Nouveau Monde Graphite (TSXV: NOU; NYSE: NMG) and Mason Graphite (TSXV: LLG) have entered into an option and joint venture agreement to advance Mason Graphite’s Lac Guéret project in northeastern Quebec.
As part of the deal, Nouveau will have the option to own 51% of the property if it invests C$5 million in Mason Graphite and spend C$10 million on advancing the property. It would also be required to co-fund a preliminary economic assessment and a bankable feasibility study based on a production scale of at least 250,000 tonnes per year of graphite concentrate.
In addition, Nouveau has inked a non-binding agreement with Mason’s subsidiary, Black Swan, to use the latter’s graphene processing technology in its Phase-1 natural graphite flake concentrator in Saint-Michel-des-Saints, Québec and establish a fully integrated facility for graphite ore and graphene-finished products.
“The partnership announced today has the potential to propel Québec’s graphite industry on the world stage,” said Pierre Fitzgibbon, Québec’s Minister of Economy and Innovation, in a press release. “By combining the strengths of the two most advanced projects in North America…we are solidifying our battery value chain.”
Located about 285 km north of Baie-Comeau, the property covers 40 sqkm and has a resource estimate of 65.5 million tonnes grading 17.2% graphitic carbon for 11.2 million tonnes of graphite in the measured and indicated category. Inferred resources add 17.6 million tonnes grading 17.3% graphite for 3.4 million tonnes of the mineral.
The project, which according to Mason has received Québec’s permission to begin construction, also has proven and probable reserves of 4.7 million tonnes grading 27.8% for 1.3 million tonnes of graphite.
A feasibility study released in December 2018 outlined an average annual graphite production of 51,900 tonnes over a project life of 25 years. The study pegged the capital investment at C$258.2 million and the construction period at about 13 to 16 months.
At an 8% discount, the project is expected to generate an after-tax net present value of C$278 million and an internal rate of return of 21.7%, using a gold price of $1,465 per tonne.
According to Fahad Al-Tamimi, Mason Graphite chairman, the deal combines the “best attributes of the North American graphite industry.”
Eric Desaulniers, CEO of NMG, said the transaction showed that the company has a “realistic growth strategy” and the ambition of being a preferred supplier for “the generation to come.”
The deal is expected to be closed in the first week of July.
Nouveau Monde is targeting first production at its Matawinie graphite mine, in Saint-Michel-des-Saints, Que., in 2023. Its vertically integrated business model involves mining at Matawinie and producing value-added forms of high-purity graphite at its purification facility in Bécancour to serve the lithium-ion battery and fuel cell markets.
BMO analyst Robin Fiedler, who follows Nouveau Monde, described the company’s joint-venture obligations in the deal as “manageable,” despite having its “hands full” with the company’s own operational and funding needs.
The deal could more than double the company’s graphite capacity in the long-term, Fiedler wrote in a research note to clients.
He added that the high levels of “sulphide impurities” in the project would require immediate processing to avoid oxidization, which meant that it needed a larger mine or a plant to “justify the economics.”
“We believe the resulting project redesign and upsized funding needs led Mason’s board to undergo the year-long evaluation of strategic options,” wrote Fiedler. “Lastly, we also understand that sulphide impurities may pose issues with achieving high-purity graphite concentrate needed to make anode material.”