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Mason inks cooperation agreement with First Nations for development of Lac Gueret

Published: 13:35 23 Jul 2014 EDT

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Mason Graphite (CVE:LLG)(OTCQX:MGPHF) has signed a cooperation agreement with a First Nations group for the pre-construction phase of its Lac Gueret graphite project in Quebec, advancing its asset further along in the development process.

The company is planning to build the project into an open pit graphite mine, which is expected to produce some 50,000 tons of concentrate per year. Once in production, the operation is expected to create about 80 direct jobs, Mason said, for both aboriginal and non-aboriginal residents of the area. 

Construction could start as early as 2015. The mine site will also include infrastructure for a concentrator, as well as maintenance, office and personnel buildings.

The agreement between Mason and the Conseil des Innus de Pessamit, of the Pessamit First Nation, is an important first step in establishing the relationships the junior graphite developer needs with the local communities, it said. The company is planning to hold information and consultation activities in the coming months. 

The mutual commitment to cooperation between the two parties also paves the way for an impact and benefits agreement, and provides a fair distribution of construction, maintenance, and operating jobs and contracts according to the available resources of the communities. 

"The Lac Gueret project will be a world-class operation," said Mason Graphite CEO Benoit Gascon. 

"Not only is this very high quality, crystalline large-flake graphite, a highly sought-after product on international markets, but the average grade of the ore, as set out in the company's PEA, is approximately 27.4% Cg and its purity is at the top of the grading scale. 

"We expect prices to average an estimated $1,525 per ton, resulting in potential sales of $76.2 million per year," he added.

Indeed, Mason's Lac Guéret project appears to be among the highest grade deposits in the world, wrote National Bank Financial analyst Rupert Merer last week, with about 22 years of supply of mineral resource at a grade of 27.4% graphite and 50 plus years at more than 15% graphite, which is still considered a high grade. 

The property is located in northeastern Quebec, 300 km north of Baie-Comeau. Mason, which last updated the resource in January, is looking to release a feasibility study later this year, with first production of flake graphite targeted for early 2016.

The cost to develop the operation is estimated at about $130 million, with a pre-tax net present value of $283 million, at a 10 percent discount rate, and an IRR in excess of 30 percent at current graphite prices. Production at Mason's project is set to come onstream at the perfect time, with global demand for flake graphite growing rapidly due to the material's strong electrical and thermal conductivity, high strength and resistance to corrosion, said National's Merer, who initiated coverage of Mason last week with an outperform rating and a C$1.20 price target.

"Pessamit doesn't have the businesses and qualified workers that other parts of the Cote-Nord region do," said the chief of the Pessamit Innu, Rene Simon.

"That's why the cooperation agreement includes incentives and training programs delivered through existing organizations as well as onsite apprenticeships once the project is underway. Our agreement with Mason Graphite is based on the principal of equity between two nations, which is why we, the Innu of Pessamit, are actively supporting it."

Mason said in its announcement today that the process of producing graphite by physical separation requires no chemicals and the mine is expected to be considerably less invasive and will have a "much smaller footprint" than typical mining operations.

Natural graphite, which has several applications in industrial refractories, is also used in braking systems and in lithium-ion batteries, for which demand is growing by some 20 percent per year, according to auto industry estimates. 

Mason, which is backed by a strong management team headed by the former chief executive of Timcal, has so far received $15.6 million in financing from four Quebec-based government entities with deep pockets.

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