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GreenLight Resources has two Graphite projects one a past producer, both are located in Atlantic Canada. Both projects have potential for large flake graphite, and the company is advancing its workprograms on these properties.

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  1. 1. May 1st, 2012 GRAPHITE SECTOR OVERVIEW GRAPHITE –Black Gold of the 21st Century What is graphite? Why are companies suddenly exploring for it? Why the rush? These are some of the questions that investors have already found answers to through the multitude of companies presently active in the sector. However, this is not all what investors want to know. What has not been properly addressed is what makes one deposit stand out above others, how to recognize a company with the right assets and what to expect from exploration companies in the next 12 to 24 months.Northern Graphite Corp. (TSX.V: NGC)Price (04/30/2012) $2.22 In this report we review the fundamentals behind graphite supply and demandAvg. Volume 90 Days 802,600 which are ultimately pointing towards supply shortage in the upcoming years.52 week High/Low $3.42 - $0.71 Our model for future graphite supply and demand suggests that a minimum of 4Shares Outstanding (M) 45.6 new mines and as many as 23 will be needed to go into production outside ofMarket Cap ($M) 100.3 India and China between now and 2020 to satisfy the growth in demand.Focus Metals Inc. (TSX.V: FMS)Price (04/30/2012) $0.98Avg. Volume 90 Days 619,802 CONCLUSION52 week High/Low $1.33 - $0.52 This report reviews 36 companies and 98 properties which are presently beingShares Outstanding (M) 90.4 explored for graphite across the globe. We separate these companies based on theMarket Cap ($M) 92.2 stage of their project into three risk groups. The Top Tier is made up of 3Talga Gold Ltd. (ASX: TLG) companies with advanced projects and 3 with historical resources that could bePrice (04/30/2012) $0.51 quickly upgraded to 43-101 status. This group offers investors both short andAvg. Volume 90 Days 261,032 long term growth.52 week High/Low $0.52 - $0.12Shares Outstanding (M) 46.4 M&I Inferred Flagship M&I Inferred Recovery PurityMarket Cap ($M) 21.8 Company Location Grade Grade Flake Distribution Project (Mt) (Mt) (%) (%C) (%Cg) (%Cg)Flinders Resources Ltd. (TSX.V: FDR) Northern Graphite Corp. Bissett Creek ON, Canada 25.98 1.81 55.04 1.57 97.1 96.7 80% @ +32/+50/+80Price (04/30/2012) $2.16 Focus Metals Inc. Lac Knife QC, Canada 4.94 15.76 3.00 15.58 85.9 N/A 85% @ +48/+65/+150/+200Avg. Volume 90 Days 213,802 Talga Gold Ltd. Nunasvaara Sweden 3.6 23 N/A N/A 87% @ +80/+14052 week High/Low $3.02 - $1.60 Flinders Resrouces Ltd. Woxna Sweden 6.93* 8.82* N/A 94* 68% @ +80/+200*Shares Outstanding (M) 44.5 Uragold Bay Resources Inc. Asbury Mine QC, Canada 0.58* 10* 85* 90* 75% @ +80/+200*Market Cap ($M) 96.2 Standard Graphite Corp. Mousseau East QC, Canada 1.11* 8.28* N/A N/A 60% @ +100*Uragold Bay Resources (TSX.V: UBR)Price (04/30/2012) $0.035 The Mid Tier includes 12 companies with established targets, most of them drillAvg. Volume 90 Days 682,611 ready. We expect several large discoveries to come from this group that could52 week High/Low $0.07 - $0.02 offer the largest return for investors in the graphite sector.Shares Outstanding (M) 156.1Market Cap ($M) 5.5 The Lower Tier comprises the remaining 18 companies forming the highest riskStandard Graphite Corp. (TSX.V: SGH) investment at the moment in the sector.Price (04/30/2012) $0.465Avg. Volume 90 Days 298,554 Disclaimer: The opinions put forth in this report are those of the mining analyst. Great care should52 week High/Low $1.08 - $0.12 be taken when making judgments based on this report. Please see the legal disclosures at the end ofShares Outstanding (M) 22.4 the report for more information.Market Cap ($M) 10.4 ANALYST: Kiril Mugerman SECTOR: Mining (514) 284 4175
  2. 2. Graphite Sector Overview May 1st, 2012Table of ContentsCARBON –OIL, DIAMONDS, GRAPHITE AND MORE .......................................................... 3PROPERTIES OF GRAPHITE ...................................................................................................... 4TYPES OF GRAPHITE AND GRAPHITE DEPOSITS .............................................................. 4 GROUP I (FLAKE) – METAMORPHOSED SILICA & CARBONATE RICH SEDIMENTARY ROCKS ........................ 5 GROUP II (AMORPHOUS) – METAMORPHOSED COAL / CARBON RICH SEDIMENTS ........................................ 6 GROUP III (VEIN / FLAKE / AMORPHOUS) – HYDROTHERMAL / SKARN / MAGMATIC .................................... 6LAB WORK – GRADE, SIZE AND METALLURGY ................................................................. 6 GRADE DETERMINATION .............................................................................................................................. 6 FLAKE SIZE DETERMINATION ....................................................................................................................... 7 PROCESSING AND BENEFICIATION................................................................................................................. 8USES OF GRAPHITE ..................................................................................................................... 9 SYNTHETIC / NATURAL ................................................................................................................................. 9 SPHERICAL FLAKE GRAPHITE ..................................................................................................................... 10 EXPANDED FLAKE GRAPHITE ..................................................................................................................... 10 GRAPHITE IN BATTERIES & ENERGY STORAGE APPLICATIONS ................................................................... 11 GRAPHITE IN NUCLEAR APPLICATIONS ....................................................................................................... 11 GRAPHENE – THE MIRACLE MATERIAL ...................................................................................................... 12GLOBAL RESERVES, PRODUCTION AND FUTURE TRENDS .......................................... 14GRAPHITE PRICES ..................................................................................................................... 17WHY THE RUSH FOR LARGE FLAKE - THE COST FACTOR .......................................... 19GRAPHITE – FROM EXPLORATION TO MINING............................................................... 20 KEY CHARACTERISTICS OF GRAPHITE DEPOSITS ........................................................................................ 21 GRAPHITE EXPLORATION - CLASS OF 2012 ................................................................................................. 22CONCLUSION ............................................................................................................................... 28LEGAL DISCLOSURE ................................................................................................................. 29 2 of 31 Kiril Mugerman
  3. 3. Graphite Sector Overview May 1st, 2012CARBON –OIL, DIAMONDS, GRAPHITE AND MORE Carbon forms a multitude of compounds both organic (e.g. oil, gas) and inorganic (e.g. calcite, carbon dioxide) but additionally, takes on crystalline forms composed purely of carbon (diamond, graphite and coal). These minerals are among several carbon allotropes, or structural variations of the element carbon. Other allotropes include graphene, fullerenes and other structures which are part of a large area of research in the fields of nanomaterials and high-technology. All allotropes form distinct shapes and exhibit different physical properties (Figure 1). Figure 1: Carbon allotropes Some allotrope structures of carbon: a) diamond; b) individual layers are graphene / combined layers form graphite; c) lonsdaleite; d-f) fullerenes; g) amorphous carbon / coal; h) carbon nanotube Source: Wikipedia: Carbon Graphite was already known to the prehistoric man, later used by the Egyptians and it became well known in the 16th century after the discovery of the Borrowdale mine in England. Uses of graphite since then evolved from the early refractory uses to pencils, applications in the steel manufacturing, the electric industry and today in the energy storage applications. 3 of 31 Kiril Mugerman
  4. 4. Graphite Sector Overview May 1st, 2012PROPERTIES OF GRAPHITE Graphite is a non-metallic, opaque mineral of grey to black color with metallic luster. It possesses properties of both metals and non-metals, which make it ideal for many industrial applications. The mineral is flexible, soft (1-2 on the Mohs scale), compressible and malleable. It has low frictional resistance which gives it a greasy texture making it an efficient lubricant. It is thermally and electrically conductive. Its melting point is above 3,550°C in a non-oxidizing environment and the vaporization temperature is around 4500°C and mostly infusible. It is nontoxic, chemically inert and has high resistance to corrosion. Graphite has low thermal expansion and shrinkage with high thermal shock resistance. Graphite has low density (1.1-1.7 g/cm3) relative to conductive metals such as aluminum and copper. Ultimately, all its properties vary depending on the purity and size of the graphite crystal. 1TYPES OF GRAPHITE AND GRAPHITE DEPOSITS Overall, natural graphite takes on three distinct types (flake, vein and amorphous) that differ in purity, crystal size and shape and deposit style. All three kinds form platy hexagonal crystals giving them their flaky appearance. Amorphous graphite does not exhibit this texture due to the small size of the crystals and instead, appears as massive graphite. In addition, there is engineered synthetic graphite manufactured by calcination and subsequent graphitization of petroleum coke with purity reaching up to 99.99% carbon. The general requirements for the majority of graphite deposits are simple – high grade metamorphism (prolonged heat exposure under high pressure conditions) of carbonaceous or graphitic country rocks. These metamorphic conditions are typically found where large mountain building events took place in Earth’s history (e.g. the metasedimentary unit of the Grenville Orogeny), high grade metamorphic basement rocks (e.g. the Precambrian shield) or at the contacts of the two. Figure 2 shows some of the major graphite provinces in relation to these geological occurrences. A variation of factors such as the composition of the country rock, tectonic setting, temperature, pressure, oxygen and other conditions will determine the deposit style and the type of graphite present. A minority of graphite deposits will form under different conditions such as contact metamorphism (skarn style), hydrothermal, magmatic or residual styles of mineralization. The main styles of deposit and the types of graphite associated with them are described below2.1 Merchant Research & Consulting Ltd. Graphite market review 2011 and various graphite producers filings2 Industrial Minerals & Rocks: commodities, markets and uses. 7th Edition, 2006 4 of 31 Kiril Mugerman
  5. 5. Graphite Sector Overview May 1st, 2012 Figure 2: Global potential for graphite deposits Arrows are pointing to major graphite occurrences around the world Source: USGS, IAS GROUP I (FLAKE) – METAMORPHOSED SILICA & CARBONATE RICH SEDIMENTARY ROCKS This group of deposits constitutes a large part of global graphite production. In the case of the silica metamorphosed rocks, the deposits are typically associated with quartz-mica schist, quartzite and gneiss. These types of deposits show average grades of around 10%-12% Cg (Graphitic carbon), but can go as low as 2% and as high as 60% Cg. The mineralized zones are in the form of lenses or layers depending on the degree of structural deformation and range from flat lying to sub vertical. Even though these deposits are known for their large flakes, crystal size actually varies a lot, reflecting the grain size of the parent sedimentary rock. Graphite is relatively well disseminated in, less deformed, lower grade layers with widths over 50m in thickness while lenses tend to be smaller and higher grade. In length, individual deposits can extend over several thousands of meters. The purity of the graphite in these deposits tends to be between 85% and 98% carbon. Examples of such deposits in Canada are Bissett Creek and Lac Knife. In the case of the carbonate rich metamorphosed rocks, the deposits are hosted within marbles often intertwined with quartzite and gneiss. The average grade in marble hosted deposits ranges from 1% to 10% Cg. These deposits tend to be structurally complex with large variations in grade over short distances. These deposits can produce the entire range of flake sizes with purities between 85% and 98% carbon. The best example of such deposits is the Lac-des-Iles mine in Quebec, Canada. 5 of 31 Kiril Mugerman
  6. 6. Graphite Sector Overview May 1st, 2012 GROUP II (AMORPHOUS) – METAMORPHOSED COAL / CARBON RICH SEDIMENTS The amorphous graphite deposits are formed by metamorphism of coal or carbon-rich sediments and constitute a large part of the global graphite production. The product is microcrystalline graphite less than 70 microns (200 Mesh) in size. Graphite is found in seams similar to coal deposits and is often folded and faulted. The deposits typically range from 30% to over 90% Cg with content of non-graphitic content varying significantly from one deposit to another. Graphite from these deposits tends to be of lower purity ranging from 60% to 90% carbon. Some of the best examples of such deposits are found in China and Mexico. GROUP III (VEIN / FLAKE / AMORPHOUS) – HYDROTHERMAL / SKARN / MAGMATIC These deposits can be associated both with metamorphosed calcareous sedimentary and with non-calcareous host rocks. The styles of mineralization are uncommon, poorly understood and additionally, highly localized. The best example is the high purity Sri Lanka deposits that run at over 90% Cg with a purity of over 98% carbon. Depending on the host rock and the heat source, these deposits can produce both amorphous graphite and flake graphite (Woxna deposit, Sweden) with variable grades and purities. Overall, these types of deposits have high variability in flake size, purity and resource size.LAB WORK – GRADE, SIZE AND METALLURGY Graphite exploration companies often quote historical graphite grades, visual grades and flake size. Unfortunately, this only works as a very rough indication at best for both grade and flake size. We discuss below various analytical methods presently accepted, what they are used for, what results to expect and how to interpret them. GRADE DETERMINATION To determine the grade in either a surface or drilling sample, the most accurate method used today is the LECO test which uses nitric acid digestion versus in contrast to older methods like the LOI, Double-LOI and Thermogravimetry which use heating and burning of the sample at different temperatures under various atmospheric conditions. To illustrate, the Bissett Creek deposit shows a 30% to 40% reduction in graphitic carbon content when analyzed by LECO versus Double-LOI test. As for visual estimations of grade and flake size, these can be highly subjective estimates. In core, graphite tends to smear easily making it look more graphitic than it actually is. 6 of 31 Kiril Mugerman
  7. 7. Graphite Sector Overview May 1st, 2012 FLAKE SIZE DETERMINATION The next step in identifying the economics of the deposit is to determine the flake size distribution. This is done in several steps starting with a petrographic thin-section study and a microprobe analysis. This gives an accurate indication of flake sizes in the sample, but in no way does this indicate whether these flakes would be easily liberated, concentrated and whether their size would be conserved. In many cases, the processing and beneficiation procedure will break down some of the larger flakes and create finer graphite particles. This study does provide an initial indication to the initial grinding needed to liberate the flakes using floatation. The flake sizes to be used in determining the economics of the deposit should come from analyzing fully processed samples by either wet or dry screening, with the final measurements done under a microscope. Figure 3: (A) Thin section microprobe analysis (~ 150 Mesh) (B) Processed dry (+12 Mesh) flake graphiteA B Source: (A) Zenyatta Ventures and (B) Northern Graphite fillings The actual flake sizes are reported in either microns or mesh sizes and are usually distributed between several sizes indicating what percentage of the recovered graphite flakes fall into large, medium and fine categories. Several versions of the categories exist with one of the more common ones presented in Figure 4. The “+” and the “–” before the mesh size are used to describe a range, with “+” indicating that particles larger than that specific size are retained in a sieve while the “–” indicates that particles finer than that specific size pass through the sieve. For example, “–48 +80” means that the majority of the flakes are retained by the 80 mesh sieve but pass through the 48 mesh sieve. 7 of 31 Kiril Mugerman
  8. 8. Graphite Sector Overview May 1st, 2012 Figure 4: Mesh Sizes & Graphite Classifications US Sieve Mesh Microns Millimeters Graphite Classification Common Material # Size (µm) (mm) 4 4 4760 4.760 LARGER FLAKES +48 MESH 8 8 2380 2.380 EXTRA LARGE 16 14 1190 1.190 Typical ground coffee FLAKE 25 24 707 0.707 Beach Sand 30 28 595 0.595 Table salt 50 48 297 0.297 Sugar -48 TO +80 MESH 60 60 250 0.250 Fine Sand / Human hair LARGE FLAKE 70 65 210 0.210 -80 TO +100 MESH 80 80 177 0.177 MEDIUM FLAKE 100 100 149 0.149 120 115 125 0.125 FINER FLAKES -100 TO +200 MESH 140 150 105 0.105 FINE FLAKE 170 170 88 0.088 200 200 74 0.074 Portland Cement 230 250 63 0.063 325 325 44 0.044 Silt -200 MESH 400 400 37 0.037 Plant Pollen AMORPHOUS 1200 1200 12 0.012 Red Blood Cell 4800 4800 2 0.002 Cigarette Smoke Source: AGM Container Controls Inc. PROCESSING AND BENEFICIATION The recovery of flake graphite is generally achieved through flotation and screening after primary crushing and grinding. Grinding size is project specific and requires multiple optimization test runs to achieve the ideal recovery and flake sizes. The main additive used in froth flotation to assist graphite separation from gangue minerals is pine oil. The flotation process is repeated several times in order to clean the graphite concentrate. Additional upgrading of the carbon grade can be achieved through thermal treatment or acid leaching. The concentrate is analyzed for any undesirable oxides or trace metals, for flake size distribution, humidity level and for final carbon grade – key parameters that determine the selling price. That concentrate can then be submitted to end-users for product evaluation. The main problem expected at the beneficiation stage is complications with overall recovery and of the larger graphite flakes. Recovery of the larger graphite flakes might require significant finer grinding that will eventually destroy the larger flakes and reduce the graphite selling price. Recoveries are expected to exceed 90% in most cases but ore bodies flooded with silica or which are significantly oxidized might show much lower recoveries. A potential solution could be acid upgrading or acid liberation, but this is cost intensive and will likely make a project uneconomical. 8 of 31 Kiril Mugerman
  9. 9. Graphite Sector Overview May 1st, 2012USES OF GRAPHITE The uses of graphite, both existing and up and coming, have been extensively presented by the exploration companies and analysts, discussed by newsletter writers and graphite related websites. Graphite has been referred to as the material used in every industry yet in small enough quantities that no one talks about it. The major consumers of graphite are the steel and refractory industries at over 40% of global production followed by lubricants and expanded graphite applications and carbon products. The biggest growth is currently in the energy applications. Graphite substitution is not considered a major issue especially in the traditional refractory, lubricant and steel industries. In the more emerging uses, graphite could eventually be engineered out later in the future either due to high costs or due to the emergence of a superior composite material. Below is a short summary of some of these uses divided by synthetic, natural or processed graphite together with a quick review of graphene and its potential uses. SYNTHETIC / NATURAL There is a certain overlap in uses between natural and synthetic graphite that is controlled by price and purity. Synthetic graphite, less conductive than the natural counterpart, is significantly more expensive. It can be engineered to the exact required specifications through one of its various forms, the main kinds being: Primary – 99.9% purity synthetic graphite is made in electric furnaces from calcined petroleum coke and coal tar pitch. Main usage is in electrodes and carbon brushes. Secondary – powder or scrap synthetic graphite is produced from heating calcined petroleum pitch. Main usage is in refractories. Fibrous – produced from organic materials such as rayon, tar pitch and other synthetic organic polymer resins. Main usage is in insulation and as a reinforcement agent in polymer composites. Alternatively, natural graphite can be upgraded to the same specification through intensive thermal and chemical upgrading. China introduced low cost chemical purification methods for fine graphite in the ‘90s but these methods are not economical in Western countries. Since then, processing and purification has been improved and projects with high purity large flake graphite that require less purification have emerged. Natural graphite has another advantage in that it can be processed into other forms such as spherical and expanded graphite. Each of these forms changes graphite properties and makes it more adaptable to specific industry requirements. With these advancements, the overlap between synthetic and natural graphite applications is expected to grow. 9 of 31 Kiril Mugerman
  10. 10. Graphite Sector Overview May 1st, 2012 SPHERICAL FLAKE GRAPHITE Spherical flake graphite (SFG) is produced from milling flake graphite into spherical shapes. Due to the strong anisotropic nature of graphite crystal, i.e. its properties change from one plane to another, the process is needed for applications where properties of the crystal flat plane (basal) are favored over those of the crystal edges or vice versa (Figure 5). This is particularly important for energy storage applications like Li-Ion batteries where graphite is used as the anode material. The SFG can undergo additional surface coating which stabilizes the material and enhances its performance. SFG sells at a premium when compared to natural flakes with prices starting at $5000/t for non-coated and increasing significantly for coated spherical graphite. Production methods of SFG are well established and can be adopted by mining operations to increase product value. The process is destructive in terms of flake size as 30% to 70% can be lost to low value small size fragments. Loss ratio is project specific. Figure 5: Spherical flake graphite Source: Angew. Chem. Int. Ed. 2003, 42, 4203-4206 EXPANDED FLAKE GRAPHITE Expanded graphite or exfoliated graphite is produced by a chemical treatment that forces the graphene layers in graphite to separate and therefore expand in volume in an accordion-like fashion. Similarly to spherical graphite, this is done to take advantage of one graphite crystal plane over the other. In the case of expanded graphite, it often undergoes rolling to form sheets or other mechanical processes to prepare the graphite for specific applications. 10 of 31 Kiril Mugerman
  11. 11. Graphite Sector Overview May 1st, 2012 Figure 6: Expanded flake graphite – theory and microscope view Source: Asbury Carbons filings GRAPHITE IN BATTERIES & ENERGY STORAGE APPLICATIONS Fuel cells, Li-Ion and other kinds of batteries and photovoltaic solar cells represent some of the largest growth areas for graphite. Presently, the industry is still evolving in terms of materials and compositions being highly variable. Therefore flake, synthetic and polymers of graphite and other materials have been used to date. For example, our research indicates that the amount of graphite used in the anode of Li-Ion batteries varies based on cathode and anode chemical composition, energy and size requirements and other factors. Based on that, a light vehicle battery could consume as much as 20x more graphite as it does lithium metal or it could be as little as 5-10x. R&D work is presently underway by many manufacturers experimenting with graphite-silicate polymers, various spherical graphite blends, purities and other materials. We expect graphite parameters in the batteries and energy storage industries to fluctuate significantly over the next 2-5 years as standards are adopted, fuel cells developed and electric, hybrid and plug-in vehicles grow in demand. GRAPHITE IN NUCLEAR APPLICATIONS From the earliest days of the nuclear power industry, graphite was one of the main components in the traditional reactor where it was used as the moderator in nuclear control rods. For this particular application, high purity graphite is required and therefore the material of choice is predominantly synthetic. On the other hand, generation IV nuclear reactors (e.g. pebble bed 11 of 31 Kiril Mugerman
  12. 12. Graphite Sector Overview May 1st, 2012 reactor) are expected to be able to use both synthetic and natural graphite. The fuel in the reactor is uranium dioxide particles coated by synthetic graphite embedded in machined graphite spheres made of natural and synthetic graphite. Exact ratios are hard to estimate as the only prototype is still being developed in China. Industry estimates are that anywhere between 25% to 75% graphite is expected to be natural with the rest synthetic. This can amount for as much as 200 tonnes of natural graphite for the commissioning of the HTR-PM prototype in China and then an additional 40 to 70 tonnes to renew the fuel spheres. We believe it could become a high volume application for natural graphite. GRAPHENE – THE MIRACLE MATERIAL An additional source of growth for graphite demand is the applications of graphene, a one atom thick layer of carbon atoms arranged in a honeycomb lattice that ultimately forms flakes of graphite when stacked together. Produced in laboratories for the first time less than 10 years ago, the material is a hot topic of research in the scientific community and in the R&D labs of high tech companies. Graphene has a unique set of properties that show potential to be used in a wide range of applications such as transistors, high sensitivity sensors, transparent conductive films for touch screen displays, more efficient solar cells and electrodes in energy storage devices. IBM has already fabricated a simple graphene based integrated circuit and Samsung has demonstrated a prototype flexible display, supposedly graphene based. One of the main obstacles to all these applications becoming a reality is the lack of economically viable large scale graphene production. Several methods exist to produce both natural graphene (from flake graphite) and synthetic graphene, but all have certain limitations. Graphene production is still in its infancy and therefore it is hard to speculate which manufacturing method, whether natural or synthetic, will become the method of choice. 12 of 31 Kiril Mugerman
  13. 13. Graphite Sector Overview May 1st, 2012 Figure 7: Graphite uses Expanded Spherical Usage Synthetic Amorphous Flake Vein Graphite Graphite Graphite fibers, nanotubes & nanoparticles - Insulation, reinforcing agent in polymers for solar cells, electrical circuits, military, wind energy, aerospace and automotive applications Refractories - crucibles, carbon-magnesite bricks (liners in electric arc furnaces and steel ladles), alumina-graphite casting ware, gunning and ramming mixes for monolithic refractories, stopper heads for steel ladles Batteries & energy storage - batteries, fuel cells, photovoltaic solar cells Construction materials - fillers, infrared shielding, heat conductivity, heating systems, etc… Industrial paint pigment and coatings - high resistance to weathering and inertness Lubricants - used in forging, thread anti-seize agent, gear lubricant in mining equipment, drilling mud additives Electrical components, powder metallurgy, plastic and resin additives Carbon brushes and bearings in motors & generators Electrodes for electric arc furnaces Graphite grinding wheels - mirror grinding and polishing Friction materials - brake linings, pads Nuclear reactors Foundry mold facings Pencils Rubber additives Steel making - carbon raiser additives Catalysts Graphite foil, heat sinks, gaskets, seals Flame retardants additives Graphene – Major source; – minor source of graphite for that particular use Source: SGL Group, Superior Graphite, Asbury carbons, Industrial Minerals and other graphite producers public filings, IAS 13 of 31 Kiril Mugerman
  14. 14. Graphite Sector Overview May 1st, 2012GLOBAL RESERVES, PRODUCTION AND FUTURE TRENDS Current global reserves are estimated at 76Mt of graphite. China holds over 70% followed by India and Mexico at 14% and 4% respectively (Figure 8). As exploration picks up over the next several years, a significant increase in world reserves is expected. Figure 8: Global Reserves - 2011 1% 1% China 4% 8% India Mexico Madagascar 14% Brazil Other Countries 72% Source: USGS, IAS Current production of natural graphite comes predominantly from China (70%) and India (12%). The remaining production is distributed between Brazil, North Korea, Canada, Sri Lanka, Mexico and several countries in Europe and Africa. Similar to many other metals, China has dominated in graphite production since the late ‘90s when the country flooded the market with cheap flake and amorphous graphite. Going forward, China still holds the largest reserves and it should be in position to scale up their production. With the introduction of a 20% export duty, a 17% VAT, new regulatory measures and the consolidation of existing graphite mines, China has clearly indicated that it is trying to preserve their graphite resources. These measures created supply restrictions at a time when demand was growing, causing the price increase seen over the last 24-36 months. Besides China, Asia has additional major producers in India, North Korea and Sri Lanka that can increase production organically. In North America, Canada has the largest potential in adding supply. It already has one major producer and several existing deposits close to infrastructure that could be taken to production in the next 2-3 years. The United States has not produced graphite in over 20 years but has included graphite in the critical resources list in 2010. It has one active exploration project in Alaska. Mexico has large reserves, the technical expertise and the infrastructure to significantly increase its amorphous graphite production. In South America, Brazil is the major source of graphite production with large enough reserves and infrastructure to allow production growth. 14 of 31 Kiril Mugerman
  15. 15. Graphite Sector Overview May 1st, 2012 Europe has been commercially producing amorphous, flake and vein type graphite for over 500 years and is in position to increase its production if graphite prices remain at current levels. There are multiple active or recently operational mines throughout Europe including Norway, Ukraine, Austria, Germany, Romania, Czech Republic, Sweden and Turkey. Past producing mines are already in the process of being reopened and exploration activity has picked up. We see strong production growth coming from Europe in light of higher prices and supply risks. Australia has been a graphite producer in the past but its main large flake mine was shut down in 1993 due to declining prices. Since then, exploration for graphite has restarted and the mine is being reactivated. Australia has all the ingredients to become a large flake producer over the next few years. Africa is currently a small graphite producer with Madagascar and Zimbabwe the two main producing countries. Previously a large producer, many mines also closed due to declining graphite prices. All African graphite deposits are plagued with poor infrastructure, high energy costs and high-risk geopolitical jurisdictions. African graphite is world renowned for its large and high purity flake that command high prices in today’s markets. There are many deposits identified in African countries such as Mozambique, South Africa, Uganda, Angola, Tanzania, Ethiopia and Namibia with several exploration and production companies already busy acquiring the properties. Africa has the potential to increase its production, however with the high risk associated with operating on the continent, it would take the right combination of deposit, location and company to start production of an industrial metal that is yet to show its true face. Figure 9: Production of Natural Graphite Country Production (t) 1.2 Brazil 76,000 Total India China Canada 25,000 1.0 China 800,000 .8 Graphite (Mt) India 140,000 North Korea 30,000 .6 Madagascar 5,000 Mexico 7,000 .4 Norway 2,000 Romania 20,000 .2 Sri Lanka 8,000 Ukraine 6,000 .0 Other Countries 185,000 Total for 2010 1,125,000 Source: USGS, IAS 15 of 31 Kiril Mugerman
  16. 16. Graphite Sector Overview May 1st, 2012 Looking at the period starting from 1994 to 2010 (Figure 9), the production of natural graphite maintained a stable demand all the way until 1999 when demand started growing at an overall annual rate of 4% to 6%. This growth is attributed to both traditional uses of graphite coming from the development of BRIC countries as well as from advances in the high tech uses of graphite. Assuming there was no major excess in supply in the mentioned period, we use linear regression to estimate our base case growth in graphite demand at approximately 2.5%. We then consider two growth scenarios, one at 4% and the other at 6% (Figure 10). The 4% case assumes that amorphous and vein graphite grow at a stable 2.5% annual rate (same as base case) and flake graphite grows at an increasing annual rate from 4% to 8%. In this case, the proportion of flake graphite to total demand grows from an initial 34% to 40%. The 6% growth case assumes the demand for all types of graphite increases equally. Based on these growth parameters, we estimate the number of additional mines that will need to go into production to satisfy the global demand from 2012 to 2020. We take into account a conservative estimate for mine depletion, organic growth and new mines in India and North Korea and consider two cases for China: one at 1% production growth and the other at 2% growth. We assume that new mines will predominantly open in Canada, Europe, Brazil, Australia, Africa and Mexico with an annual production ranging between 15-20Ktpy. Figure 10: Summary of Supply & Demand Estimates Additional Mines Required Annual Demand 1% China 2% China Growth Growth Growth 2.5% Base Case 7 4 4% Growth Case 12 8 6% Growth Case 23* 23 *23 additional mines are not enough to meet the demand in that specific case Source: IAS 16 of 31 Kiril Mugerman
  17. 17. Graphite Sector Overview May 1st, 2012 Figure 11: Estimated Supply and Demand – 2011 to 2020 2.0 1.9 1% Production Growth in China 1.8 1.7 Graphite (Mt) 1.6 1.5 1.4 1.3 1.2 1.1 1.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Supply Estimate (23 new mines*) Supply Estimate (12 new mines) Supply Estimate (7 new mines) Demand @ 6% Demand @ 4% Demand Base Case 2.0 1.9 2% Production Growth in China 1.8 1.7 Graphite (Mt) 1.6 1.5 1.4 1.3 1.2 1.1 1.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Supply Estimate (23 new mines) Supply Estimate (8 new mines) Supply Estimate (4 new mines) Demand @ 6% Demand @ 4% Demand Base Case *23 additional mines are not enough to meet the demand in that specific case Source: IASGRAPHITE PRICES The recent increase in graphite prices is undoubtedly the main cause for the increased interest in this industry today, however ironically it is this metric that has the least amount of data available. Graphite prices, just like most industrial metals, are negotiated directly between the buyer and the seller based on a common posted price. The main data available today is supplied by Indusrial Minerals Magazine, the source of most graphite specific research in the industry (Figure 12). The main parameters used in pricing graphite are flake size and purity along with other factors such as ash content and composition, humidity and sulfur content determining the final price. The variation in these parameters creates a price range for a specific flake size and purity as seen in Figure 12. The benchmark purity in the industry is 94-97% C for natural graphite. Increase in flake size at a constant purity adds a gradual premium to the product (Figure 13) while a decrease in purity at the same flake size causes a significant decrease in price (Figure 14). Prices for upgraded purities or modified products such as spherical or expanded graphite are not commonly quoted but are known to go as high as $20,000/t. 17 of 31 Kiril Mugerman
  18. 18. Graphite Sector Overview May 1st, 2012 Figure 12: Graphite Price 2000-2011: Large Flake +80, 94-97% C Source: Northern Graphite, Industrial Minerals Magazine Figure 13: Average Graphite Price 2010-2012: Variation in flake size $3,000 Large Flake +80 94-97%C Medium Flake +100 94-97%C $2,500 Amorphous 80-85%C $2,000 $1,500 $1,000 $500 $0 Source: Industrial Minerals Magazine, IAS Figure 14: Average Graphite Price 2010-2012: Variation in purity $2,500 $2,000 $1,500 $1,000 Medium Flake +100-80 94-97%C $500 Medium Flake +100-80 90%C Medium Flake +100-80 85-87%C $0 Source: Industrial Minerals Magazine, IAS 18 of 31 Kiril Mugerman
  19. 19. Graphite Sector Overview May 1st, 2012 Looking at the last 20 years, graphite prices sustained a low at below $1000/t from the early 90’s to 2005 caused by the low cost Chinese graphite production. Subsequently, new demand from the green tech sector, export restrictions, stricter environmental regulations, mine depletion and rising energy and transportation costs have all contributed to a rebound of graphite prices in the recent years. Looking forward, and not withstanding significant global events, we estimate future large flake and high purity graphite prices based on the rebound level seen in the last 2 years together with our demand growth base case model (Figure 15). Figure 15: Average Graphite Prices 2010-2012: Variation in purity 1.6 2,900 1% Production Growth in China 1.5 2,800 Graphite Price ($/t) Graphite (Mt) 1.4 2,700 1.3 2,600 1.2 2,500 1.1 2,400 1.0 2,300 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Supply Estimate (4 new mines) Demand Base Case Avg. Large Flake +80, 94-97%C Estimated Price Source: IASWHY THE RUSH FOR LARGE FLAKE - THE COST FACTOR It is now fairly clear what potential graphite holds if all these new technologies are adopted over the next 10 years. The main question remaining is if the hunt for large flake deposits is justified or not? Do you really need large flake or can the cheaper fine and amorphous material do the same job? Our discussions with manufacturers of graphite end products have highlighted one common theme – all flakes can be worked with, but the purification cost does not always allow it. As a rule of thumb, the larger the flake, the higher the purity of the concentrate and therefore less treatment is required to bring the graphite to above 97% C. This reduces production costs for the miner who can then sell it at prices normally achieved through chemical and thermal upgrading. The Chinese cost structure and lax environmental regulations have allowed this purification at low cost in the past, suppressing prices throughout the ‘90s. Recent changes in these regulations and increases in energy and transportation costs have driven the prices up to levels where high purity and thus larger flake deposits outside of China can once more be economical. Prices for the lower quality amorphous and flake graphite destined to traditional uses that do not require major chemical and thermal upgrading, are significantly lower; production margins 19 of 31 Kiril Mugerman
  20. 20. Graphite Sector Overview May 1st, 2012 are therefore less economical for projects outside of China. In addition to that, indications are that production of SFG, which commands premium prices, is more cost efficient when manufactured from larger flake as loss is minimized. Overall, there are mixed indications as to how much large and high purity flake graphite China can produce at low cost going forward. Deposits with larger flake production are therefore better positioned to weather the storm if China does increase production significantly forcing prices down again.GRAPHITE – FROM EXPLORATION TO MINING Graphite is a common mineral that is found in many geological environments but is mostly found in trace quantities or as an alteration mineral. Based on the type of graphite explored, for a deposit to be economical it needs to have a combination of characteristics. The exploration part is relatively quick and straight forward. Initial discoveries are done by prospecting for graphite showings in outcrops. This is then followed up by a geophysical conductivity survey, also known as electromagnetic survey (EM), which is used to better delineate the mineralized zones. The EM survey is very efficient due to graphite’s conductivity. Nonetheless, due to the structural complexity of many graphite deposits, anomalies may result from interfering conductive effects and therefore need to be accepted only as an indication of potential mineralization and not the size of the deposit. Furthermore, the lower grade disseminated deposits might not respond well to an EM survey and therefore could be identified primarily by prospecting. These potential targets would then be followed up by surface mapping and sometimes trenching used to understand the structural complexity of the ore body and to plan the drilling exploration program. This concludes the target generation stage. The next stage is the resource identification and definition portion which includes drilling and metallurgical studies. Drilling programs are relatively shallow as most deposits tend to be open pit operations. Some high grade amorphous and vein graphite mines are underground but still relatively shallow. Based on these parameters and depending on the structural complexity of the deposit, around 10,000 to 15,000m of drilling are required to properly delineate an ore body. Metallurgical sampling should begin shortly after initial drilling as this will determine the economics of the project in terms of recovery, separation, purity and flake distribution. Ideally, a resource estimate should be produced once initial metallurgical data is available. Without metallurgical data, even a large deposit might prove to be uneconomical as recoveries, purity and flake distribution might prove to be non favorable. The cost of these two stages will vary depending on the existing infrastructure, jurisdiction and the remoteness of the project. Overall, these costs could range from $2M to $5M and depending on the pace of exploration, could be completed as quickly as 12-24 months. 20 of 31 Kiril Mugerman
  21. 21. Graphite Sector Overview May 1st, 2012 Not all graphite discoveries follow that order. Some ore bodies are identified through exploration for massive sulphides, gold and other metals. In that case, the timeline and the cost structure changes. An example of that is the Green Giant deposit of Energizer Resources where the company used to explore for vanadium and the Albany deposit by Zenyatta Ventures that was first explored for massive sulphides. Pre-feasibility, feasibility, permitting and development are project specific in terms of time but as a rough estimate, total cost is expected to be between $100 and $200M. KEY CHARACTERISTICS OF GRAPHITE DEPOSITS For a graphite deposit to be economical, we estimate that the ore body needs to contain over 500,000 tonnes of in situ graphite to support over 20 years of mine life at a production rate around 15 to 20Ktpy. Most flake deposits are relatively low grade and primarily open pittable operations. Hydrothermal, magmatic, vein and amorphous deposits can be both open pittable and underground. The economics of every deposit depend on five key parameters: Ore body geometry (shallow, flat dipping, etc.) Recoveries (flake liberation from simple crushing and grinding) Grade & Size Purity of graphite (without chemical or thermal upgrade) Flake size distribution Out of these 5 parameters, grade & size act as a buffer between purity and flake distribution and ore body geometry and recoveries (Figure 16). The two main factors controlling the price of graphite are purity and flake size distribution which are related. As mentioned earlier, without using any thermal or acid beneficiation, as flake size increases so does the purity and therefore the price of graphite. On the other hand, main operating costs of the deposit will depend on the geometry of the deposit and recoveries. Considering that most graphite deposits will be structurally complex, the geometry of the ore body will determine the amount of waste rock processed while mining. To summarize, the steeper the deposit or the lower the recoveries, the higher the purity and larger flake size are required to make a project economical. 21 of 31 Kiril Mugerman
  22. 22. Graphite Sector Overview May 1st, 2012 Figure 16: Key parameters for a graphite deposit Grade & Size Recoveries & Purity & Ore Body Geometry Flake Distribution Source: IAS GRAPHITE EXPLORATION - CLASS OF 2012 The last time a large number of graphite projects were being explored or developed was during the ‘90s. Since then, the best deposits were either acquired by large graphite producers (e.g. IMERYS, GK Graphite) or by state owned companies, the smaller deposits abandoned and several mines mothballed. The class of 2012 will face a similar destiny as we do not expect the majority of the junior exploration companies to take their deposits into production. Only the best deposits, if discovered in the beginning of the demand growth cycle, have the potential to get developed by the actual exploration company. The key to development will be vertical integration through graphite upgrading although it will require a competent management team with the industry knowledge and experience. Other projects will get acquired by the likes of IMERYS and GK Graphite with the potential of more major producers such as Superior Graphite and Asbury Carbons returning to mining and exploration. Finally, a push by companies from China and India is expected to take place as both nations look to secure supply outside of their own borders. As of end of April 2012, we identify 36 public exploration companies that are targeting graphite. The number of projects exploded as of November 2011 when project acquisitions from private owners grew to over 12 projects per month (Figure 17). Now, this amounts for a total of 98 projects distributed across North and South America, Africa, Europe and Australia (Figure 18). 22 of 31 Kiril Mugerman
  23. 23. Graphite Sector Overview May 1st, 2012 Figure 17: Global growth in number of graphite projects 120 Number of Projects 100 80 60 40 20 0 Pre Nov Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 2011 Source: Graphite focused exploration companies public filings and IAS With such a large number of projects being added, it is inevitable that a large portion of them will end up as low quality targets, never reaching development or even resource definition drilling. We therefore use all the key characteristics presented in this report to create categories into which we classify all the 98 projects (Figure 19). Based on this division, we isolate 6 companies with 7 projects that we focus on as our Top Tier. This is followed by 12 companies in the Mid Tier and 18 companies in the Lower Tier. Companies with projects across several categories are ranked based on their most advanced project. The 6 categories are defined as: 1. Target generation – Projects that are undergoing historic data compilation with ongoing or historical geophysical work. Some of these projects have been staked strategically close to existing or past producing mines and require reconnaissance field work. Other projects have been staked based on showings of graphite during exploration for other metals. 2. Early stage exploration – Projects with active field work (trenching or drilling), with historical drilling targeting graphite or with past producing assets from 20 to 60 years ago. Assay results and early metallurgical data is sometimes available. 3. Resource definition & historical resources – Active drilling delineating a resource or projects with historical resources that require confirmation drilling. 4. Advanced exploration – Active drilling to increase and / or upgrade the resource with ongoing metallurgical test work. Projects with recent history of commercial production including historical resources, metallurgical work and historical infrastructure. 5. PFS & BFS – Projects with ongoing pre-feasibility or bankable feasibility studies. 6. Development – Development of the mine and the processing facilities. 23 of 31 Kiril Mugerman
  24. 24. Graphite Sector Overview May 1st, 2012 Figure 18: Geographic distribution of graphite exploration projects Total North South Stage Companies Africa Europe Australia Projects America America 1 27 69 50 0 1 0 19 2 14 22 12 1 2 5 2 3 2 2 2 0 0 0 0 4 3 4 1 0 0 3 0 5 1 1 1 0 0 0 0 6 0 0 0 0 0 0 0 Companies Tracked: 36 Projects Tracked: 98 Source: Company Filings Figure 19: Stages of exploration by company – as of May 1st, 2012 Top Tier 6 companies Mid Tier 12 companies Lower Tier 18 companies Note: Several companies appear in multiple categories as they have several projects in different stages. Source: IAS In addition to these companies, we are tracking several private companies that are intending to go public in the upcoming months with projects that would fit the top and mid tier categories. For the projects in the lower tier, we expect some to reach the mid tier status by the end of the year. A performance analysis of the three individual groups (Figure 20-22) highlights that investor interest in early stage graphite projects reached a saturation point in April. The Mid Tier companies representing the fastest growth potential with their drill ready projects grew steadily in the last 6 months while the Top Tier companies peaked in early April. The Top Tier companies have the highest expectations as they need to produce quality results and make the right moves to bring their projects closer to production in order to benefit from the first mover advantage and the high graphite prices. The Mid Tier group will supply the next crop of high quality projects offering the largest growth potential in the short term. 24 of 31 Kiril Mugerman
  25. 25. Graphite Sector Overview May 1st, 2012 The Lower Tier has the growth potential investors are looking for but due to financing risks and lower project quality will see a large amount of projects abandoned over the next 12-24 months. Figure 20: 6 Month performance of Top Tier companies Source: Goolge Finance Figure 21: 6 Month performance of Mid Tier companies Source: Goolge Finance Figure 22: 6 Month performance of Lower Tier companies Source: Goolge Finance 25 of 31 Kiril Mugerman
  26. 26. Graphite Sector Overview May 1st, 2012 Figure 23: Comparison of Graphite Invested Exploration Companies 160 SYR.AX Top Tier 140 Mid Tier Lower Tier 120 Market Cap ($M) NGC 100 FDR FMS 80 60 EGZ 40 AXE.AX LRA TLG.AX GPH ZEN 20 SGH SRK LMR UBR Source: Bloomberg, IAS Figure 24: Comparison of Top Tier Graphite Exploration Companies M&I Inferred Mkt Cap Flagship M&I Inferred Recovery Purity Company Ticker Projects Jurisdiction Grade Grade Flake Distribution (M$) Project (Mt) (Mt) (%) (%C) (%Cg) (%Cg)Northern Graphite Corp. NGC 100 1 Bissett Creek Ontario, Canada 25.98 1.81 55.04 1.57 97.1 96.7 80% @ +32/+50/+80Focus Metals Inc. FMS 84 1 Lac Knife Quebec, Canada 4.94 15.76 3.00 15.58 85.9 N/A 85% @ +48/+65/+150/+200Talga Gold Ltd. TLG.AX 19 7 Nunasvaara Sweden 3.6 23 N/A N/A 87% @ +80/+140Flinders Resrouces Ltd. FDR 95 1 Woxna Sweden 6.93* 8.82* N/A 94* 68% @ +80/+200*Uragold Bay Resources Inc. UBR 5 2 Asbury Mine Quebec, Canada 0.58* 10* 85* 90* 75% @ +80/+200*Standard Graphite Corp. SGH 11 13 Mousseau East QC & ON, Canada 1.11* 8.28* N/A N/A 60% @ +100* *Historical data. Non 43-101 compliant. Source: Bloomberg, Company filings, IAS, 26 of 31 Kiril Mugerman
  27. 27. Graphite Sector Overview May 1st, 2012 Figure 25: Mid and Lower Tier Graphite Exploration Companies Mkt Cap Company Ticker Tier Projects Jurisdiction (M$) Archer Exploration Ltd. AXE.AX Mid 31 9 Australia Canada Rare Earths Inc. CJC Mid 3 5 Quebec, Canada Energizer Resources Inc. EGZ Mid 45 1 Madagascar Graphite One Resources Inc. GPH Mid 21 1 Alaska, USA Greenlight Resources Inc. GR Mid 2 2 NS & NB, Canada Lara Exploration Ltd. LRA Mid 29 1 Brazil Lomiko Metals Inc. LMR Mid 7 1 Quebec, Canada Soldi Ventures Inc. SOV Mid 3 2 Quebec, Canada Strike Graphite Corp. SRK Mid 14 3 Sask. & QC, Canada Syrah Resources Limited SYR.AX Mid 162 2 Mozambique, Tanzania Velocity Minerals Ltd. VLC Mid 6 3 Quebec, Canada Zenyatta Ventures Ltd. ZEN Mid 22 1 Ontario, Canada Amseco Exploration Ltd. AEL Lower 3 7 Quebec, Canada Anglo Swiss Resources Inc. ASW Lower 9 1 BC, Canada Atocha Resources Inc. ATT Lower 2 2 Quebec, Canada Big North Graphite Corp. NRT Lower 2 2 QC & ON, Canada Bravura Ventures Corp. BVQ Lower 1 3 Quebec, Canada Canadian Mining Company Inc. CNG Lower 2 1 Mexico Caribou King Resources Ltd. CKR Lower 2 3 Ontario, Canada Cavan Ventures Inc. CVN Lower 2 2 QC & Sask, Canada First Graphite Corp. FGR Lower 5 3 QC, BC & Sask, Canada Galaxy Capital Corp. GXY Lower 2 2 Quebec, Canada Geomega Resources Inc. GMA Lower 12 1 Quebec, Canada Kent Exploration Inc. KEX Lower 3 1 New Zealand Lincoln Minerals Ltd. LML.AX Lower 25 1 South Australia Logan Copper Inc. LC Lower 1 1 Quebec, Canada Monax Mining Limited MOX.AX Lower 10 1 South Australia Pinestar Gold Inc. PNS Lower 3 9 NSW, SA & W. Australia Rare Earth Metals Inc. RA Lower 6 1 Ontario, Canada Terra Firma Resources Inc. TFR Lower 2 1 Ontario, Canada Source: Bloomberg, IAS 27 of 31 Kiril Mugerman
  28. 28. Graphite Sector Overview May 1st, 2012CONCLUSION Growth in demand has triggered Chinese export regulations which in turn have resulted in a price increase, forming ideal conditions for the graphite sector and attracting many exploration companies across the globe in a short period of time. Our analysis of the entire sector confirms the supply shortage scenario highly speculated by the industry and suggests that a minimum of 4 new mines and as many as 23 will be needed to go into production outside of India and China between now and 2020 to cope with the growth in demand. We identify 36 companies, out of which 6 qualify for our Top Tier category. These companies operate the most advanced projects that could be taken into production in a short time frame. Companies in this group are likely to enjoy the first-mover advantage and produce returns for investors in both the short and the long term. In our Mid Tier, we identify 22 projects operated by 12 Companies that have legitimate targets still requiring several exploration campaigns to delineate the deposit. We expect several large discoveries to come from this group that could ultimately provide the largest return for investors in this sector. Our final group, the Lower Tier, represents the highest risk category with many projects expected not to be taken even to the initial drilling stages. As the exploration season heats up, investors will need to look for the first indications of which companies are wasting time and which are advancing step by step in establishing the right deposit, the right management and most importantly the right graphite to start production in the next 3 to 5 years. 28 of 31 Kiril Mugerman
  29. 29. Graphite Sector Overview May 1st, 2012LEGAL DISCLOSUREInvestment Recommendation Rating SystemTop Pick: The stock represents our best investment ideas, the greatest potential value appreciation.Strong Buy: The stock is expected to deliver a return exceeding 13% over the next 12 months.Buy: The stock is expected to deliver a return between 9% and 13% over the next 12 months.Hold: The stock is expected to deliver a return between 5% and 9% over the next 12 months.Sell: The stock is expected to deliver a return lower than 5% over the next 12 months.Speculative Buy: Stock bears significantly higher risk that typically cannot be valued by normal fundamental criteria.Investment in the stock may result in material loss.Distribution of Ratings, as of April 30, 2012 Coverage Rating Universe Top Pick 2% Strong Buy 21% Buy 14% Speculative Buy 21% Hold 7% Tender 5% Not Rated 30% Sell 0% 100%General: The information and any statistical data contained herein were obtained from sources which we believe to bereliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis andinterpretation of this information and are not to be constructed as a solicitation or offer to buy or sell the securitiesmentioned herein. All opinions expressed herein are subject to change without notice.Research analyst certification: The authoring research analyst(s) certify that the publication accurately reflects his/herpersonal opinions and recommendations about the issuer company and that no part of his/her compensation was, is, orwill be directly or indirectly related to the specific recommendations or views as to the securities or the company.Copyright: This report may not be reproduced in whole or in part, or further distributed or published or referred to inany manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in eachcase the prior express written consent the institutional department of Industrial Alliance Securities.Company related disclosures: Issuer Company Ticker Applicable Disclosures Northern Graphite Corp. TSX.V: NGC 7a, 8bDisclosure Legend1. In the past 12 months, Industrial Alliance Securities has performed investment banking services for the issuer covered in this report (hereafter “the issuer”).2. In the past 12 months, Industrial Alliance Securities has received compensation for investment banking services to the issuer.3. In the past 12 months, Industrial Alliance Securities has managed or co-managed a public offering of securities for the issuer.4. Industrial Alliance Securities makes a market in the securities of the issuer. 29 of 31 Kiril Mugerman
  30. 30. Graphite Sector Overview May 1st, 20125. Industrial Alliance Securities beneficially owned 1% or more of the common equity (including derivatives exercisable or convertible within 60 days) of the issuer as of the month end preceding this report.6. a. The Industrial Alliance Securities research analyst(s), who cover the issuer discussed, members of the research analyst’s household, research associate(s) or other individual(s) involved directly or indirectly in producing this report have a long position in its common equity securities. b. The Industrial Alliance Securities research analyst(s), who cover the issuer discussed, members of the research analyst’s household, research associate(s) or other individual(s) involved directly or indirectly in producing this report have a short position in its common equity securities.7. a. The Industrial Alliance Securities research analyst(s) and/or associate(s) has visited the material operations of the issuer, and the related travel expenses have not been paid for by the issuer. b. The Industrial Alliance Securities research analyst(s) and/or associate(s) has visited the material operations of the issuer, and the related travel expenses have been paid for partially or fully by the issuer.8. If the Industrial Alliance Securities research analyst(s) and/or associate(s) has visited the material operations of the issuer, a. The visit was conducted with Management on the premises of the head office or other administrative center of the issuer. b. The visit was conducted at the material operating facilities of the issuer including, but not restricted to, production plants, mines, fields, warehouses, distribution centers, or other facilities directly related to day- to-day operations.9. The Industrial Alliance Securities research analyst(s) and/or associate(s) had communication with the issuer regarding the verification of factual material in this research publication.10. In the past 12 months, the issuer is (or has been) a client of Industrial Alliance Securities and received non- banking and non-securities related services for which Industrial Alliance Securities received or expects to receive compensation.11. In the past 12 months, a partner, director or officer of Industrial Alliance Securities or any analyst(s) involved in the preparation of this publication has provided services (other than for investment advisory or trade execution purposes) to the issuer for remuneration.12. An officer or director of Industrial Alliance Securities, outside of the Equity Research Department, or a member of his/her household is an officer or director of the issuer or acts in an advisory capacity to the issuer.13. The Industrial Alliance Securities supervisory analyst serves as an officer, director or employee of the issuer or acts in an advisory capacity to the issuer.14. A director or officer of the issuer (or any of its affiliates) serves on the board of the Industrial Alliance Securities.15. The publishing date for this research report falls within the restricted period for any recent IPO, secondary offering or lock-up agreement between the issuer and Industrial Alliance Securities.Research Dissemination PolicyIndustrial Alliance makes its research available in electronic and printed formats and makes every effort to disseminateresearch simultaneously to all eligible clients. Research is available to our institutional clients via Bloomberg and FirstCall as well as through our sales representatives via email, fax or regular mail. Electronic versions are distributed inPDF format.Industrial Alliance Securities is a Registered Trader on the Toronto Stock Exchange for the company that is the subjectof this report. 30 of 31 Kiril Mugerman