Liftoff: What happens when the market “gets it”

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A recent article in the Financial Post highlighted Canada Carbon Inc. (TSXV:CCB).

As quoted in the article:

Two companies, Nemaska Lithium (T.NMX) and Canada Carbon (V.CCB). I wrote about Nemaska Lithium in December 2015 just before it began its run from $.40 to a high of $1.97 reached in May 2016. Nemaska has dropped back a bit and is now trading in a range between $1.20 and $1.50.

The other company, Canada Carbon, traded flat throughout 2016 and on into 2017. What’s the difference?

Both companies are in the business of developing mines and processes for what might be described as technical or strategic minerals: Nemaska is developing a hard rock lithium deposit in Northern Quebec, Canada Carbon is developing a very high purity graphite deposit in Southern Quebec. Both companies have a material which requires processing to bring to market. Nemaska uses a process it has patented to turn spodumene concentrate into high purity lithium hydroxide and carbonate. Canada Carbon uses a proprietary process to turn the high purity graphite it plans to mine at its Miller graphite deposit into ultra-high purity “nuclear graphite” for use in the rapidly growing nuclear reactor industry.

Canada Carbon, while it may actually be closer to permitted production than Nemaska, works in a different marketplace with different milestones and a different set of potentials.

Positioning to supply the nuclear graphite market requires third party certification of the purity of the natural graphite on offer. Canada Carbon has been engaged with ASTM International, an international testing and standards body, to develop standard purity testing procedures for nuclear graphite. Canada Carbon’s purified Miller graphite has been used as ASTM’s test material as it develops this standard procedure. When that standard is published, Canada Carbon will be able to apply to have a specific batch of its purified graphite certified as a reference standard material. At that point, Canada Carbon’s graphite will be the only natural graphite in the world to have qualified under the new international purity standard for nuclear graphite.

In terms of moving to a position to actually mine and produce their respective products, Canada Carbon and Nemaska are in very similar places. Each has some permitting left to do. Canada Carbon needs to obtain its environmental certification expected in Q4 2017 and should be able to mine and process graphite in early 2018. Canada Carbon will, however, be quarrying the marble on its property before the graphite permitting process is complete. Nemaska and Canada Carbon still have feasibility studies to prepare and may need additional financing to get their mines into production. However, Canada Carbon’s projected mine CAPEX is only a fraction of that required by Nemaska.

The amount of nuclear graphite a particular, modern, reactor uses varies significantly depending on design, however, if you assume 1000 tonnes at $38,000 you would see an off-take on the order of $38,000,000 USD. Roughly four times the size of the off-take which created the step change in Nemaska’s market cap.

This back of the envelope calculation ignores first, the much higher purity of the Canada Carbon nuclear graphite, second the tightening of the supply of synthetic nuclear graphite which has occurred over the last decade. Both factors will tend to raise the price Canada Carbon will obtain for its graphite. By how much is pretty speculative until a negotiation is concluded.

Most investors would have loved to have had Nemaska in the portfolios in April 2016. That rocket has left the launch pad but Canada Carbon is rolling towards its own liftoff. History does not repeat itself, but it often rhymes: the step change we saw when Nemaska landed its off take agreement should be echoed when Canada Carbon announces and signs its first nuclear graphite customer.

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