Agoracom Blog

Gary Economo Talks Focus Graphite’s Lac Knife Graphite PEA

Posted by AGORACOM-JC at 12:34 PM on Friday, November 2nd, 2012

Focus Graphite Inc V.FMS announced October 29 a preliminary economic assessment of its Lac Knife Graphite Project in Quebec. The PEA forecasts a mine life of 20 years with overall production of six million tonnes of mill feed grading 15.66% Cgr (carbon in graphite or graphitic carbon) with average graphite recovery of 91.3%. Life-of-mine production of 92% Cgr will be 928,000 tonnes at $435 per tonne. Thermal purification will enable the upgrade of approximately 40% of primary concentrate to 99.99% Cgr with inherent purification losses of 15%.

Based on per-tonne prices of $10,000 for battery grade (>99.95% Cgr, +100 mesh), $1,300 for medium grade (>90% Cgr, -100+200 mesh) and $800 for fine grade (>80% Cgr, -200 mesh), the pretax net present value (NPV) is $246 million (at a 10% discount rate); the pretax internal rate of return (IRR) is 32%; pretax undiscounted cashflow is $926 million; total net revenue is $3.7 billion; the pretax payback period is 2.8 years; and the initial CAPEX is $154 million with a 25% contingency.

President/CEO Gary Economo was interviewed by Kevin Michael Grace October 29.

RW: In your press release, you say that this is a great day for the Canadian graphite industry. Can you expand on that?

GE: Canadian graphite producers have been producing about only 20,000 tonnes a year, which is a very small percentage of world demand. I think having a graphite deposit that can potentially go into production in two to three years at the quality and volume that Lac Knife can produce will start to put Canada on the map as a major supplier of high-quality graphite.

RW: What do you consider the high points of your PEA?

GE: It’s a 32% pretax IRR, which is a very good number. The NPV is $246 million, again a nice number. The payback on this is about 2.8 years, and overall it’s a fairly easily financeable capital cost of $154 million. Our cost per tonne is $435, and we would sell that for $1,300 to $1,500. We’re able to keep those costs really low due to the fact that we have some of the best grades in the world. So it’s a very special deposit we have our hands on. We’ll be one of the highest-grade, lowest-cost producers of graphite in the world.

RW: How do you expect to fund the CAPEX?

GE: There are three different ways that we’ve been working on. Equity, convertible debt and some debt. And some of our offtake partners will be putting up deposits.

RW: Simon Moores says that how a company plans to process graphite and get it to the market will make or break it. How are you going to process it and get it to the market?

GE: We’ll be using fairly standard processing techniques, which will include crushing and flotation. That’s our plan, for the time being. We’re also working on some other technologies to enhance the quality of the carbon content in the ore before we actually put it through the flotation circuit. That will continue to reduce our costs on a per-tonne basis.

RW: Your press release talks about purification to 99.99%. How do you accomplish this, and what is the significance?


GE: There are a number of high-tech applications that use an extremely high-purity graphite mixture, such as the anodes for lithium-ion batteries. We have a licensing agreement with Hydro-Québec for technology to purify the material to 99.99%, but that is not part of this PEA. That will come later. In the meantime, a third-party company will thermally purify this material for us on a toll basis.

RW: You are also taking measures to reduce the environmental footprint of the project?

GE: The upfront process will reduce the amount of chemicals generated.

RW: Over the last year, graphite-company share prices have been quite inconsistent. How do you see the prospects for graphite in the near future?

GE: The market got a little bit excited by the electrification of the transportation industry and the numbers and projections being thrown around for graphite usage in that sector. This enthusiasm drove some pricing to places where maybe it shouldn’t have been. But the price of graphite has stabilized at a level that really makes sense for the industry. Companies that have good grades and can profit from existing price levels should do extremely well.

There will be less graphite produced in China, which should drive prices higher. But with deposits like ours coming onstream in a few years, I think we’ll offset that shortage. Graphite-demand growth should remain fairly stable at 8% to 10% per year.

RW: What is your path to production?

GE: Right now, the most important thing for us is to finish off all our permitting and get our offtake agreements signed and publicized. That will drive financing for this project. We expect to be able to do that within the next 24 months.

RW: How much cash do you have? What is your burn rate?

GE: We have approximately $20 million in cash, and we burn about $220,000 a month.

RW: Can you talk briefly about your other projects?

GE: We have a rare-earth project in Quebec we own 50/50 with SOQUEM called Kwyjibo.

RW: Is that a Simpsons joke?

GE: That’s where the name came from, yes.

RW: And your other one is in Brazil?

GE: No, the other one is actually in the Labrador Trough and it is an IOCG-type deposit [iron oxide copper gold ore]. The one you’re referring to in Brazil is the Canindé graphite project. We’re just finalizing an agreement with Lara Exploration V.LRA to acquire 60% of that.

RW: Where do you see your company in two years?

GE: We’ll have spun out or divested anything that is not graphite related. Hopefully, if the permitting gods in Quebec work to the schedules that we believe they can, we’ll be in production at Lac Knife, and we’ll have our facility set up in Quebec to produce high-purity graphite.


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