EDITOR: | November 8th, 2013 | 8 Comments

Focus Graphite — it’s all about the numbers

| November 08, 2013 | 8 Comments
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Core samples drilled from Focus Graphite’s Lac Knife graphite deposit.

Focus Graphite Inc. (TSXV: FMS | OTCQX: FCSMF) owns one of the highest-grade, large-flake graphite deposits in the world — and with yesterday’s announcement of updated economic results for its Preliminary Economic Assessment (PEA), Focus is rapidly advancing and de-risking its flagship Lac Knife Graphite Project in northeastern Quebec. The tremendously robust revised PEA numbers demonstrate that Focus will be among the lowest-cost producers and, as such, have the ability to compete head-to-head with any graphite producer in any market. That is a powerful statement to make; however, Focus has worked diligently to achieve the requisite key project economics to back it. And with the release of the revised figures in the updated PEA, Focus Graphite is now firmly positioned to separate itself from the herd of other flake graphite juniors.

It’s all about the numbers… the highlights Focus announced were extremely impressive: final graphite concentrate grade of 96.6% total carbon; a $28 million reduction in working capital associated to purification costs (due to the elimination of the need to purify the concentrate by a third party); revised operating costs of $68 per tonne milled and $458 per tonne of concentrate; a pre-tax net present value (NPV) of $317 million; and an increased pre-tax internal rate of return (IRR) of 36.4% (with a 2.4 year payback period). Lac Knife will be an open-pit mine, producing 300,000 tonnes per year. But all those impressive numbers, test results and percentages are completely meaningless if the project is too costly to build (in other words, if the CAPEX is too high). And with Focus, that is not the case — the CAPEX is comparatively low. With a low CAPEX of $126 million (including a $24 million contingency), Lac Knife is attractive to potential investors. Obviously, a low CAPEX is absolutely crucial in the current economic climate. A lot of projects north of $500 million, regardless of how impressive the numbers are, face unbelievable challenges getting funded. Not because they are not great projects that have the potential to be profitable for a very long time — or for any other reason for that matter, other than the CAPEX is prohibitive. Lac Knife’s CAPEX is not an overwhelming number (reduced from its original $154 million CAPEX in the original PEA economic model, filed in October of 2012) and with an increased projected rate of return, Focus is now even more attractive.

focumapIn September, Focus announced it had appointed Donald Baxter as President and COO (Mr. Baxter was formerly President of Northern Graphite Corporation) to complete Focus’ world-class management team and advance (and accelerate) Lac Knife’s full development. This past Monday, Focus announced that it had retained international consulting engineering company Met-Chem for the Lac Knife Feasibility Study, presently underway. “My mandate upon joining Focus is to accelerate the process to bring the Lac Knife development project to a production decision,” says Baxter. “Considering the amount of work already completed at Lac Knife, including the recent completion of the Pilot Plant operation with extremely positive results showing large flake concentrate grades reaching 98.3% total carbon from an optimized flotation and polishing circuit, it was decided to commence the Feasibility Study immediately.”

The Feasibility Study we have just initiated moves us closer to financing, securing off-take agreements, permitting, and construction,” explained Focus CEO Gary Economo. “With the recent excellent metallurgical results from the Lac Knife Pilot Plant and with the key variables updated in this announcement, our project has the potential to become one of the lowest-cost producers of graphite in the world.” Note: The average carbon content of the pilot plant campaign was 96.6% total carbon; however, the average grade of the coarse size fraction (+ 80 mesh) was 98.3% total carbon (Ct). The fact that the medium and large graphite flakes could be upgraded to purity levels ranging between 98% and 98.3% total carbon by flotation suggests that the impurities are attached to the surface of the graphite flakes in the flotation concentrate and have the potential to be upgraded even further, to purity levels required by battery grade graphite manufacturers.

With graphite, the larger the flake size and the higher the purity, the more the graphite is worth. And in the graphite business, grade, quality and costs (with the emphasis on costs) are critical to success. Focus’ high-grade purity results translate into more high-growth applications and very cost-effective purification processes and have positioned Focus to assume a low-cost leadership position in the industry. As future graphite demand increases, driven by green technologies (including lithium-ion batteries, electronics, nuclear, defense, construction materials, etc.), Focus will be there to address the need for technology-grade graphite. Due to space limitations in this article, I’m not even going to go into the ‘graphene revolution’ side of graphite industry and the potential significant upside to graphene commercialization; however, it should be noted that Focus Graphite owns 21% of the incredibly promising Grafoid Inc. (and it’s patent-pending MesoGraf high-energy density graphene) — a company led by visionaries Gary Economo and Dr. Gordon Chiu — and, through Grafoid, Calevia Inc. Calevia is a Grafoid joint-venture partnership working with graphene-based nanotechnology to eradicate cancer cells in a non-invasive manner.

Aside from the Lac Knife Feasibility Study, upcoming milestones Focus Graphite is actively working on are off-take agreements (which are not dependent on the Feasibility Study, expected to be completed during the summer of 2014), as well as project funding.


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Comments

  • Manaconda

    Great piece Ty. This is turning out to be a very interesting play and I await further news of the Lac Knife project. Thanks very much for this.

    November 8, 2013 - 2:22 PM

  • J. Best

    I agree Manaconda, great article and intriguing play. This company is doing great things.

    November 8, 2013 - 3:58 PM

  • BankerBob

    This is the company to watch in the coming weeks and months. Focus says it expects offtake agreements and a mine financing agreement to be inked by the end of this year – and probably the catalyst for subsequent announcements by other players in the graphite development sector.

    November 8, 2013 - 5:00 PM

  • Peter

    This appears to be a positive development for Focus and is extremely interesting. But two questions come immediately to mind.

    First, is it realistic in any way to think that Focus can sell 300,000 tonnes of graphite a year? My understanding is that natural graphite is only a 1 million tonne a year market, with flake only accounting for half of that. So these PEA numbers are dependent on securing 30 percent of the natural graphite market?

    Second, practically speaking how will the pre-feasibility off take agreements be structured? Will there be an agreement to purchase that is conditioned on the mine being constructed? I think a little more analysis would be helpful here.

    November 10, 2013 - 7:05 AM

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    […] on the heels of an extremely robust revised Preliminary Economic Assessment, Gary Economo, CEO of Focus Graphite Inc. (TSXV: FMS | OTCQX: FCSMF), made one of the most impressive presentations of the conference. With […]

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    […] The junior graphite market changed dramatically at 4pm on December 19th. That’s when industry leader Focus Graphite Inc. (TSXV: FMS | OTCQX: FCSMF) made graphite-industry history with the announcement that the company has formally entered into an offtake agreement for future graphite production from its 100%-owned ultra-high-purity, technology-grade Lac Knife Graphite Project in northeastern Québec. The announcement effectively transitions Focus from a graphite development company to a graphite production company. With the achievement of the company’s most significant milestone to date, Focus is positioned to become one of lowest-cost graphite producers in the world. […]

    December 20, 2013 - 10:47 AM

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