National Bank provides update, confirms $1.20 target National Bank Update
Nearing release of BFS Markets likely to heat up
Mason Graphite Inc.
LLG (TSX.V) $0.55
Stock Rating: Outperform
(Unchanged)
Target: $1.20
(Unchanged)
Risk Rating: Speculative
Nearing release of BFS (Bankable feasibility study)
Markets likely to heat up; BFS should solidify
low cost leadership position
Battery markets heating up and provide upside for LLG
Recently, the outlook for Li Ion battery market growth has
improved, with companies lining up to expand global
production by 3–4x in the next five years. This is interesting
for current and prospective graphite producers given that Li
Ion batteries consume more graphite than lithium.
LLG could produce speciality material for Li Ion batteries
Our analysis and valuation assumes that LLG produces
product for sale into commodity markets. However, LLG is
performing a detailed study on large-scale production of
value-add products that could materially increase margins.
Bankable feasibility study (BFS) should come out in
summer
Following release of the BFS, LLG could start to move quickly
towards financing and construction of its >$100 mln capex, 50
MT/yr flake graphite mine and processing facility. The BFS
and other study results could highlight lower capex and opex
estimates as wells improved resource specs than the PFS.
LLG’s cost advantage should drive it forward
LLG’s cost advantage gives attractive paybacks under a
range of future pricing scenarios; this could improve further
with BFS. On a relative basis, LLG’s advantage is greatest
when graphite prices are low, as they are today.
Production could start in late 2016; not far now
Should LLG remain on schedule, construction start may not
be far away; LLG could soon be viewed as a lower risk stock.
Maintaining target and rating
Our $1.20 /sh target uses: a 0.9x NAV, 14% DCF, 7.0x
EV/EBITDA on 2018E, current market prices for graphite and
no upside for speciality products. This target could move
higher if LLG de-risks its construction financing. We believe
that LLG should be fully funded to the point of construction.