Tuesday, August 09, 2016

Nouveau Monde Finds an Acorn

Management from Nouveau Monde Mining Enterprise, Inc. (NMGRF:  OTC/QB or NOU:  TSX-V) has been making the rounds among investors over the past few weeks, talking up recent progress in developing a graphite mine in Canada.  Called the Matawinie, the deposit is located 150 kilometers north of Montreal and within shouting distance of a producing graphite mine, Lac-des-Iles West operated by Imerys, SA (EPA:  NK). Nouveau Monde just released the results of a preliminary economic assessment for one of the ten ‘blocks’ in the Matawinie property.

Nouveau Monde began development work in 2013, with a detailed aerial geophysical survey that covered over 2,100 square kilometers.  The unique approach led the company’s geologists to one of nature’s acorns  -  an area now called the Tony Block that had never previously been explored for graphite.  The company’s geologists then took to the ground with more conventional drilling, sampling and trenching work.  They found a circular deposit with as much as 30.8 metric tons of flake graphite mineral in two zones.  The company is particularly pleased with the purity levels in a range of 96% to 97%. 
The economic assessment put values to the find, concluding that at a price of US$1,492 per metric ton, the Tony Block could be valued at as much as CAD$237 million.  Of course, this independent economic study is only preliminary, but it is giving Nouveau Monde’s leadership something interesting to dangle in front of shareholders.
Nouveau Monde leadership is confident that the economics of its mine will be proven out.  Flake graphites of the type found in the Matawinie deposit must be filtered and ground into coated spherical graphite before the material can be used in a lithium-ion battery, one of the most attractive markets for graphite.  The high grade ores found in Matawinie are expected to cost less to process to the required purity, putting the company in a better position for profits.  The economic assessment estimates it will require about US$660 per metric ton for total operating costs, of which about $241 million is needed for mining and $331 is needed for processing. 
The real ace in the hole for the company is location.  Tony Block is about six kilometers from a small town called Saint Michel-des-Saints.  For perspective that is about 120 kilometers north of Montreal.  To reach its proposed mine site Nouveau Monde needs only build a 6.1 kilometer road from the existing Chemin Matawin highway.  Then it is an easy leg to Montreal and customers at points beyond.  There is also relatively easy access to power with a 10 kilometer transmission line to one of Hydro-Quebec’s substations.  The Montreal area benefits from nearly the lowest priced electricity North America.  Thus location is giving Nouveau Monde advantages terms of both capital costs for infrastructure as well as annual operating costs.
Nouveau Monde needs as many breaks as it can get.  As yet there are no off-take agreements in place, although management has apparently had detailed discussions with Imerys.  The grand old man of graphite materials has candidly revealed the near-end of its own resource in the area, Lac-des-Iles West.  Imerys already has strong customer relationships in place and teaming up with Nouveau Monde makes sense if Imerys wants to remain a major supplier in the graphite market.  With demand for battery grade graphite expected to mushroom in the near future, it would seem to be a good time to stay involved.
Now that the economic assessment has been completed, it is back to Matawinie and the Tony Block for more drilling and testing.  A feasibility study and environmental impact study will follow in 2017.  With management’s current timetable, mine construction is not expected to begin until late in 2018.  Excluding allowances for contingencies the initial capital costs are expected to top $122 million. 
Nouveau Monde management will likely be making the rounds several more times to raise the required capital.  At the end of March 2016, the company reported $47,542 in cash on the balance sheet.  The company recently raised CAD$2.3 million in a private placement to pay for the next leg of exploration and the feasibility study.   Nouveau Monde management will likely be making the rounds several more times to raise the required capital for the rest of the development work.
Investors in the U.S. will need to do a little extra work to investigate Nouveau Monde.  The company does not file reports with the SEC, but is current will all required reports to Canada’s SEDAR.  Then there is a choice between shares traded on the Toronto Venture exchange and shares as quoted on the OTC Pink Sheets maintained by the OTC Markets Group.  The Canadian exchange sees higher trading volume, but a patient trader using the U.S. quotation could avoid the currency exposure.   

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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