Study shows Lac Guret could be low-cost mine for Mason Graphite

Production at Mason Graphite’s (TSXV: LLG; US-OTC: MGPHF) potentially high-margin Lac Guéret graphite project in northeastern Quebec could start as early as 2017.

A new feasibility study shows an open-pit mine at Lac Guéret could produce 51,900 tonnes of graphite concentrate a year for 25 years. Production costs would average $376 per tonne, compared to an average selling price of $1,905 per tonne.

“Mason is looking to be one of the lowest-cost producers in the world, and by a significant margin,” says Simon Marcotte, Mason Graphite’s vice-president of corporate development.

The mine’s life is based on only 4.7 million tonnes of the total reserves of 62.8 million tonnes grading 17.2% graphitic carbon, allowing for a pit with a high head grade of 27.8% graphitic carbon, and a low stripping ratio of 0.8-to-1.

Workers would crush the mill feed on site before trucking it to Baie-Comeau, some 285 km away, for processing. The concentrator can achieve purities of up to 97.5%.

But a graphite project is more of a processing operation than a mining operation, Marcotte says. “Everything is in the processing knowledge and having the distribution capacity, because graphite in the ground is just raw material to make graphite products. It really comes down to: ‘Do you know what to produce? Do you know how to do it?’ And, ‘Do you know who to sell it to?’”

Mason’s management team can readily check off those boxes, with its track record of producing, developing and marketing graphite for various applications, including the value-added markets.

CEO Benoit Gascon previously ran Stratmin Graphite, which operated Lac des Îles in Quebec, the only graphite mine in North America. Gascon helped improve operations and widen the firm’s product offerings, before merging in 1996 with Timcal Graphite & Carbon (now Imerys Graphite & Carbon), a division of the Paris-based industrial minerals firm Imerys.

After the acquisition, Gascon headed up Timcal, where his team completed due diligence on graphite projects worldwide, while Lac des Îles ran out of resources. They were keen on buying Lac Guéret due to its high-grade nature, Marcotte says.

While plans fell through after the 2008–09 market downturn, Gascon kept an eye on the deposit. He joined Mason Graphite soon after the firm acquired Lac Guéret from Cliffs Natural Resources (NYSE: CLF) in 2012. Other Timcal veterans at Mason include chief financial officer Luc Veilleux and process development manager Jean L’Heureux.

Since buying Lac Guéret, Mason has advanced the project to the feasibility stage, two years after filing a preliminary economic assessment (PEA).

Anticipated production costs are nearly 4% lower than in the PEA, largely due to relocating the proposed concentrator from the mine site to Baie-Comeau, where Mason can connect it to the power grid, eliminating the need to buy diesel generators, and lowering its overall carbon footprint.

Other benefits include a smaller camp and lower capital to build the camp, as Mason would hire most of its staff locally in Baie-Comeau. This will also improve employee retention.

The main drawback, however, is trucking cost, accounting for over 30% of the production costs. “It’s big, but it is much less than the cost of running the operation on diesel,” Marcotte says.

The project’s total costs are $169.5 million, slightly higher than in the PEA, owing to details that went into the feasibility study to yield an 80% confidence factor.

“We have been late a few months on this publication, and the only reason is that we didn’t cut any corners. We did absolutely everything. And this is designed to be built and operated successfully,” Marcotte says.

The study highlights the project’s robust economics. Using an 8% discount rate, Lac Guéret has a $352-million post-tax net present value and a 34.3% internal rate of return, with a 2.6-year payback.

Marcotte says the firm is confident it can fund the project using its key shareholders, and will also look at alternative financings, including royalties and strategic partnerships.

Mason has 25 institutional shareholders, including the government-sponsored firms Ressources Québec, a subsidiary of Investissement Québec; Sodémex, a subsidiary of the Caisse de dépôt et placement du Québec; and the Fonds de solidarité FTQ/Fonds régionaux de solidarité FTQ.

Its largest shareholder Fidelity (at 11.4%) is also the second-largest shareholder of Tesla, after Elon Musk.

While it’s too early to say when the full financing will be in place, Mason expects to build in 2016. It should take 13 to 16 months to finish, with production kicking off in 2017.

Environmental and social impact assessments for the project should be out shortly.

Meanwhile, the firm is working on a second feasibility study to make more purified and micronized products for the value-added graphite market, including lithium ion batteries, electronics and brake pads. The study is due out in 2016.

“Our guys have the experience to enter that business as well,” Marcotte says, explaining that in 2002, Mason’s management built and commissioned a plant for value-added graphite product that supplied a large battery manufacturer.