Pat McKeough responds to many requests from members of his Inner Circle for specific advice on stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week an Inner Circle member who would like to have better success with penny stocks asked Pat about the outlook for a specific stock. Northern Graphite has positive test results, a completed feasibility study and permits, and is getting closer to building a mine on its Ontario property. Pat examines the growing demand for graphite and assesses Northern Graphite’s prospects for success in a recovering global economy.

Q: Hello Patrick and team: I’ve never been very successful with penny stocks or start-ups, but I’m always looking around for possibilities. Can I have your opinion on Northern Graphite? Thank you.

A: Northern Graphite Corp. (symbol NGC on Toronto; www.northerngraphite.com) has been exploring and developing its wholly owned Bissett Creek graphite property near Mattawa, Ontario, since 2002.

The company changed its name from Industrial Minerals Canada Inc. on March 1, 2011. Its parent company, Industrial Minerals Inc., based in Delaware, owns 31.5% of Northern Graphite.

Northern Graphite first sold shares to the public in April 2011, when it raised $4 million by issuing 8 million common shares at $0.50 each. It subsequently listed on the Toronto exchange.

The company believes its Bissett Creek deposit contains large crystal-graphite flakes, which command a premium price. It has also received positive results from tests to determine whether the ore can be processed into high-quality graphite concentrate that is ready for sale.

Northern Graphite has completed a positive feasibility study and has completed the permitting processes to build a mine. The company continues to drill to further expand the deposit to extend the life of a potential mine, as well as raise the $101.6 million in financing needed to build a mine.

Graphite finding increasing uses in smartphones, flat-screen TVs, laptops and tablets

Many investors are interested in graphite because it is used in the lithium-ion batteries that power electric cars. But it has a number of other profitable uses, as well. For example, when used as an additive, it increases steel’s carbon content and makes it stronger. In the automobile industry, graphite is used in gaskets, brake linings and clutch materials. It also has a range of other industrial uses, including in components of electric motors, batteries, lubricants and pencils. Graphite is increasingly used in electronic devices, such as smartphones, flat-panel displays, laptops and tablets.

China now produces about 70% of the world’s graphite. It keeps about 60% of that output for its own use.

Northern Graphite’s shares are down lately on lower prices for graphite. Prices have declined from highs of about $2,800 U.S per tonne for high purity, large flake graphite to between $1,400 and $1,800 per tonne due to the economic slowdown in China and continued weakness in the U.S. and Europe.

Graphite demand should rebound as the global economy recovers. However, there are potentially mineable deposits elsewhere in Canada and around the world that could be brought into production if prices rise high enough. As well, higher prices would likely spur manufacturers who use graphite to look for substitutes.

In the Inner Circle Q&A, Pat examines Northern Graphite’s prospects for success if it is able to bring a mine into production. He concludes with his clear buy-hold-sell advice on this stock.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

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