Canada Carbon: Uniting Marble and High-purity Graphite at Miller

Graphite and marble aren’t often found together, but for Canada Carbon (TSXV:CCB) they’re proving to be a winning combination.
The company’s Quebec-based Miller project contains both marble and hydrothermal disseminated and lump graphite, and the company’s press release of its preliminary economic assessment (PEA) highlights, released on March 4, shows that the two materials should lead the company to a profitable future.
“We are pleased that the PEA has confirmed the financial viability of our proposed business model,” said Executive Chairman and CEO R. Bruce Duncan in a press release. “Given the low CAPEX costs for marble extraction, the less onerous quarry permit process and the marble sales contract already in place, the Company’s business plan envisions that operations on the Miller property would begin with the extraction of marble.”
He added, “[t]his is the fastest path to cash flow which will in turn be utilized to fund some of the graphite CAPEX costs.”

Starting small at Miller

Speaking to the Investing News Network, Olga Nikitovic, CFO at Canada Carbon, emphasized that one of the key takeaways from the PEA is that Miller will be a small operation with the capacity to produce 1,500 tonnes of specialty high-purity graphite product per year, along with 150,000 tonnes of architectural marble.

“We’re starting small for a number of reasons,” she said. “First of all, we’re going into a specialty market … [and] generally when you go specialty you have lower volume, higher prices.” Nikitovic also pointed out that low-volume operations can have an easier time getting through the permitting process. “You don’t have a huge footprint,” she explained.
That’s all certainly positive, but Nikitovic did admit that Canada Carbon’s plan to produce just 1,500 tonnes of specialty high-purity graphite product each year means that the company’s cost per tonne is higher than the amounts presented by companies looking to produce more material.
To address that point, she pointed to a comment made by Duncan in the PEA release: “high-purity graphite commands higher prices which more than offset the costs.” Nikitovic added, “our total cash operating costs are divided by the low volumes that we’re putting through, so our costs look high. [However,] our revenues per tonne are significant and we used an all-in number for our operating costs — it includes all processing and operating costs except for depreciation and taxes.”
Specifically, life-of-mine gross revenues for Miller are pegged at $550 million, while its operating costs are set at $231 million. That translates into life-of-mine average cash operating costs of $8,666 per tonne for graphite ($6,880 per tonne after the first five years), and $54 per tonne for marble.
Other key numbers include initial capital costs, which are set at $44.4 million with a pre-tax payback period of 1.9 years (two years post tax). Using an 8-percent discount rate, Miller’s base-case pre-tax NPV clocks in at $150 million, while its base-case post-tax NPV stands at $110 million. Those numbers shrink to $131 million and $96 million when a 10-percent discount rate is used. Finally, Miller has a pre-tax IRR of 100.2 percent (85 percent post tax).

What’s next?

It’s clear that Canada Carbon has big plans for graphite and marble production at Miller, but of course there’s still a significant amount of work to do before that can happen.
The next step will be to complete a prefeasibility study for Miller, and as the company announced on March 6, it’s well into that process — it’s already completed a 3,405.5-meter infill drill program across 47 holes, and will use that data to upgrade the inferred graphite and marble resources at Miller to the measured or indicated categories.
Nikitovic also said that investors should ultimately expect to see Miller become a larger operation. Indeed, she said that so far, the company’s resources are based on an area that represents only 0.22 square kilometers of the total 100-square-kilometer Miller claims. Furthermore, the company intentionally focused on drilling shallow holes to quickly define a near-surface resource — as a result, while graphite mineralization is open to depth and on strike in both directions, the deepest part of the open pit is only 75 meters below surface.
The idea is that eventually Canada Carbon should be able to explore Miller further using money generated from graphite and marble production. The company anticipates, subject to obtaining positive prefeasibility study results, that it will start producing marble on or about February 2017, and graphite on or about January 2018. See this chart for a more detailed timeline.
At close of day Monday, Canada Carbon’s share price was sitting at $0.305, up 5.17 percent. In the last year, its share price has risen 17.31 percent. Investors will no doubt be watching carefully to see how work progresses at Miller.

 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Canada Carbon is a client of the Investing News Network. This article is not paid-for content. 
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Related reading:
Dr. Pieter J. Barnard on Canada Carbon’s Miller Graphite