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Focus Graphite (TSX: FMS) Announces an Historic Offtake Agreement; Advances Development of its Lac Knife Graphite Project in Northeastern Quebec

on 1/29/2014

Don Baxter, the President of Focus Graphite (TSX: FMS)

Don Baxter, the President and Chief Operating Officer of Focus Graphite (TSX: FMS; OTCQX: FCSMF), took time out from visiting with investors and other company leaders at the Cambridge Resource and Investment Conference in Vancouver to speak with Metals News about recent developments at the company’s Lac Knife high-grade graphite project in Quebec.



“We are moving out of exploration and into the development phase of our Lac Knife graphite deposit at Fermont, Quebec, near Labrador City,” said Baxter. On January 28, 2014, Focus announced a 92% increase in the Measured and Indicated mineral resource categories at its Lac Knife project - to 9.6 million tonnes grading 14.77% graphite carbon. “We are very pleased to have further de-risked the Lac Knife project by increasing the quality and tonnage of the resource,” said Baxter in announcing the resource update, adding that the rise in category will be incorporated into a mineral reserve estimate in the feasibility study currently underway by Met-Chem Canada.

Baxter, a professional mining engineer said, “This resource update comes on the heels of our historic announcement of the signing of a 10-year offtake agreement with a Chinese industrial conglomerate, just as China announced it was shutting down approximately 20% of its flake graphite production in Shandong Province. It further illustrates the need for reliable, low cost, high quality graphite flake production outside of China.”

The company has been moving the Lac Knife project forward and the 10-year offtake agreement will have a progressive impact on development. Baxter said, “We are at the feasibility level of mine design. We started in November and will be ready for submission of our Feasibility Study in late spring or summer.” The company has also been working on getting the permitting they need in order to move the project forward. Baxter said, “We are working on the Mine Closure Plan which is the first major permit we require before putting a shovel in the ground.”



Focus Graphite’s demonstration of its competitive ability to sell high-purity and value-added products into the Chinese market was a breakthrough for graphite industry, not only for Focus. Baxter said the offtake agreement “puts us in a unique position. There has never been an offtake agreement in the graphite industry before. 2014 will be an exciting year for us.” Focus Graphite has entered into an agreement with a company that has guaranteed to purchase up to virtually all of Focus’ annual production for a decade. “It’s a little counterintuitive because China hold’s 70% of the world’s graphite. China is changing from a net graphite exporter to a graphite consumer. They are also the third largest importer.” Baxter feels that this development is a boon to his company and the industry in general. He said, “A Chinese conglomerate trying to get our graphite shows our position. We are at the top of the leader board in graphite.”

The individual properties of the Lac Knife project are what make this deposit so successful. Said Baxter, “I think that every graphite property is unique. No one property has all the answers. It is a combination of the flake size and the grade.” What Lac Knife offers that many other properties do not is a high carbon level with a mix of high-value large, medium and high purity fine flake sizes, products that can be used in a myriad of different applications. Baxter said, “We have a fine flake with a high carbon. Usually the fines that you produce are harder to sell because they have low carbon.” This is not the case at the Lac Knife project. In fact, what makes the project so unusual is the level of carbon in their small flake distribution.

Baxter said, “All of our plus 200 mesh flake is high carbon. It takes away one of the concerns about a high grade deposit.” In fact, the grade is so high that Baxter has never seen results in the industry like this before. He said, “Having 98% carbon in fine flake is unheard of in our industry.”



Baxter and his team have a great deal of knowledge and still haven’t experienced results like the ones they are seeing in this project. He said, “Within the graphite space we have been around for quite a while.” That said, they are continuing to move the project forward toward production. Said Baxter, “We are in an advanced stage and we continue to de-risk the project.” Having signed the offtake agreement has made their already solid financial situation that much more stable. Baxter said, “With the offtake agreement we have guaranteed sale of our products. That will help us to pull our project together faster.” In order to continue to move the project forward, they will need to finance and build production facilities. Said Baxter of the cost to build the graphite production facilities, “Our capex is $126 million dollars. And that includes a $24.2 million contingency.”

Financially, Baxter and his team are carefully considering their financing options to protect their investors. He said, “I want to minimize dilution as much as we can. The offtake gives us some other options such as a line of credit which will minimize dilution. We are weighing our options.” The goal is to evaluate production and construction options and then to move forward with information for shareholders and the market in the next few months. Said Baxter, “Hopefully we will be able to announce something within the near term.”



Even though the final plans haven’t been decided yet, Baxter believes that they will be in production at Lac Knife within the next few years. “At this point in our timeline – worst case scenario would be mid-2016.” That timeline may move up if they can complete the design phase more quickly. Baxter said, “If we can expedite the detailed design we could be in production in 2015.”



In addition to the work they are doing to put together production and construction plans, Baxter and his team are simultaneously developing other graphite products to take to customers above and beyond typical mill output. He said, “In parallel, we are also working on our value added graphite products which include spherical graphite for lithium ion batteries. In the near future, we will be able to add those to our finances. Right now our economics only include run of the mill products.” In terms of their stock price, Baxter believes the market hasn’t yet quite found a full appreciation as to how Focus’ management has positioned Lac Knife technically, operationally or financially. He said, “We have had a little bit of fall back in terms of our share price but we shall be steadily moving up and we’ll continue to recover. I think we are significantly undervalued at this time. We are debt free and we continue to have a solid cash position that enables us to advance our operations.”

Disclosure

The Alper family owns Focus Graphite Stock.

http://www.focusgraphite.com/

Contact:

Don Baxter, President and COO
Email: dbaxter@focusgraphite.com
Tel: 705-789-9706



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