Fundamental Research sees "long-term upside" in Focus Graphite

Fundamental Research has initiated coverage on Focus Graphite (CVE:FMS)(OTCQX:FCSMF) with a "Buy" rating and sees the stock fairly valued at $1.21.

Focus Graphite is focused on development of the 100 percent-owned Lac Knife graphite project in Quebec.
The deposit has several significant upsides including very high grades, a good quantity of large flake and is located in a region with well-established infrastructure. At 15.7% Cgr (carbon as graphite), Lac Knife is the highest known graphite deposit grade in the world.

"We are extremely encouraged by this estimate which, we believe is the highest grade graphite deposit in the world," Fundamental Research analyst Siddharth Rajeev said in a note.

Metallurgical testing shows the deposit contains 46.1 percent large flake and 39 percent medium flake with a global recovery rate of 85.9 percent. Large flake graphite is the most valuable form of graphite.

Flake graphite has been experiencing increasing demand for the primary reason that only flake graphite can be used for high-growth applications such as Li-ion lithium batteries, fuel cells, and nuclear reactors.

Flake graphite, and especially large flake graphite, is the most desirable and therefore, the most expensive, Fundamental Research said.

In December 2011, Focus Graphite released the first NI 43-101 compliant resource estimate for the property.

Using a cut-off grade of 5% Cgr, the estimate gives 4.9 million tonnes at a grade of 15.67% Cgr in the Measured and Indicated category, and 3 million tonnes grading 15.58% Cgr in the Inferred category.

The large amount of historical work on the property has allowed Focus to expedite project development, and production is due to start in 2014 and has a capacity to produce up to 25,000 tonnes per year, with a 40 year mine life.

"We are encouraged by the production scenario put forward by management and anticipate release of the PEA in June. We consider the prospect for a 2014 start date to offer significant medium to long term upside," Fundamental's Rajeev said.

Focus Graphite recently signed a license agreement with Hydro-Quebec to develop a graphite purification facility and a graphite anode production facility for lithium-ion batteries.

As at the end of March 2012, the company had cash and short-term investments of $26 million.

"The company’s strong cash position, we believe, will easily take them through the next 12 months," the Fundamental Research analyst said.