The Gold Report: Focus Graphite
Inc. (FMS:TSX.V; FCSMF:OTCQX; FKC:FSE)was an early entrant into the
graphite mining development space in 2010. It currently sits near the
development stage and has ambitions to move into the highly profitable
technology graphite space. What leads you to believe Focus can break out of
the commodity doldrums?
Gary Economo: Focus has positioned itself perfectly as a future
niche supplier of technology graphite. A high purity deposit affords us the
advantages of being able to project very competitive operating costs with the
potential to further mitigate our manufacturing costs for value-added, highly
refined technology graphite.
From a management perspective, however, Focus remains the keystone to a
global technology business platform with graphene applications developer Grafoid Inc.,
technology-focused Stria Lithium Inc. (SRA:TSX.V) and Braille Battery Inc.
This relationship platform is unique in the world and unique to the junior
mining sector. It has enabled us to extend our marketing efforts into those
sectors with the greatest potential for growth from demand during the next
decade, including China.
We anticipate continued growth in demand for electronic devices, novel
polymer composites used by the automotive and construction material supply
industries, and continued growth and expansion of the electric vehicle
market. More, the emergence of graphene-based materials makes a compelling
case for the restoration of investor confidence in the North American
graphite development sector.
TGR: Can you provide a specific example of where you see demand
causing you to be optimistic about a graphite market turnaround?
GE: I can answer that in two parts. First, some recent historical
context. At the Paris climate conference in December 2015, 195 countries
adopted the first-ever universal, legally binding global climate deal. The
agreement sets out a global action plan to put the world on track to avoid
dangerous climate change by limiting global warming to well below 2°C. The
agreement is due to enter into force in 2020.
Goldman Sachs Global Market Research's "The Low Carbon Economy" report says low carbon
regulation is coming. Period. Graphite and lithium are the two key critical
raw materials destined to feed next generation renewable energy
manufacturers' demands for the foreseeable future. But time is short - 50
months-and those transformative technologies required for mass production
need to be sourced today. For example, Goldman Sachs predicts sales of
grid-connected vehicles-pure electric and plug-in hybrids-will grow from $12
billion in 2015 to $88 billion by 2020 and to $244 billion by 2025.
The two key industrial markets we've positioned ourselves to supply into
are the automotive and the lithium-ion battery manufacturing sectors. And we
see the added impetus from a global emissions mandate as cause for some
economic optimism not only for Focus, but also for our industry as a whole.
Supplies of technology lithium cannot currently meet demand.
The automotive sector is engaged in perpetual R&D. It constantly seeks
to lower input costs from material solutions that lead to lighter, stronger,
more fuel-efficient products. Carbon polymers present an opportunity for the
transportation industry to meet both mandated emission reductions and
customer needs for more efficient, environmentally sustainable vehicles.
Focus sees itself as a stable, reliable supply source of high-purity
carbon graphite to the transportation sector. Toward that end in 2015, Focus
entered into two long-term supply contracts with Grafoid Inc. for potentially
up to nearly 50% of Lac Knife's future production.
The first supply contract is specific to carbon polymers while the second
clean energy-related supply contract is specific to the needs of developers
of next generation lithium-ion batteries.
TGR: Your platform partner Grafoid Inc. has a long-standing
graphene battery application development partnership with Hydro-Quebec. If
this is the type of technology market you're looking to capture, how does it
benefit the platform as a whole?
GE: One of the key markets we're pursuing with some vigor is the
battery-manufacturing sector because there is a natural fit. We are all
members of Chicago-based trade organization NAATBatt International, the
National Alliance for Advanced Transportation Batteries, and Grafoid is
represented in part by our wholly owned subsidiary company Braille Battery
Inc. of Sarasota, Florida.
I should mention that Braille Battery is a principal supplier of
lightweight, high-energy lithium-ion starting batteries for NASCAR, Formula I
and Indy Racing and virtually all international motorized sports.
Braille's NASCAR carbon li-ion batteries are 70% lighter than conventional
AGM batteries.
Lithium and graphite are two of the key components in lithium-ion battery
chemistries. In the case of our development partnership with Hydro-Quebec,
one of the world's leading developers of battery chemistries, the graphene
used is derived from Focus' Lac Knife graphite deposit.
So I believe you can see how and why this relationship between and among
the Focus platform partners is significant. It is unique in the world and it
forms a powerful, technology supply chain. As a business innovator, this
alliance meets one of our long-held corporate goals of leadership in our
niche commodity sector.
TGR: That's a very interesting, if not visionary business
structure. Does the market see it that way?
GE: Our corporate vision, from the outset-primarily because of the
high-purity of our Lac Knife graphite resource-was to avoid the aphorism of
becoming hewers of wood and drawers of water. We saw the value-added
potential under our feet and made our decision to look to those future
technology markets with the greatest potential for long-term, sustainable
growth.
The graphite market itself, for decades, has operated below the radar of
the big board market players. Time changes everything. Environmental
sustainability and clean technologies have become the hashtag of corporate
social responsibility. The market focus has shifted to those material
suppliers capable of producing and operating in lockstep with the needs of
the automotive and energy sectors, to name but two.
On that basis, my sense is that we've reached the tipping point-the point
where markets see the value of investing in an organization poised to benefit
from its support of those major industrial players in adapting to the global
environmental reality.
TGR: You're focused on two key growth markets for graphite. Are
there other technology applications with the potential to invite market
interest?
GE: Indeed. Graphite, and expanded graphite, in particular, plays a
key role in everyone's daily life. Without graphite, we could not exist in
today's connected world. It is something we all take for granted, and that is
the heat shield in your smartphone, your tablet and your portable computer.
Without those lightweight layers of graphite to spill off heat generated by
our phones' operating system, we would be at risk of serious burns to our
hands, face and ears.
Apple sold 231 million iPhones with li-polymer batteries in
2015.
Even more intense, however, is the heat generated by institutional
computing and switching and control systems. As demand grows for faster,
better-performing industrial systems to meet consumer demand, so too the need
for advanced thermal management solutions.
Perhaps one of the most important and exciting technology markets for
Focus is the rapidly developing graphene sector. We are now starting to see
graphene applications emerge on a small scale in consumer products. Given our
close relationship with Grafoid, we see growth-and demand for
graphite-through broader, industrial-scale commercial graphene applications.
Grafoid, as evidenced by its many joint venture application development
relationships with some of the world's largest industrial players, is a pioneer
and a leader in the graphene revolution.
Grafoid Global Technology Centre. Photo courtesy of Grafoid Inc.
There are perhaps more than 100 applications for graphite but we saw
greater commercial advantages by positioning and focusing our business
operations on supplying into next generational material markets.
TGR: So what are your next moves? In the midst of a commodities
sector meltdown, investors are loath to invest until there are some signs of
a global demand recovery. You have a portion of the $165 million financing
requirement to construct the Lac Knife mine and processing plant; can you secure
interest at this time to bring your production on-line?
GE: After five years of mining development work, we've nearly
reached that stage required for the issuance of our environmental and
construction permitting. Once permitted we'll be in a better position to
finalize our financing. Of note, however, is that our graphite mining project
is considered a priority project for development by the Government of Quebec.
Quebec announced the revival in 2015 of its massive Plan Nord social,
environmental and commercial development program for Northern Quebec. Our
high-technology export-oriented vision fits nicely into the provincial
government's future plans for mining.
We have been in discussions with potential backers to complete our
financing needs for some time now and continue to maintain interest. Given
the lead time to production, an investment today could bring us into
production at about the same time as an anticipated recovery in global
markets and demand needs of major players in the green economy.
TGR: What would you say to an investor in these timid markets?
GE: Well, I would have two messages, one to current shareholders
and one to investors who are thinking of investing in the graphite space.
To shareholders I would say, thank you for having put your faith in us,
the tipping point is coming. It has taken longer than we all thought but the
fundamental reasons you invested in Focus to begin with are still the same.
To potential investors I'd say, the time is right to invest. Valuations in
the sector are low, and Focus is moving forward with its plans and has put
together a derisked corporate development strategy and hedged itself by
investing in tomorrow's green economy-it's the largest shareholder in Grafoid
Inc., with a $US39 million equity position.
TGR: Thank you and good luck with your endeavors.
GE: Thank you.
Gary Economo, president and chief executive
officer of Focus Graphite, has a distinguished business leadership career,
serving as CEO for a number of public and private high technology companies
during the last 20 years. A former president and CEO of Dynasty Components
Inc., Economo enjoys a long history of graphite marketing and sales for
high-tech applications. Prior to joining Focus Graphite Inc., a company he
founded with Jeffrey York, he served as Director, Corporate Communications
and Investor Relations for Everton Resources Inc. He has a track record of
success and expertise in building shareholder value when tasked with bringing
discovery companies to market.
