Mason Graphite Inc. (LLG-TSXV, $0.80)

Outperform; Target: $1.50, up from $1.40


Metallurgical Testing Confirms Excellent Recoveries, Raising Target

Mason released metallurgical testing results from 1,400 kg of material from the GC Zone of the Lac Guéret deposit. Highlights of the results include:

•             Excellent recoveries of more than 96%. As we had been modeling 87% recoveries, our cash cost estimates have come down substantially. We now model 95% recoveries.

•             At ~96.3% carbon content for both large and medium flake size factions, concentrate purity is better than the 95% C we were expecting. This could have a positive effect on pricing. Although the 91.7% carbon content for the small flake material was below our estimate, we understand that additional cleaning of the material could improve this to ~94% C, in line with industry standards.

•             29% of the material was in the large flake category (+80 mesh), including 16% at +50 mesh. The +50 mesh product could fetch a 20-25% premium price to conventional large flake, which we don’t currently include in our estimates.

•             14% of the material was medium flake (+150 mesh) and 57% was small flake. This is below the 30% medium and 40% small we were expecting. As further optimization could improve this, we are adjusting our size breakdown to 30%/20%/50% large/medium/small flake.


Our NAV for Mason increases to $1.50 from $1.40 as the higher recoveries more than offset the higher proportion of small flake material. Our NAV continues to be based on a multiple of 0.8x our NPV10 on Lac Guéret.


Overall, we think the results are great as 96%+ recoveries for 96% concentrate indicates flotation works very well on the material. Mason expects to release drill results next week, followed by an updated resource estimate in late March/early April. Mason is trading at an EV/tonne of $17.23 of contained graphite vs. its peers at $59.43.

Applicable Disclosure List Reference

Mason Graphite Inc. (LLG-TSXV)               6

A member of the research team has visited the subject company's operations: We visited the Lac Gueret Project on September 18, 2012.

Disclosure List

1. Within the last 12 months, Stonecap or its affiliates have provided investment banking and/or related services for the subject issuer.

2. Within the last 12 months, a director, officer, or analyst with Stonecap has provided services for remuneration, other than investment advisory or trading services, to the subject issuer.

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Investment Rating Guidelines

Outperform: The stock's risk adjusted total return is expected to materially outperform sector peer returns over the next 12 months.

Sector Perform: The stock's risk adjusted total return is expected to approximate sector peer returns over the next 12 months.

Underperform: The stock's risk adjusted total return is expected to materially underperform sector peer returns over the next 12 months.

Under Review: The stock rating is under review, pending evaluation of material new information.


Risk Qualifier Guidelines

Average: Operational and financial risks are assessed as being in line with sector peer levels.

Above Average: Operational and financial risks are assessed as being significantly above sector peer levels.

Speculative: Operational and financial risks are assessed as being exceptionally high, low predictability of financial results.


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