Big North Graphite: Zeroing in on El Tejon Post-Flinders

- April 21st, 2015

Flinders Resources’ acquisition of Big North Graphite fell through last fall. However, Big North has by no means been inactive since then. Here President and CEO Spiro Kletas discusses what the company has been up to and why it’s dedicating all its resources to the El Tejon project.

Big North Graphite: Zeroing in on El Tejon Post-Flinders

Last fall, when Flinders Resources (TSXV:FDR) announced plans to acquire Big North Graphite (TSXV:NRT), graphite market participants lauded the move as the start of much-needed consolidation in the space.

Unfortunately, the acquisition fell through in January with little explanation from either company about what went wrong. Blair Way, president and CEO of Flinders, simply said that “due diligence identified key issues that could not be resolved so the agreement had to be terminated,” while Big North’s president and CEO, Spiro Kletas, emphasized that his company would “continue to assess strategic opportunities” despite the setback.

Big North went fairly quiet after the deal fell through, surfacing just once between then and the beginning of April to announce a $250,000 private placement. However, the company revealed last week that it was by no means inactive during those months. In a corporate update put out on April 9, it states that it will keep moving forward and lays out how it plans to do so.

To get a little more insight, Resource Investing News spoke with Kletas, who was able to explain the situation in more detail. Here’s what he had to say.

What went wrong?

To start, Kletas opened up a little about why the Flinders acquisition didn’t go through, explaining, “essentially we ran out of time. [Under] the due diligence process that was being done by Flinders we needed to get certain information from Mexico, and we couldn’t get it in a timely enough fashion.”

He added, “unfortunately Flinders couldn’t move forward due to the fact that they felt like they didn’t get all the information that they required.”

But now, even without Flinders, Big North is the same company with the same project. “It doesn’t change the nature of the project. It doesn’t change the fact that we have a past-producing flake graphite mine and mill,” noted Kletas, adding, “we’re one of the only companies to have anything like that. Obviously for Flinders to be interested there was some reason for that. They were excited about the project,”

Further highlighting Big North’s uniqueness in the space, he noted that he believes El Tejon is “the closest graphite project to production, and not only that, but also the lowest capex required to get a graphite project into production.” Those might sound like lofty claims, but they aren’t without basis. Kletas said that a review by TetraTech, Big North’s consultant, has shown that El Tejon will require only six months and an estimated $2.5 million to get into production.

“All the infrastructure’s in place, there’s water, power to the project,” he said. “The property was taken care of in the time that it wasn’t operational, meaning the equipment is still all there — nothing was taken away from the mine site.”

Focus on El Tejon

Those characteristics certainly make El Tejon sound like a favorable project, but Big North won’t be able to realize those benefits without cash to get it off the ground.

Last week’s corporate update states that the company has raised $30,000 by closing on 1,500,000 common shares priced at $0.02 each. That’s a far cry from the $250,000 that Big North said it wanted to raise back in January, but Kletas seems optimistic about the company’s prospects moving forward.

“As a company, the Flinders transaction tied our hands. We couldn’t raise any capital, and as a result during the time we were unable to move the project forward at the speed that we would have liked to,” he explained.

Moving forward, he’s hopeful that a renewed focus on El Tejon will spur confidence in Big North. That fresh focus will involve a couple of key moves, with perhaps the most significant being the company’s decision to place its amorphous graphite operation in Sonora on hold — in the past Big North has processed and resold amorphous graphite to Mexican customers via that operation. The company also raised US$58,000 via the sale of equipment at its plant there.

Furthermore, Big North has allowed the majority of the claims that make up its Ontario-based Griffiths-Brougham project to lapse; it now holds just one claim in each of the Griffiths and Brougham claim groups. As with Sonora, the company is reducing its focus on this project in order to move El Tejon forward.

“Our goal is to focus on our flagship project, which is the El Tejon project,” Kletas emphasized, also noting, “we’re going to get away from some of our other projects and focus on capturing some of the flake graphite market. That’s the type of graphite that commands the highest price, and we believe will have the largest area of growth in the coming years.”

What about Azure Minerals?

Commenting on whether Big North will be looking for a new partner on El Tejon now that Flinders is out of the picture, Kletas simply said the company’s board “is willing to take a look at and consider any possible course of action that would be in the best interest of shareholders in order to move the El Tejon project and the company forward — whether that be on our own or taking on a partner.”

That said, he noted that Big North doesn’t “have an imminent partner that [it’s] going to sign with tomorrow.”

On that note, Kletas also gave some insight into Azure Minerals (ASX:AZS), which in February staked three mineral concessions to form the Telix graphite project adjacent to El Tejon. From his comments, it seems like the companies haven’t communicated about potentially working together in the future.

“I saw that they acquired some of the land around the project, [and] I saw their news release where they did mention us,” Kletas said. “By having the project that we have with the historic resource, it gives us more than enough time and feed for the mill for the foreseeable future. So I’m not sure what their immediate plans are.”

Shareholders take heart

Big North’s share price is down 62.5 percent year-to-date, and in closing Kletas admitted that it’s been a tough few months for shareholders. “I’m a shareholder as well, and of course being a shareholder you hate to see the share price where it is now,” he said.

But while he stated that the Flinders deal falling through has been part of the reason for that decline, he also noted, “from the time that we announced the proposed transaction until now, the TSX Venture Exchange has fallen close to 40 percent. So there’s definitely some negative impact on the share price due to that.”

However, he’s confident that Big North’s renewed focus on El Tejon will pay off in the end. “We haven’t given up, we haven’t stopped for a day with the project and with what we want to do to move it forward,” he said.

“I want to reiterate to shareholders that although the transaction didn’t go through, we believe that we have the closest-to-production graphite project with the lowest capex out there, and our intent is to get that project back up and running as quickly as possible. We are 100 percent behind it, we believe in the project and our intention is to move it forward.”

Shareholders will no doubt be watching to see if Big North’s renewed focus will pay off. At close of day Tuesday, the company’s share price was sitting at $0.015.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence. 

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