Target Price: CAD$1.60 Recommendation: SPECULATIVE BUY

Encouraging NGC and Market Data Points

In this note, we review the key drivers of the graphite market, remind investors why the graphite sector remains a good sector to invest, and reiterate why Northern Graphite offers an excellent way to play the graphite space.

NGC’s share price has traded down 77% since setting its high in April of this year, and we believe the decline offers an excellent opportunity to buy the stock.

To summarize, the subsequent pages of our sector and company review note can be broken down into four salient points:

(1) The steel and refractory markets consume 40% of graphite produced, and China produces over 50% of the steel produced each year, and certain data points provide insights to a potential turn around in the sector.

(2) Notable trends have taken place in pertinent commodity prices, including a recent bottom in steel and iron ore. Graphite prices continue to moderate but are poised to also inflect to the upside.

(3) We point out that the graphite pricing assumptions in our cash-flow model remain reasonable, and even have the potential to prove conservative.

(4) NGC project updates including spherical graphite and permit submissions indicate the Company remains on track to deliver value and start producing by late 2014.

Reiterate SPEC. BUY and $1.60 target price.

By Matt Gowing - 2012/11/20