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Lomiko Metals looks to build on positive PEA for La Loutre graphite project

2021.09.11
Following the positive results of a Preliminary Economic Assessment (PEA) for its La Loutre flake graphite property in Quebec, Lomiko Metals…

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This article was originally published by A Head of the Herd

2021.09.11

Following the positive results of a Preliminary Economic Assessment (PEA) for its La Loutre flake graphite property in Quebec, Lomiko Metals Inc. (TSXV: LMR) (OTC: LMRMF) (FSE: DH8C) last month announced that it has engaged the services of Hemmera, a wholly owned subsidiary of Ausenco Engineering Canada Inc., to complete the project’s environmental baseline studies.

As the Canadian division of the Australian-based global engineering firm, the environmental consultancy was the same firm hired by Lomiko to complete the La Loutre PEA.

“Lomiko is focused on investigating the best methods of handling mineralized and non-mineralized material for the duration of the project and remediation of the area as quickly as possible,” Lomiko’s President and CEO A. Paul Gill stated.

Environmental Baseline Studies

Dedicated to providing the critical raw materials for the burgeoning EV market in the middle of a global “clean energy” transition, Lomiko decided early on to explore as many layout alternatives as possible in order to reduce environmental impacts, upstream of the impact assessment process for the La Loutre graphite project.

In fact, during its PEA study, which is typically economic in nature, the internal team made an early decision to reduce the project’s footprint to a minimum and reduce encroachment upon local wetlands and lakes. Several different alternatives were evaluated.

Very early on during the concept studies, Lomiko decided to evaluate environmentally friendly options for tailings to avoid the creation of traditional tailings disposal areas, which comprise impoundment of tailings and water. This approach led to the choice of co-disposal of tailings with mine waste rock, even though it is a higher-cost option for tailings disposal.

By making early, well thought out and proactive decisions, the project is seeking to minimize its environmental footprint and, wherever possible, avoiding contact with water, rather than simply implementing mitigation solutions.

With this approach in mind, Lomiko has retained Hemmera to begin baseline studies of the surrounding area of the La Loutre property. According to the company, the studies will make it possible to properly understand and document the environment of the area.

The baseline studies will start with the characterization of wetlands, the characterization of fish habitat, hydrology and surface water quality. These studies will progress through to next year to provide the required information for the next project study phases as well as the environmental impact study, focusing on minimizing and compensating for any potential environmental impacts.

La Loutre Overview

The La Loutre project consists of one large contiguous block of 42 mineral claims totaling approximately 2,509 hectares (25.09 km2) in the Laurentides administrative region of southern Québec.

The property is located approximately 117 km northwest of the city of Montréal and 53 km east of the Imerys Carbon and Graphite’s Lac des Iles mine. Farther out, Nouveau Monde Graphite and its high-purity mineral reserve at Matawinie are located 230 km to the north.

La Loutre was originally explored for base and precious metals in the late 1980s. However, historical reports have also pointed to graphite being present in different lithologies on the property.

Recent sampling by Lomiko has confirmed a graphite-bearing structure covering an area approximately 7 kilometers by 1 kilometer with results of up to 22.04% graphite in multiple parallel zones of 30-50 meters wide.

Another area has also been identified covering approximately 2 kilometers by 1 kilometer in multiple parallel zones of 20-50 meters wide which include results up to 18% graphite.

La Loutre property location map

The two mineralized areas on the property were later named the Electric Vehicle (EV) zone and the Graphene-Battery zone respectively for the potential applications of the graphite material contained in each.

The project’s first resource estimate (2016) was obtained from only the Graphene-Battery zone, containing a pit-constrained 18.4 million tonnes of 3.19% graphitic carbon (Cg) indicated and 16.7 million tonnes at 3.75% Cg inferred.

Encouraged by the initial estimates, Lomiko pursued further exploration drilling at La Loutre, including the EV zone, to boost its resource base. The latest drill program in 2019 returned positive results, which had high-grade intercepts of 87.9 m of 7.14% Cg, including 21 m of 15.48% flake graphite; and 116.9 m of 4.80% Cg, including 15.2 m of 18.04% flake graphite.

These results allowed the company to expand the resource, as shown in the PEA, to an estimated 23.2 million tonnes indicated grading 4.51% Cg (for 1.04 million tonnes of contained graphite), plus 46.8 million tonnes inferred grading 4.01% Cg (for 1.9 million tonnes of graphite).

La Loutre mineral resource estimate, effective May 14, 2021

PEA Recap

As we’ve previously discussed, the La Loutre PEA represents a major milestone for what could well be the next large-scale graphite project in Canada.

Highlights of the study are listed below:

  • An open-pit project with total graphite production of 1.4 million tonnes spanning 14.7 years, for average annual production of 97,400 tonnes;
  • Attractive cash costs of $386/tonne Cg and all-in sustaining costs (AISC) of $406/tonne Cg — both in the lower end of the industry spectrum;
  • Low capex of C$236.1 million for pre-production, processing and infrastructure, plus another C$37.7 million budgeted for sustaining capital over the life of mine;
  • An after-tax internal rate of return (IRR) of 21.5% and after-tax net present value (NPV) of C$186 million – strong results that support the advancement of the project to the next phase of development;

The PEA assumes an 8% discount rate and $916/tonne Cg sale price, which, given the project’s low costs, makes La Loutre a viable candidate to become the next major graphite producer in North America.

“La Loutre has shown it has the potential to become a highly profitable graphite mine in one of the most prolific producing regions in Canada,” Lomiko’s chief executive Paul Gill stated in the July 29 news release.

The early-stage study also alluded to the property’s geological potential to extend the mine beyond its approximate 15-year life. Opportunities are there to expand the scale of production by increasing the existing resource through further exploration and drilling.

Analyst Coverage

Shortly after the PEA release, analysts at Vancouver-based Fundamental Research Corp. (FRC) initiated coverage on Lomiko Metals, reiterating a BUY rating for the company’s stock and raising their price target C$0.27 to C$0.31 per share.

FRC’s analysis is based on a robust PEA for the La Loutre graphite property, as well as the company’s financial standings and its exploration potential relative to comparable developers.

Specifically, the firm pointed to the project’s IRR and NPV figures, which are considered healthy even in weaker scenarios.

The near 15-year mine life (open-pit and flotation) was considered a conservative estimate, as it accounted for only 65% of the indicated and inferred resource at La Loutre. In fact, the updated resource estimate shown in the PEA was much higher than FRC’s original estimate (141% vs 75%), with weighted average grades increasing by 20% as well.

Integrating the PEA results, FRC placed LMR at a value of C$0.38 per share using the DCF (Discounted Cash Flow) valuation model (see below). And this was based on a significantly higher discount rate of 15% to account for the risks associated with development projects.

This implies that LMR is severely undervalued, as the stock has been trading between C$0.11 and $0.17 in the months leading up to the PEA.

Compared to its peers, Lomiko also seems to be a more attractive investment opportunity.

On an enterprise value to resource basis, FRC determined that LMR is trading at just C$15/tonne versus the sector average of C$27/tonne (as of August 6, 2021). From this, the research firm arrived at a valuation of C$0.23 per share for Lomiko’s comparables, again indicating that the stock is severely undervalued in the current market.

The table below illustrates LMR and comparable junior resource companies focused on graphite. Note that none of the projects are directly comparable, as there are significant variations in the characteristics (flake size, distribution, grade, etc.) of each project.

Source: FRC/Company websites and technical reports

FRC also pointed out that after reporting strong gains in the first few months of this year, shares of graphite mining juniors have pulled back in the past few months, but are still trading significantly higher year-on-year.

FRC believes that the recent dip in share prices offers a good entry point for investors, as it sees demand for natural graphite used in batteries to grow by at least 5 times this decade, with the market entering a supply deficit beginning in 2025.

Conclusion

Like Lomiko boss Paul Gill had exclaimed in a recent interview with InvestmentPitch Media, “It’s exciting times for the company.” According to Gill, these PEA numbers essentially presented a discounted net asset value in the current marketplace.

He also pointed to the continuous head grade of over 6.5% during the life of mine at La Loutre, which is very much comparable to the project being advanced by Nouveau Monde down the road.

As those who have been following the Canadian junior mining space are aware, Nouveau Monde’s Matawinie property is one of the premier graphite projects in North America right now. The company has been a major beneficiary of Quebec’s critical and strategic mineral development plan, having received greenlight in February from the provincial government to build what looks to be the Western World’s largest graphite mine.

Continued progress on its graphite project has allowed Nouveau Monde to successfully grow its market cap to nearly C$400 million, from less than C$50 million in value a year ago. The increased investor appeal also culminated in a successful listing on the NYSE in May.

“We certainly want to follow the path they’ve developed,” Lomiko’s Gill commented on its next-door neighbor, offering a glimpse of what La Loutre could bring to the table in the future.

“Some key things that you have to remember about this project are good recovery rates for the concentrate. We’re getting excellent recoveries up to 97% — that’s a very efficient use of the material. Also, it’s a very compact site that allows us to extract, process and store the material that’s being mined,” he said.

“There’s more work to do, but definitely we have the opportunity to really build something of great value.”

Lomiko Metals Inc.
TSXV:LMR, OTC:LMRMF, Frankfurt:DH8C
Cdn$0.12, 2021.09.09
Shares Outstanding 215m
Market cap Cdn$24.72m
LMR website

Richard (Rick) Mills
aheadoftheherd.com
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Energy & Critical Metals

Evergrande Auto Hasn’t Sold A Single Car, But Has Enriched Its Founder And His Friends Plenty

Evergrande Auto Hasn’t Sold A Single Car, But Has Enriched Its Founder And His Friends Plenty

While everyone has been focusing on Evergrande…

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Evergrande Auto Hasn't Sold A Single Car, But Has Enriched Its Founder And His Friends Plenty

While everyone has been focusing on Evergrande as a property developer, few know the story about how Evergrande Auto became worth $86.6 billion at one point without selling a single car. The company now trades at a fraction, about 4%, of its all time high. While shareholders were wiped out for the most part, insiders made out well. 

On Tuesday of this week, the company did what it does best. No, not make vehicles: pay insiders. Evergrande Auto "granted 323.72 million share options worth HK$1.26 billion to three directors and around 3,180 employees of the company," a new report from Caixin notes.

Founder Hui Ka Yan and "friends" in his circle have made out the best from the fallen company. How well have they done? One "friend" of the founder bought 80 million shares in the company before it was renamed as Evergrande Auto for HK$0.30 each. They then sold them all for HK$50 per share, netting the friend more than HK$4 billion.

Hey, it's great work if you can get it. 

Caixin reports that the primary purpose of Evergrande Auto was to raise capital for the group company Evergrande. While the parent company claimed it was investing some 47 billion yuan into the auto company, analysts are starting to wonder if the market funded these investments instead. 

One analyst told Caixin: “Evergrande Auto had raised 30 billion yuan in two rounds, which means that the company mostly used investors’ money — instead of its own capital — to invest, and it managed to gain a high market value (for the auto company). Consequently, with its shares (in the auto company) at high price, it could use them as collateral to raise even more money.”

The company focused more on M&A than it did on making cars, the report says. For example, it bought a major stake in Xinjiang Guanghui Industry Investment Group Co. Ltd. for 14.5 billion yuan in 2018. As Caixin notes, that company is a stakeholder in China Grand Automotive Services Group Co. Ltd., which is one of the largest auto dealers in the country.

The stake was later sold off in 2019 when Evergrande needed cash. 

In 2019, Evergrande Auto's predecessor bought a 51% stake in National Electric Vehicle Sweden AB (NEVS) for $930 million, the report notes. Evergrande's stock price rose as a result. 

Part of the mechanics that helped Evergrande Auto's predecessor rocket higher included the fact that 18 shareholders owned 19.83% of the company's shares. When combined with the 74.99% of the issued shares held by the company, that only left 5.18% of Evergrande shares to be traded freely. 

Evergrande also acquired a 51% equity stake in Fangchebao Group Co. Ltd. using its shares. Fangchebao then brought in 17 investors in March 2021 that helped it raise capital at a valuation of HK$163.5 billion. Evergrande made HK$8.175 billion upon selling its shares.

Analysts, however, were baffled as to how Evergrande was able to bring in investors at the elevated valuation. The secret lied in a promise of a buyback from Evergrande.

One investor told Caixin: “What we valued was its valuation adjustment mechanism (对赌协议). If Fangchebao failed to go public within a year, Evergrande would buy back our shares at a 15% premium to the prevailing market price. At least, through this mechanism, we could get out money back.”

Those investors thought Evergrande could continue to push up Fangchebao's valuation and that Evergrande wouldn't fail within a year.

Another investor said: "However, Fangchebao was a relatively poor quality company, much worse than Evergrande Property Services. In Fangchebao’s case, it was better not to go public. It would be more troublesome after the listing because its poor performance would become public knowledge.”

Then there's the question of who truly benefitted from Evergrande's financial wheeling and dealing over the years. While investors and shareholders now suffer the consequences of the company's poor decision making, Hui Ka Yan's personal assets are now mysteriously being "transferred to new ownership", the report says. In fact, Hui was easily the single biggest beneficiary of the dividends paid by Evergrande from 2011 to 2020. 53 billion yuan of the 69 billion yuan that Evergrande has paid in dividends since it listed have gone to Hui.

You can read Caixin's detailed report here

Tyler Durden Thu, 09/23/2021 - 19:20
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Energy & Critical Metals

Why Nio Stock Needs Some Help When It Comes to the Charts

The electric vehicle (EV) trade has finally cooled off, which is a good thing given how far it had run. It would be hard for Tesla (NASDAQ:TSLA) to justify…

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The electric vehicle (EV) trade has finally cooled off, which is a good thing given how far it had run. It would be hard for Tesla (NASDAQ:TSLA) to justify a trillion dollar market capitalization or for these revenue-less SPAC stocks to keep soaring higher. Meanwhile, Nio (NYSE:NIO) is somewhere in between, with NIO stock performing quite well but not exactly on Tesla’s level.

Source: Robert Way / Shutterstock.com

At least, not yet.

In order to get there, the company will need to continue its domestic expansion in China and work on expanding globally. Tesla has been trading pretty well lately as it works on consolidating its massive gains over the last 18 months.

For Nio, though, the charts aren’t all that great right now. Combined with a high valuation, that has me on guard with the stock. For Nio, it needs the technicals to work in its favor in order for the stock to be attractive.

Trading Nio Stock

Daily chart of Nio stock
Click to Enlarge
Source: Chart courtesy of TrendSpider

A look at the chart highlights the recent struggles for Nio stock. Shares bottomed in early May along with most other growth stocks, as the bear market in this group came to end.

Nio ripped back toward $55 and the 61.8% retracement, but ultimately failed to hold those gains. It later failed to hold its major moving averages, while giving us an “ABC” correction down to the weekly VWAP measure.

This measure had been decent support throughout 2021.

However, after its rally back to the 21-day and 21-week moving averages, NIO stock gave us the “D” leg of that correction, resulting in the recent flush lower. We now see the stock below the weekly VWAP reading, as bulls scramble to see whether Nio can find its footing

If it can, we need to see Nio stock reclaim the August low at $36.24, as well as the weekly VWAP level. As of now, it’s currently undergoing a “monthly-down rotation” so long as it’s below $36.24. Back above those measures, and the high $30s could be in play.

On the downside, though, it’s possible we see the $31 to $32 area again. This area has been support twice amid two nasty corrections in Nio stock this year.

As a whole, Nio stock has been a leader amid growth stocks when the group is hot. But it has not done too well lately and it shows on the charts. So if the overall market struggles, this stock may too.

Breaking Down Nio

So many people will point to the fundamentals of a company like Nio without taking into consideration the valuation. Granted, I don’t put a lot of weight in the valuation either. At one point, valuations played a much larger role in the way that stocks behaved.

However, I think a few things have altered some of that Benjamin Graham thinking.

First, tech stocks blew the market wide open. No longer were companies having to follow traditional paths with only decent margins. Now software companies can routinely generate massive profit margins, while the tangible addressable markets (TAM) are significantly larger.

That’s allowed valuations to expand as well.

Second, the Fed’s low-rate and easy-money policies have forced investors to plow funds into equities. The returns in bonds (particularly internationally) and fixed income have dried up, forcing investors to chase returns in growth stocks — like Nio.

Is it healthy? Not necessarily, but this has been our reality for quite some time and it will likely remain that way for the foreseeable future.

I’m not calling for some great reckoning. A stock like Nio can continue to go up as long as it continues to deliver. But that remains a question mark.

While the company reported solid quarterly results last month, Nio’s July and August monthly auto deliveries disappointed investors. Furthermore, Nio was forced to trim its third-quarter delivery expectations.

Throw in Nio’s plan to raise $2 billion in stock, and it creates even more pressure on the stock price.

The Bottom Line on NIO Stock

It’s not that I have any specific gripe against Nio, but the facts are simple. For an automaker, the stock commands a high valuation and the company doesn’t have enough momentum in its underlying business right now. Thus, we need to see beat-and-raise quarters and delivery results in order to spur the stock higher. In line and disappointing results aren’t going to cut it.

Second, the charts don’t look very good. Back above $36.25 and my tone will change a bit. Otherwise, I remain defensive on Nio stock for the time being.

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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Energy & Critical Metals

ChargePoint Stock Deserves to Double from Here

Even with the electric vehicle revolution in full swing, not everyone sees the bull thesis for ChargePoint (NYSE:CHPT). Indeed, CHPT stock was cut in…

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Even with the electric vehicle revolution in full swing, not everyone sees the bull thesis for ChargePoint (NYSE:CHPT). Indeed, CHPT stock was cut in half from the the beginning of 2021 to mid-September, so clearly investor sentiment is at a low point.

Source: YuniqueB / Shutterstock.com

This could present an opportunity for folks with a tolerance for volatility. After all, the essence of contrarian investing is to get excited when others are fearful.

Could the pessimism surrounding CHPT stock be misplaced? The answer is probably yes, since the U.S. government is leaning toward policies that should benefit ChargePoint.

That, along with the company’s impressive revenue growth, indicate the share price is lower than it ought to be. Over the long run, this situation should correct itself, leading to excellent returns for patient shareholders.

A Closer Look at CHPT Stock

There’s something about the $20 price point — it’s like a magnet for CHPT stock in 2021.

Without a doubt, this must be frustrating for the long-term stockholders. As you may recall, ChargePoint shares propelled as high as $44.50 in January of this year.

The sentiment was riding high, but it wasn’t the best time to take a long position. CHPT stock slipped to $20 in March.

Believe it or not, the stock rose and fell back to that same $20 level in April, and then again in May, and once more in August. As of Sept. 23, it was back to $20 and change yet again.

At least we can say there’s strong support at that level.

The sellers can’t expect to fend the buyers off forever. $30 and eventually $40 are reasonable price targets — CHPT has been there before, and the bulls can anticipate a revisit of these price levels.

ChargePoint Can Electrify the Nation

One great thing about investing in ChargePoint is that it allows you to be brand-agnostic.

To put it another way, you can hold the stock and be part of the vehicle electrification movement without betting on any specific automaker.

Yet you’d still have to believe in the future of electric vehicles. It’s a reasonable sector to invest in — at least, Bank of America analyst Martyn Briggs seems to think so.

As you may be aware, President Joe Biden’s administration aims to have 50% of vehicles produced in the U.S. be electric by 2030.

To achieve this ambitious goal, according to Briggs, “you’re going to need to see a lot of up– of supply-chain shifts. Obviously a lot of manufacturing capacity, huge amounts of battery manufacturing in particular to achieve that that we can come to.”

It’s not difficult to connect the dots and see how an electric vehicle charger maker like ChargePoint would benefit from this.

Briggs makes no bones about it: “Net-zero targets are real, and they’re not going away.” And if the government is going to enforce a transition to zero-carbon, zero-emission mobility, Briggs considers vehicle electrification “an obvious low-hanging fruit.”

More Ports, More Revenues for CHPT Stock

Speaking of low-hanging fruit, the CHPT stock bulls can simply point to ChargePoint’s outstanding second-quarter 2021 fiscal data. In a time when the government hopes to advance vehicle electrification, ChargePoint is making strides on the financial front.

For the second fiscal quarter, ChargePoint grew its revenue by 61% year-over-year. Plus, for the full year, the company raised its revenue guidance by 15% to a range of $225 million to $235 million.

Moreover, ChargePoint’s network of charging stations is expanding quickly. The company’s count of activated ports exceeded 118,000 as of July 31. And by the by, this is a global phenomenon — ChargePoint counted more than 5,400 of its charging ports in Europe.

It looks like the Biden administration is going to push hard for vehicle electrification. This should provide a long-term tailwind for ChargePoint. Is this a guarantee that CHPT stock will rally in the short term? Definitely not, as near-term price fluctuations are bound to happen.

But as Briggs said, the net-zero targets are real. They’re not going away, so investors must adjust their strategies accordingly. Given the company’s impressive fiscal data, an informed investor’s strategy could certainly include a position in ChargePoint.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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