Lomiko Metals looks to build on positive PEA for La Loutre graphite project

2021.09.11

Following the positive results of a Preliminary Economic Assessment (PEA) for its La Loutre flake graphite property in Quebec, Lomiko Metals Inc. (TSXV: LMR) (OTC: LMRMF) (FSE: DH8C) last month announced that it has engaged the services of Hemmera, a wholly owned subsidiary of Ausenco Engineering Canada Inc., to complete the project’s environmental baseline studies.

As the Canadian division of the Australian-based global engineering firm, the environmental consultancy was the same firm hired by Lomiko to complete the La Loutre PEA.

“Lomiko is focused on investigating the best methods of handling mineralized and non-mineralized material for the duration of the project and remediation of the area as quickly as possible,” Lomiko’s President and CEO A. Paul Gill stated.

Environmental Baseline Studies

Dedicated to providing the critical raw materials for the burgeoning EV market in the middle of a global “clean energy” transition, Lomiko decided early on to explore as many layout alternatives as possible in order to reduce environmental impacts, upstream of the impact assessment process for the La Loutre graphite project.

In fact, during its PEA study, which is typically economic in nature, the internal team made an early decision to reduce the project’s footprint to a minimum and reduce encroachment upon local wetlands and lakes. Several different alternatives were evaluated.

Very early on during the concept studies, Lomiko decided to evaluate environmentally friendly options for tailings to avoid the creation of traditional tailings disposal areas, which comprise impoundment of tailings and water. This approach led to the choice of co-disposal of tailings with mine waste rock, even though it is a higher-cost option for tailings disposal.

By making early, well thought out and proactive decisions, the project is seeking to minimize its environmental footprint and, wherever possible, avoiding contact with water, rather than simply implementing mitigation solutions.

With this approach in mind, Lomiko has retained Hemmera to begin baseline studies of the surrounding area of the La Loutre property. According to the company, the studies will make it possible to properly understand and document the environment of the area.

The baseline studies will start with the characterization of wetlands, the characterization of fish habitat, hydrology and surface water quality. These studies will progress through to next year to provide the required information for the next project study phases as well as the environmental impact study, focusing on minimizing and compensating for any potential environmental impacts.

La Loutre Overview

The La Loutre project consists of one large contiguous block of 42 mineral claims totaling approximately 2,509 hectares (25.09 km²) in the Laurentides administrative region of southern Québec.

The property is located approximately 117 km northwest of the city of Montréal and 53 km east of the Imerys Carbon and Graphite’s Lac des Iles mine. Farther out, Nouveau Monde Graphite and its high-purity mineral reserve at Matawinie are located 230 km to the north.

La Loutre was originally explored for base and precious metals in the late 1980s. However, historical reports have also pointed to graphite being present in different lithologies on the property.

Recent sampling by Lomiko has confirmed a graphite-bearing structure covering an area approximately 7 kilometers by 1 kilometer with results of up to 22.04% graphite in multiple parallel zones of 30-50 meters wide.

Another area has also been identified covering approximately 2 kilometers by 1 kilometer in multiple parallel zones of 20-50 meters wide which include results up to 18% graphite.

The two mineralized areas on the property were later named the Electric Vehicle (EV) zone and the Graphene-Battery zone respectively for the potential applications of the graphite material contained in each.

The project’s first resource estimate (2016) was obtained from only the Graphene-Battery zone, containing a pit-constrained 18.4 million tonnes of 3.19% graphitic carbon (Cg) indicated and 16.7 million tonnes at 3.75% Cg inferred.

Encouraged by the initial estimates, Lomiko pursued further exploration drilling at La Loutre, including the EV zone, to boost its resource base. The latest drill program in 2019 returned positive results, which had high-grade intercepts of 87.9 m of 7.14% Cg, including 21 m of 15.48% flake graphite; and 116.9 m of 4.80% Cg, including 15.2 m of 18.04% flake graphite.

These results allowed the company to expand the resource, as shown in the PEA, to an estimated 23.2 million tonnes indicated grading 4.51% Cg (for 1.04 million tonnes of contained graphite), plus 46.8 million tonnes inferred grading 4.01% Cg (for 1.9 million tonnes of graphite).

PEA Recap

As we’ve previously discussed, the La Loutre PEA represents a major milestone for what could well be the next large-scale graphite project in Canada.

Highlights of the study are listed below:

• An open-pit project with total graphite production of 1.4 million tonnes spanning 14.7 years, for average annual production of 97,400 tonnes;
• Attractive cash costs of $386/tonne Cg and all-in sustaining costs (AISC) of $406/tonne Cg — both in the lower end of the industry spectrum;
• Low capex of C$236.1 million for pre-production, processing and infrastructure, plus another C$37.7 million budgeted for sustaining capital over the life of mine;
• An after-tax internal rate of return (IRR) of 21.5% and after-tax net present value (NPV) of C$186 million – strong results that support the advancement of the project to the next phase of development;

The PEA assumes an 8% discount rate and $916/tonne Cg sale price, which, given the project’s low costs, makes La Loutre a viable candidate to become the next major graphite producer in North America.

“La Loutre has shown it has the potential to become a highly profitable graphite mine in one of the most prolific producing regions in Canada,” Lomiko’s chief executive Paul Gill stated in the July 29 news release.

The early-stage study also alluded to the property’s geological potential to extend the mine beyond its approximate 15-year life. Opportunities are there to expand the scale of production by increasing the existing resource through further exploration and drilling.

Analyst Coverage

Shortly after the PEA release, analysts at Vancouver-based Fundamental Research Corp. (FRC) initiated coverage on Lomiko Metals, reiterating a BUY rating for the company’s stock and raising their price target C$0.27 to C$0.31 per share.

FRC’s analysis is based on a robust PEA for the La Loutre graphite property, as well as the company’s financial standings and its exploration potential relative to comparable developers.

Specifically, the firm pointed to the project’s IRR and NPV figures, which are considered healthy even in weaker scenarios.

The near 15-year mine life (open-pit and flotation) was considered a conservative estimate, as it accounted for only 65% of the indicated and inferred resource at La Loutre. In fact, the updated resource estimate shown in the PEA was much higher than FRC’s original estimate (141% vs 75%), with weighted average grades increasing by 20% as well.

Integrating the PEA results, FRC placed LMR at a value of C$0.38 per share using the DCF (Discounted Cash Flow) valuation model (see below). And this was based on a significantly higher discount rate of 15% to account for the risks associated with development projects.

This implies that LMR is severely undervalued, as the stock has been trading between C$0.11 and $0.17 in the months leading up to the PEA.

Compared to its peers, Lomiko also seems to be a more attractive investment opportunity.

On an enterprise value to resource basis, FRC determined that LMR is trading at just C$15/tonne versus the sector average of C$27/tonne (as of August 6, 2021). From this, the research firm arrived at a valuation of C$0.23 per share for Lomiko’s comparables, again indicating that the stock is severely undervalued in the current market.

The table below illustrates LMR and comparable junior resource companies focused on graphite. Note that none of the projects are directly comparable, as there are significant variations in the characteristics (flake size, distribution, grade, etc.) of each project.

FRC also pointed out that after reporting strong gains in the first few months of this year, shares of graphite mining juniors have pulled back in the past few months, but are still trading significantly higher year-on-year.

FRC believes that the recent dip in share prices offers a good entry point for investors, as it sees demand for natural graphite used in batteries to grow by at least 5 times this decade, with the market entering a supply deficit beginning in 2025.

Conclusion

Like Lomiko boss Paul Gill had exclaimed in a recent interview with InvestmentPitch Media, “It’s exciting times for the company.” According to Gill, these PEA numbers essentially presented a discounted net asset value in the current marketplace.

He also pointed to the continuous head grade of over 6.5% during the life of mine at La Loutre, which is very much comparable to the project being advanced by Nouveau Monde down the road.

As those who have been following the Canadian junior mining space are aware, Nouveau Monde’s Matawinie property is one of the premier graphite projects in North America right now. The company has been a major beneficiary of Quebec’s critical and strategic mineral development plan, having received greenlight in February from the provincial government to build what looks to be the Western World’s largest graphite mine.

Continued progress on its graphite project has allowed Nouveau Monde to successfully grow its market cap to nearly C$400 million, from less than C$50 million in value a year ago. The increased investor appeal also culminated in a successful listing on the NYSE in May.

“We certainly want to follow the path they’ve developed,” Lomiko’s Gill commented on its next-door neighbor, offering a glimpse of what La Loutre could bring to the table in the future.

“Some key things that you have to remember about this project are good recovery rates for the concentrate. We’re getting excellent recoveries up to 97% — that’s a very efficient use of the material. Also, it’s a very compact site that allows us to extract, process and store the material that’s being mined,” he said.

“There’s more work to do, but definitely we have the opportunity to really build something of great value.”

Lomiko Metals Inc.
TSXV:LMR, OTC:LMRMF, Frankfurt:DH8C
Cdn$0.12, 2021.09.09
Shares Outstanding 215m
Market cap Cdn$24.72m
LMR website

Richard (Rick) Mills
aheadoftheherd.com
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