NORTHERN GRAPHITE CORPORATION – SPEC.BUY

NGC - TSX V $3.19TARGET: $4.40 (from $2.10)PROJ. RETURN: 38%VALUATION: .1x NAV (from 1x)

Share DataBasic Shares O/S (mm) 45.4Fully Diluted (mm) 52.1Market Cap ($mm) 144.9Enterprise Value ($mm) 133.9Net Debt - WC ($mm) (11.1) Div idend N/AYield N/ANext Reporting Date June

$0.50

$1.50

$2.50

$3.50

Apr-11 Aug-11 Nov -11 Mar-12

Short-term Technical Target NGC is making new highs; a P&F chart targets $3.90+

Corporate Profile Northern Graphite Corporation is a development-stage company. The Company holds a 100% interest in the Bissett Creek graphite project. Primary focus is the development of this asset with an objective to become one of the world’s largest producers of large flake graphite.

Upcoming Events Filing of Mine Closure Plan (1 month).

BFS within the next 2 months.

Lifting Target on Spherical Graphite News EVENT – Spherical Graphite Produced and Tested in Batteries Yesterday, Northern Graphite announced that the Company has successfully manufactured test quantities of spherical graphite from graphite concentrate produced from the Company’s 100% owned Bissett Creek deposit. The spherical graphite has been evaluated in Lithium/graphite battery test cells and the performance of these cells demonstrated that it meets or exceeds current commercial performance requirements and that Bissett Creek graphite does not contain any impurities that negatively affect cell performance. The cells were made and testing carried out in a highly qualified, independent laboratory.

IMPACT – Increasing Target Price to $4.40; Leader in the Space Spherical graphite work confirms NGC is the leading, advanced graphite play in the group: Spherical graphite is used to make the anodes in Li ion batteries and is manufactured from the flake concentrate produced by graphite mining operations. Almost all the world’s spherical graphite is produced in China. Our research indicates current processes to produce spherical are inefficient and highly polluting. NGC’s efforts to expand into this fast growing market are promising as the Company may achieve a first mover advantage by developing an improved spherical process, and by offering a non-China located source of supply to lithium ion battery manufacturers.

Increasing target to $4.40: A main reason for our target price increase arises because of the spherical test results announced. We now include a spherical graphite production plant in our base case financial estimates, and production from this plant will ramp higher over time. We have also reduced the discount rate to 10% from 12% on the NPV of the graphite concentrate facility. Due to NGC’s strong share price appreciation, less dilution has also been incorporated into our model. Lastly, we have decided to apply a 1.1x multiple to our $4.00 NAV calculation, to reflect NGC’s leading position in the hot graphite space.

A LOOK AHEAD – BFS in Next 2 Months; Construction AfterwardsBased on the positive spherical test results, the Company will commence engineering and design work to define the capital and operating costs of a facility to upgrade Bissett Creek graphite concentrate into spherical graphite. The objective is to provide Li ion battery manufacturers with a stable, secure source of supply that is produced in an environmentally acceptable manner. Filing of the mine closure plan and completion of the BFS are the next catalysts. Both items are expected within the next couple of months.

FYE Dec 31 2010A Q1/11A Q2/11A Q3/11A Q4/11E 2011E 2012E 2013E 2014EProduct Revenue $ 000 - - - - - - - - 75,500 EBITDA $ 000 (484.2) (125.3) (1,563.5) (358.8) (330.0) (2,362.0) (1,698.5) (3,539) 50,788 Earnings 2010A Q1/11A Q2/11A Q3/11A Q4/11E 2011E 2012E 2013E 2014EEPS $/sh ($0.05) ($0.00) ($0.05) ($0.01) ($0.01) ($0.07) ($0.09) ($0.20) $0.56P/EPS n/a n/a n/a n/a n/a n/a n/a -15.9x 5.7xCFPS $/sh ($0.03) ($0.00) ($0.01) ($0.01) ($0.01) ($0.03) ($0.09) ($0.12) $0.65P/CFPS n/a n/a n/a n/a n/a n/a n/a -27.0x 4.9x

Matt Gowing, CFA 416.860.8675, mgowing@mackieresearch.com Raveel Afzaal, Associate 416.860.7666, rafzaal@mackieresearch.com

This report has been created by Analysts that are employed by Mackie Research Capital Corporation, a Canadian Investment Dealer. For further disclosures, please see last page of this report.

APRIL 3, 2012

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VALUATION: INCREASING TARGET PRICE TO $4.40 FROM $2.10

The positive spherical test results have provided us with increased confidence in the Company’s ability to build a spherical graphite production plant. Therefore, we have adjusted our valuation approach to factor in the spherical graphite plant into our estimates. Other revisions to our financial estimates and NAV include:

Volume progression of the spherical graphite an important driver of earnings: The Company initially produces 3,000 tonnes of spherical graphite in 2014 and the production is ramped up to the long-term run rate of 20,000 tonnes by 2020. Our estimate of an initial 3,000 tonnes per year of spherical production seems reasonable considering that yesterday’s press release guides to “the facility initially being based on approximately 20% of Bissett Creek’s production.” The progression between sales of graphite concentrate versus that of spherical graphite is shown below in the following figure.

Figure 1: Estimated Volumes of Graphite Concentrate versus Spherical Graphite

Production and EPS

0

5,000

10,000

15,000

20,000

25,000

30,000

2014 2015 2016 2017 2018 2019 2020 2021 2022

Pro

duct

ion

(Ton

nes)

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

EPS

Graphite Concentrate Production (tonnes) Spherical Graphite Production (tonnes) EPS

Source: Mackie Research Capital

Average selling prices versus operating costs: In our model, we have applied average selling price (ASP) estimates to the spherical graphite production volumes (above) of $7,000/tonne. Operating costs range between $2,800/tonne and $3,000/tonne during the life of the mine. On the graphite concentrate production, we have maintained our long-term pricing estimates of $2,300/tonne versus operating costs of $1,000/tonne. This pricing estimate compares to current graphite pricing which values the average tonne of graphite produced and sold by NGC in excess of $2,800/tonne.

Capex and financing assumption refinements: In our model, we were previously assuming initial $70 million of capex to get the mine to start of production, at which point it was producing 20,000 tonnes per year of graphite concentrate. As completion of the feasibility study is getting closer (“one to two months from now”), management has indicated that additional engineering work is suggesting that initial capex requirements for the graphite concentrate facility have increased by $10 million to $80 million. We have made this adjustment to our model, and have also added a further $10 million of investment to construct the spherical graphite production facility. We have maintained a targeted 60% debt to capital on this capex, and have revised our dilution assumption to take into account the strong price appreciation of the NGC shares, and have assumed the equity is raised at an average price of $4.00/sh. Due to the additional engineering that has been completed on the Bissett Creek operation, and the nearness of the project reaching Bankable Feasibility Status (BFS), we have also reduced the discount rate on the graphite concentrate project to 10%, from 12% previously. The table below summarizes how the key line items in our financial model have changed.

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Figure 2: New versus Old Estimates

New Old New Old

Sales ($000) 75,500 63,658 79,604 55,919 EBITDA ($000) 50,788 47,346 45,274 38,389 Interest Expense ($000) (2,688) (2,352) (2,464) (2,156) Amortization (4,500) (3,500) (4,500) (3,500) Net income 30,746 29,171 27,020 23,023

EPS (FD) $0.56 $0.44 $0.49 $0.35CFPS (FD) $0.65 $0.50 $0.58 $0.40

Net debt (net cash position), 000s 29,287 19,107 27,768 22,583

2014 2015

Source: Mackie Research Capital

Applying a 1.1x multiple to our NAV & Lifting our Target Price to $4.40/sh: Northern Graphite’s Bissett Creek’s graphite mine is one of the nearest to production, relative to the other publicly traded graphite companies. Now with its spherical results, NGC has also demonstrated significant process in aligning itself with the fast growing lithium-ion battery market. Taking into account the strong macro-economic dynamics of the graphite market, and the increasing appetite amongst investors to gain exposure to the sector, maintaining an overweight position in NGC is a strategy expected to continue to produce outperformance. NGC’s leading position among graphite junior companies warrants a 1.1x multiple to our NAV. We are maintaining our SPEC. BUY rating on the Company.

Figure 3: Updated NAV-based price target: $4.40/share

Bissett Creek Project Net Asset Value

(C$ millions, unless otherwise indicated)

Mining Assets Ownership Discount $MM $/share

Graphite Concentrate Plant 100.0% 10.0% $8.0 $0.14Anode Plant 100.0% 12.0% $212.7 $3.69Total Mining Assets $220.7 $3.83

Financial AssetsCash & Cash Equivalents $10.0 $0.17Long-Term Debt $- $-Total Financial Assets $10.0 $0.17

NAV multiple $MM $/shareNet Asset Value 1.1x $253.8 $4.41

Diluted Shares Outstanding (MM)* 57.60 --

* Diluted shares outstanding include ~$36mm equity financing at $4.00/sh to construct the project.

Source: Mackie Research Capital

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Upcoming Catalysts and Milestones: The following is an updated timeline that management highlighted to institutional investors in recent marketing meetings. With the spherical graphite news release announced yesterday, we expect filing of the mine closure plant and completion of the BFS as the next catalysts. Both items are expected within the next couple months.

Figure 4: Planned Timeline as of March 28, 2012 Investor Meetings

Source: Mackie Research Capital

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RISKS TO TARGET

Risks include events that lead to graphite price cyclicality such as actions by Chinese producers who supply up to 80% of the world’s graphite and have dumped product onto the markets in the past and pressured prices.

RELEVANT DISCLOSURES APPLICABLE TO: NORTHERN GRAPHITE CORPORATION 1. Within the last 3 years, Mackie Research Capital has received compensation for investment banking and related services

from the issuer.

ANALYST CERTIFICATION

Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii) no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.

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