CEO’s of established commodity producers do not typically move into the riskier world of junior development.
But in the spring of 2012, Mr. Gascon joined Mason Graphite (LLG-TSX.V; MGPHF-OTCQX) after it acquired the Lac Guéret Graphite project in Northern Quebec. A few months later two key executives from Timcal, Luc Veilleus (CFO) and Jean L’Heureux (V.P. Process Development) followed Gascon to Mason Graphite.
What caused this stampede of senior executives to a junior graphite project?
"The Lac Guéret deposit is a freak of nature," explains Guy Bennett, CEO of Global Metal News, "a high grade, large flake asset with mineralization close to surface. It is a one-off geological anomaly that will allow the mine to be built cheaply and operated with high margins."
Graphite is a low density allotrope of the element carbon. Natural graphite comes in three forms: flake, amorphous and lump. Key applications include lithium ion batteries, fuel cells and nuclear reactors. There is 20 x times more graphite by weight in a lithium-ion battery, than lithium. Global consumption of has doubled from 600,000 tons in 2000 to 1,200,000 tons in 2013.
Mason's 100% owned Lac Guéret graphite property currently hosts an NI 43-101 compliant mineral resource based only on 17% of the known mineralized zone.
A Preliminary Economic Assessment (PEA) projects 22 years of production at 27.4% Cg and a pre-tax internal rate of return of 33.7%. Preliminary Metallurgical Testing was completed in February 2013 and shows graphite recoveries in excess of 96%.
"All batteries need graphite and applications are very diversified - going from steel making to autoparts and electronics - so it is a material that we use every day but don’t see," explains Mason CEO Benoit Gascon, "There is only one graphite mine currently operating in Canada, the Stratmin mine. I was the CEO of that operation for many years. The Stratmin mine was profitable at $600 a tonne, the current prices are around $1,400 a tonne."
The 11,630 ha Lac Guéret project is located 288 km from a service centre. It has all-weather access from Hwy 389 and there are logging roads throughout the property. Quebec is a mature mining jurisdiction and provides access to a deep pool of skilled labour. Gascon seems to have fostered good relations with First Nations stakeholders.
Demand for graphite has increased 5% per year since 2000 due to the rapid urbanisation of China, India and other emerging economies. China currently produces 70% of the world's graphite but it is mostly low-carbon, low-value powder or small flake. An export tax and licensing system have been instituted in China, choking off supply to international markets.
"Back in the 1990s we had severe competition from the Chinese," explains Gascon, "At that time they weren't using a lot of graphite domestically, so they were exporting most of their product, which is to say, they were importing foreign currencies."
A recent European Commission study included graphite among the 14 materials high in economic importance and supply risk. Battery application demand for the next decade is projected to grow 10-18%.
"There has been little new graphite mining outside China in the last 20 years," stated Gascon, "and demand is increasing because the Chinese are now producing cars and steel."
Electric vehicles and lithium battery technologies are catalysing surging global graphite demand - with a premium on large flake, high purity graphite (+80 mesh, 0.2mm, 94-97% Carbon) typical of the Mason Graphite project. Large flake graphite commands premium pricing.
Lac Guéret’s PEA anticipates annual production of 50,000 tonnes. Because the deposit is relatively near surface, direct capital cost requirement is a modest $90 million, with production costs of $390/tonne. The Internal Rate of Return of 33.7%. With these robust economics, Mason Graphite has succeeded in raising $24 million since April 2012.
Unlike gold and copper, graphite is not openly traded. Prices are negotiated between end-users and producers for annual or multi-year contracts. Prices vary based on parameters such as purity, size, impurities and shape.
It is paramount that a graphite company going into production establish relationships with buyers. A typical contract with brake manufacturer establishes price, product specifications, volume, timing and delivery. Theses business relationships can take years to establish. Continuous contact with customers is fundamental. Here LLG has a significant competitive advantage as Gascon has 700 end users on his rolodex from his days at Stratmin Graphite.
There is another kicker to this Mason Graphite story: the recent discovery of graphene - a one-atom thick layer of mineral graphite. Graphene is very strong, light, flexible, nearly transparent, and an excellent conductor of heat and electricity.
It is such a radical advance on any known material that there are already 10,000 registered graphene-based patents. In 2013, Jari Kinaret from Sweden's Chalmers University of Technology secured a €1 billion grant from the European Union for graphene research. Predicted applications include display screens, electric circuits, and solar cells, as well as medical, chemical and industrial processes.
"Mason Graphite is focussed on building this mine for the current market of graphite," stated Simon Marcotte, Mason's V.P of Corporate Development, "When the graphene demand arrives we expect to already be in production and the additional demand will be gravy for our shareholders."
Since acquiring the Lac Guéret project in April 2012, Mason Graphite has completed a 26,500 metre drilling program, an initial NI 43-101 mineral resource, and a Preliminary Economic Assessment.
Short term de-risking events include the publication of an updated 43-101, a 3rd and last drilling campaign, the initiation of a Definitive Feasibility Study, and an Environmental Baseline Study.
"The recent developments at our Lac Guéret project have met or exceeded our expectations," stated Gascon, "The speed at which we have been able to advance the project speaks to the quality of our asset and the experience of our team. We continue to work diligently to become a graphite producer as quickly as possible."
Mason Graphite is currently trading at .39 with a market cap of $26 million - a significant discount to its lower-grade peers.
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