Focus Graphite releases NI 43-101 PEA for Lac Knife

Nov 7, 2013

FOCUS GRAPHITE ANNOUNCES UPDATED ECONOMIC RESULTS OF ITS 2012 PRELIMINARY ECONOMIC ASSESSMENT

Focus Graphite Inc. has released the results of an updated positive preliminary economic assessment for its Lac Knife graphite project. The Lac Knife property is located about 27 kilometres southwest of Fermont, Que. This update is based on improved metallurgical results of the recent pilot plant test campaign using an optimized flotation and polishing circuit conducted at SGS Lakefield and announced on Aug. 21, 2013.

The increase in concentrate grades and associated economic results were updated in the project cash flow summary and were validated by RPA Inc. in consultation with Soutex Inc. of Quebec City. Inputs updated in the financial model included: final concentrate average grade increase from 92 per cent total carbon (Ct) to 96.6 per cent Ct within the new flake size distribution categories, a reduction in operating cost by $367 per tonne milled due to the elimination of the need to purify the concentrate by a third party and the associated $27.6-million in working capital requirements. Pricing is based on run-of mine prices, without the value-added price used in the original PEA financial model. The original report was filed on Oct. 29, 2012.

The Lac Knife project has a pretax internal rate of return of 36.4 per cent (28.6 per cent after tax) and a pretax net present value of $316.9-million ($185.3-million after tax) in the base case using a weighted average price of $1,866 (U.S.) per tonne of run-of-mine concentrates. The cost of production is $458 per tonne of concentrate.

Highlights are summarized in the table.

                           LAC KNIFE PEA HIGHLIGHTS

                                              Pretax value    Aftertax value
                                               ($ millions)      ($ millions)
Net present value
8% discount rate                                   $ 316.9           $ 185.3
10% discount rate                                    250.1             143.3
12% discount rate                                    198.4             110.6
Capital expenditure including a 25%
contingency of $24-million                          125.95            125.95
Operating cost per tonne milled                     $67.61            $67.61
Operating cost per tonne ofconcentrate
produced                                           $458.20           $458.20
Pretax IRR                                           36.4%             28.6%
Pretax payback period                            2.4 years         2.8 years
Exchange rate                              US$1.00 = $1.00   US$1.00 = $1.00
Strip ratio                                           1.12              1.12

Don Baxter, PEng, president and chief operating officer, stated: “The recent pilot plant results are key to the potential economic viability of Lac Knife. The results show that all flake concentrate above 200 mesh can be produced at 98 per cent Ct, thereby eliminating the need to use third party purification proposed in our original PEA study. Within the graphite community, most operations produce lower-grade fines that are difficult to sell. Lac Knife holds the potential to open new markets to Focus for small-flake technology-grade graphite products.

“The updated PEA indicates that Lac Knife shows positive economic potential based on current run of mine prices for markets that are here today.”

Focus chief executive officer Gary Economo said: “With the recent excellent metallurgical results from the Lac Knife pilot Plant and with the key variables updated in this announcement, our project has the potential to become one of the lowest-cost producers of graphite in the world. The feasibility study we have just initiated moves us closer to financing, securing off-take agreements, permitting and construction.”

In tandem to the feasibility-level design for the Lac Knife development, Focus continues its development of value-added products destined for technology markets. These products will include spherical graphite used for lithium-ion batteries, as well as expanded, micronized and purified graphite for use in powder metallurgy and composite materials. These products for technology-grade graphite applications can sell for prices averaging $10,000 per tonne. Focus’s work in this area is continuing and is showing promising results. Value-added products, their costs and their sale prices, were not included in the PEA update average pricing.

Operational highlights

Open-pit mine life is 20 years at 300,000 tonnes per year;
Life-of-mine production of six million tonnes of mill feed at a grade of 15.66 per cent graphitic carbon (Cgr), based on the initial mineral resource estimate disclosed on Jan. 19, 2012;
Processing includes crushing, grinding, flotation, magnetic separation, thickening and drying of run of mine to produce 44,300 tonnes of concentrate per annum (tpa), a reduction of 2,300 tonnes of concentrate is essentially due to the higher concentrate grade;
Sustaining capital average is $996,300 per year;
Life-of-mine project production of 880,877 tonnes of concentrate at 96.6 per cent Ct.

                        SENSITIVITY ANALYSIS UPDATE 

                               Pretax sensitivity to graphite price    

Product specifications    $US/t conc    NPV @10%     NPV @8%         IRR

-10% downside scenario         1,679    $192,115    $247,502       30.9%
Updated base case              1,866    $250,112    $316,857       36.4%
+10% upside scenario           2,053    $308,109    $386,213       41.7%

                               Aftertax sensitivity to graphite price 

Product specifications    $US/t conc    NPV @10%     NPV @8%         IRR
-10% downside scenario         1,679    $109,087    $144,646       24.5%
Updated base case              1,866    $143,266    $185,305       28.6%
+10% upside scenario           2,053    $176,939    $225,431       32.4%

A copy of the PEA report and the Oct. 29, 2012, PEA announcement are available on Focus Graphite’s website.

The updated PEA pretax cash flow model is based on a constant-2012-dollar basis, with no provision for escalation. The prices used in the model do not include any potential of value added products the company is currently developing.

This PEA is considered by RPA to meet the requirements of a preliminary economic assessment as defined in National Instrument 43-101. The economic analysis contained in the technical report is based, in part, on inferred resources and is preliminary in nature. Inferred resources are considered too geologically speculative to have mining and economic considerations applied to them and to be categorized as mineral reserves. There is no certainty that the reserves development, production and economic forecasts on which the PEA is based will be realized.

This news release has been reviewed by Don Baxter, PEng, president and chief operating officer of the company, and a qualified person under National Instrument 43-101.

The technical and economic information relating to the PEA contained in this press release has been reviewed and approved by Marc Lavigne, MSc, ing, senior mining engineer for RPA, Pierre Roy, MSc, PEng, ing, senior metallurgist specialist for Soutex, all independent qualified persons under NI 43-101.

The information pertaining to the metallurgical test program completed by SGS that is presented in this news release has been reviewed and approved by Oliver Peters, MSc, PEng, MBA, SGS Canada consulting metallurgist. Mr. Peters has extensive experience in the development of metallurgical processes and has managed the majority of the graphite testing programs conducted at SGS in recent years.

We seek Safe Harbor.

http://www.focusgraphite.com/news/press-releases