nouveau monde graphite inc....nouveau monde graphite is a quebec focused developer well positioned...

Please see Disclosures and Disclaimers at the end of this report.

Nouveau Monde Graphite Inc. (NOU-TSXV: C$0.30) March 6, 2017

BUY Target: C$0.50

David A. Talbot / (416) 350-3082 [email protected]

Joseph Fars, P. Geo / (416) 350-5090 [email protected]

Initiating Coverage: High Purity Graphite and Diversified Flake Size Helps Mitigate Market Risk

NOU-T: Price/Volume Chart

Source: Factset

Company Description

Nouveau Monde Graphite is a Quebec focused developer well positioned to supply an emerging lithium-ion battery market. Its 100%-owned Matawinie project is at PEA stage and hosts 48.6 MMt Measured and Indicated @ 3.96% Cg; and 34.7 MMt Inferred @ 4.08% Cg; with a broad graphite distribution. High concentrate purity (>97.1% Cg) and good location and infrastructure are two of Matawinie's main attributes.

Conclusion: We initiate coverage of Nouveau Monde Graphite with a Buy and C$0.50 share price target. Our target price is derived from applying a 0.7x multiple to an 8% DCF. Matawinie Graphite is located only 120km from the nearly depleted Lac-des-Iles graphite mine in QC. It boasts naturally high purity graphite (96% Cg) with excellent flake distribution. Infrastructure advantages, economies of scale with room for improvement, upcoming resource estimate and PFS in H2/17 may help attract off-takes and expedite project financing.

Solid economics, large resources. PEA suggests ~50,000 tpa Cg over 22 years at $660/t cash costs and initial Capex of $145 MM. This suggests a pre-tax 8% NPV of $403 MM and 31.2% IRR. West Zone resources have increased to 33.1 MM t at 4.8% for 1.49 MM t contained Cg. A PFS is due in Q3 which should incorporate: 1) larger and more confident resources; 2) optimized pit design; 3) simplified flowsheet; 4) improved recovery; and 5) higher purity levels.

Excellent infrastructure on the outskirts of Saint Michel des Saints, ~150km from Montreal. It is located within 10km of an all-weather highway. A 735 kV power line passes through the property, and local buildings may be suitable to house operations. There is strong government support with "Plan Nord' initiative investing over $80B over 25 years into Quebec's mining space.

Quality Management. CEO Eric Desaulniers, MSc, P.Geo has managed several large scale interpretation and data acquisition projects internationally. His geophysical expertise was instrumental in the development of Lac LaBlanche Fe-Ti-V, Desolation Lake Iron, and Lac Lamelee South Iron deposits.

Robust battery demand; Chinese headwinds. China dominates with control over 67% of global flake production. However, its old mines are subject to inconsistent quality and subject to consolidation. This may bode well for high purity flake producers with variable size distribution to cater to most clients.

Risks. Sales are dependent on securing contracts, although management has experience. Battery demand, graphite supply and high fine flake distribution may weigh on sale prices. Matawinie is close to town and local cottagers require a buyout. Offers to neighbours within 1km of site are ~$2.4 MM. Project financing required, likely to comprise of debt, equity and off-take.

Source: Company Reports, Eight Capital

NOU-TSXV New Last

Rating Buy --

Target C$ 0.50 --

Projected Return 69% --

DCF multiple 0.70x --

2017 - 8% DCF Corporate Value 0.58 --

2016 - Cash and Debt 0.04 --

2016 - Additional Resource Value 0.05 --

NAV 0.67 --

P/NAV 0.44x --

Last Price C$ 0.30

52-week Range C$ 0.13 - C$ 0.38Market Cap ($MM) 25.2Enterprise Value ($MM) 22.2Shares Outstanding - Basic (MM) 85.4

Shares Outstanding - FD (MM) 99.3

Avg Volume - 100d (000 shares/day) 130.6

Cash est. ($MM) 3.0

Debt est. ($MM) 0.0

Working Capital ($MM) 2.7

Forecast 2015A 2016E 2017E LT

Graphite (US$/t) 1,303 1,138 1,138 1,249

Realized Price (US$/t) 0 0 0 1,249

All Figures in C$ Unless Otherwise Noted

Source: Company Reports, FactSet, Eight Capital

Company Data

mailto:[email protected]

mailto:[email protected]

Nouveau Monde Graphite Inc. March 6, 2017

EIGHT CAPITAL Page | 2

Valuation: We initiate coverage on Nouveau Monde Graphite with a Buy and 12-month share price target of C$0.50. We value Nouveau Monde using an 8% DCF model for its flagship Matawinie graphite project, and include value for any un-mined resources. We estimate a NAV of $57 MM or $0.68/sh, after removing net debt. Our target price is derived from applying a 0.7x multiple to our 8% DCF estimate.

P/NAV trades at a slight premium of 0.45x to peers’ average of 0.40x. It does however trade at a discount to peers on an in-situ EV/t metric at C$6.03/t Cg to peer average of C$12.47/t Cg, likely attributed to its earlier stage, permitting and financing requirements.

Table 1: Graphite developer peer table

Source: Company Reports

Optimization of West Zone

Focus will remain on the West Zone on the Tony Block, Matawinie Property during 2017. Following on a very successful field season in 2015 that saw a large global resource defined. The smaller but higher grade West Zone was the focal point of the initial PEA study release in June 2016. Another 41 holes (7,055) were drilled last year into the West Zone. This has recently expanded the deposit and upgraded resources once again. Metallurgical optimization, comminution studies should culminate in completion of a West Zone Pre-feasibility study in Q3/17. Permitting should begin later this year. Value added studies will continue through 2018 at which time project financing and detailed engineering are expected to advance.

Operating cost reduction is the main goal. Management strives for $500/t Opex, down from $660/t within the PFS, although we believe this will depend on if management is focused on decreasing costs and increasing recoveries, increasing purity levels or increasing flake sizes. The latter two options may cost more, but margins might also expand more given the potential for higher sales prices. A new pit design is being considered that may result in a shallower but longer open pit, helping reduce strip ratios. Overburden should also be lower in this area. We did see a slight increase in strip ratio and costs in the new Whittle pit shell provided in the new resource update. The flowsheet could also be revamped. Addition of a new polisher may help optimize recovery of larger flakes which may help improve average sales prices. Dedicating a second circuit specifically to medium and fine flakes may also help reduce reagent consumption and improve recoveries towards 92.5%. Utilizing a single dry stacked tailings system rather than two tailings ponds should also help reduce both operating and capital costs.

Nouveau Monde will continue to seek strategic partnerships with lithium-ion market participants and other value-added graphite product customers with a goal of structuring off-take contracts and debt financing.

• Q3/17 - Metallurgical Optimization; Environmental Baseline Studies

• Q3/17 - Pre-Feasibility Study

• Q2/18 - Feasibility Study

• Q1/18 - Impact Benefit Agreement

• H1/19 - Permits

• H2/18 - Construction to begin

• Q3/20 - Commissioning and graphic production

Last Price Shares O/S Mkt. Cap Cash Debt EV Reserves Resources Total R&R Grade In Situ Cg EV/t In-Situ EV/t NAV P/NAV

Company Ticker Rating Target C$ MM C$ MM C$ MM C$ MM C$ MM MMt MMt MMt (Cg%) MMt C$/t C$/t C$

Nouveau Monde NOU-CA Buy C$ 0.50 0.30 85 25 3.0 0.0 23 83.3 83.3 4.5% 3.73 0.27 6.03 0.67 0.45x

Northern Graphite NGC-CA -- -- 0.35 51 18 0.9 0.0 17 28.3 93.8 93.8 1.7% 1.61 0.18 10.49 -- --

Focus Graphite FMS-CA -- -- 0.10 175 17 1.1 0.0 16 7.8 12.7 12.7 14.4% 1.83 1.29 8.97 0.72 0.14x

Energizer Resources EGZ-CA Buy C$ 0.30 0.08 461 35 0.5 0.0 34 22.4 124.3 124.3 6.3% 7.88 0.27 4.32 0.26 0.29x

Zenyatta Ventures ZEN-CA -- -- 1.06 59 62 0.4 0.0 62 45.2 45.2 3.1% 1.42 1.36 43.44 -- --

Mason Graphite LLG-CA Buy C$ 1.80 1.32 114 150 22.1 3.3 131 4.7 83.3 88.1 17.2% 15.15 1.49 8.67 1.97 0.67x

Graphite One Resources GPH-CA -- -- 0.08 239 19 0.9 0.0 18 186.9 186.9 5.5% 10.28 0.10 1.77 -- --

Syrah Resources Limited SYR-AU -- -- 2.58 264 680 191.8 0.0 496 167.9 167.9 18.4% 30.84 2.95 16.08 5.95 0.43x

AVERAGE 8.9% 0.99 12.47 0.40x

Median 6.3% 1.29 8.97 0.36x



The Graphite Sector

Lithium ion battery anode market poised for a boom. Flake and flake derivatives account for 650,000t while the entire natural graphite market totals ~1.2 MMt (BMI, USGS). Natural graphite represents ten times the size of the lithium carbonate market (110,000 LCE, while the entire lithium market totals close to 170,000t LCE). Refractories, foundries, crucibles and steel applications represented over 60% of demand, with value added products representing only 8%. However, this sector is growing rapidly due to lithium ion batteries and expandable graphite demand. Benchmark Mineral Intelligence forecasts graphite demand of the lithium ion battery market to grow 16% to 122,000t this year. Spherical and purified graphite are major drivers of growth. Spherical graphite demand is expected to show steady growth through 2020, with a massive 50 GWh battery expansion project commissioned by CATL (expected 2020), as well as Hitachi Chem's plans to produce over 100,000 tpa of anode material by 2020. Both CATL and Hitachi (both Not Rated) will require significant supply in its raw material, with CATL's expansion potentially making them one of the world's largest anode consumers, and Hitachi's ramp up representing a 95% increase in the current size of the anode market.

Graphite content in a lithium ion battery (LiB) varies per battery pack. The US Department of Energy estimates that graphite constitutes roughly 16% by weight of a typical ion battery. This suggests 54kg Cg is needed for each 320kg LiB in Tesla's Model S. Furthermore, for every 1 to 1.5t of spherical graphite required, 3t of graphite concentrate is required suggesting average yields of between 1/3 and 1/2.

Figure 1: Global lithium ion anode material demand showing a rising trend and the potential for dominance by coated spherical purified graphite over synthetic graphite

Source: Benchmark Mineral Intelligence

China dominates the natural graphite market. A few announcements out of China at first appear mixed, but combined are likely to create a supply squeeze. These include 1) strategic stockpiling of graphite; 2) implementation of a pollution tax; and 3) scrapping the flake graphite export tax.

1) A Mineral Resource Plan calls for stockpiling 80% of its 300,000t of annual production or 240,000t Cg over four years. Over half of Chinese graphite is exported, thus this policy represents 40% of annual exported graphite suggesting a potential pinch in supply.

2) Pollution tax on industrial polluters will begin in 2018 to help improve air quality. Details were not provided but fines may be reduced by 50% if discharges are below certain levels. This encourages companies to improve facilities. The ultimate impact is unknown,



but we expect to see consolidation and closures should some graphite producers be unable to cover the cost of improvements.

3) Removal of Export Tax for Cg producers. China's Ministry of Commerce also announced in December 2016 that it would remove the 20% duty on natural graphite exports (flake and amorphous). This would initially be expected to create significant downward pressure on global graphite prices as China is already the low cost leader. Chinese exporters are currently subject to a 20% tax for flake and amorphous graphite, but often don't pay full duty in practice. Thus, removal of the tax shouldn't see a drastic downdraught in prices. Secondly, given the stockpiling mandate export, volumes might be significantly reduced anyways. And finally, the pollution tax might force large capital expenditure which suggests any potential savings might not be passed on to the customer, but spent on reducing environmental impact.

Graphite contracts specific to requirements of each end user. Customers are not all created equal. Some may require fine flakes, others might need spherical purification, while others might be focused on expansion capabilities or various electrochemical properties. One customer might buy in bulk while others may demand only several tonnes of material. This introduces complexity into market pricing for flake graphite where size then purity are the main factors.

We believe that Nouveau Monde has a strategic advantage when targeting end users given its wide flake size distribution and significant large or better flake sizes (16% jumbo, 30% large; 11% medium; 43% fine). It can offer high purity graphite across its spectrum. We do note that flake size does carry more weight than purity. Purity can often be manufactured at a cost, but flake size cannot. Management is also reviewing its value added options and the potential to spheronize its graphite. When combined with purification, it provides additional optionality to rotate production based on client requirements.

Capital Structure and Shareholder Base

Capital structure. Nouveau Monde has $3 MM cash and no debt at time of this report. Two late 2016 non-brokered private placements provided another $2.3 MM to cover development and exploration expenses at Matawinie. There are 80 MM shares outstanding with 20 MM options and 6 MM warrants for 106 MM shares fully diluted. NOU trades on the TSXV.

Strong shareholder support. Nouveau Monde has a diversified shareholder base and strong institutional support. Four large Quebec based funds hold ~ 20% interest, supplemented by European shareholders. Insiders also own 16% interest.

Table 2: Nouveau Monde top shareholder holdings - tightly held stock

Source: Factset, Bloomberg, Company Management

Holder Name % O/S

The Caisse de depot et placement du Quebec 6%

Sidex 5%

FTQ 4%

Desjardins 4%

Matrix Advisors 4%

Elyze Investment 3%

Dolefin 2%

Marmite 1%

Company Insiders 16%

Total 45%



Matawinie Graphite Project (100% interest)

Location & History

Ideal infrastructure. Matawinie is located 6km southwest of Saint-Michel-des-Saints, Quebec. This town of ~2,500 people is located 120km north of Montreal. Graphite mineralization on the Tony Block of claims is within 10 to 20km from town using existing but non-maintained logging roads. Matawinie is also ~120km east of the depleting Lac-des-Iles mine, which has annually produced ~22,500 t of high quality graphite concentrate since 1989. Nouveau Monde may find opportunity to capitalize on Lac-des-Iles' infrastructure, equipment and labour force.

Historical exploration almost non-existent prior to Nouveau Monde involvement - only a few mapping campaigns were conducted by the Geological Survey of Canada (GSC) in 1960. A lake bottom/stream sediment sampling program was completed by the Quebec Government in 1966. Digital map compilations were created in 2010 from this data. 3457265 Canada Inc. performed a detailed airborne geophysical survey on the Tony Block area in late 2013. Nouveau Monde launched several exploration campaigns in 2015, including airborne and ground geophysical surveys, trenching, drilling and metallurgical testing. A resource and PEA were completed by H1/16. Another phase of work began in 2016 which included 41 drill holes (7,055m) and 419m of trenching to help upgrade resources. Most of this new work is within or in close proximity to the Whittle pit. The resource was upgraded in March 2017.

Figure 2: Project Location relative to nearby towns and infrastructure


Geological and resources

Geology. Matawinie project is located in the Central Meta-sedimentary Belt of the Grenville Super-group, southwestern Grenville geological province. Most rocks on the Tony Block are meta-sediments. Graphite mineralization is associated with aluminous paragneiss which contains sillimanite, garnet, cordierite, disseminated pyrrhotite and/or pyrite and magnetite. Rocks were subject to very high grade metamorphism and significant deformation. Graphite mineralization is observed as flakes in the marbles and in rusty biotite paragneisses. Graphitic units vary up to tens of metres in thickness and form a circular conductive anomaly. Lower grade graphite and garnet paragneiss units are



interbedded with the higher grade units. Granitic gneiss occupies the internal portion of the circular anomaly.

West Zone in-pit resource recently increased to 33.1 MM t grading 4.5% for 1.5 MM t Cg. West Zone in-pit contained graphite increased by only 5.7% while grades were trimmed by 1.7%. However, the new resource estimate saw indicated tonnage grow by 106%. This should help improve confidence in the West Zone. A total of 41 holes (7,055m) and 419m of channel sampling in three trenches were completed late in 2016. Most were completed within the pre-existing pit shell but some work did help extend resources in both north but dominantly south directions. This provided the basis for this March 2017 in-pit resource upgrade for the West Zone.

During H2/15, 70 holes (10,479m) were drilled into the South and West zones at 50m to 100m centres during H2/15. This helped define a global resource of 48.6 MMt grading 3.97% Cg Measured and Indicated, and 34.7 MMt at 4.08% Cg Inferred using a 2.5% Cg cut-off. See Table 3. Only the 2016 West Zone in-pit estimate was included in the 2016 PEA estimate; this 2017 West Zone in-pit estimate will provide the basis of a Pre-feasibility Study due later this year.

Table 3: Matawinie Global Resource Estimate; West Zone as of March 2017; South Zone as of June 2016

Source: Company Documents

Table 4: West Zone Whittle In-Pit Resource Estimate Update (March 2017)


Cut-off grade of 2.28% Tonnage Cg Grade In-situ Cg

M & I

West Zone (in pit) 32,900,000 4.50% 1,480,500

South Zone (SE & SW) 26,300,000 3.73% 980,990

Inferred

West Zone (in pit) 200,000 4.84% 9,680

South Zone (SE & SW) 19,200,000 3.67% 704,640

Total M&I 59,200,000 4.16% 2,462,720

Total Inferred 19,400,000 3.68% 713,920

Category Tonnage Grade In-Situ Cg Tonnage Cg In-Situ Cg Tonnage Cg In-Situ Cg

('000s t) (% Cg) (Mlbs) ('000s t) (%) (Mlbs) ('000s t) (%) (Mlbs)

Indicated 16,000 4.3 688.00 32,900 4.50 1,480.50 106% 5% 115%

Inferred 14,800 4.88 722.24 200 4.84 9.68 -99% -1% -99%

Total 30,800 4.58 1,410.24 33,100 4.50 1,490.18 7.5% -1.7% 5.7%

Resource Update (Jun-16) Resource Update (Mar-17) % Change



Figure 3: Overview of the Tony Claim Block, Matawinie Project, including the location of the West Zone Open Pit, the South Zone deposit and other various targets along a 14km long trend

Source: Company reports



Figure 4: Side-by-side maps showing drill traces and trenches for both the 2016 and 2017 West Zone resource estimates. The 2016 map on the left shows the limits of the in-pit resource well inside the global resource. The updated 2017 map to the right shows an extended in-pit resource.


Project attributes

High purity graphite. Grades are relatively low; however, we don't see this as an issue given the trade-off of high purity and variable flake size. Typically the longer graphite bearing host rocks deform under temperature and pressure, grades increase but flake sizes decrease. Matawinie does have variable flake size, but its purity is its main attribute. Perhaps the rocks were "baked" just long enough to drive off impurities. Metallurgical testing found that impurities are typically attached to graphite flake surfaces as opposed to being intercalated within leaves of the flakes. This suggests impurities may be relatively easy to remove with standard mineral processing procedures, such as using polishing units at the back-end of the flow sheet.

Nearly 98% Cg purity has been attained. Testing to date has worked to optimize purity levels. Met testing shows high purity levels across the flake size spectrum. Purity reaches ~95% to 96% Cg within each of the +50 Mesh, +80 Mesh, + 100 Mesh, and -100 Mesh size fractions. Technology Metals Research suggests that the cost difference of taking a 95% Cg con versus a 98% Cg con to >99.9% Cg purity may be as much as $2-3,000/t of concentrate.

South-East and South-West zones flotation tests may upgrade purity further

Matawinie project outclasses its peers in both purity and recovery based on existing resources and economic and technical studies. Total carbon purity from the South West Zone samples ranged between 94.7% and 96.6%. This area has been the focus of the PEA, pending PFS and should see initial production. Other areas of the property also showing Scoping level tests in the South East zones were largely positive, with purity of total carbon between 93.5% and 97.7%. The recoveries utilizing an open circuit were equally impressive showing ranges of 95.7% to 97.2%.



Bulk sample testing. Graphite concentrate for downstream testing was created by processing two 6t bulk samples in a flotation pilot plant. Initial grades of the bulk samples 1 and 2 were 95.6% and 94.8% Cg, respectively. 470 Kg of dry equivalent was produced from the two bulk samples based on mass recovery through >80 mesh size fractions. High shear grinding was implemented to further upgrade the concentrate from the bulk processing circuit, where a feed grade sample of 92.6% total carbon was upgraded to 97.8% total carbon. The feed sample used for the trials was actually the lowest grade concentrate of the second bulk sample as a conservative approach to determine whether the material could be upgraded as was observed in other previous samples. 95% total carbon was still achieved even using the finest mesh size of -200.

Even flake distribution. Matawinie has a variable mix of flakes including 16% jumbo, 30% large, 11% medium and 43% fine. This well positions Matawinie to appeal to a wide variety of customers. This may include steel mills who desire fine flakes, or certain battery makers who prefer large and high purity flakes to help meet strict impurity content limitations.

Table 5: Graphite concentrate flake size distribution for Matawinie


Figure 5: Plan map showing the proposed Matawinie Mine infrastructure and West Zone pit area


Simple Flow Sheet Processing for graphite is relatively simple once the attributes of the graphite provide it to be suitable for various end products. We consider it almost like processing greasy iron ore, requiring crushing, grinding, flotation, polishing and dewatering steps. One key difference is that graphite flakes are delicate and large flakes are currently priced higher than smaller flakes. Thus, treating the ore delicately may help optimize for higher priced flake size, perhaps at the expense of recovery or purity levels.

The Matawinie flowsheet consists of a primary circuit with rougher and scavenger flotation followed by primary and secondary polishing/attrition scrubbing and cleaning.

Graphite Concentrate

Size Fraction Weight (%) Grade (% Cg)

+50 mesh 16.1% 96-97%

-50 mesh +8 0 mesh 29.8% 96-97%

-80 mesh + 150 mesh 11.1% 96-97%

-150 mesh 43.0% 96-97%



Recovery is estimated to averaging 89.5%, and a final concentrate grade of 97.3% C(t) is projected. The flowsheet is based on the following:

1) Crushing - ROM ore will be crushed with a jaw crusher to particle size of 80% passing 180 mm. SAG mill grinding circuit will reduce product size to minus 3.35 mm.

2) Primary Grinding and Coarse Flotation - Screen undersize is pumped to coarse flotation tank followed by three flotation cells. Rougher flotation concentrate is sent to polishing mill #1. Rougher flotation tailings are sent to secondary grinding unit consisting of a ball mill in closed circuit with a cyclone. Both rougher float and rougher scavenger float are pumped to a dewatering screen to control pulp density.

3) Polishing Mill - This pebble mill operates with a light load of ceramic media to mitigate destruction of graphite flakes. Polishing mill discharge is recombined with the dewatering screen undersize and pumped to the first cleaner flotation condition tank followed by three cleaner flotation stages.

4) First and Secondary Flotation - The first cleaner concentrate flows to the second cleaner flotation stage, and the second to a third. The first cleaner flotation tails are pumped to a sulphide tailings thickener. Tailings from second and third stages are pumped to the previous flotation cleaner stage.

5) Dewatering - Graphite concentrate is thickened to remove excess water before being filtered and dried. The moisture content of the final product should be < 0.5%.

6) Dry Screening/Product Sorting - Dried concentrate will be conveyed and four different sized fractions will be produced and stored in different bins according to product size: +50 mesh; +50 to +100 mesh; -80 to +100 mesh; and -100 mesh.

Matawinie PEA Results & Eight Capital Assumptions

PEA contemplates significant long life, low cost production. Matawinie's high purity, high recovery and even flake distribution should help reduce operating costs and elevate margins. A June 2016 PEA study is focused on just the higher grade West Zone. That zone is slightly smaller than the South Zone, but grades are higher and it is better located for permitting and other technical reasons. The PEA suggested an after tax NPV at 8% of $237 MM and 24.7% IRR.

The 2016 PEA contemplates a 50,000 tpa Cg operation for over 25 years. Capex is estimated at $144 MM and Opex of $660/t Cg. Average mine grade of 4.48% Cg was to be upgraded into a >97.1% Cg product. Global resources were estimated for both the West and South Zones; however, only West Zone in-pit resources were incorporated into the mine schedule with a strip ratio of 0.94.

West Zone in-pit resources upgrade improved confidence. There wasn't much additional contained graphite added to the resource estimate; perhaps enough for almost another year and a half LOM. But there was a large resource category upgrade from inferred to indicated, whereas virtually all in-pit resources are classified as Indicated. This adds to our confidence levels and helps decrease risk.

Key operating assumptions:

• $144 MM initial Capex including $22.4 MM contingency. The largest component (41.6%) is the processing facility at $60.1 MM with the remainder of the costs fairly evenly distributed across infrastructure, tailings and water management, construction, land acquisitions and indirect costs. Our Capex is 5% higher at $152 MM.

• Sizable production rates. An average production rate of 49.9 tpa Cg was contemplated in the PEA. We maintain a similar mine schedule used in the PEA.

• Low operating costs. Opex of $660/t includes low transportation costs to Montreal.

• 22 year LOM. The current LOM is likely to increase marginally in the PFS following the recent resource estimate.

• Price inputs. Nouveau's PEA price assumption, however, captures a 5 year average that factors much higher graphite prices from 2012 and 2013. Our model incorporates a more conservative approach to a blended long term graphite price, based on US$1,400/t for jumbo or large flakes (46%), US$1,200/t for medium (11%), and US$1,100/t for fine flakes (43%). We continue to price production based on the



first West Zone in-pit resource flake size distribution. It is possible that Matawinie's high purity levels help garner premium pricing, and the PFS focuses more on recovery of larger sized flakes.

Figure 6: Current capital and operating cost breakdown of Matawinie project

Source: Company Reports, Eight Capital

We remain fairly conservative in our assumptions. Our assumptions remain based on the original June 2016 PEA. At this time, we continue to model the older resource estimate given that we know its flake size distribution and costs are based on those assumptions.

Our long term graphite price assumptions are based on both Benchmark Minerals Intelligence Index and Matawinie's distinct flake size distribution. We assume a long term forecast of US$1,249/t given that the PEA was optimized for purity and not flake size.

We incorporate higher costs than the original PEA, largely because of FX adjustments made to incorporate C$ assumptions in the PEA into our US$ based DCF model following a period of rapid C$ depreciation. We also use higher transportation costs to Montreal. The result is an 8% post tax NPV of $149 MM versus the PEA at $237 MM. Had we used an average graphite price assumption of US$1,492/t as used in the PEA, NPV rises to $219 MM. The price deck used in the PEA used a 60-month historical average pricing, which we don't believe is suitable for today's market. We also do not model any downstream value added products at this time.

Operating Cost BreakdownCapital Cost Breakdown

Open Pit Mine, 10.8%

Processing, 41.6%

Infrastructure, 6.5%

Tailings and Water

Management, 9.1%

Construction Indirects,

12.6%

Land Acquisition, 3.9%

Rehab Closure, 0.0%

Contingency, 15.5%

Mining, 36.5%

Processing, 50.2%

G&A + Infrastructure,

13.3%



Table 6: August 2016 PEA and Eight Capital modeled assumptions

Source: Company reports, Eight Capital

We believe there will be certain changes within the PFS due in Q3/17. It's likely that some initial capital will be moved to future years to help improve economics. We also expect production to be sourced from a shallower and longer open pit. Whittle pit resource parameters were largely kept intact and the result was a fairly similar resource estimate. But Capex looks to have declined, perhaps at the expense of strip ratio and operating costs. We do believe that this could be offset by optimizing for flake size.

Upside potential. Only the 2,300m long West Zone is being developed for production, as the South Zone was not included within the PEA. This adds potential to add a second pit at a later date to either increase production or extend LOM. Secondly, the 14km long ring of mineralization is close to surface and continuous around the circular intrusive. It would be beneficial to continue drilling in a clockwise pattern from the West Zone towards the South Zone based on current resource grades of the two zones (West Zone grades are about 20% greater than South Zone); planned location of initial waste rock infrastructure; and shorter distance to town and processing facility.

Permitting timeline. Both the Impact Benefit Agreement and Environmental Impact Assessment are expected to begin in Q3/17. We have assumed a two year permitting period for Matawinie to meet its H1/20 production start-up guidance. Full mining permits are expected by H1/2019. Pierre Renauld has been hired to Nouveau's Board of Directors and brings with him valuable experience in the permitting space, as former President of the Bureau d'Audience Publicque en Environment (BAPE). This year, Nouveau Monde plans to initiate permitting of a 100t bulk sample and pilot plant. The goal is to optimize distribution, purity, and spheronization.

Value Added Processing

Nouveau Monde is pursuing other value added graphite products. This may include expandable or expanded graphite, graphene, graphene oxide and coated and purified spherical graphite. Value added products are not included in the current PEA, but management has outlined a potential "non NI 43-101compliant" conceptual study. Value-added graphite products may significantly increase margins.

NOU is developing high-yield spheronization and purification technology to meet the demanding cost targets of automotive LiB and battery storage applications, in conjunction with Coulometrics LLC of TN and Soutex of QC. A mill at Coulometric's LLC battery production and test facility is being used to produce and optimize the yield of purified spherical graphite from various mine concentrates. Purified spherical graphite (SG) is mainly used for anode material in lithium-ion batteries.

SG of up to 99.99% Ct was created from a flotation sample of 98.2% Cg purity from the West Deposit. Various methods of purification, including chemical, thermal and hybrid approaches, were used. Ash content and impurity levels fell within specifications of two LiB market leaders working with Nouveau. Results from this purification process were confirmed using glow discharge mass spectrometry (GDMS) at EAG Laboratories in NY.

Summary Results NOU Eight Capital Variance

Annual Production t 49,921 49,921

Head Grade (Cg) 4.62% 4.54% -2%

Average Graphite Recovery 89.5% 89.5%

Mine Life 25.7 years 19 years -26%

Strip Ratio 0.94 0.94

Cash Operating Cost C$/t 660 671 2%

Initial Capital Cost MM C$ 144 152 5%

Graphite Price US $/t 1,492 1,249 -16%

Net Present Value (post-tax);

8% discount rate MM $ 237 149 -37%

Post-Tax IRR 24.7% 23.8% -4%

Payback Period 3.5 6.6 89%



Soutex is working on a conceptual economic study, in collaboration with eight laboratories, testing facilities and equipment suppliers. Early (non-compliant) indications are that a $95 MM plant could upgrade 20,000 tpa Cg to >99.99%. This might add to potential margins. Although typically more costly to produce and refine, due to the physical reshaping, chemical/thermal purification, and coating, prices for SG warrant the effort as they are substantially higher than flake. The study suggests an average sale price of US$3,750/t and an Opex of US$1,425/t. Benchmark Mineral Intelligence had quoted SG (99.15% C, 15 microns) at US$3,100/t, while coated SG can range from US$8-$12,000/t depending on size and purity. Again, we do not include value added products in our valuation of NOU.

Risks

Risks to the company and our valuation are varied, including graphite price projections, development and operating cost forecasts, production and throughput schedules, permitting, construction ramp-up and project execution. Project financing is inherently a significant risk, although off-take and partnership agreements can prove to mitigate this while moving the project forward.

Graphite price risk - Unlike copper or gold, graphite is an industrial mineral. It is not a commodity whose prices are reflected on a daily exchange but rather reflect the most recently available contracted prices…and these are based on attributes and quality of the project. Consequently, visibility of these transactions can be poor and pricing may be outdated or vary for products of different qualities, purities or flake sizes. We maintain that our price deck is fair at US$1,249/t Cg concentrate. This is based largely on Matawinie's flake size distribution, a main price driver, but it might not fully appreciate purity levels. We also recognize that this is below Nouveau and the majority of its competitor's long term pricing.

Production risk - Assumptions were made regarding the mine schedule, including production throughput, mine life, working capital, sustaining capital, and other operating expenditures. The project is backed by NI 43-101 compliant technical report and resource estimates. We therefore believe our estimates were made rather conservatively, accounting for technical uncertainty and potential for additional execution risk.

Financing risk - We have assumed that Nouveau Monde will be able to raise the necessary financing for the project. Rising graphite prices could diminish financing risk, as a bullish environment would alleviate issues in raising funds as the industry responds to growing battery industry demand - promoting for strategic alliances or off-takes. Our model does assume combined debt (40%) and equity (60%) of $151.7 MM. Timing will largely depend on market conditions at that time.

Permitting risk - We assume final permits will be attained; however, project timing might be dependent on how quickly regulators grant permits. Pierre Renauld's presence on the Board should help expedite permitting given his background and relationships as Former President of the Bureau d' Audience Publique en Environment between 2007 and 2012. Cottagers own property in close proximity to the project. The company plans to purchase these properties within a 2km buffer zone around the Matawinie open pit. The Manawan First Nations community is located ~70km to the NNW of Saint-Michel-des-Saint and represents around 36% of Saint-Michel-des-Saint's population.

Off-take risk - We regard off-take agreements as significant de-risking events for bulk mining companies, in whatever form it may take. There is some disagreement with certain (experienced) industry participants believing individual smaller contracts can be written on an ad-hoc basis in the graphite space. The unfolding scarcity of quality supply may change this trend, especially as battery market demand increases and the desire for value added graphite products rallies. In our view, off-takes are highly regarded by banks and potential financiers for funding projects - the first off-take signed by a household name may open the financing floodgates.



MANAGEMENT AND DIRECTORS

Management Team

• Eric Desaulniers, M.Sc, P.Geo, President & CEO – Mr. Desaulniers has 11 years of experience as a P.Geo with a MSc in Geophysics. He has worked as a geophysicist at ED Exploration and Sander Geophysics, where he executed several geoscientific programs for multiple companies including Aramco, Shell, NASA, the BRGM, and the GSC. Eric also served as a Captain Infantry Officer in the Canadian Forces for 6 years.

• Charles-Olivier Tarte, CPA, CMA, Chief Financial Officer - Prior to joining Nouveau as CFO, Mr. Tarte was financial controller for Imerys Graphite & Carbon, the only producing graphite mine in North America. Prior to this, he served as a senior financial analyst with Pratt & Whitney Canada. Mr. Tarte holds both a CMA and CPA and received his Master’s degree in taxation from the Université de Sherbrooke.

Board of Directors

• Michel Delsaer - Mr. Delsaer brings +45 years' experience in project planning, coordination and execution. He has developed joint ventures and governance structures for major industrial projects. He founded Delsaer Project Management Inc in 1987, served as President until 2007 and Chairman until 2011. He has served as senior advisor and business manager of Groupe Delsaer Inc. since 2011.

• Guy Bourassa - Mr. Bourassa brings with him over 30 years' experience and was instrumental in identifying and negotiating the acquisition of Nemaska's (NMX-T, BUY, $2.30 target) Whabouchi Property, where he has served as President and CEO since January 2008.

• Pierre Renaud, MPA - Mr. Renaud joins Nouveau Monde as former president of the Bureau d'Audience Publique en Environment (BAPE) from 2007 to 2012. He currently serves as counsel and head of the Environmental Law Group for the Quebec Region at McCarthy Tetrault LLP and brings with him over 29 years' experience and will be instrumental in permitting capacity and environmental evaluation.

• Nathalie Jodoin, Ing., - Ms. Jodoin has +20 years' experience in Intellectual Property. She has a Bachelor in Metallurgical Engineering, Material Science; also a Bachelor in Civil Law. She was called to the Québec Bar in 1990 and was a registered patent agent in Canada and the USA since 1998. She's been a partner of ROBIC since 2004 and on its Managing Committee.

• Marc Prud’Homme., Mr. Prud’Homme is a respected businessman based in the local community of St-Michel-des-Saints and brings with him valuable experience as an owner of the Auberge du Lac Taureau.

• Yannick Beaulieu, CPA, CA, MBA – Mr. Beaulieu has held auditor positions across several accounting firms and most recently was a Controller turned CFO of Verval Lteé.

• Jean-Philippe Aubé, CPA, CA, CBV – Mr. Aubé is currently a partner with Sixa Capital Partners bringing with him extensive experience in financial investments and business valuations. Jean-Philippe also holds the position of President of PME Performance Inc., a corporation specializing in business valuation.




Nouveau Monde (NOU-TSXV) NOU-TSXV C$ 0.30

Rating Buy C$ Target $0.50 Shares O/S (MM) 85.4

C$ Close $0.30 Fully Diluted Shares (MM) 99.3

David A. Talbot, Director, Mining Research 12-month return 69% Basic Mkt. Capitalization ($MM) 25.2

[email protected] Enterprise Value ($MM) 22.2

All figures in C$, unless stated otherwise

EVALUATION DATA BALANCE SHEET (000C$)

Year-end Dec 2015A 2016A 2017E 2018E Year-end Dec 2015A 2016A 2017E Q3/16

EPS ($0.0) ($0.0) ($0.0) ($0.0) Assets

P/E N/A N/A N/A N/A Cash & ST Investments 344 3,247 1,722 1,328

CFPS before changes in WC ($0.01) ($0.01) ($0.01) ($0.01) Other Current Assets 795 335 335 335

P/CF N/A N/A N/A N/A Current Assets 1,139 3,582 2,056 1,663

market cap/reserve t n/a

enterprise value/reserve t n/a Mineral Properties 3,167 5,268 5,268 5,268

market cap/resource t $0.00 Other non-current Assets 12 349 7,149 288

enterprise value/resource t $0.00 Total Assets 4,319 9,199 14,473 7,219

ASSUMPTIONS 2015A 2016A 2017E 2018E

Graphite US$/t 1,303 1,138 1,138 1,249 Liabilities

Exchange US$/C$ 0.78 0.76 0.78 0.80 Current Liabilities 177 308 308 308

Eight Capital Modelled Reserves and Other Mineralization (MM t) Capital lease / LT Debt - - - -

Other non-current Liabilities - - - -

RESERVES & RESOURCES (Global) Total Liabilities 177 308 308 308

Tonnes Grade 100% Basis NOU Share

Ownership MM t % Cg Capital Stock 10,324 16,264 22,539 14,034

Proven and Probable Reserves Retained/Deficit (6,183) (7,374) (8,374) (7,124)

Total Shareholder Equity 4,142 8,891 14,165 6,911

EARNINGS SUMMARY 2015A 2016A 2017E 2018E

Total Reserves Revenue:

Measured and Indicated Resources (000 t) Graphite - - - -

West (in pit) 100% 32,900 4.50% 1,480.50 1,480.50 Other Revenue - - - -

South 100% 26,300 3.73% 980.99 980.99 Total Revenue - - - -

Lithium costs - - - -

Total M&I Resources 59,200 4.16% 2,461 2,461 Other Costs 407 133 - -

Inferred Resources (000 t) DD&A - - - -

West (in pit) 100% 200 4.84% 9.68 9.68 Exploration 8 2 - -

South 100% 19,200 3.67% 704.64 704.64 S, G&A 521 914 1,000 1,750

EBIT (937) (1,049) (1,000) (1,750)

Total Inferred Resources 19,400 3.68% 714 714 FX Gain (3) (2) - -

TOTAL RESOURCE 78,600 4.04% 3,176 3,176 Interest (2) (3) - -

Writedown of min. properties (210) - - -

PRODUCTION ESTIMATES (000 t) EBT (1,151) (1,053) (1,000) (1,750)

Year-end June 2020E 2021E 2022E 2023E 2024E less Tax - - - -

Matawinie 33 50 44 45 47 Net Income (reported) (1,151) (1,053) (1,000) (1,750)

Average shares (MM) 69.4 76.6 81.3 211.3

Sub total 0 50 44 45 47 STATEMENT OF CASH FLOWS (000C$)

TOTAL CASH COST ESTIMATES (US$/t) 2015A 2016A 2017E 2018E

Year-end June 2020E 2021E 2022E 2023E 2024E Net Income (000's$) (1,151) (1,053) (1,000) (1,750)

Matawinie 526 646 710 699 674 D, D&A - - - -

Future income taxes - - - -

Writedown of min. properties 210 - - -

Wt. Ave. 526 646 710 699 674 Investment Gain - - - -

Change in working capital (178) 95 - -

NET ASSET VALUE 0% NAV C$/share 8% NAV C$/share Other Operating 47 102 - -

(C$MM) (C$MM) Total Operating CF (1,072) (856) (1,000) (1,750)

Corporate DCF 328 1.55 123 0.58 Short term investments - - - -

Cash and Debt 8 0.04 8 0.04 Mineral Properties (2,352) (1,936) (6,800) (46,769)

Exploration & unmodelled Resources 11 0.05 11 0.05 Acquisitions - - - -

Total 347 1.64 142 0.67 Increase in Investments - - - -

Eight Capital DCF Target Multiple 0.7x Other Investing 55 406 - -

Share Price Target C$ 0.50 Total Investing CF (2,296) (1,529) (6,800) (46,769)

Equity financing 3,367 5,485 6,274 61,937

Debt Issue - - - -

Target (C$/Sh) 0 0 0 0 0 Debt Repayment - - - -

0% Discount 0.69 1.08 1.47 1.86 2.25 Other financing - - - -

5% Discount 0.40 0.63 0.86 1.09 1.32 Total Financing CF 3,367 5,485 6,274 61,937

8% Discount 0.30 0.46 0.62 0.78 0.95 Foreign Exchange effect (0) - - -

10% Discount 0.25 0.40 0.55 0.70 0.85 Change in cash (1) 3,100 (1,526) 13,418

Cash & ST Inv., end of year 344 3,247 1,722 15,140

Graphite Concentrate Production and Total Cash Costs Resources and Reserves and Resources and Reserves per share

Contained

000's tonnes

Long Term Graphite Price Assumption (US$/t)

No current reserves

No current reserves

0

100

200

300

400

500

600

700

800

0.0

10.0

20.0

30.0

40.0

50.0

60.0

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

20

31

US

$/t

t G

rap

hit

e C

on

cen

tra

te

Graphite Production Total Cash Cost

0255075

100125150

2015A 2016E 2017E 2018E

Mt

Gra

ph

ite

Inferred M&I (ex cl reserves) Reserves

0.000.501.001.502.002.503.00

2015A 2016E 2017E 2018E

t C

/ s

ha

re

Inferred / share M&I (ex cl reserves) / share Reserves / share




Nouveau MondeNet Asset Valuation at Eight Capital Price Deck (C$)

Discount Rate ($MM) ($/Share) ($MM) ($/Share) ($MM) ($/Share) ($MM) ($/Share)

Mining Assets

Matawinie (100%) 8% 78 0.96 367 4.51 149 1.83 22 0.27

Total Mining Assets 78 0.96 367 4.51 149 1.83 22 0.27

Other Assets & Expenses

Cash 3 0.04 3 0.04 1 0.01 1 0.01

Debt 0 0.00 0 0.00 0 0.00 0 0.00

Resources 4 0.05 4 0.05 4 0.05 4 0.05

Exploration, G&A, Other 8% (31) (0.38) (241) -2.96 (80) -0.98 22 0.27

Net Other Assets (24) (0.29) (233) -2.87 (75) -0.93 27 0.33

Net Asset Value 55 0.67 134 1.64 73 0.90 49 0.60

Share Price 0.30 0.30 0.30 0.30

P/NAV 0.44x 0.18x 0.33x 0.49x

Financial Forecasts at Eight Capital Price Deck (MM C$)

Cash and Debt Operating Cash Flow and Capital Spending

Changes in Debt and Equity Free Cash Flow and Common Share Dividends

Target Setting NAV NAV at Various Discount Rates

0% 5% 10%

0

10

20

30

40

50

60

70

80

90

100

2015A 2017E 2019E 2021E 2023EEquity Addit ions (incl. Dilutive Securit ies) Debt Borrowing Debt Repayment

-120

-100

-80

-60

-40

-20

0

20

40

2015A 2017E 2019E 2021E 2023E

Adjusted Free Cash Flow (FCF - Capex) Common Share Dividends

0

20

40

60

80

100

120

140

2015A 2017E 2019E 2021E 2023E

Cash Total Debt

-120

-100

-80

-60

-40

-20

0

20

40

2015A 2017E 2019E 2021E 2023E

Operating Cash Flow (B4 Working Capital) Capex



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Explanation of Recommendations Eight Capital target: Represents the price target as required under IIROC Rule 3400. Valuation methodologies used in determining the price target(s) for the issuer(s) mentioned in this research report are contained in current and/or prior research. Eight Capital target N/A: a price target and/or NAV are not available if the analyst deems there are limited financial metrics upon which to base a reasonable valuation. Recommendations: BUY: Total returns expected to be materially better than the overall market with higher return expectations needed for more risky securities. NEUTRAL: Total returns expected to be in line with the overall market. SELL: Total returns expected to be materially lower than the overall market. TENDER: The analyst recommends tendering shares to a formal tender offer. UNDER REVIEW: The analyst will place the rating and/or target price Under Review when there is a significant material event with further information pending; and/or when the analyst determines it is necessary to await adequate information that could potentially lead to a re-evaluation of the rating, target price or forecast; and/or when coverage of a particular security is transferred from one analyst to another to give the new analyst time to reconfirm the rating, target price or forecast. SECURITY ABBREVIATIONS: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate voting shares).

Eight Capital Equity Research Ratings:

As at December 31, 2016 Source: Eight Capital

59%

36%

4%

46%

26%

0%0%

11%

22%

33%

44%

55%

66%

Buy Neutral Sell

% of companies covered by Eight Capital in each ratingcategory

% of companies within each rating category for which EightCapital has provided investment banking services for a feein the past 12 months.