The Most Advanced Battery-Grade Graphite Project in North America

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The Canadian province of Québec is one of the top-rated mining jurisdictions in the world and electricity costs, a key input in mining operations, are among the lowest in North America.

Focus Graphite Inc. holds 100% ownership of the Lac Knife crystalline flake graphite deposit located in the Côte Nord region of Québec. At approximately 15% graphitic carbon, Lac Knife is one of the highest-grade flake graphite deposits in the world.

An updated resource calculation released in January 2014 showed Measured and Indicated resources totalling 9,576,000 million tonnes grading 14.77% graphitic carbon, with Inferred resources* of 3,102,000 tonnes grading 13.25% carbon.

(* Inferred Resources are considered too geologically speculative to have mining and economic considerations applied to them and to be categorized as Mineral Reserves.)

A positive Feasibility Study, prepared by Met-Chem Canada Inc., released on August 8, 2014, indicates that Lac Knife has the potential to become one of the lowest-cost, highest-margin producers of graphite in the world at $441 per tonne of graphite concentrate.

The Feasibility Study was based on a 25-year mine life that produced a Pre-tax Net Present Value (NPV) of $383 million calculated at a discounted cash flow (DCF) rate of 8% Pre-tax, the financial model has an Internal Rate of Return (IRR) of 30.1% and a capital payback period of 3.0 years.

The after tax financial model has an NPV of $224 million calculated at a DCF rate of 8%, and with an IRR of 24.1% and a capital payback of 3.2 years.

Discounted Cash Flow (DCF) Financial Models
Lac Knife Feasibility Results (Pre-Tax) Base Case 2016 Forecast Units
Average Price / Tonne of Concentrate $1,713 $2,256 USD$
Internal Rate of Return (IRR) 30.1 41.8 %
Net Present Value @ 6% Discounted Cash Flow 510 809 $ million
Net Present Value @ 8% Discounted Cash Flow 383 624 $ million
Net Present Value @ 10% Discounted Cash Flow 291 488 $ million
Payback Period 3.0 2.1 Years
Lac Knife Feasibility Results (After-Tax) Base Case 2016 Forecast Units
Internal Rate of Return (IRR) 24.1 32.8 %
Net Present Value @ 6% Discounted Cash Flow 304 476 $ million
Net Present Value @ 8% Discounted Cash Flow 224 364 $ million
Net Present Value @ 10% Discounted Cash Flow 165 280 $ million
Payback Period 3.2 2.4 Years
All monetary values are in Canadian Dollars (CDN$) except where specified otherwise

Lac Knife Aerial Site Photo

Results from the FS indicate that the Lac Knife Project is viable economically with a Base Case scenario that includes a concentrator production line rate of 44,300 tonnes of concentrate annually at an average mill feed rate of 323,670 tonnes per year of Mineral Reserves over a 25-year mine life. A concentrator availability of 93% was used for the study. The additional Measured, Indicated, and Inferred Resources will continue to be evaluated to develop the mid and long term growth profile for the Company.

Highlights:

  • Reduced operating costs from $458 per tonne of concentrate to $441 per tonne within close range of the Updated PEA study released November 7th, 2013.
  • Mining costs are 126.95 $/t of concentrate ($17.85 per tonne of ore) with the major component associated contract miningcosts. Contract mining versus lower cost owner mining can be revisited with further evaluation of mine equipment leasing and associated owner’s costs.
  • Processing costs for the concentrator are, on average over the life of mine $239.37 per tonne of concentrate produced, based on yearly average processing costs of $33.66 per tonne of ore processed. The low cost hydroelectric power supplied by Hydro-Québec contributes to overall low production costs.
  • Detailed engineering is planned to start in 2015 and further analysis of each of these cost components will continue during the detailed engineering stage.
  • Life of Mine Plan resulted in an overall average strip ratio of 1.7 to 1 for 25 years.
  • Average prices used in the financial model do not include value added products that can be produced using the typically lower valued finer natural flake graphite. These finer graphite concentrates can be further processed into value added products for the Lithium Ion battery market because of their high carbon content of 98% carbon and realize a higher margin for a reasonable capital investment and operating cost over and above those outlined in this summary. Based on these results it has become an important objective to outline the scope of this secondary transformation project for electrifying transportation and for use by other lithium battery end users.

IMG_5223Today, the prices for the Lac Knife graphite concentrates average USD$1,713 per tonne based on the size distribution and high carbon grade. Also included in the table above are the results using forecasted prices for 2016 where the average price for the same concentrates is estimated to increase to USD$2,256 per tonne. These prices are estimated by Industrial Minerals Data of the UK, who are recognized in this field as an independent source of accurate, detailed information for the natural flake graphite market.

Met-Chem’s financial model does not include potential value-added, purified, spheronized, and coated battery-grade graphite in its financial and operational calculations.
The exchange rate used is $0.91 US Dollars per Canadian Dollar. The Discounted Cash Flow financial models above provide the Net Present Values calculated at various discounted cash flow rates for the Base Case production scenario of 44,300 tonnes of graphite concentrate produced annually. The financial analysis in the FS study used the 24 month price of USD$1,713 per tonne that is a weighted average for the various graphite concentrates that are classified by flake size and also valued by their carbon content.
The annual milling capacity is 323,670 tonnes per year to produce 44,300 tonnes of concentrate annually at a cost of $441 per tonne of concentrate. The concentrate will grade 97.8% Graphitic Carbon (Cg) on average for a 25-year open pit mine life based on current open pit reserves. All graphite concentrate produced with flakes larger than 200 mesh contain more than 98% Cg.

“Commercially and competitively, these results open the door for Focus Graphite to confidently accelerate our plans to market and sell our battery grade, high margin products to potential partners and customers.”
Donald Baxter, P.Eng.
President and Chief Operating Officer
Focus Graphite Inc.

The FS is based on the Pilot Plant test work run by SGS Mineral Services in Lakefield, Ontario, during the spring of 2013 and announced in a news release on August 21st, 2013. The concentrator process flow sheet is based on standard flotation circuits followed by a series of polishing mills that upgrade the carbon content by cleaning impurities present in the ore that are generally found on the graphitic carbon flake surfaces of the Lac Knife mineralization. Pilot Plant recovery was 91%, full scale, consistent operations should improve on the mill process recovery. Flake size distribution is expected to increase in favour of larger flake as the full scale plant will start with a SAG mill which is better suited to mitigate flake damage as opposed to crushing and grinding methods used in the pilot plant.

Lac Knife is unique in that all natural flake graphitic concentrates produced with flake size above 200 mesh (75 microns) size are more than 98% Cg. This allows Focus to divert finer sized products that would typically be difficult to sell due their flake size to higher value added products such as spherical graphite for batteries due to the high carbon content of 98% carbon (See ‘Lithium Battery Coin Cell Test Results’ below).

Proven and Probable Mineral Reserves:

The open pit design includes 429 kt of Proven Reserves and 7,428 kt of Probable Reserves for a total of 7,857 kt of Proven and Probable Mineral Reserves grading 15.13% Cg. The Mineral Reserves which account for mining dilution and ore loss are reported at a cut-off grade of 3.1% Cg. In order to access these reserves, 2,746 kt of overburden, 10,926 kt of waste rock and 231 kt of Inferred Mineral Resources must be mined. This total waste quantity of 13,903 kt results in a stripping ratio of 1.8 to 1. The following table presents the Lac Knife open pit mineral reserves that were estimated for the FS. The remaining Measured and Indicated Resources within the Lac Knife deposit will help to develop the mid and long-term growth profile for the company.

Lac Knife Open Pit Mineral Reserves*
Category Tonnage (kt) Cg Grade %
Proven 429 23.61%
Probable 7,428 14.64%
Proven and Probable 7,857 15.13%

* The Measured and Indicated Mineral Resources are inclusive of the those Mineral Resources modified to produce the Mineral Reserve. The reference point for the Mineral Reserve Estimate is the mill feed.

A pit optimization analysis was carried out using the MS-Economic Planner module of MineSight® which ran the Lerchs-Grossmann algorithm to determine the economic limits of the deposit. The analysis showed that the open pit design for the Feasibility Study should be based on a 25-year mine life that includes approximately 82% of the Measured and Indicated Mineral Resources.
The open pit design incorporates 10 m high benches and follows the pit slope recommendations from the 2014 geotechnical investigation. The pit is 700 m long and 400 m wide at surface and has a maximum pit depth of 100 m.

IMG_5655

Mining will be carried out by a mining contractor who will use conventional open pit mining methods that include drilling and blasting followed by a hydraulic excavator loading a fleet of 46-tonne haul trucks. The mine will be operated seasonally (7 months of the year) and a front-end wheel loader will be used to feed the processing plant from an ore stockpile during the winter months.
The study was conducted with engineering and estimation methods appropriate to target an estimate accuracy of 15% that is standard and realistic for capital and operating cost estimates in a Feasibility Study. Based on an extensive risk review exercise the contingency is 11.5%. The Capital Expenditures in the table below outline what is needed to construct the mine, processing plant, power line and all associated infrastructure that is estimated at a total of $165.55 million.

Capital Expenditures
Lac Knife Capital Expenditure — Cost Centres CDN$ millions
Mine Equipment, infrastructure and pre-stripping $4.21
Infrastructure $11.62
Primary Crushing $7.02
Concentrator $62.24
Environmental and Tailings Management $8.22
Power and Communication at Mine Site $15.4
Indirect Costs $39.77
Contingency (11.5%) $17.07
Sub Total $165.55

The company is currently in discussion with vendors to define financing packages for equipment. This will result in a reduced up front capital and add to the basket of financing options currently being investigated. Another financing option currently under due diligence is Supply Chain Financing (SCF) based on an offtake agreement signed in December 2013 for a minimum of 50% of Lac Knife’s production. SCF is a non-dilutive alternative to equity financing and is not as encumbering as traditional debt, or royalty financing. Future off-take agreements will contain a financial component as well.

This project-financing alternative could include equity and low interest debt as well as a signing bonus to execute an offtake agreement. These options have the potential to enhance future project economic metrics, and the company continues to discuss with several interested parties on various options.

Operational Expenditures
Lac Knife Operating Expenditures (25-year average) Cost Centers $/tonne of Concentrate
Mining $126.95
Processing Costs (Concentrator) $239.37
General Administration Mine Site $74.70
Total Operating Costs $441.02

The operating costs per tonne of concentrate produced are $441 (see Operational Expenditures table above). This is an improvement over the updated Preliminary Economic Assessment (PEA) that showed $458 per tonne of concentrate produced. One key variable to low production costs is Lac Knife’s project location giving relatively easy access to low cost hydroelectric power from Hydro-Québec at the intersection of the access road and Provincial Highway 389.

IMG_5430

Permitting is well underway with ESIA already filed. Focus continues to communicate, meet, and listen to local communities and will be increasing these efforts now that the feasibility is completed and the impacts are known.

The National Instrument 43-101 (“NI 43-101”) MRE was performed by Pierre Desautels of AGP Inc. and was announced January 28th. It increased the Measured and Indicated Resources by 92% for the Lac Knife Deposit. The MRE is based on both the 2012 and 2013 additional exploration and definition drilling programs for a total of 92 holes, and 9,103 meters that successfully achieved the designed goal to upgrade the quality of existing Indicated and Inferred Resources to the Measured and Indicated Resource categories. This is in addition to 105 previous drill holes that totaled 9,217 meters.
Measured and Indicated Resources are estimated at 9.6 million tonnes grading 14.77% at a 3% Cg cut-off grade. Additionally there are 3.1 million tonnes of Inferred Resources at 13.25 % Cg using a 3% cut-off in this updated resource estimate presented in the Mineral Resource Estimate table below.

Mineral Resource Estimate
Lac Knife Mineral Estimate Categories Tonnage (t) Cg (%) In situ Graphite (t)
Measured 432,000 23.66 102,000
Indicated 9,144,000 14.35 1,312,000
Measured + Indicated 9,576,000 14.77 1,414,000
Inferred 3,102,000 13.25 411,000

Note: Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. (See ‘Lac Knife Open Pit Mineral Reserves’ table above for Reserves).

Lithium Battery Coin Cell Test Results

On May 27th, Focus Graphite announced it “Succeeded in Producing Extremely High-Performing Coated Spherical Graphite for Lithium Ion Batteries”. The results from coin cell performance testing performed on Lac Knife Spherical Graphite (SPG) produced outstanding performance metric results. The benchmark products have a typical irreversible capacity loss (“ICL”) of 6-10% ICL. Lac Knife SPG showed two ICL test results measuring 1.01% and 1.44%, truly remarkable results. Essentially these battery performance tests illustrated that the Irreversible Capacity Loss (“ICL”) was reduced by 75% compared to the benchmark products available in the market today.

These tests confirm Focus’ capability to tailor lithium ion battery anode grade SPG and value added products to meet the most stringent customer specifications.
Lac Knife anode SPG is unique in having such a low ICL performance metric, this could be attributed to the unique properties of the Lac Knife high carbon content concentrate that grades 98% C, even in the finer flake size concentrate products down to 200 mesh (75 microns) that are usually the most difficult products to sell. This holds the potential to allow Focus market access to significantly higher margin value added products with a finer grade lower cost product creating a unique opportunity.

“Lac Knife is a remarkable property by any Canadian or international standard. As we have already demonstrated, Lac Knife provides us and our shareholders with a significant competitive advantage — and that is the ability to meet our customers’ needs for quality products at competitive prices.”
Gary Economo
Chief Executive Officer, Director and Co-Founder
Focus Graphite Inc. 

Offtake Agreement

Focus Graphite made history in December 2013 when we announced an offtake agreement for the future production from Lac Knife’s graphite resource. The strategic agreement for up to 40,000 tonnes per year of graphite concentrate and value-added products was signed by Focus Graphite with an industrial conglomerate, comprised of heavy industry, manufacturing and technology companies located Dalian City, Liaoning Province, China.

Our low industry-leading production costs will allow Focus Graphite to weather any future downturn in the graphite market. We will continually work to decrease production costs even further in future.

As a business innovator, Focus Graphite has also positioned itself to take advantage of the coming graphene revolution by teaming up with key technology development application partners. Already, Lac Knife’s unprocessed graphite ore is the source of the world’s first trademarked graphene, through a joint venture with Grafoid Inc.

Lac Knife background

Situated in the Grenville Geological Province of northeastern Québec about 27 kilometres south of Fermont, the company’s flagship property consists of a total of 57 mining claims covering 29,863 hectares.

Graphite mineralization is set in migmatized biotite-bearing quartz-feldspar gneiss belonging to the Nault Formation of the lower Proterozoic Gagnon Group. According to the Québec Ministry of Natural Resources, where this gneissic unit is sheared, brecciated and silicified, coarse graphite flakes and associated sulphide minerals make up 5% to 10% of the rock, with up to 20% or more in the more brecciated zones. Fuchsite and other iron-rich micas accompany the graphite and sulphide mineralization in the more silicified horizons.

The Lac Knife graphite property was discovered by D.L. Murphy during geological survey work by the Québec Ministry of Energy and Resources. Between 1986 and 1990, Mazarin Inc. conducted exploration work that expanded the Murphy showing, and completed pre-feasibility and feasibility studies between 1989 and 1990.

In August 1990, Cambior signed a joint venture for an equal partnership with Mazarin for the Lac Knife project. In 2001, interest in Lac Knife increased as the graphite market was emerging for hydrogen fuel cell and other uses. Graftech Inc. conducted a study that demonstrated that the quality of the graphite at Lac Knife was better than most deposits being mined at that time. In 2002, Graftech and Mazarin planned a joint venture with the goal of starting production in 2004. However, the graphite market declined and the project was halted. IAMGOLD subsequently purchased Cambior, which included the Lac Knife asset.

IAMGOLD sold 100% of the Lac Knife property to Focus Metals Inc. (now Focus Graphite Inc.) on October 5, 2010.