Focus Graphite Inc. The Graphite Arbitrage: High-Grade, Low-Cost Supply for Defense & Critical Industries – Initiating Coverage

Disclosure: Focus Graphite Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.

Company Details

Sector – Basic Materials

Industry – Industrial Materials

Trading Information

Trading information – FMS.V : TSXV

Report Highlights

• Strategic Quebec Projects: FMS is advancing two graphite projects, Lac Knife and Tétépisca, in Quebec, a mining-friendly province that hosts Canada’s only producing graphite mine. Lac Knife features one of North America’s highest-grade graphite deposits, with advanced independent economic studies (feasibility) completed. Tétépisca is also high-grade, and ranks among the continent’s largest graphite resources.
• High-Grade, Efficient Mining: Grades at Lac Knife (15.4%) and Tétépisca (10.7%) far exceed the typical 3–5% of most graphite mines, primarily in China; both are open-pit deposits, with favorable strip ratios (easy to mine, low waste-to-ore ratio). We note that these features are highly appealing, as they can potentially support higher production at lower costs.

• Validation of Quality: In December 2025, FMS received $14M in non-repayable government funding to build a plant producing ultra-high-purity graphite (>99.95% C), suitable for high-performance applications in military, defense, aerospace, and advanced technologies.
• Low-Cost Electricity Advantage: Quebec has exceptionally low electricity costs due to abundant hydro power. Electricity typically accounts for 10–20% of a graphite mine’s operating costs, and rates in Quebec are far lower than those in China, the U.S., or the Canadian average.
• Battery Anode Market Opportunity: FMS aims to supply graphite anodes for lithium-ion batteries in North America and Europe. The U.S. currently imports 100% of its graphite and classifies it as a critical mineral. While the global graphite market is currently in surplus, we expect it to shift to a deficit by the end of the decade, implying a favorable long-term price outlook.
• Lac Knife Flagship Project: High grades, low-cost hydro power, and open-pit mining make Lac Knife one of Canada’s lowest-cost graphite projects (CAPEX and OPEX). The project has a 27-year mine life, making it attractive for buyers seeking long-term supply. A feasibility study estimates an after-tax NPV8% of $286M, while FMS’s MCAP is only $34M, an 88% discount. The company will advance toward permitting, following completion of an Environmental and Social Impact Assessment (ESIA).
• Tétépisca Project: High-grade project with one of North America’s largest graphite resources; an updated resource estimate is expected soon, likely expanding the already substantial resource base.
• Undervalued Metrics: Despite having high-grade projects in a prime location, with relatively low projected capital and operating costs, we estimate FMS is trading at just $4/t vs the sector average of $21/t, an 81% discount, suggesting the market has yet to fully recognize its project potential.
• M&A Potential: We view FMS as an attractive target for mining and technology companies seeking stable, long-term North American graphite supply.

Risks

• The value of the company depends on graphite prices
• Permitting
• Access to capital and share dilution
• There is no assurance that the company can advance its projects simultaneously

Price and Volume (1-year)

* Qualified Person: Réjean Girard, P.Geo. (QC), President of IOS Geosciences Inc., a consultant to Focus Graphite
* Focus Graphite Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions. All figures in C$; commodity prices in US$.

A key component for defense applications, lithium-ion batteries for energy storage and electric vehicles, and other industrial uses

Graphite: Market Overview and Outlook

Graphite is used in a wide range of applications including energy storage, thermal management, engineering products, graphite powder additives, lubricants, and plastic polymers. Certain products, such as battery anode materials, use a blend of natural graphite (NG) and artificial/synthetic graphite (AG), while in other cases only one type is suitable.

Demand for NG is rising, as AG is often more expensive to produce, and carries greater environmental concerns due to its energy-intensive manufacturing process. AG is highly sensitive to rising oil and energy costs. As the battery materials market grows, so does the demand for greener, responsibly sourced alternatives, making high-quality natural graphite increasingly attractive.

Graphite and lithium are the only materials used in all major battery types

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