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Lomiko Metals Releases NI43-101 in Quatre Milles…
Lomiko Resources LMR-V $0.135
Shares Outstanding... 65M
Market Cap... $9M
 Lomiko released the long anticipated historical results of drilling and exploration done by Graphicor in 1990 on the Quatre Milles graphite project last Tuesday. Results from 23 of 26 holes hitting significant mineralization indicate the potential for Quatre Milles to host a moderate tonnage, near surface, high grading graphite deposit in Quebec. The two things that stand out about Quatre Milles after analyzing the results is the grade is an outstanding 6.77%Cg, more than 3 times the grade of Northern Graphite’s Bisset Creek. The mineralization is also very close to surface averaging less than 12 meters from the top of the core intersection suggesting the shallow nature of the mineralization. The 43-101 suggests there are several flat lying interconnecting graphitic beds where in some places mineralization may dip up to 45 degrees suggesting depth potential of the deposit. Quatre Milles is an irregular shaped anomaly with multiple primary and secondary conductors within a 1.8km long trend up to 500m wide.
From the 43-101 report…
“The conductive trends in the central part of this property are extremely complex, as substantiated by the 21 drill holes in the immediate area. There are at least three, and possibly four, separate graphitic beds that tend to produce interfering conductive effects on surface because they are apparently relatively flat-lying. Based on a compilation of the conductor location and drill results, an anticlinal structure may be present, with several flanking graphitic horizons that vary in dip from flat-lying to 45 degrees. The structure is further complicated by north to north-northeast folding and/or faulting.”
The majority of the results cover an area less than 500 meters by 500 meters which represent a potential to establish at minimum, a 3Mt resource within the central area of the larger 1.8 km trend. Mineralization has been identified and confirmed along half (950km) of the strike of the anomaly through historic drilling and when confirmed across the entire 1.8km trend, has the potential to establish a much larger resource on the property.
Two notable near surface intersectionsQ90-07 7.59 meters grading 8.60% Cg and Q90-175separate intervals with an aggregate sum totalling 27.93 meters averaging a grade of 6.90% Cg where drilled 750 meters apart with many notable high value intersections drilled between these two holes. Q90-17 was also the furthest hole drilled on the project on the north east end of the deposit.
If Lomiko can identify a 3Mt to 5Mt resource at Quatre Milles, that is enough tonnage to support a 800tpd - 1000tpd operation mining graphite grades at greater than 6%. This would point to a potential small, but lucrative mining operation.
- Quatre Milles needs to establish at least a 3Mt to 5MT tonne resource to justify a mine.
- Quatre Milles also needs the right flake distribution
- it needs a high purity (most importantly)
Comparable to Flinders Resources?
If Lomiko can demonstrate these three qualities at Quatre Milles, it is an undervalued company when looking forward. These conservative tonnage targets will enable Lomiko to mine at rates similar to Flinders or Uley. Quatre Milles has the advantage of being located in the heart of the Grenville Province in Quebec which is ideally located near North America’s auto manufacturing hub in Detroit and less than 200km from Montreal and the St. Lawrence River. When comparing to other small but extremely high value graphite deposits, Flinders Resources is a great comparison with 4 small graphite deposits totalling 6.9Mt @ 8.8%Cg.
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Kringel 1.3Mt @ 11.3%C
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Gropabo 2.1Mt @ 6.9%
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Mattsmyra 2.2Mt @ 8.8%
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Mansberg 1.3Mt 9.4%
A tonnage target similar to Flinders is not an unrealistic starting point for Quatre Milles. With a grade between 6% and 7% Cg, the contained graphite in-situ could also be similar to Flinders. Right now there is a very big value discrepancy between the two companies which should diminish if Lomiko is successful in exploration this year. Considering Flinders is a $173M market cap company fully diluted post financing, Lomiko is a $10M market cap company fully diluted, there is still considerable potential upside for Lomiko’s share price when considering Flinders’ historical tonnage and grade and where Quatre Milles could be in 18 months. Even if Lomiko comes up with a low side 3Mt at 6%, that is still nearly half of Flinders historical resource suggesting even a low side estimate would still justify a much higher valuation than Lomiko currently commands. Certainly there is a lot of work to be done to get from A to B and to demonstrate an economically mineable deposit. It is certainly too early to say that Quatre Milles will be a mine, but it stacks up well against Flinders on a tonnage and grade comparison and also stacks up well against industry leader Northern Graphite when comparing certain mining qualities of the deposits.
Drilling Highlights…
Individual intercept highlights include…
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Q90-06 8.65 meters @ 8.07%Cgr
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Q90-07 28.60 meters @ 8.07%
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Q90-10 3.40 meters @ 8.02%
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Q90-11 7.20 meters @ 4.63%
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Q90-12 7.59 meters @ 8.60%
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Q90-13 9.59 meters @ 4.64%
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Q90-15 3.38 meters @ 9.76%
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Q90-17 11.20 meters @ 5.88%
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Q90-17 10.28 meters @ 5.99%
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Q90-19 8.07 meters @ 5.72%
In addition to these high grading intercepts historical results indicate multiple zones…
Quatre Milles is being evaluated for the open pit mining potential and aggregating these intervals whose intersections would be within the scope of a pit are relevant in evaluating what is ‘economic’ in terms of the ’sum of the parts.’ The distance between intersections does not exceed 13 meters on any of the holes and is typically between 1 to 10 meters between mineralized zones.
Q90-10 assayed 5 separate intervals with an aggregate sum of 7.75 meters averaging 9.17%Cg within 13.32 meter drill intersection between 2.14 meters and 15.46 meters from the top of the drill hole.
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3.40 meters @ 8.02%Cgr
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0.58 meters @ 10.59%
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0.50 meters @ 15.48%
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1.97 meters @ 12.37%
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1.30 meters @ 4.26%
Q90-17 assayed 5 separate intervals with an aggregate sum of 27.93 meters averaging 6.90%Cg with 54.34 meter drill intersection between 15.48 meters to 69.82 meters down the hole.
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3.15 meters @ 8.11%Cgr
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2.24 meters @ 13.29%
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11.2 meters @ 5.88%
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1.06 meters @ 9.53%
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10.28 meters @ 5.99%
Bisset Creek 2010/11 drill program vs. Quatre Milles 1990
One analysis technique in mining that I find very useful, but very time consuming is analyzing a company’s drill results in a spreadsheet format and comparing them to the results of other companies whose projects are thought to be economic or even against operating mines if there is a lack of development projects. Typically comparing to other preproduction developers is more relevant than comparing to producing mines considering the capital has already been spent for the producing mine and therefore needs to be less profitable on a Net Present Value basis. In this case, since Northern Graphite is clearly the industry leader, comparing Lomiko’s table of historical results to Bisset Creek recent drilling is relevant.
It is a simple and easy way to compare relative mining projects and address the most key mining issues, mainly grade (which enables low cost production by mill throughput and size of the mill needed) and depth and width of the mineralization (which affect the strip ratio of the project). Bisset Creek 2010/2011 drill results averaged greater than 2%, so for our purposes we will use 2% when comparing Bisset Creek and not the grade that came off the spreadsheet for Bisset Creek.
|
Bisset Creek |
Quatre Milles |
| Grade |
2% Cg |
6.77% Cg |
| Average Depth (downhole) |
17.4 meters |
11.9 meters |
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|
|
|
Individual |
Aggregate |
Individual |
Aggregate |
| Average Intercept |
16.40 meters |
25.09 meters |
3.82 meters |
6.81 meters |
| Rating (grade* width*100) |
32.81 |
50.18 |
25.88 |
46.14 |
As you can see from the table above, Quatre Milles can be compared to Bisset Creek and still be relevant to the conversation. A rating of 50 for aggregate drill hole vs. a rating of 46 for aggregate drill hole is almost identical on the rating scale. If you dropped the grade another 20% to 1.81% Cg which is Bisset Creeks average, it would be identical to Quatre Milles average rating of 46. A major advantage that a high grade graphite deposit has is it may have a higher strip ratio in an open pit scenario to mine than a wider lower grade ore body, but capital costs would be considerably lower needing a much smaller mill to achieve the same production output. A deposit with a grade of 3 to 4 times that of a 2% mine could produce the same amount of graphite with less than a 1,000tpd mill as that of a lower grading but much larger operation. It is the advantage of being a high grade producer, but unlike other industries, grade can be king, but is trumped by other more important issues when selling a niche product to the battery market. In the case of graphite…. metallurgy, flake size, and purity are more barriers to entry than the minimal capex costs for many of these potential graphite mining operations.
Mineralization at Quatre Milles so far starts closer to surface which is a slight advantage over Bisset Creek which averages 17 meters in depth. This will cut down on the strip ratio than a slightly deeper ore body like Bisset Creek, especially with Quatre Milles being much thinner ore body. There are also other issues liking the ore body potentially dipping at Quatre Milles which could changing the scope of a pit design than a just a flat lying deposit trying to scope in some of the deeper mineralization.
Graphite Mines… Small capex projects, fast payback periods and high Net Present Value
When I put numbers similar to Quatre Milles, the hypothetical graphite project (1000tpd at 6.77% and $40 per tonne mining costs with a rough $50M capex at $3,000 per tonne a 10 year mine life) has a NPV of $324M discounted at 6%. It also nets pre-tax cash flows close to $70M per year suggesting a payback of less than a year if initial capex costs are less than $50M. If you move prices up to $7,000 per tonne where NGC is rumored to securing an off-take agreement… the net present value of a 1,000tpd mine has a $938M NPV over 10 years discounted at 6%.
There are many steps in going from conceptual to actual, but if Lomiko starts by defining a 3Mt to 8Mt resource at Quatre Milles and can prove a relatively high large flake distribution with relative ease of processing and purity… Lomiko’s Quatre Milles could be one of the early dark horse picks from the second tier of companies vying for development capital outside of Energizer Resources, Flinders Resources, Focus Metals, Northern Graphite and Mega Graphite.
At an $8M market cap valuation it is still the cheapest with upside potential of nearly half million tonnes of graphite worth well over a $1B to $2B. The chance to develop a low-cost mine into a cash cow is an opportunity that does come around every day, especially with a project that is still cheap like Quatre Milles and the advantage of historical drilling. In a world where graphite companies market valuations range from $100M to $200M, it’s not a stretch to think that Lomiko is still extremely undervalued given the information we have about Quatre Milles. Quatre Milles has the grade, it’s got a full season of drilling, and now has an aggressive exploration plan to put an initial resource on the property. Lomiko’s Quatre Milles is miles ahead of any of the early entrants and is easily one of the more advanced graphite projects in Canada. This is also an industry where you don’t have to be big to be worth ton as is demonstrated by Flinders.
Lomiko is still extremely cheap in my eyes.
Why it’s still trading at $0.125 after the report showing that LMR has the potential for a decent graphite resource on the property has mystified me. I expect that with these types of numbers from historical work, that a valuation of ¼ of Flinders or Northern Graphite is more than appropriate.
Lomiko is still extremely undervalued.
Highlights…
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Drilling results average 6.77%
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Near surface mineralization with average depth of <12meters
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Q90-07 and Q90-17 drilled ~750 meters apart – NEAR SURFACE
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Mineralization has been defined along a 950 meter strike
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Primary and secondary conductors within 1.8km strike length and up to 500 meters wide
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Phase 1 drilling 1,500 meters 15 to 20 holes 50 meter apart along strike plus addition a holes to test the continuity
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Phase 1 includes metallurgical testing for grade, flake distribution and purity - $300,000 estimated cost for phase 1.
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Phase 2 drilling infill to define resource dependant on phase 1 results - establish indicated resources within the concentrated area of historical drilling and inferred outside the 300 by 600 meter area - $725,000 estimated cost for phase two.
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Explore for other mineralized areas on the property outside of the initial 1.8km by 500m trend
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A poor man’s Flinders? 3Mt to 5Mt @ 7% vs. 6.9Mt @ 8.8%
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Grade * width *depth compares well with Northern Graphite’s Bisset Creek
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