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Canada Carbon: Anatomy Of A Nuclear Carbon Deal

|About: Canada Carbon, Inc. (BRUZF)

Summary

Canada Carbon announces MOU for 200 tonnes at USD $40,000/t.

Deal is with serious Canadian nuclear reactor company.

Canadian Senator joins Canada Carbon Board.

There has been an interesting series of news releases coming from Canada Carbon (V.CCB) (OTC:BRUZF) recently. Canada Carbon has long been interested in delivering ultra high purity graphite to users willing to pay significant money for an ultra-premium product.

But were those users actually out there?

The target market for ultrapure graphite from Canada Carbon’s Quebec based Miller project is the nuclear industry. Specifically, the new generation small modular reactors which the Canadian Government sees as both a solution to the problem of supplying power to remote communities and a potentially industrially important emerging technology. Canada has been at the forefront of developing modern, safe, reactor designs including the Slowpoke research reactor which has been used in many universities.

The essential idea of a small modular reactor (“SMR”) is to build a nuclear reactor at the 50- 300 MWe level. There are also designs for Very Small Modular Reactors under 50 MWe.

There are many designs for SMRs but there are a few commonalities: most designs have the fueling and servicing functions take place off-site under very controlled conditions, most designs work on the basis of producing standardized units where economies of scale would reduce the cost per megawatt.

One of the most significant design considerations is the choice of a moderator: reactors need to slow fast neutrons down so that a sustained chain reaction can occur. Some designs use heavy water, some use regular water and some use ultra high purity, nuclear, graphite as moderators.

Armed with that Homer Simpson level of nuclear reactor knowledge, let’s take a look at CCB’s news releases.

The first, on September 26, announced that a Memorandum of Understanding had been reached with a private company called Dunedin Energy Systems Ltd, “an arm’s length Canadian developer of small modular nuclear reactors…The MOU terms are for the supply of 200 tonnes per annum of Miller nuclear purity graphite over a 10-year term, with a floor price of USD $40,000 per tonne.”

Given that Canada Carbon costs for the production of nuclear purity graphite are CNN $6880 per tonne over the first five years of production, that is quite a margin.

But is it real? Who the heck is Dunedin Energy? A quick look at the Dunedin “Team” web page suggests that the company’s advisors are a who’s who of the Canadian nuclear engineering fraternity. The advisory team includes Dr. John Hilborn who was pretty much the conceptual father of the Slowpoke reactor.

The fact is that, unlike many tech start-ups, you really can’t build a nuclear reactor in your garage. You need to have licences, inspections and government approval. And to get those a company needs to have people on staff and advising it who have solid track records in the small community which is the Canadian nuclear industry. Dunedin has those people.

Canada Carbon also understood that for its resource to be recognized as having what amounts to national value, it was not enough to have testing and certification – although CCB achieved that a couple of years ago with testing at the Oakridge and Idaho National Laboratories – the company needed to have an advocate in Ottawa.

Which led to Canada Carbon’s appointment of Senator Michael L. MacDonald to the Company's Board of Directors announced October 10, 2018. Senator MacDonald is on a number of Senate committees including being the Deputy Chair of Energy, the Environment and Natural Resources.

My American friends might see this appointment as pure politics but, in Canada, the Senate is a barely political body. Senators are appointed rather than elected and while there are certainly partisan aspects to the work of the Senate, it also serves as a facilitator for new ideas.

Senator MacDonald’s position as the Deputy Chair of the Energy committee is not terrifically “powerful” in itself, but it can be very influential. The Senator will know the senior civil servants who develop policy and make recommendations to their political masters.

Senator MacDonald is perfectly positioned to point out to the deputy ministers and ADMs that Canada Carbon’s Miller deposit is, in fact, a domestic source of the ultra high purity, nuclear, graphite needed to drive Canada’s next generation of SMRs. As such, it may very well be a project of national importance.

So, Canada Carbon has lined up an end user and a friend in Ottawa. But there is one thing missing from the plan. Dunedin is only taking about 13% of the planned production from the Miller Project. Where is the rest going to go?

That is CEO Bruce Duncan’s next challenge. But a recent press release might have dropped a big hint.

In a press release dated October 2, 2018 – and weirdly not on the CCB website (ed. now posted here) – the company announced “that on September 20th, 2018 Canada Carbon’s Executive Chairman R. Bruce Duncan was appointed to the Board of Directors of the Canada India Economic Council.

India’s rapid economic development has created a huge demand for electricity. While a good deal of this electricity is coming from coal-fired plants, nuclear facilities are in place and more are being built. You can read an excellent overview of Nuclear Power in India here.

India is a tantalizing opportunity for Canada Carbon. Given the scope of nuclear development in India, the requirements for nuclear pure graphite would likely be in the thousands of tonnes per year. Plus, the Indians are moving very quickly on their nuclear power projects. They do not want to go through a lengthy testing and certification process. The Miller Project graphite has already been tested by American experts and India could easily accept this testing.

Canada Carbon was up a cent and a half to $0.155 today. That is very nearly double the $0.08 it was trading at on September 20. The market is beginning to understand the Canada Carbon nuclear pure graphite story.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.