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Mason Graphite secures key Lac Gueret permit, clearing 'uncertainty'

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Mason Graphite secures key Lac Gueret permit, clearing 'uncertainty'

Mason Graphite Inc. cleared a critical permitting hurdle that sets the stage for possible construction of the Lac Gueret graphite project in Quebec, and may also remove a damper on the company's shares, one analyst said.

The Quebec government gave authorization for the project through a decree that serves as the main permit needed before construction of the project can begin.

"Once you have the decree there's nothing else that stops you," Simon Marcotte, Mason Graphite's director of corporate development, told S&P Global Market Intelligence in reference to additional permits required by the company.

Other permits, such as for the use of explosives and cutting trees, are still required by the company, but they come easily on the back of the decree, he said. They are "expected soon," Marcotte said. "There's no risk when it comes to the other ones."

Lac Gueret stands as one of the larger and higher-grade graphite projects at an advanced stage of preconstruction development. A 2015 feasibility study outlined a 25-year open pit operation producing an annual average of 51,900 tonnes of graphite concentrate. The feasibility study was designed around marketing a product suitable for mostly non-battery markets, but Mason Graphite is studying the possibility of making a higher-value graphite, for instance for the growing lithium-ion battery sector.

The company aims to exploit reserves of 4.7 million tonnes grading 27.8% graphitic carbon, which comprises a higher-grade portion of the larger Lac Gueret deposit that hosts measured and indicated resources of 65.7 million tonnes grading 17.2% graphitic carbon, including reserves.

In the 2015 feasibility study, the project's net present value was estimated at C$352 million, using an 8% discount, with an internal rate of return at 34.3%, both after taxes and using an average graphite price of C$1,905/tonne.

Marcotte declined to say if Mason Graphite would start to break ground with the cash it has on hand or wait for final funding, assuming it comes through. "I don't think there's a definite answer to that," he said.

In January, Mason Graphite closed a C$45 million financing that the company expects will serve as a significant portion of the money it needs to build Lac Gueret. In a November 2017 update to the 2015 feasibility study, Mason Graphite pegged capital expenditures to build the project at C$200 million.

Marcotte said that after putting deposits down on long-lead equipment, Mason Graphite's cash position stood at C$47.6 million at the end of the first quarter of 2018. The company aims to use, roughly speaking, 50% equity and 50% debt to cover the C$200 million requirement.

That, Marcotte noted, leaves about half of the equity portion left to be raised, along with the debt portion.

National Bank of Canada analyst Rupert Merer cast the permitting news as highly positive for Mason Graphite in a June 6 note, calling it a "significant catalyst" in removing an overhang on the junior's shares. "The stock has been under pressure lately, likely because of uncertainty related to the approval process," Merer noted.

Merer also said Mason Graphite could raise the rest of needed funds "in a few months" in the wake of the recent C$45 million financing. Mason Graphite may not need to go to market for all of the cash it wants to raise through equity, Merer said, as the junior owns more than C$40 million worth of stock in Group NanoXplore Inc. It might do a partial sale of the stock, limiting the need to raise on the market, according to the analyst.

Meanwhile, Merer noted that government-backed agencies might fund Mason Graphite through debt and equity. Ressources Québec, a subsidiary of provincial development agency Investissement Québec, is already a significant Mason Graphite shareholder with a roughly 12.6% stake, according to Marcotte. It also has a right of first refusal on Mason Graphite financings, an arrangement it acquired when Mason Graphite was initially funded.

The question now is whether, with major permitting behind Mason Graphite, such an agency will consider throwing more weight behind the graphite project.