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Tuesday, December 3, 2013

Who will be the worlds lowest cost Graphite producer?

Mason Graphite Making Case for Being World's Lowest Cost Graphite Producer

SOURCE: VantageWire.com — Since the recent shutdown of last producing graphite mine in Canada (the TIMCAL graphite mine), the country's mining sector is gearing up to see who the next producer will be. With a direct capital cost requirement of only $89.9 million, Mason Graphite's [TSX.V: LLG] Lac Gueret Graphite Project is looking to be not only Canada's next producer, but one of the world's lowest cost producers as well. 

Rated highest in resource grade (including 22 years of production at 27.4% Cgr), Mason has a distinct advantage over its peers when it comes to production costs. Lac Gueret is slated for an annual production rate of 50,000 tons per year, but those tons are going to be the lowest cost in Canada, and possibly the world. 

Thanks to the highest ultra-high overall grade in the world of 20.40% Cg (compared to Canada's current 2nd highest grade held by Focus Graphite [TSX.V: FMS], Mason is given the benefit of a very low startup cost as well as a decently high internal rate of return (33.7%). 

Given the graphite market's unique demands, beyond just the grade buyers are looking for high-purity values as well. Synthetic graphite is known to have the highest purity in the world, but the costs to produce it are sky high. Mason has already proven in testing that they can run their flake graphite through a purification process that will bring their supply up to 99.9% purity (synthetic levels) for a quarter of the cost.

Unlike most other mineable commodities, graphite is not an openly traded mineral. Because of this, producers must foster special relationships with direct buyers. Not every buyer will look for the same product, hence the producer must find a specific fit for each buyer's tastes. Mason Graphite's management team brings over five decades of experience, complete with many years of valuable client relationships.
Going forward there is a market for 100% of mined graphite material in all forms. Mason, like many of its peers, is currently in the process of conducting a market study to identify all potential end-users in every potential marketplace.

GRAPHITE'S GROWING DEMAND AND THE GRAPHENE EFFECT
Being next in line is more important than ever, given global leader China's dwindling production numbers—China currently produces 70% of the world's supply. Now, the world's increasing appetite for graphite-based end products is growing at a steady rate with no real end in sight.

Thanks to graphite's integral role in the making of rechargeable batteries used in consumer electronics and the growing market for electric and hybrid cars, demand for the commodity is set to continue growing. A surge in the use of lithium batteries translates to an even larger increase in graphite demand, as each li-ion battery uses between 20-30 times more graphite than lithium. 

Global demand for the flake form of graphite already doubled between 2000-2010. Within the battery market alone, demand for graphite is expected to rise from 125,000 tons in 2010 to 320,000-640,000 tons in 2020 (for an astounding growth rate of 10-18%).

On top of this growth is the progress regarding a new form of graphite called graphene, which is a derivative only one atom thick and is drawing interest across the globe for its unique characteristics.

 Discovered only a few years ago, graphene's lighter-than-plastic and 200-times-stronger-than-steel nature made it the darling of the scientific community, netting its discoverers with a Nobel Prize in 2010.

Now graphene's application is being developed all over the globe, including for the Pentagon and Lockheed Martin which used it for a filter that can distill ocean water to be drinkable with limited power. It's believed to be 1000 times more conductive than copper, giving it the possible capability of delivering an electric car over 1000kms on one battery charge. And a graphene-based battery not only lasts longer, but can recharge faster and many more times over. 

As miraculous as it sounds, there's still a large learning curve to go for graphene. Despite having over 9000 patents filed for its use, graphene is still not commercially in the market. However, looking at its rise in interest, one could liken graphene's current status to the impact silicon's development made in ushering in the technology revolution. 

We're still many years away from graphene being in the hands of the common man, but with a projected mine life for Mason ahead with 22 years at 27.4% Cg there could absolutely be some significant overlap when the graphene revolution takes hold.

But even without graphene on the market, Mason's operations still look to be highly profitable. According to a calculation done by TD Securities, a 20% grade of graphite in the ground is worth the equivalent of 9g/t gold—using the conservative $1,750/ton price, which is likely to be more with the rate that China is waning. Mason will be far above that grade for its first 22 years and will remain above it for the life of the mine. It's one of the main reasons that Mason is able to shuffle past pre-feasibility, as any price over $1,100 pretty much removes the need.

In comparison, the recently shutdown TimCal mine had an average grade of 6% Cg. As well, Mason's deposit is an outcrop at surface that runs constant, requiring far less waste. TimCal's strip ratio was 3-4 times that at Mason's Lac Gueret. If TimCal could produce for as long as it did under those conditions, than the time is right for Lac Gueret.

TRUE GRAPHITE EXPERIENCE AT THE HELM 

At the helm for Mason Graphite is CEO Benoit Gascon, who spent 20 years with the outfit that is now TimCal (formerly "StratMin"). During the last 6 years of his tenure, Gascon was put in charge as CEO to turn the operation around. Prior to that it wasn't doing well, mostly because graphite prices weren't as healthy as they are today.
Under his charge, the operation was turned around. Gascon removed the middle man (ie. the reseller of graphite). Though the resellers were doing a fine job, the move was to establish better communication with the buyers themselves to find out what they required to be produced.

This shifted Gascon around the world and back to meet with the company's hundreds of buyers. The result was a change in the company's methods of production from four to 50 distinct types of graphite. This increase in diversity significantly helped ramp up the company's revenue. Through the process he developed personal rapport with many of the world's graphite buyers, many of whom are still in business today. 

Gascon was also instrumental in orchestrating the deal that saw Imerys SA fully acquire StratMin to form TimCal Graphite & Carbon. Mason represents Gascon's official return to the graphite world, along with a team that includes his former CFO from StratMin and a series of metal and mining powerhouses that flanks him. But more importantly, Gascon comes with a Rolodex stacked with graphite contacts primed for when Mason starts producing. 

THE BOTTOM LINE
Mason's Lac Gueret has about as good a chance as any company looking to become Canada's next graphite producer. It's led by a team of experienced graphite and mining men, and requires probably the least amount of capital to get into production. 

The operation resides in the friendly mining district of Quebec, and the property contains much of the needed infrastructure to get things really rolling. Construction is set to take place throughout 2015, with production coming in the fourth quarter of that year.

On first glance, its 50,000 tons per year don't appear to be that large. However, given the production costs, once in production it will be an extremely profitable mine. Given its low capex, short turnaround time, and ultra-high grade deposits, Lac Gueret is one of the lowest risk graphite projects on the scene.
In the near future, look for the company to announce the filing of its environmental base line study. This news will pretty much launch the permitting process for Lac Gueret. Permitting is almost always the most serious aspect of a mine's development, and it's never easy. However, the property comes without nearby residents, and resides in a very friendly jurisdiction.
Raising the money for the mine shouldn't be a problem given the company's backing. Mason Graphite has the support of high profile individuals such as Jim Rogers and Larry King, and more importantly the support of the Forbes Manhattan Group.
Next on deck for the group should be the release of a resource publication expected for later this month. Should the result be good news, look to the resource announcement to be the next catalyst for this group as they start the drum beat towards graphite production.

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2 comments:

curly100 said...

No mention of Zenyatta Ventures with its high purity and highly crystalline graphite product using a caustic bake based process. A one of a kind find in the world.

H. Pelham said...

Thanks for your input....Zenyatta is certainly a stock to keep an eye on however, at current valuations, I believe that both Focus and Mason Graphite are better buys right now.