​Why Invest in a Company Looking for ‘Pencil Lead’?

A. Paul Gill (on behalf of Lomiko Metals Inc.) |

Some investments look odd on the surface but make a lot more sense once you perform due diligence. With debate circulating over the production of oil and pipelines in Canada, pencil lead might be just the thing to convert Canada to a ‘green economy’.

Graphite pencil lead is only one form of a very common substance—carbon. Coal, another form of carbon, shaped our modern Industrial Revolution, and the coal-bearing areas of the Ozark mountains made America an industrial giant in the early 20th century. Another form of carbon creates diamonds, one of the hardest and most beautiful gemstones in the world. The picture below shows flake graphite samples from Lomiko’s La Loutre property in Quebec.

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Graphite is best known as pencil lead, but it has an incredible array of uses that make it a miracle material. A primary use for graphite is creating refractories, which are heat-resistant materials that are used in manufacturing steel and molds and as insulating bricks in steel foundries. In addition, graphite is useful as a dry lubricant in areas where liquids cannot be used, heat sinks in outdoor and stadium lighting, vehicle brakes and as an additive in manufacturing. However, graphite’s primary use and the reason it is considered a critical element by both the European Union and America is its crucial role in the green economy. Demand for graphite due to its wide array of uses is shown in the chart below in comparison with other ‘green materials’.

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Graphite has amazing qualities; it exceeds copper in its ability to handle electrical current and conduct and contain heat, and it is much easier to combine into 3D printing materials, indicating a bright future in additive manufacturing. However, the most exciting use is as an anode in lithium-ion batteries, the most prevalent power system for electric vehicles.

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By 2040, 50% of cars will be electric, and current EV technology depends on lithium-ion batteries. These batteries contain 15 times more graphite than lithium, and lithium has increased four-fold in price due to demand. The demand for graphite is also increasing, as the price for battery-grade graphite materials doubled over the last three years and is slated to move higher.

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In 2012, China supplied 90% of the world's graphite, but that percentage has been dropping every year, hitting 70% in 2018. More graphite is being consumed by the Chinese lithium-ion battery manufacturing boom led by e-bikes, EVs and cellular phones and tablets. Both the E.U. and the U.S. have declared graphite a critical mineral, indicating that there are no economic alternatives. This is good news for graphite companies in Canada. Canada has a good reputation for its ability to supplant the Chinese supply of graphite and provide secure supplies. Quebec is especially important due to its proximity to eastern American industrial centers, and Quebec’s stable, long-term approach to governing the mining industry.

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Graphite prices have increased 100% in the last three years to more than $2,000/tonne. If this were the gold market, investors would be dancing in the streets. However, in the battery materials space, we must see multi-year sustainability to call it a bull market. This is likely to occur as demand outstrips supply. Speculative interest in the graphite market is already beginning to take off, which should help attract major customers or partners to Lomiko’s La Loutre Project.

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Lomiko Metals Inc. is a Canadian-based exploration-stage company. The company is engaged in the acquisition, exploration and development of resource properties that contain minerals for the new green economy.

La Loutre is situated in the heart of Quebec’s graphite zone with neighbours like Northern Graphite TSXV: NGC, Nouveau Monde TSXV: NOU and Imerys Carbon and Graphite, which has the only operating mine in North America. Infrastructure is excellent as the project is 1.5 hours from the International Seaport of Montreal along a paved highway. We are ready to drill our second resource in a high grade (10%+ Cg). At present, the project is one of the most promising in the world. The La Loutre Flake Graphite Property of 18.4 million tonnes of 3.19% in the indicated category and 16.7 million tonnes at 3.75% Flake Graphite Inferred with a cut-off of 1.5% at the Graphene-Battery Zone.

With graphite prices edging close to $2,000 per tonne, the key is to keep costs of extraction and processing lower than $500 per tonne to achieve a decent profit margin. If costs are maintained at that level, prices remain near $2,000 per tonne and demand continues to grow, then the project has multi-billion-dollar potential as an open pit mine, as depicted below.

In 2018, Lomiko signed a deal to increase its ownership of the La Loutre Property to 100%. Further, it was able to raise $1.5 million to develop the project and launch several technology initiatives that will be hitting the public markets in 2019.

Lomiko plans to complete drilling in the Refractory Zone of the La Loutre Property, concentrating on an area that produced 135 m of 7.74 metres and 110 metres of 14.56% to create a second resource, complete metallurgy and a 3D model of the property as well as a Pre-Economic Assessment (PEA) by the end of 2019 that will establish a book value for the project.

By A. Paul Gill, CEO of Lomiko Metals Inc and Lomiko Technologies Inc.

A version of this article was originally published on MoneyTalks.net. This article includes minor edits for clarity.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
LMR:CA Lomiko Metals Inc. 0.05 0.00 0.00 118,000

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