The Lac des Iles graphite mine in Quebec is the larger of two Canadian graphite producers, and owned by Imerys S.A., a multi-billion dollar French multinational company which specializes in the production and processing of industrial minerals. Imerys has been around for nearly 140 years.
The Lac des Iles graphite mine, which is ran by Switzerland based Timcal Graphite & Carbon, a subsidiary of Imerys, has been in production for over twenty years, and produces graphite products of various sizes and purities which are shipped all over the world. The mine is one of the largest graphite producers and suppliers of graphite on the planet.
Key fact: Timcal, owned by Imerys, is a world leader in graphite production.
The story behind the discovery and development of the Lac des Iles graphite mine goes like this:
Stratmin Graphite took the mine into production in 1989, but was taken-over by Imerys in 1996; Timcal Graphite & Carbon, a subsidiary of Imerys, began to run the world-class mine. The man responsible for orchestrating the complete takeover of Stratmin Grahpite by Imerys, who then immediately began running operations for Timcal Graphite & Carbon, was Canadian miner and entrepreneur, Benoit Gascon – the CEO of our new Featured Company.
Benoit was born in Quebec, and has spent virtually all of his professional life in the graphite sector. In the early 1990’s he was the CEO of Stratmin Graphite, which initially brought the Lac-des-Iles deposit into production. Following the acquisition by Imerys, Benoit managed operations for Timcal Graphite & Carbon for roughly 20 years.
Before we delve into the story behind our new Featured Company, it is essential we elaborate a little bit further on the history of Benoit Gascon‘s career, and accomplishments within the graphite sector. It will help you understand how we came to select his new company.
The 90’s were not friendly to graphite or the mining sector, as both struggled through enduring bear markets. Mining during that time was largely unprofitable. However, Benoit was a turnaround artist in his own right, and believed he had a strategy to bring the Lac des Iles mine into profitability, despite the weak graphite prices. So, he traveled the world for Timcal to meet with end users and buyers of graphite. His goal was to effectively cut out the middle man in order to improve efficiency, and margins.
For almost two years, Benoit went on the road, meeting with end users of graphite to improve and expand on the quality of product Timcal was delivering. In that time he reviewed countless graphite assets for potential purchase by Imerys, and built long-term relationships with many of the biggest graphite purchasers in the world.
Benoit sold graphite directly to companies such as Federal-Mogul (FDML:NASDAQ), which is a Michigan, US, based global leader in innovative powertrain and vehicle technologies. The company has a $2.5 billion market cap.
Benoit did business with German based SGL Group ($2 billion + market cap) for more than a decade. The SGL Group is known as the Carbon Company, and is a world leading manufacturer of carbon-based products.
Three of the world’s top graphite refractories were among the companies Benoit regularly sold the commodity to. RHI, a publicly listed Vienna company, and the world’s leading graphite refractory, was one of them. In Japan, Benoit sold to the Shinagawa refractories and Hitachi Chemicals. Shinagawa Refractories was established in 1875, and is Japan’s oldest and most respected refractory supplier.
Benoit is a uniquely qualified CEO who literally traveled the world to learn more about the precise graphite needs of globally recognized companies; these companies Benoit conducted business with were the end users who turn graphite, primarily flake graphite, into products which are sold around the world. These connections are invaluable in a space where many graphite companies and potential producers are new to the industry.
The Lac-des-Iles graphite mine, first brought online by Stratmin Graphite, and then operated by Timcal Graphite under Benoit’s guidance, went from producing 4 different types of graphite to 50 different types. This was a process that happened over time, after Benoit Gascon met with global graphite buyers to understand exactly what they needed.
Benoit Gascon dedicated his career to exploiting, and expanding opportunities within the graphite market – decades before it was an in vogue commodity.
So, where is Benoit now? Naturally, he is in the graphite sector (his forte), and leading a young Canadian graphite company which went public less than a year ago. Of course, it was largely because of Benoit’s involvement in this graphite company that we have selected it as our client, and are introducing it to you today as our brand new Featured Company.
That company is Mason Graphite (LLG:TSXV); its management and board have outlined a clear development plan and intend to transition the company to production by the end of 2015.
Mason Graphite’s flagship asset is the Lac Gueret graphite property, located in Quebec – a province Benoit is most familiar with. And as mentioned, he took Canada’s largest graphite mine into production there.
In respect to Mason Graphite’s 100% owned Lac Guéret property, Benoit stated,
“On average the resource that we have is at 20% and all of the mines virtually are below 10% today – the ones in operation. The one I was managing [Timcal] was at 6%, so having 20% on average is very special because it will have an effect directly on the economics of the project.”
In a Preliminary Economic Assessment released in April of this year, the suggested CAPEX or direct capital costs associated with Mason’s project reaching initial production was $89.9 million, with an IRR or pre-tax internal rate of return of 33.7%. That equates to a potential payback period of less than 3 years if someone, or group, was to finance the cost.
A low CAPEX, in this economic environment, is pivotal. We’ve seen too many exploration/development companies spend tens of millions on their projects, only to reach the mine development stage and fall short of raising the necessary capital (because their CAPEX was $500 million or more).
July 2012: Mason’s NI 43-101 – a Lesson in Grade
Mason’s flagship Lac Gueret graphite project was acquired in early 2012, and the company wasted no time publishing a NI 43-101 resource calculation from historical drilling, in July 2012.
The mineral resource estimate, consisted of:
Measured & Indicated mineral resources (4% Cgr cut-off):
Nearly 7.6 million tonnes grading 20.40% Cgr
Inferred mineral resources (4% Cgr cut-off):
Nearly 2.8 million tonnes grading 17.29% Cgr
* exact resource calculation figures below:
* See press release issued by Mason Graphite on July 16, 2012. The graphite mineral resource estimate herein was prepared by Edward Lyons, P.Geo., and Guy Saucier, Eng., both of whom are independent, qualified persons as defined by NI 43-101.
Graphite is not as well understood as say gold or copper, and investors may have a hard time determining what is considered high grade. As such, Mason included this infographic on page 18 of its investor presentation:
Reality, Experience and Numbers
The stark reality is that over 95% of junior resource companies fail while attempting to achieve the end game of production or a buyout. This business isn’t easy. And while the risks associated with natural resource exploration and project development are high, Benoit holds a distinction of taking Canada’s largest graphite mine into production.
Before explaining the location and potential production numbers, outlined in Mason Graphite’s most recent PEA (preliminary economic assessment), it is important to note that Benoit brought two critical people into the Mason story from Timcal Graphite & Carbon:
1. Mr. Luc Veilluex has over 20 years experience in the mining and manufacturing industries, including eight years at Timcal in the roles of Chief Financial Officer (based in Switzerland), COO and Vice-President of Finance (North America), and Controller for the Lac-des-Iles graphite mine.
2. Mr. Jean L’Heureux is a professional metallurgical engineer who has been involved in the mining and processing of graphite for over 20 years with the Imerys Group in Quebec, and in France. From 2000 to early 2013 he was the Product Manager, Refractory and Metallurgy for Timcal.
Mr. Veilluex is the current Executive Vice President and Chief Financial Officer of Mason Graphite.
Mr. Jean L’Heureux is now the Executive Vice President of Process Development for Mason Graphite.
Since July 2012’s NI 43-101 resource calculation was released, the company has completed a whopping 26,500 metres of additional drilling. This additional drilling consisted of 145 holes around the resource envelope in the GC Zone, and 18 drill holes in the GR Zone to test for continuity of mineralization. The program has been completed, and the company has since announced it has successfully identified mineralization with similar grades in both zones. The full scope of Mason’s recent drilling is expected to be delivered in an updated NI 43-101 resource calculation within the next few months.
The Lac Gueret graphite project falls within the “Plan Nord” territory in north-eastern Quebec. The “Plan Nord” is an economic development strategy launched by the Government of Quebec in May 2011, designed to help the progression of Quebec mining projects located north of the 49th parallel. Quebec is by and large one of the most pro-mining regions in North America.
The “Plan Nord”, to be carried out over 25 years, is predicted to foster over C$80 billion in energy, mining, and forestry investments, and create or consolidate 20,000 jobs a year for the duration.
Mason’s Preliminary Economic Assessment Results released in April 2013, cited initial direct capital costs of $89.9 million.
April 2013, PEA Released
Mason’s PEA released in April, conducted by an independent third party firm, projected production costs of $390 per tonne of finished product. With an average sales price of $1,525 per tonne, these numbers highlight the potential at the company’s Lac Guéret graphite property. The assessment was based on annual production of 50,000 tonnes of saleable graphite concentrate. At an average sale price of $1,525 per tonne, this represents $76.2 million in annual revenue.
The source and highlights from information published following April’s PEA can be found here.
The chart below shows various graphite prices over the past 5 years. And while prices have taken it on the chin since 2012, as old mines continue to close and demand continues to rise at 5% per annum, this should lead to declining inventories and higher, more stabilized prices. The current demand fundamentals, and expanding application base for graphite and graphene, should also help the commodity’s long-term value.
Large flake graphite is outlined by the blue line in the chart above. Flake graphite is considered the big business of graphite sales globally, yet there are only two natural flake graphite mines operating in North America. The above pricing chart illustrates the more money end users are willing to pay for high grade flake graphite, as opposed to the flat-lined ‘amorphous graphite’ at the bottom of the chart.
China, the country which controls roughly 70% of global graphite production, is known for its mass quantities of smaller ‘amorphous graphite’ deposits, but lacks flake graphite mines. Mason’s Lac Gueret graphite project is a flake style graphite deposit.
More on the Lac Gueret Graphite Project
Preliminary Economic Assessment Results:
In an interview from March of this year, Benoit discussed the key factors which, in his opinion, differentiate Mason’s Lac Gueret graphite project. The interview is below for your viewing pleasure:
Benoit commented that,
“Lac Gueret is unique for a number of elements. The first one is the grade. It is a very high grade.”
Continuing on that subject, he commented that,
“On average the resource that we have is at 20% and all of the mines virtually are below 10% today – the ones in operation. The one I was managing [Timcal] was at 6%, so having 20% on average is very special because it will have an effect directly on the economics of the project”
“The second one is the size of the deposit. Today only with a portion of the deposit we have a resource and we already have 7.6 million tonnes at 20% on average, which means more than 30 years of mine life, only with that small part of the project.”
Click on the image below to watch the full interview from March of this year with Benoit Gascon, CEO of Mason Graphite (LLG:TSXV).
Click on image to watch interview with Benoit Gascon, CEO of Mason Graphite
After hitting a 52 week high of $0.95 per share in February of this year, Mason closed at $0.45 today, giving it a market cap of roughly $30 million.
52 Week Chart Below
Today, Mason finds itself well-financed. The company reported having $2 million at its last quarterly filings, March 31st 2013, and completed a $5 million dollar raise in June.
According to Mason’s press release today, it has raised $24,233,210 since April 2012. Its market cap currently sits around $30 million.
Objective of Becoming a Graphite Producer
Note: Mason Graphite has not made a production decision. A decision to proceed with production will be based on the results of the feasibility study demonstrating economic and technical visibility. All reference herein with respect to production and anticipated timelines for production assume that Mason Graphite will complete a feasibility study, and that the results of such feasibility study will be positive. The timing and results of such study are not guaranteed and no inference should be made in this report.
According to Mason’s corporate presentation, private merchant bank, Forbes and Manhattan, along with insiders, own roughly 25 million shares of the company. Institutions own approximately 33 million shares. That totals 58 million shares of the approximate 66.7 million shares currently outstanding. The company’s market cap sits around $30 million. With 21.6 million warrants and 5.8 million options, fully diluted there is the potential for 94.2 million shares to be outstanding. Bear in mind, if the warrants were to be exercised, it would bring in roughly $20 million to the company.
Notice that Forbes and Manhattan own a substantial stake in this company. This is another important element for Mason Graphite.
Forbes & Manhattan is led by resource legend, Stan Bharti, and is a leading private merchant bank that acts as an incubator for resource companies. Forbes and Manhattan’s mission is to seek out high potential mining assets and take them from exploration and discovery to production. In 2011, Forbes & Manhattan sold Consolidated Thompson Iron Mines to Cliffs Natural Resources Inc. for $4.9 billion.
Interestingly, Consolidated Thompson began as a $1 M dollar exploration iron ore company in the province of Quebec.
Forbes and Manhattan have deep pockets, and far reaching connections. Mason Graphite is the only graphite focused company Forbes and Manhattan is invested in.
Mason Graphite is set to enter a busy period in the company’s development as it works toward a final production decision. In a recent press release, on September 24th 2013, the Company announced that purities of 99.9% graphitic carbon (“Cg”) have been obtained from preliminary studies testing the purification of the graphite concentrates from its flagship Lac Guéret project.
Mason’s Lac Gueret Graphite Project tested up to 96.4% Cgr of finished product purity in April’s PEA.
Stripping ratio of 0.76:1
Quick fact: Strip ratio refers to the ratio of the volume of overburden (or waste material) required to be handled in order to extract some volume of ore. For example, a 3:1 stripping ratio means that mining one cubic meter of ore will require mining three cubic meters of waste rock.
This might be the most important component to Mason’s Lac Gueret graphite project as its very low strip ratio means that it would be extracting more ore than waste rock. We were unable to find a lower strip ratio in the graphite mining sector. Take a look at the below picture.
The above photo highlights the size of a graphite outcrop on Mason’s Lac Guéret Project. Benoit explained to us that it can be slippery to walk on, as graphite is used as a lubricant in brake pads and other applications.
Mason Graphite was selected as a Pinnacle Digest client and Featured Company due to its strong management team, and the lasting connections that Benoit Gascon has developed over two decades in the business of producing and selling graphite. The Lac Gueret Graphite Project’s favourable position near the main service center of Baie-Comeau in North Eastern Quebec, allows it access to extensive infrastructure.
Mason is well capitalized to continue developing its flagship asset.
The low CAPEX of $89.9 million on the Lac Gueret graphite project is not an overwhelming number, and carries with it a degree of incentive to potential suitors.
Quebec was ranked 11th out of 96 mining jurisdictions by the Fraser Institute in 2012. It was ranked first from 2007 to 2010 worldwide, and remains one of the premier locations in Canada and the world to operate a mine. It is hard to imagine Benoit and his team developing the high grade Lac Gueret Graphite Project anywhere else. He was born in ‘La Belle Province’ and, most importantly, he ran one of the biggest graphite producing assets in the world there.
Mason Graphite (LLG:TSXV) is a client of ours, and we intend to purchase shares in the company following the release of this report. Please recognize that we are biased. As always, practice your own thorough and independent due diligence as we don’t share in your profits or losses.
This marks the beginning of our coverage on Mason Graphite (LLG:TSXV), and we will have further updates as its story progresses over the coming weeks.
All the best with your investments,
Mason Graphite’s Acquisition Terms for the Lac Gueret Graphite Project with Cliffs Resources
$15,000,000 total acquisition cost for 100% of the project
$7,500,000 payment completed on April 5, 2012
$2,500,000 payable upon completion of a Feasibility Study*
$5,000,000 payable upon commencement of commercial production*
2,041,571 warrants @ $0.75 (expires in April 5, 2014) issued to Quinto Mining (sub. of Cliffs Resources)
No remaining legacy interest exists, no royalties
If the feasibility study is not completed by April 5, 2015, Mason Graphite is required to pay (a) $1,250,000 on April 5, 2015, and (b) $1,250,000 on the earlier of (i) the fifth business day following the day on which a feasibility study is completed; and (ii) October 5, 2015. If commercial production is not achieved by October 5, 2016, Mason Graphite is required to pay (a) $2,500,000 on October 5, 2016; and (b) $2,500,000 on the earlier of (i) the fifth business day following the day on which commercial production is achieved; and (ii) April 5, 2017.
See more at: http://www.masongraphite.com/projects/lac-gueret-graphite-project/default.aspx#sthash.qVUba98p.dpuf
Click the image below to view Mason’s updated Company Presentation
Disclaimer and Information on Forward-Looking Statements:
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Important: Our disclosure for this report on Mason Graphite Inc. applies to the date this report was released to our subscribers (October 2, 2013) and posted on our website. This disclaimer will never be updated, even after we have sold all of our shares in Mason Graphite Inc.
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Cautionary Note Concerning Estimates of Inferred Resources:
This report and supportive documents used in the research process of this report may use the term “Inferred Resources”. U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. “Inferred Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of “Inferred Resources” may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists, or is economically or legally mineable.
Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues.
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