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New Graphite Stock On The Block

|Includes: Cleveland-Cliffs Inc. (CLF), FCSMF, LEMIF, NGPHF

Graphite's back in the news with two major announcements, one of which shows a new contender fast approaching Canada's vanguard of advanced projects. On October 30, the day after Focus Graphite (OTCQB:FCSMF) released its much-anticipated PEA, Mason Graphite (LLG) hit the world stage-or at least the TSX Venture exchange.

The result of a reverse takeover with a capital pool company, POCML 1 Inc, Mason's trading debut opened October 30 at $0.90 and dropped to $0.68 before closing at $0.75. The newcomer's Lac Guéret project in northern Quebec overtakes Focus flagship Lac Knife's claim to have the largest-known graphite grade.

The 11,630-hectare Lac Guéret has measured and indicated resources of 7.6 million tonnes grading 20.4% carbon and an inferred resource of 2.76 million tonnes grading 17.29%. CEO Benoit Gascon tells ResourceClips, "I visited many graphite mines that operated or still operate during my 20 years. This one is unique for that level of grade."

Gascon was president of Stratmin Graphite, former owner of Quebec's Lac-des-Îles Mine, the largest of Canada's two producing graphite mines. In 2002 Gascon negotiated Stratmin's takeover to form Timcal Graphite & Carbon, which now operates the mine. Gascon stayed with Timcal in senior roles.

Mason picked up Lac Guéret earlier this year from Cliffs Natural Resources (NYSE:CLF), which got the property as part of its 2011 acquisition of Consolidated Thompson. The price tag for Mason totals $1.5 million in warrants and $15 million cash, which includes $2.5 million on completing feasibility and another $5 million on beginning commercial production.

Lac Guéret's resource was calculated last summer, based on 2006 drilling. Any day now an 18,000-metre drill program will wrap up, with one resource update planned for December and another for Q1 2013. December's also slated for a PEA. Looking further ahead, feasibility is scheduled for Q3 2014 and commercial production in Q4 2015.

As for community relations, the company hopes to have an impact benefit agreement finalized with the Pessamit Innu band by Q3 2013.

Lac Guéret is a flake graphite deposit, says Mason's corporate development officer Simon Marcotte. Early indications show "large- and medium-sized flake together is north of 60% [of the resource], but we're hoping it'll be more than that. We'll have a better idea by year-end," he says.

Marcotte doesn't understate his optimism about the resource updates. The project will boast "not only the highest grade of graphite in the world but also the biggest deposit by far-no two ways about that, by a very significant margin."

Merchant bankers Forbes & Manhattan hold 20 million of Mason's 56.9 million outstanding shares. An advantage to the relationship "is you can tap into highly skilled resources," explains Gascon. "So we have a pool of technicians, engineers, geologists, but also back office, legal, compliance people who can support the operation as we move forward."

The project lies some 300 kilometres from the St. Lawrence deep-water port of Baie-Comeau and has year-round road access.

Should Mason meet its targets, Lac Guéret will join Canada's most advanced graphite projects, which include those of Flinders Resources (FLNXF.PK), Northern Graphite (OTCQX:NGPHF) , Energizer Resources and Focus.

On October 29 Focus released a preliminary economic assessment for its Lac Knife Graphite Project in northeastern Quebec. The report projects a $154-million capex for an open pit operation with a $246-million pre-tax NPV at a 10% discount rate and a 32% pre-tax IRR. Pre-tax payback comes to 2.8 years.

The PEA reassessed a January resource estimate, converting its measured category to indicated. As a result, the project's resource now shows 4.94 million tonnes grading 15.76% carbon indicated and 3 million tonnes grading 15.58% C inferred. Based on that resource, the PEA sees annual production of 300,000 tonnes. Over a 20-year lifespan, that comes to 6 million tonnes with an average grade of 15.66% C.

The study considered expressions of interest that Focus received from potential consumers on three continents which, the PEA states, support a production forecast of:

  • maximum annual battery-grade production of 16,900 tonnes grading over 99.95% C with flake sizes of +100 mesh
  • medium-grade production of 11,200 tonnes grading over 90% with flake sizes of -100 mesh to +200 mesh
  • fine-grade production of 15,500 tonnes grading over 80% with flake sizes of -200 mesh.

The PEA was originally scheduled for release on June 7. Last September the Ontario Securities Commission imposed a management cease trade order following review of a company disclosure not supported by a compliant technical report. The OSC set an October 31 deadline for the PEA.

In a statement accompanying the October 29 announcement, president/CEO Gary Economo said, "Lac Knife is a world-class resource and the publication of our preliminary economic assessment confirms Focus has the potential to become one of the highest-grade, lowest-cost producers of graphite in the world. We enter a new phase now, where we can expedite our financing, advance customer off-take agreements and [construct] our purification and anode facilities."

Focus shares closed October 26 at $0.70, opened October 29 at $0.76 and closed the day at $0.72. The shares opened and closed October 30 at $0.74 and $0.69.

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