AGORACOM Small-cap Investor Relations Blog

By Greg Klein

It’s often said that closeology ain’t necessarily geology. But First Graphite’s (TSXV:FGR) Henry Project in north-central Saskatchewan could lay claim to both. It’s about eight kilometres from Noble Bay Mining’s Deep Bay Graphite Project and 20 from Strike Graphite’s (TSXV:SRK) flagship Deep Bay East. As for Henry’s geology, it was a curse back in the day when graphite was considered waste rock. The stuff was unavoidable.

“Henry had work done on it in the 1950s, 1970s and 1980s,” says First Graphite VP Corporate Development Andrew Mugridge. “There were 20 holes drilled on it historically. At the time, they were looking for base metals, and the 20 holes were picked to actually avoid graphite at all costs. But they found 30 metres of obvious graphite content. At that point, they decided to cease work on the area.”

How things have changed. China, which produces about 80% of the world’s graphite supply, has restricted exports. At the same time, predictions call for soaring demand for flake graphite, a type that China hardly produces anyway, to supply future such energy needs as lithium-ion batteries, vanadium redox batteries, fuel cells, solar panels and pebble-bed nuclear reactors. And depending how successfully laboratory experiments consummate scientific imagination, a graphite derivative called graphene could push demand even higher.

That glaring gap between supply and demand brought a new focus to First Graphite, which was originally called Solace Resources. “We’d been following some advice from close associates, people who were already following the graphite space one and a half years ago, mainly Zimtu Capital (TSXV:ZC),” says Mugridge. By February, his company picked up its first graphite property, Montpellier in Quebec, followed in late March by Mt Heimdahl in BC and, on April 10, the 22,853-hectare Henry acquisition. With a $1.4-million private placement announced the same day, First Graphite intends to move fast.

“Our Phase I plan, which we’re hopefully beginning in 30 to 60 days, will include a VTEM survey that will fly the entire project to update the airborne mag that was done back in the 1950s and again in the 1970s,” says Mugridge. “That will be simultaneous with, or closely followed with, getting a team on the ground, doing a metallurgical program, obviously ground sampling and mapping, which hopefully will provide us with a significant number of drill targets. We’d do an exploratory drill program in Phase II, which we’re hoping to start in the middle of 3Q 2012. That would be up to a 3,000-metre program.

“We’re very confident that we are going to have drill targets,” he emphasizes. “Everybody that we’ve spoken to on our geological advisory team has been suggesting that we’re in a very similar geological environment to both Deep Bay projects.”

Deep Bay West has a 1976 non-43-101 estimate of 1.8 million tons grading 10.32% carbon to a depth of 60 metres.

“We’re very confident that we’re going to be able to bring at least a discovery to the market here, and our goal will be to advance that to a resource estimate as quickly as possible,” Mugridge says. Henry boasts transportation connections as well. “We’ve got two major highways and a railroad that are either running through our project or within 10 kilometres.”

First Graphite’s Mt Heimdahl Property also enjoys enviable location and geology. The 1,045-hectare southeast BC property sits about eight kilometres from Eagle Graphite’s beneficiation plant, which processes ore from one of Canada’s two operating graphite mines. The property is 35 kilometres from Nelson and 41 from Castlegar, two important regional centres, and has logging road access. As for geology, “It’s got multiple layers of lenses [with non-43-101 grades] that are up to 8% large-flake disseminated graphite,” Mugridge says.

The company began its graphite love affair with the Valentine’s Day acquisition of Montpellier, a modest 300-hectare property located near Timcal Graphite & Carbon’s Lac-des-Îles Mine, the largest of Canada’s two graphite mines. Grab samples from Montpellier showed grades ranging from 0.82% to 14.4%.

Mugridge believes that the recent acquisitions, along with other properties now under consideration, can place First Graphite among the near-production companies. A strategic partnership, backed by an offtake agreement, could then “take it over the finish line.”

First Graphite will present a talk at OnPage Media’s Graphite Express-Conference in Toronto on May 2. “Around Christmas and into January there was suddenly very much a buzz on the street,” Mugridge reports. “But I think many people dismissed it at first. Then we had the first Graphite Express-Conference in Vancouver and at 2 pm on a pretty lackluster day in the market the room filled with not only retail investors but also the brokers and financiers of the city.”

Mugridge emphasizes his company’s distinctions. “One thing that differentiates us is our ability to finance the acquisition and development of advanced-stage projects in domestic locales that are near good infrastructure,” he points out. “We also have a very superior share structure with only 18.5 million shares issued and outstanding. Even when we finish the $1.4-million financing, we’ll be sitting around just 20 million shares. Beyond that, the stock charts over the last eight weeks show the company has taken great strides in market-capital appreciation. I think we’re positioning ourselves as one of the most aggressively expanding and developed companies in the graphite space.”

At press time, First Graphite had 18.4 million shares outstanding at $0.40 a share for a market cap of $7.36 million.

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