is provided in the Company's Management's Discussion and Analysis and such measures should be read in conjunction with the Company's Management's Discussion and Analysis and financial statements.

Cautionary Note Regarding Forward-Looking Statements
This news release contains certain "forward-looking statements" within the meaning of applicable Canadian securities laws. Forward-looking statements and information are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "potential", "possible" and other similar words, or statements that certain events or conditions "may", "will", "could", or "should" occur. Forward-looking statements in this news release include statements regarding, among others, plans for extending the mine life and output at LDI, bringing the Company's Namibian operations back online, advancing other development projects to production, developing the capacity to manufacture value added products and raising the financing to complete any or all of these initiatives. All such forward-looking statements are based on assumptions and analyses made by management based on their experience and perception of historical trends, current conditions and expected future developments, as well as other factors they believe are appropriate in the circumstances. However, these statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected including, but not limited to, unexpected changes in laws, rules or regulations, or their enforcement by applicable authorities; the failure of other parties to perform as agreed; social or labour unrest; changes in commodity prices; unexpected failure or inadequacy of infrastructure and the failure of ongoing and contemplated studies to deliver anticipated results or results that would justify and support continued studies, development or operations, and the inability to raise the required financing. Readers are cautioned not to place undue reliance on forward-looking information or statements.

Although the forward-looking statements contained in this news release are based on what management believes are reasonable assumptions, the Company cannot assure investors that actual results will be consistent with them. These forward-looking statements are made as of the date of this news release and are expressly qualified in their entirety by this cautionary statement. Subject to applicable securities laws, the Company does not assume any obligation to update or revise the forward-looking statements contained herein to reflect events or circumstances occurring after the date of this news release.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/211256