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NextSource Materials Inc: THE INVESTMENT CASE

The graphite industry’s best kept secret

NextSource Materials Inc (TSE:NEXT) (OTCQB:NSRCF) may just be the best graphite company few investors know of.
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INVESTMENT OVERVIEW: NEXT The Big Picture
NextSource Materials will be a leading player in graphite

So much sound and fury comes out of the Australian market that it’s sometimes hard to keep a perspective on fundamentals.

But by almost every measure, including quality of asset and quality of management, NextSource Materials Inc (TSE:NEXT) (OTCQB:NSRCF) is ahead.

READ: NextSource Materials Inc Plans to Redomicile Company in Canada

To start at the beginning, NextSource’s Molo project is situated in Madagascar, one of the best geologic locations for graphite anywhere in the world.

As investors will note, NextSource isn’t the only junior graphite company trying to reach production in Madagascar, but it’s the only one that is advanced, has a massive and proven resource of high-quality SuperFlake® graphite and most importantly, has proven, feasibility-stage economics to back the project up to the market, which are quite robust.  In other words, it is the “real deal”.

To put the Molo graphite project in the south of the island into production, it will only cost an incredibly low US$18.4 mln for Phase 1 production and with a build time of just 9 months. This is due to NextSource using a unique, fully-modular build approach – a mining first. This will allow the Molo Project to have the lowest capital cost of any proposed or competing Feasibility-stage graphite mine and to have one of the lowest operating costs in the industry, based on a full-cost, CIF-basis. 

Phase 1 of the Molo Project will be a full-scale mine with a production rate of 17,000 tonnes per annum (“tpa”) of SuperFlake® graphite concentrate and with a mine life exceeding 30 years. Phase II of the Molo mine will consist of an expansion to over 51,000 tpa and according to management, will be implemented as soon as market demand supports such an expansion.

Competitive edge

When Molo goes into production, it will rank as one of the largest graphite mines in the world outside of China.

It’s the disparity between that capex and the size of the project that has hitherto largely gone unnoticed by the market.

The professionals though, already know all about it. JP Morgan, Dundee, AGF Mutual Funds and McKenzie Financial are all already invested in a big way, having taken positions early in the project’s development.

They know as well as anyone that what NextSource is going to do for US$18.4mln is costing other competing projects between US$90mln and US$200mln.

And they know too, the competitive advantage that NextSource  has, being  the well advanced and quality project it is.

The fact that it is so advanced is one of  the reasons why NextSource has been flying under the radars of many investors – the company has achieved nearly all of its major milestones in late 2015 and has effectively been in the “pre-production quiet zone” ever since.

And, according to NextSource’s senior VP for corporate development Brent Nykoliation , the Molo graphite has been verified by downstream users to have superior carbon purity, flake size distribution and qualified for industry acceptance across all top demand markets, – lithium batteries, graphite foils and refractories.”

What many investors do not realize is that very few projects globally will even be capable of reaching that point where one can supply the large tonnages needed to have your material tested, let alone have it qualified. NextSource achieved this back in 2015 as a result of conducting the largest known pilot plant of any graphite project globally, processing over 200 tonnes of ore and producing over 13 tonnes of high quality SuperFlake® graphite concentrate that was sent out to multiple end-users and graphite buyers.

READ: NextSource Materials’ plans for modular mine construction represent a paradigm shift

 And NextSource accomplished all this well before all the hype that the Australian promoters have brought to the outlook for graphite.

Those promoters are relying on their ability to ride the hype about electric vehicles to make early stage exploration assets with either unproven or uncompetitive capital and operating costs look attractive.

But NextSource is way beyond that. The company has done a fine job of demonstrating to potential investors that the project economics are very attractive based on selling to the traditional demand markets for graphite, which still account for over 65% of the consumption of graphite and without relying on the hype of high selling prices of  value-added graphite for electrical vehicles.

As a result of all of these factors, NextSource is currently engaged with a plethora of  financiers, offtake partners and end users as it readies to complete its last remaining and  significant catalysts. This involives raising the required US$18.4mln capex for the Molo mine and the granting of its mining permit from the Madagascan government, which according to the company is expected “imminently”. The company also launched its application for environmental permitting  back in June 2017 after the release of its feasibility study results so it could run in parallel with the mining permit process and accelerate its timeline to production.

And as if that isn’t already enough, NextSource also has a  late-stage vanadium project just 10 kilometres away from the graphite. It is a NI 43-101 resource of 60 million tonnes at 0.7% V2O5 and is one of the world’s largest vanadium deposits and the highest in grade. It is also the rarely occurring sedimentary-hosted type, so it is ideally suited for vanadium redox battery applications.

The kicker, Nykoliation adds, is that the fully modular plant design can be applied to any type of mineralisation, and the company is anxious to do so with its Green Giant vanadium asset. This is where NextSource has a real opportunity and a real advantage to become a true materials company, as the second part of the company’s name suggests.

Nykoliation summarizes by adding, “What investors likely do not know is that graphite is a significant component in the vanadium redox battery. A 1-megawatt vanadium redox battery will contain about 1 tonne of flake graphite, and NextSource has both of these strategic minerals in very large quantities. We have the potential to become a major supplier of two key energy and battery materials from a single regional source – to be the “next source” of these critical materials for the energy applications.  ”

Until now, NextSource Materials has been the best kept secret out there.

But it appears that’s all set to change.

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