Graphite: What iPhones, NASCAR and Tesla have in common
Focus Graphite CEO and Director Gary Economo says the tipping point is coming for natural flake mining developers—even during a depressed commodities cycle. This optimistic view is based on the urgent necessity of manufacturers today to source those critical materials and technologies needed to meet globally mandated CleanTech targets in advance of a 2020 deadline. Focus, says Economo, is on strategic trajectory to capitalize on global change with his company's Lac Knife, Quebec, high-purity graphite deposit.
54 kg of graphite is used in an 85kw Tesla S vehicle battery
Management Q&A: View From the Top
The Gold Report: Focus Graphite Inc. (FMS:TSX.V; FCSMF:OTCQX; FKC:FSE)was an early entrant into the graphite mining development space in 2010. It currently sits near the development stage and has ambitions to move into the highly profitable technology graphite space. What leads you to believe Focus can break out of the commodity doldrums?
Gary Economo: Focus has positioned itself perfectly as a future niche supplier of technology graphite. A high purity deposit affords us the advantages of being able to project very competitive operating costs with the potential to further mitigate our manufacturing costs for value-added, highly refined technology graphite.
From a management perspective, however, Focus remains the keystone to a global technology business platform with graphene applications developer Grafoid Inc., technology-focused Stria Lithium Inc. (SRA:TSX.V) and Braille Battery Inc.
This relationship platform is unique in the world and unique to the junior mining sector. It has enabled us to extend our marketing efforts into those sectors with the greatest potential for growth from demand during the next decade, including China.
We anticipate continued growth in demand for electronic devices, novel polymer composites used by the automotive and construction material supply industries, and continued growth and expansion of the electric vehicle market. More, the emergence of graphene-based materials makes a compelling case for the restoration of investor confidence in the North American graphite development sector.
TGR: Can you provide a specific example of where you see demand causing you to be optimistic about a graphite market turnaround?
GE: I can answer that in two parts. First, some recent historical context. At the Paris climate conference in December 2015, 195 countries adopted the first-ever universal, legally binding global climate deal. The agreement sets out a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2°C. The agreement is due to enter into force in 2020.
Goldman Sachs Global Market Research's "The Low Carbon Economy" report says low carbon regulation is coming. Period. Graphite and lithium are the two key critical raw materials destined to feed next generation renewable energy manufacturers' demands for the foreseeable future. But time is short – 50 months—and those transformative technologies required for mass production need to be sourced today. For example, Goldman Sachs predicts sales of grid-connected vehicles—pure electric and plug-in hybrids—will grow from $12 billion in 2015 to $88 billion by 2020 and to $244 billion by 2025.
The two key industrial markets we've positioned ourselves to supply into are the automotive and the lithium-ion battery manufacturing sectors. And we see the added impetus from a global emissions mandate as cause for some economic optimism not only for Focus, but also for our industry as a whole. Supplies of technology lithium cannot currently meet demand.
The automotive sector is engaged in perpetual R&D. It constantly seeks to lower input costs from material solutions that lead to lighter, stronger, more fuel-efficient products. Carbon polymers present an opportunity for the transportation industry to meet both mandated emission reductions and customer needs for more efficient, environmentally sustainable vehicles.
Focus sees itself as a stable, reliable supply source of high-purity carbon graphite to the transportation sector. Toward that end in 2015, Focus entered into two long-term supply contracts with Grafoid Inc. for potentially up to nearly 50% of Lac Knife's future production.
The first supply contract is specific to carbon polymers while the second clean energy-related supply contract is specific to the needs of developers of next generation lithium-ion batteries.
TGR: Your platform partner Grafoid Inc. has a long-standing graphene battery application development partnership with Hydro-Quebec. If this is the type of technology market you're looking to capture, how does it benefit the platform as a whole?
GE: One of the key markets we're pursuing with some vigor is the battery-manufacturing sector because there is a natural fit. We are all members of Chicago-based trade organization NAATBatt International, the National Alliance for Advanced Transportation Batteries, and Grafoid is represented in part by our wholly owned subsidiary company Braille Battery Inc. of Sarasota, Florida.
I should mention that Braille Battery is a principal supplier of lightweight, high-energy lithium-ion starting batteries for NASCAR, Formula I and Indy Racing and virtually all international motorized sports.
Braille's NASCAR carbon li-ion batteries are 70% lighter than conventional AGM batteries.
Lithium and graphite are two of the key components in lithium-ion battery chemistries. In the case of our development partnership with Hydro-Quebec, one of the world's leading developers of battery chemistries, the graphene used is derived from Focus' Lac Knife graphite deposit.
So I believe you can see how and why this relationship between and among the Focus platform partners is significant. It is unique in the world and it forms a powerful, technology supply chain. As a business innovator, this alliance meets one of our long-held corporate goals of leadership in our niche commodity sector.
TGR: That's a very interesting, if not visionary business structure. Does the market see it that way?
GE: Our corporate vision, from the outset—primarily because of the high-purity of our Lac Knife graphite resource—was to avoid the aphorism of becoming hewers of wood and drawers of water. We saw the value-added potential under our feet and made our decision to look to those future technology markets with the greatest potential for long-term, sustainable growth.
The graphite market itself, for decades, has operated below the radar of the big board market players. Time changes everything. Environmental sustainability and clean technologies have become the hashtag of corporate social responsibility. The market focus has shifted to those material suppliers capable of producing and operating in lockstep with the needs of the automotive and energy sectors, to name but two.
On that basis, my sense is that we've reached the tipping point—the point where markets see the value of investing in an organization poised to benefit from its support of those major industrial players in adapting to the global environmental reality.
TGR: You're focused on two key growth markets for graphite. Are there other technology applications with the potential to invite market interest?
GE: Indeed. Graphite, and expanded graphite, in particular, plays a key role in everyone's daily life. Without graphite, we could not exist in today's connected world. It is something we all take for granted, and that is the heat shield in your smartphone, your tablet and your portable computer. Without those lightweight layers of graphite to spill off heat generated by our phones' operating system, we would be at risk of serious burns to our hands, face and ears.
Apple sold 231 million iPhones with li-polymer batteries in 2015.
Even more intense, however, is the heat generated by institutional computing and switching and control systems. As demand grows for faster, better-performing industrial systems to meet consumer demand, so too the need for advanced thermal management solutions.
Perhaps one of the most important and exciting technology markets for Focus is the rapidly developing graphene sector. We are now starting to see graphene applications emerge on a small scale in consumer products. Given our close relationship with Grafoid, we see growth—and demand for graphite—through broader, industrial-scale commercial graphene applications.
Grafoid, as evidenced by its many joint venture application development relationships with some of the world's largest industrial players, is a pioneer and a leader in the graphene revolution.
Grafoid Global Technology Centre. Photo courtesy of Grafoid Inc.
There are perhaps more than 100 applications for graphite but we saw greater commercial advantages by positioning and focusing our business operations on supplying into next generational material markets.
TGR: So what are your next moves? In the midst of a commodities sector meltdown, investors are loath to invest until there are some signs of a global demand recovery. You have a portion of the $165 million financing requirement to construct the Lac Knife mine and processing plant; can you secure interest at this time to bring your production on-line?
GE: After five years of mining development work, we've nearly reached that stage required for the issuance of our environmental and construction permitting. Once permitted we'll be in a better position to finalize our financing. Of note, however, is that our graphite mining project is considered a priority project for development by the Government of Quebec. Quebec announced the revival in 2015 of its massive Plan Nord social, environmental and commercial development program for Northern Quebec. Our high-technology export-oriented vision fits nicely into the provincial government's future plans for mining.
We have been in discussions with potential backers to complete our financing needs for some time now and continue to maintain interest. Given the lead time to production, an investment today could bring us into production at about the same time as an anticipated recovery in global markets and demand needs of major players in the green economy.
TGR: What would you say to an investor in these timid markets?
GE: Well, I would have two messages, one to current shareholders and one to investors who are thinking of investing in the graphite space.
To shareholders I would say, thank you for having put your faith in us, the tipping point is coming. It has taken longer than we all thought but the fundamental reasons you invested in Focus to begin with are still the same.
To potential investors I'd say, the time is right to invest. Valuations in the sector are low, and Focus is moving forward with its plans and has put together a derisked corporate development strategy and hedged itself by investing in tomorrow's green economy—it's the largest shareholder in Grafoid Inc., with a $US39 million equity position.
TGR: Thank you and good luck with your endeavors.
GE: Thank you.
Gary Economo, president and chief executive officer of Focus Graphite, has a distinguished business leadership career, serving as CEO for a number of public and private high technology companies during the last 20 years. A former president and CEO of Dynasty Components Inc., Economo enjoys a long history of graphite marketing and sales for high-tech applications. Prior to joining Focus Graphite Inc., a company he founded with Jeffrey York, he served as Director, Corporate Communications and Investor Relations for Everton Resources Inc. He has a track record of success and expertise in building shareholder value when tasked with bringing discovery companies to market.
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Source: Special to The Gold Report
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