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鈥檚 Lac Gu茅ret 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鈥檚 subsidiary, Black Swan, to use the latter鈥檚 graphene processing technology in its Phase-1 natural graphite flake concentrator in Saint-Michel-des-Saints, Qu茅bec and establish a fully integrated facility for graphite ore and graphene-finished products.
鈥淭he partnership announced today has the potential to propel Qu茅bec鈥檚 graphite industry on the world stage,鈥� said Pierre Fitzgibbon, Qu茅bec鈥檚 Minister of Economy and Innovation, in a press release. 鈥淏y combining the strengths of the two most advanced projects in North America鈥e are solidifying our battery value chain.鈥�
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 Qu茅bec鈥檚 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 鈥渂est attributes of the North American graphite industry.鈥�
Eric Desaulniers, CEO of鈥疦MG, said the transaction showed that the company has a 鈥渞ealistic growth strategy鈥� and the ambition of being a preferred supplier for 鈥渢he generation to come.鈥�
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 B茅cancour to serve the lithium-ion battery and fuel cell markets.
BMO analyst Robin Fiedler, who follows Nouveau Monde, described the company鈥檚 joint-venture obligations in the deal as 鈥渕anageable,鈥� despite having its 鈥渉ands full鈥� with the company鈥檚 own operational and funding needs.
The deal could more than double the company鈥檚 graphite capacity in the long-term, Fiedler wrote in a research note to clients.
He added that the high levels of 鈥渟ulphide impurities鈥� in the project would require immediate processing to avoid oxidization, which meant that it needed a larger mine or a plant to 鈥渏ustify the economics.鈥�
鈥淲e believe the resulting project redesign and upsized funding needs led Mason鈥檚 board to undergo the year-long evaluation of strategic options,鈥� wrote Fiedler. 鈥淟astly, we also understand that sulphide impurities may pose issues with achieving high-purity graphite concentrate needed to make anode material.鈥�