Dear Shareholders and Friends,
We thought you might be interested in a presentation given by Gary Economo today, September 25 2015, at the Objectif Nord Conference in Montreal. Please see below for the full speech:
Good afternoon.
My name is Gary Economo and I am President and Chief Executive Officer of Focus Graphite – the owner of the Lac Knife flake graphite project near Fermont.
I am also a Founding Partner and CEO of Grafoid Inc., a private company engaged in graphene production and application development.
It’s a pleasure to be invited to the eighth edition of the Objectif Nord Conference. It’s also an honor for us to be part of the Plan Nord initiative and the Quebec government’s drive for continued sustainable economic development.
The last time we presented here in Montral was at the re-launch of Plan Nord in April.
At that time we presented our Lac Knife project and outlined our progress towards the goal of taking the Lac Knife project from resource development through to commercial production.
We also announced the launching of an industrial project feasibility study for a transformation plant project to produce value-added graphite products, in accordance with the government’s position regarding transformation of mine products within Qubec.
Today, my talk is about the global trends taking place in our industry and how Focus Graphite and Grafoid Inc. are building a broad technology alliance to meet the challenges of a changing world.
We believe Focus Graphite’s long-held business strategy within the alliance will have a long-term, positive impact on and in Qubec and, in export markets.
Grafoid Inc., Stria Lithium Inc. and Focus Graphite Inc. form an inter-connected business alliance built upon technology materials needed to supply the green technology revolution.
Focus Graphite’s Lac Knife project is the standalone natural graphite project.
Stria Lithium, the lithium development company, is developing a process that could potentially reduce the cost of producing lithium.
Grafoid Inc., the graphene production and graphene application development company, is an industry leader in the race for graphene’s industrial commercialization.
Grafoid forms the core of the global business alliance built upon a unique Quebec graphite source.
Together, graphite, graphene and lithium form three of the fundamental building blocks of today’s and
tomorrow’s applications for the green revolution.
Together, they combine to provide the material chemistries for high energy, quick-charge, long-lasting batteries, and; composite polymers for lighter and stronger automotive and aerospace components.
A World in Change
A global revolution is occurring in the world of advanced material technologies.
The revolution I’m talking about is more than “sustaining innovation” that simply improves existing products.
I’m talking about “disruptive innovation.”
And that is: harnessing new technologies, developing new business models and exploiting old technologies in new ways.
For example, established companies face the dilemma of choosing between holding onto an existing market by doing the same thing a bit better, or;
Capturing new markets by embracing new technologies and building new business models for products and services.
Business innovation is re-shaping the commercial landscape. For example:
Craigslist and Kijiji have revolutionized classified ads
Skype video calling has replaced long-distance telephone calls
iTunes and Spotify are replacing record stores and radio listening
Google has become a research library at your fingertips
Amazon and eBay have forced major retail chains to compete online for customers, and Uber has revolutionized the global taxi industry, to name but a few.
These are the types of market dynamics that we are living with and have to meet, in our view, to be in business.
For the industrial minerals sector and more specifically, the technology metals mining sector, it is no longer good enough to dig a commodity and sell it.
You also need to twin mining with innovation and technology to be part of a value-added chain with your client partner, and you must be willing to adapt and change with the market.
Look at how Elon Musk has positioned his companies in the marketplace.
It’s not about current sales of Tesla S model. It’s about what and where the markets will be in five years time.
Mr. Musk employs disruptive innovation and new business models to radically change the market. He challenges convention.
Tesla is focusing on discussions with mining development companies about securing access to future sources of materials for their batteries.
Their recent lithium supply contracts with Bacanora Minerals and Pure Energy Minerals demonstrated they are prepared to shake up the lithium market by leaping over established players by committing to junior miners, not yet in production.
But more, within Tesla’s business model, companies exchange knowledge around materials and manufacturing techniques.
Musk’s businesses are interconnected over both the short term and the long term.
Tesla makes battery packs that Solar City can then sell to end customers.
Solar City supplies Tesla’s charging stations with solar panels, helping Tesla to provide free recharging to its drivers.
So, how do changing markets relate to Focus Graphite?
Quite simplyit puts us in a good positionThis is precisely how Focus has positioned itself to succeed.
Tesla remains the poster child for change in carbon technologies.
The value added graphite, lithium and other battery material producers the end-users choose as their supply partners will become the preeminent investment targets in today’s market.
And Focus Graphite, like all junior North American graphite developers is vying for that coveted industry acclaim.
A Winning Strategy
Focus Graphite’s long-standing, strategic business positioning aims to secure customers, capture markets, and create new markets through an early investment in new carbon technologies.
Coincidentally, our strategy dovetails with Qubec’s intentions to reduce CO2 emissions to electrify its transportation sector.
The maxims we’ve followed since we formed the company have put us where we are today:
Those strategic investments in technology innovation, I might add, came at a time when the graphite mining industry as a whole, saw no profit or justification in pursuing future markets.
Today, I had the great pleasure to announce that Focus Graphite and Grafoid executed two definitive sales and purchase agreements – or offtake agreements – amounting to significant sales of Lac Knife’s future production.
Focus now has signed a total of 3 offtake agreements.
The first offtake agreement, or “Graphene Offtake ” commits Grafoid to acquire, at its discretion, up to an annual maximum of 1,000 tonnes of high-purity, 98.3 % carbon, +80 mesh large flake graphite concentrate annually from the Lac Knife Project for 10 years or about 6.8% of the projected annual high-purity, large flake concentrate production.
The second offtake agreement or "Polymer Offtake" commits Grafoid to acquire, at its discretion, up to 25,000 tonnes of 97.8% carbon purity graphite concentrate annually from the Lac Knife Project for 10 years, representing up to 56.4% of the projected total annual concentrate production of 44,300 tonnes from all flake sizes.
Morehoweverthese agreements bring $2 Million in option payments over the next two years, and potential long-term revenues
That said, Focus anticipates further announcementsthat will secure Qubec’s place as a leading source for technology grade graphite in the future.
Let me say now with certainty that Focus Graphite accepted some risk by staying the course in our visionary business strategy.
My aim today is to highlight the inter-connected global business platform created by the partnership of Focus Graphite and Grafoid as a first in the mining development sector.
It holds the potential for Qubec to advance its interests in graphene-related technology development and manufacturing and I’ll expand my comments on that shortly.
Let’s talk about some realities of the current global commodities downturn.
The reality for the graphite-mining sector is that long-term prosperity will not come from traditional markets, but from investments in innovation that meet future market demand.
The reality is that we positioned ourselves - in spite of what some market analysts believed to be a fool’s errand – to be one step ahead of the global technological change occurring now.
Focus Graphite finds itself in a winning business situation because we positioned ourselves exactly in the context of meeting the demands of future markets.
We saw where the market was headed and we have persevered.
Investing in Innovation
We saw the potential of investing in innovation. And by that I mean not only scientific innovation, but business innovation.
Focus remains the largest single investor in Grafoid Inc.
That investment has led to Grafoid’s diverse approach to research and development of industrial scale applications and has relationships with large multinational corporations such as Hydro-Qubec.
This is a relationship that underscores the importance of Focus Graphite’s Lac Knife’s development.
Grafoid and IREQ, Hydro-Qubec’s renewable energy research institute have patented a graphene-lithium-iron-phosphate chemistry for quick-charging, long-life batteries.
The Government of Canada recognized Grafoid’s need for a scalable, automated graphene production facility and has provided the company with an $8.1 million grant to be applied to its development.
Grafoid’s Graphene offtake agreement with Focus Graphite will ensure the security of graphite supply for the graphene used by Hydro-Qubec’s battery manufacturing customers for the foreseeable future.
I mentioned a few moments ago the potential for Qubec to advance its interests in graphene technology development.
During the last 48 months, the pace of growth and expansion of Grafoid’s business development has been extraordinary.
Graphene demand from our customers, application development partners and future licensees requires us to expand our technology production and manufacturing facilities.
It makes both logistical and practical sense for us to look at building some if not all of those facilities in Quebec.
Grafoid is currently looking at a variety of locations along the St. Lawrence River to set up various industrial processing facilities for a number of products and applications
They include:
And, as we announced in April this year, consideration of plans by way of a feasibility study, for Focus Graphite to construct a standalone industrial transformation plant.
This plant is intended to produce value-added graphite products such as spherical graphite and expanded graphite.
The world is in a state of technological change.
For Focus Graphite, that change is represented in the electric vehicle and energy storage commodity supply chains that are about to be swept up in the greatest technological change of our time.
Recent announcements by Mercedes-Benz, Porsche, Toyota as well as a number of new China based electric vehicle companies indicate those automakers are planning to move to large scale production of electric vehicles – effectively looking to capture market share from Tesla.
As a start-up mining development company in 2010, we were the first junior miner to build a visionary technology mission into our corporate thinking and into our operations.
Today, we have secured three offtake agreements and more are under discussion.
Focus Graphite is contributing to diversify the resource base for Plan Nord’s development.
We have also earned the support of the community of Fermont and the Regional Municipality of Caniapiscau, but in particular; Focus sees our pre-development agreement for social and economic partnership with the Innu First Nation in Sept-Iles as the starting point for long-term success through mutual cooperation.
Summary and Conclusion
Let me return now to provide you with a summary of key milestones leading to what I believe put Lac Knife in contention to become the first graphite mine to come into production under Plan Nord.
First, Lac Knife’s graphite deposit holds unique characteristics in terms of grade and concentrate purity.
Having high grade Mineral Reserves at 15% graphitic carbon leads to production cost savings, while high purity concentrates demand higher prices and generate higher margins.
In 2014 the Lac Knife Feasibility Study indicated that our project has the potential to become a low-cost, high-margin graphite concentrate producer with a cost of $441 per tonne of graphite concentrate, and; a forecasted sale price of US$1,713 per tonne of graphite concentrate at an average of 98% carbon purity.
I should mention that a key component of Lac Knife’s low production costs is access to low cost, environmentally sustainable hydroelectric power from Hydro-Qubec - a major factor in our total operating costs.
In May 2014, Focus Graphite announced the potential for selling to the higher margin value added markets, more specifically the lithium-ion battery sector, following battery coin cell tests performed on spherical graphite (SPG) produced from the Lac Knife graphite concentrate.
In April this year, we initiated an industrial project feasibility study for a graphite concentrate transformation facility in conformance with the new Qubec Mining Act.
This requires that an application for a mining lease be accompanied by a scoping and market study regarding the transformation of mine products in the province.
In the proposed industrial transformation plant, the graphite concentrate from Lac Knife or other sources will undergo purification, shaping, and classification into spherical graphite for batteries with grades greater than 99.95% carbon purity.
The Lac Knife mine project permitting process is underway with the Environmental and Social Impact Assessment filed with the government in December, 2014.
Our business today is focused on concluding our Lac Knife Project financing discussions and front end detailed engineering required for mine permitting, in preparation for the EPCM phase of the project.
With three offtake commitments in hand we see our overall long-term business strategy unfolding as planned.
We see future benefits to the communities of Fermont, and to our partners in the Innu community.
And we see our Lac Knife Project helping to diversify the economy of the local Cte-Nord region as the next supplier of high quality graphite, a niche yet critical mineral in the global marketplace.
Thank you.