Lomiko Metals Inc.

[whatisthecolorofmone]

Lomiko’s Quatre Milles...
...a Billion Dollar ‘STUD’


Lomiko Metals LMR-V $0.075

Shares Out... 55M
Fully Diluted... 61M
FD Market Cap... $4.6M

http://www.beatthemarketstockpicks.com/2012/01/lomikos-quatre-milles.html

Winner, Winner, Chicken Dinner

Lomiko Metals LMR-V recently announced they acquired the Quatre Milles Graphite Project in southwestern Quebec, which is a large flake graphite deposit in a producing graphite region that includes Canada’s largest graphite mine, Lac des Iles. It is the most advanced graphite project of the recent new entrants with 26 historic drill holes totaling 1,625 meters in 3 near surface interconnected flat lying graphite beds. Early indications are that this project compares favorably to the industry leaders, Focus Metals’ FMS-V Lac Knife and Northern Graphite’s NGC-V Bisset Creek. This makes Lomiko Metals LMR-V a very exciting growth story acquiring an advanced graphite project with mineralization and grade that suggest Quatre Milles will be a very profitable mining operation. Lomiko has an aggressive strategy to explore and develop this advanced graphite project establishing a resource on the property and evaluating the production potential of Quatre Milles. This acquisition may be a carbon copy story to Focus Metals, who of went from a $0.05 low in late 2010 to $1.80 high in early 2011 on the back of the high value historical graphite resource at Lac Knife in Quebec that is planned for production in 2014.

Quatre Milles was discovered by Graphicor in 1989 by a regional airborne survey and subsequently drilled the following year with very good results that warranted further exploration. It was discovered at a time when the Chinese were flooding the market with excess supply which put Quatre Milles on the shelf with other graphite projects such as Bisset Creek, at full feasibility in 1989. Quatre Milles has a project highlight drill result of 28.6 meters at 8.07% graphite (Cg). Most holes averaged at least 4% graphite indicating Quatre Milles has a minimum grade twice that of Northern Graphite including a wide, high grade core that is quadruple the grade of Bisset Creek. 3 confirmed graphitic lenses on the property give potential for Lomiko to add up the tonnage quickly, especially with long thick intersections mentioned above. Quatre Milles has great metrics; the deposit is near surface, has been defined over an area of 300 meters by 400 meters and is open for expansion. More importantly Quarter Milles is large flake mineralization which is the right type of mineralization for Lithium Ion batteries and commands a premium ti the rest if the graphite market. Historical drilling indicates the potential to define a much greater resource than the ~10Mt zone defined. Quatre Milles is wide open for expansion in every direction, and as mentioned above, was a very large target being picked up on a regional airborne survey.

When you have the combination of grade, tonnage, and in the case of graphite, right type of mineralization; you are going to have a winner every time and that is what Lomiko may have with Quatre Milles. It’s in the right district near Canada’s only major producer, it was an exciting discovery in 1989/90 by Graphicor, and has a lot of high value work in the property making Quatre Milles a low risk and extremely undervalued high impact graphite project similar to Lac Knife. It also has the potential to be fast tracked to production, is drill ready and the company has indicated drilling could start as early as February if permits are received in time. Lomiko will be the first of the new entrants to be drilling and has the largest and highest grading historical deposit to boot. Lomiko should be a $20M market cap company on its way to developing a high margin mine, not the $4M it is currently valued at.

Quarte Milles is a STUD!

Quatre Milles... Cream of the early ‘Graphite’ Crop

Lac des Iles, Bisset Creek, and Quatre Milles were subject to exploration and development last time graphite went through a boom in the late 80's. While Bisset Creek (in full feasibility) was put on the shelf due to low grade and not being able to withstand the Chinese flood of graphite; Lac des Iles was put in production in 1989 and has been a producing ever since. This gives early indication that Quatre Milles possessing a much higher grade than Bisset Creek has the potential to be a low cost producer similar to Lac des Iles with a good combination of grade and potential tonnage. If Quatre Milles was at the stage Bisset Creek or Lac des Iles were when the graphite prices caved, there is argument that Quatre Milles could have survived the Chinese flood like Lac des Iles.

Lomiko’s Quatre Milles is by far and away the premium advanced stage project available.

At $0.08 the risk reward ratio is stacked heavily in you favor that the value will be unlocked rather quickly as Lomiko has an aggressive growth strategy to develop Quatre Milles and unlock shareholder value.

What I cannot stress enough is Lomiko Metals LMR-V has acquired a STUD that is worthy of being taken to the Kentucky Derby, the Preakness, and Belmont Stakes!!!

It is the most advanced project of the new entrants with all indications that this project has the right metrics for eventual production. The area has excellent infrastructure, supports mining, and is in a region known to produce high purity flake graphite. The project is drill ready and Lomiko has indicated that if permits are received in time, they will be drilling in February. Did you hear me?

Potentially drilling as early as February!!!

Lomiko Metals has the most advanced project, is the first to be drilling and is still the cheapest of the new graphite companies entering into the sector evaluating potential graphite projects. This project has future mine stamped all over it with very little exploration dollars required to bring it up to snuff. There is no reason that Lomiko is not on its way to a $0.50 share price this summer developing a high margin project similar to Lac Knife. The project will require 2,500m – 3,500m drilling to confirm and expand the known mineralized areas and put an initial resource on the project. Less than a million dollars of initial drilling gets Quatre Milles enough information for an initial resource!!! A scoping study or PEA to follow will give early indications of the project metrics where the decision to advance this high value project towards production is made in less than a year. With Quatre Milles being a great combination of tonnage and grade, the production decision is already obvious if LMR defines at minimum 10Mt.

1. It’s in a historic producing graphite region
2. Similar geology to economical deposits – high purity large flake deposit
3. Close to existing infrastructure
4. Drill ready – February target – (permit and weather dependent)
5. Quebec exploration friendly - tax credits - expedited bureaucracy
6. Low risk / Value Added / High NPV / HIGH IRR
7. Fast-Track project 2015

Quatre Milles is the best of the new entrants and compares favorably to both NGC and FMS. The market will wake up very soon to this high quality project whose metrics are some of the best in the industry. With 1,625 meters of drilling results in the database to work off, there is lots of value and limited drilling and exploration is required to put a resource estimate on the property and bring it to a production decision. Lomiko has 41% inside ownership including long-term holders Byron and Pinetree Capital. Lomiko will attract favorable financings because the project is considered low risk with high margin potential and is not capital intensive. With a clear plan and strategy, it should not be hard for Lomiko to raise $5M to $10M needed to develop Quatre Milles over the next 18 months and still be well under 100M fully diluted when it comes to financing mine construction. When Focus Metals came to the market with Lac Knife in 2010 at between $0.05 and $0.10 the company has successfully increased their share price 10 fold and raised well over $30M in financings and warrants for Lac knife.

FMS raised the majority for the money for Lac Knife at $1…

10 TIMES THE PRICE OF THE $0.10 ACQUISTION!!!

Now that is how you add value!

Lomiko has a high margin project similar to Lac Knife that could put investors on track for similar type returns.

Investments of $5M to $10M at strategic stages and you have a company that is worth $50M to $100M in a year! LMR will need $80M to $100M to build a 2,500tpd - 3,000tpd mine, but a well demonstrated project to the market will command a premium and attract favorable top tier financings like Focus Metals did. Lomiko needs minimal dollars to develop and can position themselves on the racetrack for favorable financings at much higher prices.

A GREAT PLAN FOR SUCCESS… JUST LIKE LAC KNIFE

Don’t believe financiers will pay top tier money for Quatre Milles?

PAYBACK IN LESS THAN A YEAR!!!

High grading projects like Lac Knife or Quatre Milles have the potential to payback in less than a year meaning that these projects can be heavily financed through debt as the production date gets closer. An option that is limited on lower margin projects like Bisset Creek unless graphite prices continue to rise.


Potential High Value NPV/LOW CAP-EX projects

There is no other sector that currently offers such lucrative returns for mines that require minimal capex to build and where cash flows promise to consistently exceed $100M every year. A project like Focus Metals Lac Knife will require a $60M to $80M to build and return close to $171M a year at current large and medium flake graphite prices ($2,500/t). Lac Knife’s resource will support a 1,000 – 1,500tpd mill producing 50,000 to 75,000 tonnes of large and medium flake graphite per year. A 1,500tpd mine producing at a 15.5% grade and selling at an average price of $2,000 per tonne has a Net Present Value of $1.1B over a 15 year mine life. That value grows to $1.5B using $2,500 prices for premium medium flake product. Focus plans on a small scale production sometime in 2013 and will enter full-scale production in early 2014. Focus Metals also has patents involved in producing graphite into a specialty product called Graphene.

Graphene is another potential market that could see huge demand over the next several decades. Graphene is a revolutionary material that is projected to replace a wide variety of technologies including silicon in computer chips. There is not much industrial demand as of yet, but Focus is working closely with several large fortune 500 companies developing Graphene for their R & D departments.

With FMS sitting at a $90M market cap fully diluted, Lac Knife is extremely undervalued for a high margin producer who is 18 to 24 months away from production and trading at less than conservative cash flow estimates. Most companies trade 4 to 5 times cash flow meaning Focus has the potential to increase in value from the current $90M fully diluted to $400M to $800M inferring a share price of $3 - $6 a share over the next 2 to 3 years.

Even Northern Graphite’s project looks viable a current market prices…

A 5,000tpd mill netting a premium of $3,000 per tonne vs. Lac Knife $2,000 per tonne gives Bisset Creek $30M in estimated cash flow per year and a NPV of $200M over a 20 year mine life. Bisset Creek is a high cost producer, but produces mostly +80 mesh high purity flake graphite suitable for lithium ion batteries. NGC will always achieve the highest sales price per tonne in the industry vs. its competitors. Northern Graphite is hoping that building a 5,000tpd mill vs. the original 2,500tpd mill will achieve economies of scale and decrease production costs significantly. Nevertheless, Northern Graphite is a near term producer that has leverage to high flake graphite prices for which prices could still increase substantially. It is not my favorite graphite company as NGC is inflexible to lower graphite prices.

Quatre Milles could be another high margin producer….

Historical information at Quatre Milles suggests a minimum 10Mt deposit grading between 4%-8%. Majority of this mineralization will be large and medium flake. Quatre Milles has excellent potential to be expanded even further with the deposit being a very large target and wide open in all directions. Current metrics indicate potential for a 3,000tpd mine over 10 years. If Quatre Milles can define 10Mt to 20Mt and build a 3,000tpd mine for a $100M capex and realize a selling price that is in the range of FMS and NGC… the numbers start to look very impressive. At a $2,500 combined large and medium flake selling price, Quatre Milles stands to net $100M per year in cash flow and is worth in excess of $600M NPV discounted at 6% over a 10 year mine.

If Lomiko can prove a 20Mt resource at Quatre Milles, a 20 year mine discounted @ 6% has an estimated NPV of $1B!!!

Quatre Milles is a…

A BILLION DOLLAR STUD!!!


A comparison of the 2 advanced graphite projects and Quatre Milles.

These stats are for comparison reasons only and are not indicative of a projects economics or even production at each site.

Bisset Creek @ 2%
Lac Knife @ 15.5%
Quatre Milles @ 6%
Mill Rate
5,000tpd
1,500tpd
3,000tpd
Est. Capex*
$120M
$64M
$100M
Large Flake %
80% large flake
25% large + medium
large + medium
Est. Sales/tonne
$3,000
$2,000
$2,500
Op Costs
$40
$42
$44
Recoveries
95%
95%
95%
Total Graphite Production
33,250
77,306 tonnes
59,850 tonnes
Est. Annual Cash Flow
$30M
$131M
$102M
NPV @ 6%
10 year
15 year
20 year
10 year
15 year
20 year
10 year
15 year
20 year
$93M
$159M
$208M
$852M
$1.1B
$1.4B
$613M
$839M
$1B
Payback
4 years
6 months
~1 year
Market Cap
$40M
$70M
$4M
Pre-production Target Market Cap***
>$100M
>$300M
>$200M
Production target date
2013
2014
2015

Obviously this is a crude model and would not pass feasibility tests, but it is a good model to analyze the industry leading projects, the tonnage, grade, scalability, value and potential cash flow at different realized prices. This analysis should help investors evaluate the early mining potential of a project. It also clearly highlights the potential of Lomiko’s Quatre Milles large flake graphite project. When estimating sales price, Northern Graphite’s product will command a higher price per ton because their product is 80% large flake while Focus Metals Lac Knife is around 25% large flake and a large portion of the remaining in the medium flake category. Focus is awaiting results of a scoping study, so until Lac Knife’s production can be categorized more accurately, I have used a conservative $2,000/tonne price compared to Northern Graphite’s $3,000/tonne. $2,500 is used for Lomiko assuming Quatre Milles tonnage will have greater large and medium flake percentages than Lac Knife.

Current prices as of January 10th 2012…

Large Flake +80 (94% to 97%C).... $2,500 to $3,000

Medium Flake +100 (94%-97%C)... $2,200 to $2,500
Medium Flake +100 (90%C)…. $1,500 to $2,000
Medium Flake +100 (85%-87%C)... $1,500 to $2,000

Amorphous powder 80%-85%C… $600 to $800

Quatre Milles Longevity and Price Sensitivity

Grade is what sets Quatre Milles apart in the same graphite trend that spawned Bisset Creek, Lac des Iles and Ontario Graphite’s Kearny Mine. It is certainly they most important factor in determining if you are a low cost producer. Quatre Milles has the right combination of grade, large flake content and tonnage to achieve some of the highest margins in the industry. If Lomiko’s Quatre Milles can achieve a 50% - 80% large and medium flake distribution, Quatre Milles production could command a premium at market similar to Bisset Creek AND be a low cost producer at a fraction of Bisset Creek. Potential costs at Quatre Milles could be as low as $700 or $800 per tonne at a 6% grade. If Quatre Milles does meet conceptual targets of a 10Mt – 20Mt resource of 4% to 8% Cg, it is by far and away the better mining operation. Quatre Milles has price sensitivity to well under $1,000/tonne while Northern Graphite will have a hard time staying in business if graphite prices drop much below $2000/tonne. It will take graphite prices of less than $700/tonne to make Quatre Milles unprofitable.

I got news for you…

$700 large flake graphite is something that just isn’t going to happen!!!

At a $4M market cap vs. $40M market cap and minimal dollars required to develop this high impact project, the choice for investors should be obvious.

Quatre Milles is the superior project when compared to NGC’s Bisset Creek

Quatre Milles vs. Bisset Creek

Quatre Milles
Bisset Creek
Historic drilling
26 historic holes
162 historic holes
Current drilling
2,500 to 5,000 meters drilling
50 holes – 3,000 meters
Grade
4% - 8%
1% - 3%
Mining method
Open Pit
Open Pit
Costs
$40 - $50/tonne
$44/tonne
Average Ore Value @ $2000/t & $3000/t
@ 4% = $80/tonne
@4% = $120/tonne
@ 2% = $40/tonne
@ 2% = $60
Max Ore A Value @ $2000/t & $3000/t
@ 8% = $160/tonne
@8% = $240/tonne
@ 3% = $60/tonne
@3% = $90
Tonnage
10-20Mt (conceptual)
50Mt – 80Mt (depends on cut-off)
Resource target
1Mt to 1.5Mt Cg (target)
1.3Mt
Resource Quality
Large Flake +80 mesh
Large Flake +80 mesh
Financing status
Needs $1M to start development
Fully Financed
Market Capitalization
$4M
$40M
Production target
2015
2013


High Graphite Prices Are Here to Stay

Contrary to some people’s expectations. High graphite prices are here to stay and may push higher in 2012. The main reason that graphite prices will remain high is that there is low substitutability in the products, there is strong growth in the sector, and there is declining supply globally until 2013 when the first of the projects come online. All of this is happening in a market where the Chinese are restricting international sales. On top of strong growth forecasts with impending supply / demand constraints; there is looming incremental demand that is a ‘when’, not an ‘if’ it hits the market. Industries from technological driven areas will continue to pay premium prices for premium large flake products and could afford to pay even more. Tesla uses 100kg of graphite in its Roadster at a price of $250 to $300. Is Tesla going to stop using graphite in its vehicles if it has to pay double for large flake graphite prices if they hit $5000/tonne? No. The car is $125k!!! Even in a $30k to $40k vehicle that uses half the graphite, a $100 increase in the price of the materials will not make a big difference in an auto manufacturer’s profitability analysis. This is not like rare earths where prices for simple rare earths increased 25 to 50 fold and forced manufacturers to consider alternatives and even re-engineering products without the metals.

Any decrease in prices will see supply fall off

At current prices, the larger tonnage mines like Northern Graphite are on the precipice as far as profitability goes. If prices drop much below current levels, we will see supply destruction from low grade producers such as Bisset Creek and Kearney in Ontario milling 2% C. With only marginal production coming online in the next couple of years, these companies cannot afford to sell into a market priced any lower.

Prices could spike in further in 2012 due to Chinese restrictions and limited supply as the Chinese continue to leverage critical commodities for technology in 2012. Prices may trickle back to around current levels in 2014/2015 once projects like Bisset Creek (2013), Lac Knife (2014) and the Kearney Mine (late 2012) can come online, but with incremental demand coming to the sector from many angles (Graphene, li- ion batteries, fuel cells, pebble bed reactors) over the next 10 to 20 years; expect the graphite market to be extremely tight over the next decade. Prices have remained stable for graphite over the past 6 months despite price destruction in every other commodity indicating that this market is extremely tight and is far from a top. When the Chinese return to growth in 2012, I would assume that graphite prices will start to rise by mid-year.

Canada’s planned Graphite Mines insufficient to meet demand

The planned mines in Canada will not make up for increasing demand for current applications which is projected to increase at a steady rate of 5% a year. Even if Kearny, Deep Bay West, Bisset Creek, Lac Knife and Quatre Milles go into production as scheduled, there will still be a 100,000 tonne deficit in the market. That is the equivalent of 2 Lac Knifes or Quatre Milles. If demand for lithium ion batteries takes off around 2015, the supply demand deficit could shift dramatically without more meaningful graphite production.

Year
2012
2013
2014
2015
2016
Growth at 5%
1.1Mt
1.16Mt
1.21Mt
1.27Mt
1.34Mt
Incremental demand
55,000t
57,750t
60,500t
63,500t
66,700t
Potential Supply
20,000t Kearney Mine
33,000t
Bisset Creek
15,000t
Deep Bay West
60,000t
Lac Knife
60,000t
Quatre Milles

Deficit/surplus
-30,000t
-39,750t
-40,250t
-43,900t
-110,600t


Graphite prices will not go lower as Ontario Graphite and Northern Graphite cannot afford to sell their product for any less than $3,000 per tonne, if they doing... 53,000 tonnes of graphite supply will disappear from the market. Lac Knife has the potential to undercut the market, but again if projections for this sector are accurate, Lac Knife won’t be undercutting anybody and will be selling into a market starved for supply.

Still leaving a large hole in the supply demand equation!!!

Obviously this does not account for planned production internationally, but the trend over the next couple years is declining production, not expansion meaning that if Canada jumps to the plate first, they could hit a homerun in the industry establishing themselves as a major supplier of graphite. Canada makes sense with high value historical deposits that are located ideally next to the auto hub in North America where GM, Ford and Chrysler produce a majority of their cars. The companies that go into production first will have the advantage of potentially supplying a major center responsible for a large portion of global auto sales.

There are a couple of larger graphite projects that could take up the slack after 2017. These projects are at very early exploration stage and will require lengthy construction lead times of least 5 – 7 years and require extensive capital. The mines to production first will win the big off-take agreements, will attract the top-tier financing and resist late entrants to the game. Not all graphite projects are the same because of flake size distribution, purity and grade... but if they are comparable, the ones that are producing first and delivering a product will have the advantage over a company trying to build a mine even 3 or 4 years from now.

Lomiko’s Quatre Milles – On a trajectory similar to FMS-V

At only a $4M market cap, Lomiko provides exposure to one of the best historical graphite projects available on the market. It provides the greatest leverage in the sector offering both EXTREME VALUE and a HIGH GROWTH opportunity. It is a large flake graphite project whose product will command premium market prices, it has the grade to be a sustainable mine with price sensitivity, and it has the tonnage to offer scalability and longevity. The deposit has been defined over a wide area and open in all directions offering great chance for material expansion. It is a project that can be fast-tracked to production, is in an area that is mining friendly and has excellent infrastructure and a rich mining history.

What is there not to like about this early stage future large flake graphite mine?

There is no better early stage investment on the market when it comes to creating real value from the ground up. This is a project that requires minimal dollars and offers huge returns. Quatre Milles is a project that has similar high margin potential to Lac Knife and has a great chance of being advanced towards a mine. With only 61M shares fully diluted, Lomiko is well positioned to add major shareholder value over the next year developing Quatre Milles into the next fast track graphite mine.

LMR has focus, a clear path to success and a large flake graphite project with early projections that immediately make it the top large flake project outside of Lac Knife in Canada.

Investing highlights...

Exciting Graphite Discovery!
· High Purity Large Flake Graphite (Battery grade)
· Large target multiple graphite zones – deposit wide open
· Advanced - drill tested - low risk exploration
· 28.6 meters grading 8.07% graphite
· Holes average 4% - 8% with peak value of 15%
· 1Mt resource potential

Located in the top mining region in the world
· Quebec (exploration tax credits)
· Located near Canada's largest operating graphite mine
· Potential mining synergies
· Fast-track potential – drilling as early as Feb.

Great Value – Even Better Value Creation!!
· LMR currently undervalued at $0.075 and $4M market cap
· $10M acquisition value
· Potential >$100M market cap graphite miner

Graphite… A metal entering criticality
· Graphite forecasts increasing demand from ~1Mt to ~2.5Mt over the next 10 year cycle
· Several graphite mines needed to meet upcoming demand 10 – 20 (depending on size)
· Current prices expected to increase further due to Chinese restrictions, little substitution and no new supply

Great Economics!!!
· High degree of price sensitivity @ 6%
· HIGH NPV / HIGH IRR / LOW CAP-EX
· Potential to fast–track to production (3 years)




Lomiko Signs Agreement for Property in Quebec to Explore for Lithium-Ion Battery Grade, High Purity, Large Crystallite Flake Graphite