Northern Graphite (OTCQX:NGPHF) just announced that it has produced nuclear-grade graphite from its Bissett Creek Project. This is graphite that has been purified to at least 99.97% pure carbon with less than two parts per million equivalent boron concentration, and that is suitable for use in nuclear reactors. Northern Graphite has purified graphite to 99.99%, and achieved <1 ppm equivalent boron concentration.
This is good news, given that nuclear-grade graphite will command a premium price and given that the nuclear energy space is set to grow steadily over the next several years. But there are a couple of issues. First, while the company says in the press release that it has found “an alternative to expensive thermal purification,” there is no evidence yet that this is a cheaper, or even an economical process. Second, while nuclear energy demand is going to grow, and while graphite is needed in nuclear reactors, this demand source is very small relative to the entire graphite market, and so Northern Graphite’s achievement may not have a very large impact on its future cash flows.
Northern Graphite shares have come down since I suggested investors sell into the summer bubble. Specifically the shares have fallen ~50% from when I said sell based on my “neutral” fundamental assessment and the fact that the trade was overcrowded to the upside. Recall that in the summer of last year the stock doubled for no apparent reason, while the rest of the sector had been relatively flat, and I demonstrated that at best the stock was fairly valued, but that if any of the risk factors came into play,the shares had substantial downside.
With the stock down to the pre-bubble levels, it might be worth a look. But investors considering a position have to be concerned that the company has not yet made progress towards finding financing in spite of the fact that it has had a bankable feasibility study out for two and a half years. This remains the primary risk for Northern Graphite (along with its peers).
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