Management brings decades of direct graphite experience and the Mason team is arguably the savviest group of executives in the space. More in a moment, as the unique corporate approach should be of great interest to investors.
Regular readers of the BLR know the importance of graphite as an industrial application, particularly in graphene form. Graphene is a one atom thick layer of carbon, with much higher strength than steel, higher heat tolerance than silicon and superior electrical and thermal conductivity than other mediums. The current challenge is to lower the cost of transforming graphite to graphene. Currently there are over 180 products that rely on graphite with the largest growth seen in the battery market.
In his recent State of The Union address, US President Obama referred to graphene, characterizing it as a "paper thin material that is stronger than steel."
Mason's flagship property is the 100% owned 11,630 ha Lac Guéret property in NE Quebec. On December 5th, the Company announced an updated mineral resource estimate that upgraded the Measured and Indicated tonnage by 685% to 50Mt. Inferred resources increased from 2.8Mt to 12Mt. The first 22 years of mine life has a 27.4% grade of graphite (Cgr) and operating cost of $390/tonne. Following that, the mine can produce for many years at 13% grade. All in all, total mine life could well exceed 200 years.
Mason would sell its graphite for a blended average of $1525/tonne. That calculates to a weighted average production of large/medium/fine flake graphite ranging from $2000/tonne to fine at $1000/tonne. The relevant stat is Mason's margin, which is $1100/tonne.
"Mason's most compelling competitive advantage, equal to the quality of our resource, is our intimate knowledge of the graphite customer base, honed by our management team over the last 20 years," stated Benoit Gascon President and CEO. " With no debt and approximately $4 million in cash, the Company is well situated to develop and grow our worldclass resource against rising demand for this critical industrial component."
The Company plans to complete a feasibility study by Q4 2014 and begin production in late 2015.
There are a myriad of things happening on the graphite scene. One major gamechanger is the recent announcement by Tesla Motors regarding the building of a $5 billion lithium battery plant with partner Panasonic. Investors need to know that depending on the manufacturer, there is between 2030 times the amount of graphite in a lithium battery than actual lithium.
In a recent Bloomberg interview, internationally recognized investor Jim Rogers, Chairman of Rogers Holdings, singled out Mason—in which he owns stock options as 'the best play right now," in graphite. He went on to state that " Mason is a Canadian company that apparently has the purest graphite deposit in the world and is run by the world's experts...people who have been in the graphite business a long time."
At the moment, there are more than 700 global graphite customers of any consequence, the largest of which purchase about 10,000 tonnes a year. For almost a decade, Gascon ran the largest graphite supplier, Timcal Canada, where he and the team that is now at Mason had dealings with virtually every global client. Management learned early on that a personal relationship with each client was critical, as was flexible pricing; a result of Gascon's initiatives at Timcal to remove the reseller layer and deal directly with customers.The best and highest use of graphite is the production of graphene, the properties of which are covered above. In mid January, Mason signed a Letter of Intent (LOI) to purchase 40% of NanoXplore for $700k a privately held R&D company that produces graphene from large flake graphite. Mason brings 29% large flake, graphite recovery in excess of 96% and exceptional purity of 99.9% Cg. Having closed on the first 20%, Mason has the option to purchase a further 20% prior to July 31st 2014.
Mr. Gascon stated in the January 13th release; "This mutually beneficial alliance will connect our expert teams and combine potential low cost flake graphite production from our Lac Guéret project and potential low cost graphene production from NanoXplore's process. Through this strategic alliance, we will eventually become NanoXplore's exclusive supplier of natural flake graphite and we will be actively involved in all facets of their sales and marketing activities."
While China may remain the largest global producer of graphite at 70%, production of large and medium flake is declining in the face of increasing domestic demand. As well, China announced in December that 55 mines would shut down due to environmental concerns, which represents 12% of world production.
While prices have remained stable, these mines usually close for the winter in any case, so the true test and price impact will come when their production is missed beginning in April of this year.
Graphite production doubled from 20002010 with the rise of affluence in Asia and India. As a battery component alone, graphite use is expected to rise 1820% annually from 2010 to 2020 when demand should hit between 320k and 640k tonnes.
The Bottom Line
It's hard to know where to begin to list all the promising attributes of this story. I hesitate using the word ‘peerless' but it may well be appropriate. Under Benoit Gascon's leadership, the team he brought from his successful years at Timcal are obviously putting together a world class resource, have revolutionized client support and access, not to mention bringing in an extremely competitive pricing regime.
I find the most unique aspect is the personal relationship the Company has built with virtually all of the major global clients. Investors should not discount this aspect as it provides the Company with invaluable market intelligence to keep both its market and sales approach and now, with the strategic alliance with NanoXplore, the very best in R&D information and development.
In essence, as new markets and applications appear, Mason has the muscle to act first and decisively.
Add to Mason's potential a very supportive Provincial Government, as Quebec Finance Minister Nicolas Marceau announced on February 21st that the Provincial government will boost its participation in mining companies that operate in the province through a dedicated C$1 billion fund.
While not yet in production, the grade, size and metrics of the Lac Guéret property and the corporate activities moving toward production have already delivered compelling shareholder value. The shares will likely continue to react to the news releases culminating with the release of the Feasibility study in Q4.
As China's market dominance begins to wane, investors will likely turn to stocks such as Mason to fill the looming supply and quality declines.
While important to produce lots of graphite, it's more about producing the right quality, knowing the market and clients intimately, supplying the appropriate grade for current applications and developing new, more cost effective uses.
I guess Jim Rogers is right. Again.
Bob Beaty for The Bottom Line Report.
Mason Graphite Inc.
65 Queen Street West, Suite 800
Toronto, Ontario M5H 2M5
T +1 (416) 861-1685
F +1 (416) 861-8165
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