Dear friends and shareholders,

 

As 2017 begins, Focus Graphite Inc. remains one of the most advanced junior graphite mining companies in North America and the sole owner of one of the premier flake graphite resources in the world.

We continue to advance on numerous fronts: environmental permitting for the Lac Knife mine development project; structured mine financing; attracting global strategic partners and battery customers; expanding our mineral resources, and; ongoing off-take agreement discussions.

The recent publication of three new sets of technical data from our Lac Knife project and our recent graphite discovery at Lac Tétépisca support our long-term commercial vision and objectives of becoming a potential future supplier of next generation high-value technology materials for the burgeoning low carbon economy.

 

Expanding Assets

Our technology vision together with our relentless commitment to proving Québec’s vast untapped flake graphite resources are amongst the best in the world, have steered us through market ups-and-downs during the last six years.

We are well positioned now to take advantage of global opportunities being driven by the impending implementation of greenhouse emission standards, greater social awareness and government policies driving clean-tech applications.

We are pleased to report that our flagship Lac Knife project is now joined by a new and significant Northern Quebec graphite project at Lac Tétépisca as a potential second asset to meet our future needs.

On January 20, 2017, we reported the second set of drilling results from our Lac Tétépisca Project, with a 102.1 m graphitic intercept (true thickness) grading 10.7% graphitic carbon (Cg) – including a 30.2 m sub-intercept grading 16.7% Cg, from both infill and extension drilling.

On January 24, 2017, we announced a 26% increase in Measured and Indicated (M+I) mineral resources at our Lac Knife flake graphite project. Actual M+I tonnage increased from 9.6 million tonnes of graphitic carbon to 12.1 million tonnes following a technical review by AGP Mining Consultants Inc. The expanded mineral resource has the potential to increase the projected mine life of the Lac knife project.

On February 1, 2017, we published new metallurgical data from locked cycle flotation testing carried out by SGS Canada Inc. that showed the high-grade attributes of Lac Tétépisca graphite concentrates achieving 96.2% total carbon (Ct) purity from first stage milled concentrates obtained from a 155 kg composite graphite mineralization sample.

These latest test results indicate Lac Tétépisca is well on its way to becoming the Company’s second major graphite asset.

The significance of the combination of these results is that they strengthen Focus Graphite’s commitment to fulfilling two graphite supply agreements with Grafoid Inc.

Some of Lac Knife’s future production is committed to Grafoid in two definitive, long-term off-take agreements. They are:

Our Graphene Offtake that commits Grafoid to acquire, at its discretion, up to an annual maximum of 1,000 tonnes of high-purity (98.3% Ct) large flake graphite concentrate annually for 10 years. Our Polymer Offtake commits Grafoid to acquire, at its discretion, up to 25,000 tonnes of concentrate grading an average of 97.8% Ct (all flake sizes) annually for a period of 10 years.

If proven viable, our high-grade Lac Tétépisca flake graphite mineralization may be suitable for assignment to supply the Polymer Offtake with Grafoid, leaving Lac Knife’s high-grade, high-purity graphite available exclusively for high technology applications.

 

Our Value Proposition

 Looking ahead, Lac Tétépisca holds the potential to meet our future supply obligations for graphite-based polymers as weight saving components for automotive and aviation sectors including self-driving autonomous vehicles, unmanned drones (UAVs) and, for industrial applications requiring conductive or high temperature resistant polymers.

Lac Knife’s high purity concentrate production is destined for use in clean technology renewable energy markets requiring high performing, high quality coated spherical graphite.

In terms of new value, our intent is to commence work on a first mineral resources estimate for Lac Tétépisca to form the basis of a Preliminary Economic Estimate (PEA) later on this year, as well as revising our Lac Knife Project feasibility study to include economic projections and potential market valuations of our highly purified technology graphite products including coated spherical graphite and expanded graphite for both battery anodes and cathodes respectively.

Of further significance is the market leadership position Focus has crafted for itself in through our in-house development of proprietary graphite refining and purification technologies to produce high performing battery grade graphite products.

Lac Knife’s high-grade, high-purity graphite deposit enables Focus to hold a strong competitive advantage from having one of the lowest projected production costs.

Five independent publications of technical data support the unique, superior qualities of the Lac Knife natural flake graphite deposit:

In 2014, Focus published results showing high reversible capacities and our ability to tailor spherical coated graphite anode materials to the most stringent of customer specifications.

In 2015, the Company reported near zero capacity loss in long-term battery anode testing and the fact our graphite outperformed both synthetic and commercially available flake graphite in battery tests indicating longer battery life, higher power performance and higher storage capacity

In 2016, we reported our expanded graphite for cathodes exhibited twice the conductivity versus both synthetic and competing sources of natural graphite, and we announced our in-house developed technology had successfully purified fine flake graphite from 95% to 99.99% purity. – a major achievement in our industry.

To date, numerous potential customers and institutional end-users are engaged in long-term testing of Focus’ battery grade materials. Dr. Joseph Doninger, our Director of Technology and Manufacturing and an international expert on graphite purification oversees our ongoing product engineering and testing activities required to meet the various, individual end-user application requirements.

 

Focus on Kwyjibo in 2017

On November 21, 2016, Focus Graphite and Joint-Venture partner SOQUEM Inc., a wholly-owned subsidiary of Ressources Québec, announced positive recovery results from ongoing hydrometallurgical tests conducted on drill core samples extracted from our shared Kwyjibo rare earth project in Northern Quebec.

Research conducted by Hazen Research of Colorado confirmed a high initial average recovery of 90% for all Kwyjibo’s rare earth elements under relatively simple, non-optimized leaching conditions.

In this regard, Kwyjibo’s processing flowsheet distinguishes it from those of most REE industry participants.

Focus and SOQUEM have reasons to believe that after further testing and the preparation of a first mineral resources estimate in 2017 to be followed by a PEA in 2018, Kwyjibo may hold the prospect of economic viability.

 

Permitting and Financing

We continue to move down a two-track path toward environmental permitting and other regulatory authorizations for the construction of the Lac Knife flake graphite mine

On permitting, our mine closure plan has been completed and a first series of questions were responded to from the Québec government last October. A second series of questions is expected in Q1 2017.

On financing, we continue to have ongoing discussions with parties interested in providing financing to build the mine. We are encouraged by the level of interest. We are also in discussions with a number of EPC Contractors interested in providing engineering, procurement and construction services for the Lac Knife project.

Our search for funding, partners and off-takes has literally taken us around the world. What has been encouraging about the effort has been affirmation of the quality of our Lac Knife graphite and its potential.

Numerous comparisons by different parties have been undertaken with the same results: that Lac Knife stands out as one of the premier high-grade and high quality natural flake graphite resources in the world.

We firmly believe that grade, quality and price together with location in Québec, one of the top 10 most attractive mining jurisdictions in the world, will come together in our favour in the not too distant future.

 

Sincerely,

Gary Economo

President and Chief Executive Officer

geconomo@focusgraphite.com