FOCUS GRAPHITE INC. TECHNICAL REPORT ON THE LAC KNIFE PROJECT, NORTHERN QUÉBEC, CANADA. NI Report. Qualified Persons:

Transcription

1 FOCUS GRAPHITE INC. TECHNICAL REPORT ON THE LAC KNIFE PROJECT, NORTHERN QUÉBEC, CANADA NI Report Qualified Persons: Marc Lavigne, M.Sc., ing. Robert de l Étoile, M.Sc.A., ing. Pierre Roy, M.Sc., P.Eng., ing. October 30, 2012 RPA Inc. 55 University Ave. Suite 501 I Toronto, ON, Canada M5J 2H7 I T + 1 (416)

2 Report Control Form Document Title Client Name & Address Technical Report on the Lac Knife Project, Northern Québec, Canada Focus Graphite Inc Albert St. Ottawa, Ontario K1P 5G4 Document Reference Project #1868 Status & Issue No. FINAL Version Issue Date October 30, 2012 Lead Author Marc Lavigne Robert de l Étoile Pierre Roy Signed Marc Lavigne Signed Robert de l Étoile Signed Pierre Roy Peer Reviewer Graham Clow Signed Graham Clow Project Manager Approval Jacques Gauthier Signed Jacques Gauthier Project Director Approval Rick Lambert Signed Rick Lambert Report Distribution Name No. of Copies Client RPA Filing 1 (project box) Roscoe Postle Associates Inc Boulevard Lebourgneuf, Suite 302 Québec, QC G2K 2E4 Canada Tel: mining@rpacan.com

3 TABLE OF CONTENTS PAGE 1 SUMMARY Executive Summary Technical Summary INTRODUCTION RELIANCE ON OTHER EXPERTS PROPERTY DESCRIPTION AND LOCATION Property Location Land Tenure ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY Accessibility Climate Local Resources Infrastructure Physiography HISTORY General Overview Historical Mineral Resources GEOLOGICAL SETTING AND MINERALIZATION Regional Geology Mineralization DEPOSIT TYPES EXPLORATION DRILLING Historical Drilling Focus 2010/11 Drill Program RPA Opinion on Focus 2010/11 Drilling Campaign SAMPLE PREPARATION, ANALYSES AND SECURITY Sample Collection Sample Preparation Quality Assurance and Quality Control Security RPA Opinion on QA/QC Procedures DATA VERIFICATION Field Verification Database Verification RPA and Soutex 2012 Data Verification Technical Report NI October 30, 2012 Page i

4 13 MINERAL PROCESSING AND METALLURGICAL TESTING Metallurgical Testwork MINERAL RESOURCE ESTIMATE Summary Twin Hole Drilling Exploration Database Geological Interpretation and Definition of Zones Composites Statistics Block Model Grade Interpolation Mineral Resource Classification Mineral Resource Estimate RPA Opinion on the Current Mineral Resource Estimate MINERAL RESERVE ESTIMATE MINING METHODS Open Pit Mining Mine Infrastructure and Services RECOVERY METHODS Process Flowsheet Energy, Water and Process Materials Consumption Equipment List Thermal Purification Process PROJECT INFRASTRUCTURE Roads Power Supply and Distribution Fuel Storage Parking lot Buildings Telecommunications Tailings and Waste Rock Storage Facility Solid Waste Management Water Supply and Waste Water Management MARKET STUDIES AND CONTRACTS Graphite Markets and Product Prices Contracts ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT Environmental Studies Project Permitting Social or Community Requirements Mine Closure Requirements CAPITAL AND OPERATING COSTS Technical Report NI October 30, 2012 Page ii

5 Capital Cost Estimates Operating Cost Estimates ECONOMIC ANALYSIS ADJACENT PROPERTIES OTHER RELEVANT DATA AND INFORMATION Project Schedule Risks and Opportunities INTERPRETATION AND CONCLUSIONS RECOMMENDATIONS REFERENCES DATE AND SIGNATURE PAGE CERTIFICATE OF QUALIFIED PERSON Marc Lavigne Robert de l Étoile Pierre Roy LIST OF TABLES PAGE Table 1-1 Mineral Resource Estimate June Table 1-2 Projected Product Mix Table 1-3 Saleable Product Grouping and Pricing Table 1-4 Pre-Tax Cash Flow Summary Table 1-5 Sensitivity Analysis Table 1-6 Graphite Prices September Table 1-7 Capital Cost Summary Table 1-8 Unit Operating Costs Summary Table 1-9 Key Risks and Mitigating Strategies Table 1-10 Key Opportunities and Development Strategies Table 4-1 Mineral Tenure of the Lac Knife Property Table 5-1 Climate Data (Fermont Area) Table 6-1 Summary of Exploration Work on the Lac Knife Property Table 6-2 Various Historical Mineral Resources Table 7-1 Correlation between Labrador Trough and Equivalent Grenville Stratigraphy Table 10-1 Focus 2010/11 Drill Hole Summary Table 13-1 Lock-Cycle Test Results Table 14-1 Summary of Mineral Resources June Table 14-2 Basic Statistics of Assays and Composites Inside Mineralized Zones Table 14-3 OmniDirectional Variogram Results Table 14-4 Estimation Parameters Orientation of the Search Ellipses Table 14-5 Estimation Parameters Search Ellipse Dimensions Table 14-6 Mineral Resource Estimate June Table 16-1 Production Schedule Table 16-2 Open Pit Mining Fleet Technical Report NI October 30, 2012 Page iii

6 Table 17-1 Design Criteria Sources Table 17-2 Plant Design Criteria Table 17-3 Concentrate Design Criteria Table 17-4 Tailings Design Criteria Table 17-5 Annual Energy, Water and Reagent Consumptions Table 17-6 Major Equipment List Table 18-1 Characteristics of Acidic and Clean Tailings Streams Table 18-2 Ore, Tailings and Waste Rock Quantities Table 18-3 TSF Capacity by Development Stage Table 19-1 Estimated Distribution of Natural Graphite Production 2006 to Table 19-2 Graphite Prices September Table 19-3 Projected Product Mix Table 20-1 Mineralogy of Tailings Samples Table 20-2 Chemical Analysis of Tailings Table 20-3 Acid Generation Results Waste Rock Samples Table 21-1 Capital Cost Summary Table 21-2 Surface Infrastructure Capital Cost Table 21-3 Mining Capital Cost Table 21-4 Processing Facility Capital Cost Table 21-5 Tailings/Rock Storage And Water Treatment Capital Cost Table 21-6 Closure and Reclamation Capital Cost Table 21-7 Unit Operating Costs Summary Table 21-8 Breakdown of Mill Operating Cost Table 21-9 Breakdown of Tailings and Water Treatment Cost Table G&A Annual Costs Summary Table Manpower Summary Table 22-1 Saleable Product Grouping And Pricing Table 22-2 Pre-Tax Cash Flow Summary Table 22-3 Sensitivity Analysis Table 24-1 Key Risks and Mitigating Strategies Table 24-2 Key Opportunities and Development Strategies Table 25-1 Mineral Resource Estimate June Table 25-2 Projected Product Mix LIST OF FIGURES PAGE Figure 1-1 NPV Sensitivity Analysis Figure 1-2 IRR Sensitivity Analysis Figure 1-3 Project Schedule Figure 4-1 Location Map Figure 4-2 Property Map Figure 7-1 Grenville Churchill Iron Formation Distribution Figure 7-2 Geology of Lac Knife Property Figure 10-1 Plan View of the Drill Hole Layout Figure 10-2 Typical Vertical Cross-Section Showing Drill Hole Layout (Section 1250) Figure 10-3 Twin Hole Comparison between LK vs. LK Figure 10-4 Twin Hole Comparison between LK vs. LK Figure 10-5 Focus 2011 vs. Mazarin 1989 Graphite Analysis Technical Report NI October 30, 2012 Page iv

7 Figure 11-1 Graphite Correlation for 29 Sample Pairs Figure 11-2 Sulphur Correlation for 32 Sample Pairs Figure 11-3 IOS Duplicate vs. Original Samples for Graphite Figure 11-4 IOS Duplicate vs. Original Samples for Sulphur Figure 11-5 Correlation of Blank Samples Figure 11-6 IOS In-House Graphite Standards Calculated vs. Analyzed Figure 11-7 IOS In-House Sulphur Standards Calculated vs. Analyzed Figure 14-1 Typical Geological Vertical Cross-Section Figure 14-2 Mineralized Zone Solids Figure 14-3 Histogram of Three Metre Composites Figure 14-4 Variogram Map Figure 14-5 Omnidirectional Variogram Three Metre Lags Distance Figure 14-6 Omnidirectional Variogram Twenty-Five Metre Lags Distance Figure 14-7 Block Model Grade Distribution Section Figure 16-1 General Site Plan Figure 16-2 Isometric Views of 20-Year and Ultimate Pit Shells Figure 17-1 Simplified Process Block Flow Diagram Figure 17-2 Crushing Circuit Block Flow Diagram Figure 17-3 Grinding and Separation Circuit Block Flow Diagram Figure 17-4 Concentrate Thickening, Drying and Storage Block Flow Diagram Figure 17-5 Utilities Block Flow Diagram Figure 17-6 Tailings Block Flow Diagram Figure 18-1 Tailings and Waste Rock Storage Facility Figure 18-2 TSF Conceptual North-South Section Figure 19-1 Estimated Distribution of Graphite Consumption - United States Figure 19-2 Natural Graphite Prices 2005 to September Figure 19-3 Graphite Price Trends 2005 to September Figure 22-1 NPV Sensitivity Analysis Figure 22-2 IRR Sensitivity Analysis Figure 23-1 Adjacent Properties Figure 24-1 Project Schedule Technical Report NI October 30, 2012 Page v

8 1 SUMMARY EXECUTIVE SUMMARY INTRODUCTION Roscoe Postle Associates Inc. (RPA) was retained by Focus Graphite Inc. (Focus) to prepare an independent Technical Report on the Lac Knife Graphite Project (the Project) near Fermont, Québec, Canada. RPA retained Soutex Inc. (Soutex) to be responsible for metallurgy and mineral processing. This Technical Report is a Preliminary Economic Assessment (PEA) and is considered by RPA to conform to National Instrument (NI ) Standards of Disclosure for Mineral Projects. RPA visited the Lac Knife Project site and field exploration camp on June 28, Focus is a public company that trades on the TSX Venture Exchange, the OTCQX, and the Frankfurt Stock Exchange under the symbols FMS, FCSMF, and FKC respectively. Focus is currently exploring the Lac Knife graphite deposit. In addition to Lac Knife, Focus has several other active exploration projects, including Kwyjibo, an iron oxide copper-gold and rare earth elements project located north of Sept-Iles, Québec (50% joint-venture with SOQUEM Inc.), and Romer, a precious metal and polymetallic project located in the Labrador Trough region of Nunavik, Québec. This PEA has evaluated an open pit mining approach combined with processing through a sequence of crushing, grinding, flotation, magnetic separation, thickening and drying, producing a primary concentrate of graphite of various grades and flake sizes. A portion of the concentrate will be further upgraded through thermal purification. The pre-production period will be two years and the mine life will be 20 years. The processing rate will be 822 tpd with an average mill recovery of 91.3%. This report is considered by RPA to meet the requirements of a PEA as defined in Canadian NI regulations. The economic analysis contained in this 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. Mineral Rresources that are not Mineral Reserves do not have demonstrated economic viability. There is no certainty that the reserves Technical Report NI October 30, 2012 Page 1-1

9 development, production, and economic forecasts on which this PEA is based will be realized. CONCLUSIONS In RPA s opinion, the PEA indicates that positive economic results can be obtained for the Project, in a scenario that includes open pit mining, graphite recovery by flotation at the mine site, and purification of a portion of the primary concentrate production on a contract basis by an existing producer. The PEA consists of technical and cost assumptions outlined in this report. The economic analysis shows pre-tax Internal Rate of Return (IRR) and Net Present Value (NPV) at 10% of 32.1% and C$246 million respectively at a long term average price of US$4,196/t of concentrate, purification considered. The Life of Mine (LOM) plan for the Project indicates that 6.0 Mt, at an average grade of 15.66% graphitic carbon (Cgr), will be mined over 20 years at a nominal production rate of 822 tpd (300,000 tpa). Primary graphite concentrate production is projected to total 928,000 t at 92% Cgr. After the thermal purification process to 99.99% Cgr of the +100 mesh / >95% Cgr portion of the primary concentrate, final saleable product totals 868,000 t, due to losses during purification, at an average grade of 93.5% Cgr, including 338,000 t of high purity end product. The most important risk elements for the Project in terms of economic sensitivity are graphite concentrate prices, followed by head grade and mill recovery. Fluctuations in graphite concentrate prices constitute an uncontrollable parameter for which no mitigation measures are proposed. Other elements to which the Project is economically sensitive are anticipated to be controllable; these will be addressed as the Project progresses. Specific conclusions by area of the PEA are as follows. GEOLOGY AND MINERAL RESOURCES The mandate given to RPA was to first carry out a review of the Mineral Resources estimated by Roche Ltée (Roche) in January 2012 (the current Mineral Resources) and to subsequently undertake a PEA of the Lac Knife Project on that basis. Technical Report NI October 30, 2012 Page 1-2

10 RPA has reviewed the current Mineral Resources estimate prepared by Roche in January 2012 and is of the opinion that it is adequate to support a PEA with the exception of the resource classification. The current Mineral Resource estimate is based principally on drilling information from 1989 for which the core no longer exists. Focus conducted a twin-hole drilling campaign in 2010/11 consisting of 12 holes with the objective of confirming the information from the 1989 drilling program. The results highlighted the presence of a negative bias in the 2010/11 samples compared to the 1989 results. With today s knowledge of the situation, however, RPA cannot conclude which of the drilling campaigns is correct. It should be noted that the Quality Assurance and Quality Control (QA/QC) program conducted on the samples from 2010/11 highlighted a difficulty in assaying the Cgr grade of the Certified Reference Material (CRM) used, which is a further cause for uncertainty. RPA considers that the 2010/11 campaign did not reach its objective in terms of analytical results but did nevertheless confirm the presence of Cgr and also the lithological interpretation of the mineralized zones. In January 2012, Roche estimated 637,000 tonnes at 15.59% Cgr in the Measured category, however, as a consequence of the aforementioned uncertainty regarding the accuracy of the sample results available for Mineral Resource estimation, RPA has elected not to classify any Mineral Resources as Measured at this stage. RPA has reassigned the Measured Mineral Resources estimated by Roche and has added them to the Indicated category and the resulting modification to the current Mineral Resources is shown in Table 1-1. Technical Report NI October 30, 2012 Page 1-3

11 TABLE 1-1 MINERAL RESOURCE ESTIMATE JUNE 30, 2012 Focus Graphite Inc. Lac Knife Project Category Tonnage (t) Grade (% Cgr) Measured 0 Indicated 4,938, Total Measured + Indicated 4,938, Inferred 3,000, Notes: 1. CIM definitions were followed for Mineral Resources. 2. Mineral Resources are estimated at a cut-off grade of 5% Cgr. 3. Numbers may not add due to rounding. 4. Cgr graphitic carbon. RPA has also reviewed the process of geological interpretation and grade interpolation used by Roche and identified minor issues. RPA is of the opinion, however, that these issues affect the robustness of the Mineral Resource estimates only in a minor way and the estimates are therefore considered adequate for a PEA level study. RPA recommends that the identified issues be addressed at the next Mineral Resource estimation that will benefit from more recent drilling data. As identified above, RPA is of the opinion that the Cgr assay results are sensitive to the analytical method used and that a comprehensive evaluation of methodology and commercial laboratories should be carried out in order to clarify the uncertainty highlighted by the 2010/11 twin hole drilling campaign. Such an evaluation should include laboratory roundrobins using CRMs. MINING RPA considered production rates in the 385 tpd to 822 tpd range. The targeted production rate enables the open pit option to be evaluated on a year-round basis with a minimal mining fleet; a lower production rate would have required a seasonal contract mining approach. The mill feed would be transported directly to the crusher or occasionally be stockpiled and rehandled. The PEA production rate is 300,000 tpa, or 822 tpd, of graphite-bearing material as mill feed. Mining of graphite-bearing material and waste, as well as overburden stripping, would be carried out by the owner using a conventional open pit method consisting of the following activities: Technical Report NI October 30, 2012 Page 1-4

12 Drilling performed by conventional production drill Blasting using ANFO (ammonium-nitrate fuel oil) and a down-hole delay initiation system Loading and hauling operations performed with front-end loader, and rigid frame haulage trucks Geotechnical, hydrogeological/hydrological, and pit design parameters are assumptions based on comparable operations, and require site-specific investigation as the Project advances. PROCESSING AND METALLURGY The selected process consists of crushing followed by a grinding and flotation separation circuit. The resulting concentrate is then thickened, dried, and stored. The tailings generated by the concentration process passes through flotation cells to separate acid generating tailings from clean non-acid tailings. The PEA expected concentrate production is approximately 46,600 dry tpa with a tailing production expected at approximately 253,400 dry tpa. This is based on a concentrate average grade of 92% Cgr and a recovery of 91.3% derived from testwork results conducted by SGS. Although laboratory and locked cycle test were performed with a slightly higher ore grade than expected, no significant impact is expected on the anticipated recovery. ENVIRONMENT The Project is at an early stage with regard to environmental baseline work and community consultation. The challenges typical of permitting and developing an open pit mine in Québec are expected to be manageable with the Project as proposed. One of the challenges for the Project is the management of acid generating materials. The graphite-bearing mineralization, the waste rock, and the tailings showed acid generating potential. Therefore, the mine water and the ore storage water will likely be acidic. The global program to manage this issue will comprise the following: Subaqueous co-disposition of acidic tailings and waste rock into a unique storage facility Sulphide flotation to reduce the proportion of acidic tailings to 30% of the total volume Tailings discharge in two separate streams Technical Report NI October 30, 2012 Page 1-5

13 Use of the 70% non-acidic alkaline tailings as inert material for encapsulation of acid generating tailings and waste rock within the storage facility Water treatment plant and polishing pond for neutralization, metals precipitation, and sedimentation Water management to direct all industrial sourced waters through the water treatment plant and/or the polishing pond as required PROJECT MARKETS AND PRICES Focus has initiated contacts with several major graphite consuming groups in North America, Europe, and Asia. Marketing efforts have been targeted to high value end users requiring superior quality product in terms of flake size and product purity. To date, Focus has identified the following major product opportunities: Ultra high purity thermo processed battery grade product based on large flake, high purity concentrate Medium to fine flake graphite concentrate, mesh, +90% graphitic carbon concentrate Fine flake concentrate, -200 mesh, +80% graphitic carbon concentrate Production quantities for each major grade category are based on lock cycle concentrate production test results and test recovery results from proprietary thermal purification processing of the high grade concentrate. Projected overall product volumes and product qualities are detailed in Table 1-2. TABLE 1-2 PROJECTED PRODUCT MIX Focus Graphite Inc. Lac Knife Project Grade Tonnes (maximum annual) (1) Product Characteristics Battery Grade 16,900 (2) >99.95% Cgr, +100 mesh Medium Grade 11,200 >90% Cgr, mesh Fine Grade 15,500 >80% Cgr, -200 mesh Total 43,600 Notes: 1. Totals are rounded. 2. Inclusive of conversion recovery factor from 19,900 t of primary concentrate. 3. Cgr graphitic carbon. RPA has reviewed various price scenarios and has assumed the following price in its economic analysis: Technical Report NI October 30, 2012 Page 1-6

14 Battery Grade, 99.95% graphitic carbon: US$10,000 per tonne FOB mine (US$9,572 per tonne CIF equivalent) +200 mesh, >90% graphitic carbon: US$1,300 per tonne FOB mine (US$1,237 per tonne CIF equivalent) -200 mesh, >80% graphitic carbon: US$800 per tonne FOB mine (US$600 per tonne CIF equivalent) Freight and insurance costs are projected to be approximately $63 per tonne for product sold to customers in the United States, $200 per tonne for deliveries to Europe, and $428 per tonne for deliveries to Asia. RPA considers these graphite prices to be appropriate for a PEA level study. It is noted that the processing for the Battery Grade product, which accounts for some 86% of LOM revenue, is based on an expression of interest by a producer and is by no means a certainty, however, RPA considers the assumption to be reasonable for a PEA level study. RECOMMENDATIONS RPA recommends that Focus advance the Project to the next phase of development, by collecting further data, and conducting metallurgical testwork and relevant studies that allow for licensing process and estimation of Mineral Reserves. Specific recommendations by area are as follows. GEOLOGY AND MINERAL RESOURCES Conduct a comprehensive review of graphitic carbon analytical methodology in order to resolve the issue highlighted during the 2010/11 twin hole drilling campaign. The review should include the use of CRM in laboratory round-robins in order to select the most appropriate analytical method and to select the laboratory for future drilling campaigns. Conduct an exploration drilling program to complete the current drilling grid with focus on the mineralized zones currently classified as Inferred. Review the existing exploration targets on the Project and test selected targets with a limited drilling program. MINING Carry out a geotechnical drill program and initiate geomechanical and rock mechanics assessments to confirm appropriate pit wall slope angle and stability. Technical Report NI October 30, 2012 Page 1-7

15 Carry out specific hydrological/hydrogeological studies to refine dewatering needs in the open pit over the LOM. Improve the understanding of the mining cost base and carry out a preliminary mining plan and develop a detailed estimate of the mining costs. PROCESSING AND METALLURGY Conduct grindability tests to confirm results obtained in past studies (2002). Perform tests on tailings to ensure the effectiveness of separation between acid generating tailings and non-acid generating tailings by flotation and the operating conditions to do so. Conduct test program and gather information on polishing grind by ceramic media to evaluate its impact on the process performances. Perform a sensitivity analysis to estimate the impact of ore feed grade variability on the concentrate production. Conduct a test program to optimize grinding/flotation interactions. Improve the detailed process understanding and develop a detailed estimate of the process capital and operation costs. Perform tests of coarse ore upgrading with gravity concentration process to increase graphite concentration before the grinding and flotation process for cost optimization. Investigate automation to improve manpower productivity. ENVIRONMENT Develop details of the co-disposal concept for tailings and waste rock. Continue the environmental program, which should be comprehensive and include baseline work, acid generation accounting, tailings storage facility (TSF) stability, dust emission, and water balance and hydrology. Progress permitting activities as well as community and Aboriginal consultations. Initiate geotechnical assessments and detail mapping of overburden and soils at open pit and TSF locations to confirm storage capacities as well as dam volume/characteristic requirements. Test characteristics of the two tailings streams. Initiate consultation/discussions with Hydro-Québec regarding power supply and consumptions. MARKETS Review marketing options and develop off-take agreements. Technical Report NI October 30, 2012 Page 1-8

16 OTHER Carry out condemnation drilling in advance of mining in proposed locations for Project components and infrastructure (process plant, service buildings, accommodation camp, tailings and waste rock storage facility, overburden and topsoil piles, ore storage pad, etc.). Confirm Project components and infrastructure locations. Review the access road route. Test and/or confirm the minimum primary concentrate characteristics required for the thermal purification process to 99.99% Cgr. Continue to develop in-house purification process or negotiate an agreement for purification on a contract basis. ECONOMIC ANALYSIS The economic analysis contained in this 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. Mineral resources that are not mineral reserves do not have demonstrated economic viability. There is no certainty that the reserves development, production, and economic forecasts on which this PEA is based will be realized. The Project evaluation work includes an economic summary, discounted cash flow analysis, as well as capital and operating costs estimates. RPA considers the PEA to have an estimation accuracy of +35% to -15%. The economic analysis shows that, at a long-term average graphite concentrate price of US$4,196/t, the Project has a pre-tax NPV at a 10% discount rate of C$246 million. This takes into account the purification of a portion of the primary concentrate from 95% to 99.99% Cgr in order to benefit from higher selling prices. Total pre-tax undiscounted cash flow is C$926 million. The Project-specific product grouping and pricing which supports the average graphite long-term price is summarized in Table 1-3. Technical Report NI October 30, 2012 Page 1-9

17 TABLE 1-3 SALEABLE PRODUCT GROUPING AND PRICING Focus Graphite Inc. Lac Knife Project Concentrate Sizing Concentrate Quantities (tpa) +48 mesh 7, mesh 6, mesh 3,100 Production Grouping (tpa) Grouping Specifications Market Price (US$/t) (1) +100 mesh 3,200 19,900 (2) +100 mesh / 95.1% Cgr 10, mesh 5, mesh 6,100 11, mesh / 93.2% Cgr 1, mesh 15,500 15, mesh / 86.5% Cgr 800 Total / Average 46,600 46,600 4,196 Notes: 1. FOB mine; based on September 2012 Industrial Minerals published prices, and detailed in Section ,900 tpa of primary concentrate meet specifications for thermal purification to 99.99% Cgr with a 15% loss during the purification process. The total LOM capital is approximately C$146 million, including approximately C$24 million in contingency capital. The average LOM operating cost is C$435.06/t milled. This includes C$367.45/t milled for thermal purification on a contract basis. Over the LOM, the Project will produce an average of 46,640 tpa of graphite concentrate at an average grade of 92% Cgr from 300,000 tpa of graphite-bearing material at a head grade of 15.66% Cgr. Over the LOM, the pre-tax IRR is 32.1% with a payback period of approximately 2.8 years. The cash flow is summarized in Table 1-4 and a summary of key criteria is provided below. ECONOMIC CRITERIA REVENUE Approximately 820 tonnes per day processing rate based on 365 operating days per year. Average recovery of 91.3%. Exchange rate US$1.00 = C$1.00. Graphite concentrate market price: US$4,196 per tonne of saleable products. Technical Report NI October 30, 2012 Page 1-10

18 Transport and Insurance charge of C$237 per tonne of primary concentrate. Annual total marketing charge of C$250,000. Revenue is recognized at the time of production. COSTS Pre-production period: 2 years. Mine life: 20 years. LOM production plan as summarized in Table 1-4. Mine life capital totals C$146 million. Average operating cost over the mine life is C$ per tonne milled. Technical Report NI October 30, 2012 Page 1-11

19 Technical Report NI October 30, 2012 Page 1-12 TABLE 1-4 PRE-TAX CASH FLOW SUMMARY Focus Graphite Inc. - Lac Knife Project Year Units Total/Avg Mining Mined Graphite-Bearing Material tonnes 5,970, , , , , , , , , , , , , , , , , , , , ,000 Mined Waste tonnes 6,709, , , , , , , , , , , , , , , , , , , , , ,873 Total Material Moved tonnes 12,679, , , , , , , , , , , , , , , , , , , , , ,873 Stripping Ratio Processing Mill Feed tonnes 5,970, , , , , , , , , , , , , , , , , , , , ,000 Head Grade %Cgr Average Recovery % 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% Concentrate Grade %Cgr 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Graphite Concentrate tonnes 927,971 53,991 52,845 50,344 50,761 50,046 47,665 46,265 45,610 45,848 45,938 45,789 44,330 43,913 44,211 44,062 43,348 42,157 42,455 43,616 44,777 Revenue Payable Graphite Concentrate tonnes 927,971 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 43,674 44,777 On-site Concentrate Inventory tonnes - 7,351 13,556 17,260 21,381 24,787 25,812 25,437 24,407 23,615 22,913 22,062 19,752 17,025 14,596 12,018 8,726 4, Market Price (avg per tonne of LK concentrate) US$/tonne 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 Exchange Rate $C/$US Gross Revenue C$'000s 3,893, , , , , , , , , , , , , , , , , , , , ,884 Marketing C$'000s 5, Concentrate transportation/insurance (avg per tonne of LK conc.) C$'000s 219,929 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 10,351 10,612 Total Charges C$'000s 224,929 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 10,601 10,862 Royalty C$'000s Net Revenue C$'000s 3,668, , , , , , , , , , , , , , , , , , , , ,022 NSR C$/t Operating Costs Mining C$/t mined Mill Feed Re-handling (1/12 of annual ore tonnes) C$/t rehand Mining C$/t milled Mill Feed Re-handling (1/12 of annual ore tonnes) C$/t milled Processing C$/t milled Contract Purification C$/t milled Tailings & Water Treatment C$/t milled G&A C$/t milled Total Operating Costs C$/t milled Mining C$ '000s 85,607 3,836 4,426 3,789 4,104 4,422 4,303 5,121 4,984 4,905 5,030 4,975 4,557 4,289 4,280 4,383 4,332 4,004 3,641 3,406 2,819 Mill Feed Re-handling C$ '000s 1, Processing C$ '000s 243,800 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 Contract Purification C$ '000s 2,193, , , , , , , , , , , , , , , , , , , , ,683 Tailings & Water Treatment C$ '000s 2, G&A C$ '000s 70,200 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 Total Operating Costs C$ '000s 2,597, , , , , , , , , , , , , , , , , , , , ,398 Operating Margin C$ '000s 1,071,556 54,989 54,392 55,030 54,715 54,397 54,516 53,698 53,835 53,914 53,688 53,844 54,262 54,529 54,539 54,435 54,486 54,814 55,178 43,670 48,625 Capital Cost Surface Infrastructure C$ '000s 22,115 5,625 13, Mining (incl. pre-stripping ovbd/waste) C$ '000s 15,132 2,755 8, Processing C$ '000s 41,813 14,544 21, Tailings & Water Treatment C$ '000s 12,199 3,067 3,404 5,728 EPCM (14%) C$ '000s 9,734 3,216 6,518 Indirects/Owners (24%) C$ '000s 16,652 5,502 11,150 Warehouse Inventory C$ '000s (467) Contingency (25%) C$ '000s 24,175 7,910 16,265 Working Capital C$ '000s - 32,629 (32,629) Closure and Reclamation C$ '000s 3,588 3,588 Total Capital Cost C$ '000s 145,875 39, , ,096 4, , , , , , (29,508) Pre-Tax Cash Flow Undiscounted Pre-Tax Cash Flow C$ '000s 925,681 (39,551) (113,956) 54,989 53,769 53,934 50,688 54,210 52,984 53,511 53,212 47,090 53,065 53,657 52,730 54,342 53,916 53,339 53,863 54,627 53,646 43,483 78,133 Cumulative (39,551) (153,507) (98,518) (44,749) 9,185 59, , , , , , , , , , , , , , , , ,681 Project Economics Pre-Tax NPV (8%) C$ '000s 316,067 Pre-Tax NPV (10%) C$ '000s 245,955 Pre-Tax NPV (12%) C$ '000s 191,913 Pre-Tax IRR % 32.1% Pre-Tax Payback Period Years 2.8

20 SENSITIVITY ANALYSIS Project risks can be identified in both economic and non-economic terms. Key economic risks were examined by running cash flow sensitivities on: head grade; recovery; graphite market price; operating cost per tonne milled; and capital cost. The pre-tax NPV (at 10%) sensitivity analysis has been calculated for -20% to +35% variations on the above items, with the exception of recovery which has been calculated for - 20% to +5%. The NPV and IRR sensitivities are shown in Table 1-5, Figure 1-1, and Figure 1-2. The Project is most sensitive to graphite concentrate price, followed by head grade, recovery, operating costs then capital costs. There is minimal to no effect on NPV and IRR when the head grade and recovery factors are adjusted above base case because of the market ceiling on graphite concentrate sales. TABLE 1-5 SENSITIVITY ANALYSIS Focus Graphite Inc. Lac Knife Project Sensitivity to Head Grade Cgr (%) 10% Million IRR $ % $ % $ % $ % $ % $ % Sensitivity to Recovery REC% 10% Million IRR 73.0 $ % 82.2 $ % 91.3 $ % 93.6 $ % 95.9 $ % Sensitivity to Graphite Concentrate Price US$/t 10% Million IRR 3,357 -$29 6.8% Technical Report NI October 30, 2012 Page 1-13

21 3,776 $ % 4,196 $ % 4,616 $ % 5,035 $ % 5,665 $ % Sensitivity to Operating Cost Per Tonne Milled C$/t milled 10% Million IRR 348 $ % 392 $ % 435 $ % 479 $ % 522 $ % 587 -$82 0.8% Sensitivity to Capital Cost C$ million 10% Million IRR 117 $ % 131 $ % 146 $ % 160 $ % 175 $ % 190 $ % Technical Report NI October 30, 2012 Page 1-14

22 FIGURE 1-1 NPV SENSITIVITY ANALYSIS $800,000 $700,000 (C$ 000s) $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Sensitivity to Head Grade Sensitivity to Graphite Price Sensitivity to Capex Sensitivity to Recovery Sensitivity to Opex -$100,000 $ $200,000 Factor Change FIGURE 1-2 IRR SENSITIVITY ANALYSIS 80.0% 70.0% IRR (%) 60.0% 50.0% 40.0% 30.0% 20.0% Sensitivity to Head Grade Sensitivity to Recovery Sensitivity to Graphite Price Sensitivity to Capex Sensitivity to Opex 10.0% 0.0% Factor Change Technical Report NI October 30, 2012 Page 1-15

23 TECHNICAL SUMMARY PROPERTY DESCRIPTION AND LOCATION The Project is located south and west of Lac Knife, located on the North Shore, Québec, Canada. Fermont is the closest community and is located 27 km north-northeast of the property. The Project is situated in the Esmanville Township on NTS map sheet 23B11. Road distance from Montreal to Lac Knife is approximately 1,300 km and by all-season highway 389, it is 500 km from Baie-Comeau to Fermont. The property is centred at N and W. The property covers 2, ha. LAND TENURE The property consists of a total of 57 claims covering 2, ha. All claims are located in the province of Québec and are registered as CDC ( Claims désignés sur carte ). At the time of writing this report, the claims are registered under Focus Graphite Inc. as Québec Gestim claims client No To the knowledge of RPA, Focus is the sole owner of the property with no option, royalty, or other outstanding agreements. EXISTING INFRASTRUCTURE Fermont, Québec, is the closest municipality, with about 3,200 inhabitants. The municipalities of Wabush and Labrador City, in Newfoundland and Labrador, are located 30 km from Fermont. The area population is estimated at 15,000. The region as a whole has the necessary infrastructure to provide accommodation, community services, a skilled mining labour force, as well as mining contractors and related services. The closest commercial airport with regular flights to Sept-Iles, Québec, or Montréal is located in Wabush. Two railways serve the region, the Quebec Cartier Railway is privately owned by ArcelorMittal S.A. and the Quebec North Shore and Labrador Railway Company is a common carrier owned by Iron Ore Company of Canada. The Hydro-Québec main power line serving Fermont and the local mines passes less than five kilometres east of the Project. HISTORY The Lac Knife graphite showing was discovered by D.L Murphy during a geological survey conducted by the Québec Ministry of Energy and Resources in Interest for graphite supplies increased in the 1980s and the property was acquired by Mazarin Inc. (Mazarin), which carried out prefeasibility and feasibility studies between 1989 and Limited work Technical Report NI October 30, 2012 Page 1-16

24 took place after 1990 and the property changed hands, however, recession and a depressed graphite market put the property in dormant state. Focus acquired the property in August 2010 from IAMGOLD Corporation. Up to that point, 99 drill holes were completed on the property. Historical mineral resources estimated in 1990 by Mazarin amounted to 5.5 million tonnes at 17.1% Cgr (all categories). This historical estimate used categories other than the ones set out in NI and was not prepared to the standards required by the Instrument or modern estimation practices. A qualified person has not verified the historical estimate mentioned above. Focus is not treating it as current mineral resources. GEOLOGY AND MINERALIZATION The graphite-rich Menihek Formation (Fm) paraschist and the Sokoman Fm iron formation of the Gagnon Group in the Grenville Province were derived from the Paleoproterozoic Labrador Trough basin sediments. In the Labrador Trough, the original sedimentary textures show that the iron formation units were deposited principally as chemical sediments with high iron and silica (chert) and characteristically low aluminum in a series of linked basins. The Project is underlain principally by the mica-quartz-feldspar schist and paragneiss of the Menihek Formation. Mineralogy locally includes garnet and kyanite plus minor bands of calcsilicate. The host rock of the graphite zones appears the same with the only significant variation being the amount of graphite and variations in calcsilicate bands. The Menihek Fm is interpreted as infilling a complexly folded, Y-shaped syncline with one arm trending north-northwest, the second striking west-northwest, and the third striking south to south-southeast. The limit of the syncline is marked by the contact with the underlying Sokoman Fm with variable iron-mineral facies. Previous interpretations of the detailed drilling by Mazarin showed a number of closed folds that formed part of their initial resource estimation in The present interpretation recognizes that the graphite zones may be sheared en echelon along the northern trend and may, in fact, be more isolated bands. The present study maintained a tighter constraint with less interpretation as to potential fold closures. The graphite occurs as part of the metasediments integral to the Menihek Fm. It forms as part of local anoxic basins in the pelitic sediments. There is no indication of secondary hydrothermal or other transported, post-metamorphic deposition or upgrading. The present Technical Report NI October 30, 2012 Page 1-17

25 distribution and crystallinity of the graphite units are due to the Grenville metamorphic events. The margins of the graphite lenses and bands are sharp to rapid grade changes with background graphite in the order of <1% Cgr increasing to ~5% Cgr near the lens contacts. Grades within the lenses range from 5% Cgr to 60% Cgr with thin waste bands included. The lenses form elongated lozenges with lateral continuity from 90 m to over 300 m in length. The depth of the lenses ranges from 40 m to over 120 m along the dip plane, while thickness of individual lenses ranges from 1.5 m to 35 m. Graphite occurs as flakes ranging in size from very fine grains up to 2 mm. Commonly, the coarser flakes appear to form with Cgr grades below 25% and finer flakes above that. The industrial specification for coarse flake is 0.2 mm (200 microns), so that even fine-grained to the eye still provide high quality industrial material. EXPLORATION STATUS Since it acquired the property in 2010, Focus has carried out a limited 12-hole twin hole drilling program aimed at confirming the historical drilling done by Mazarin in It is noted that no core is left from the 1989 campaign. The results obtained from the Focus 2010/11 campaign show that the 1989 sample results overestimate the 2010 graphite grades globally by a factor approaching 15%. More precisely, the difference is directly proportional to the grade, with differences significantly higher than 15% when carbon grade is higher than 15% Cgr. One assumption made by Focus is that the analytical method used in 2010, which is reportedly different from the one used in 1989, has caused an underestimation of graphitic carbon grade. It is RPA s opinion that the information available today does not allow a conclusion that the 2010/11 results did in fact underestimate graphitic carbon, however, doubt does remain as to the appropriateness of the method used in 2010/11. RPA considers that the 2010/11 campaign did not reach its objective in terms of analytical results but nevertheless the holes from 2010/11 have been able to confirm the presence of graphitic carbon and also the lithological interpretation of the mineralized zones. With today s knowledge of the situation, RPA cannot conclude which of the 1989 or 2010/11 campaigns is correct. This leaves a certain degree of uncertainty on the accuracy of the sample results available for Mineral Resource estimation, which should be reflected the classification of the Mineral Resources. At this stage, RPA is of the opinion that the decision taken by Roche to combine the 1989 and 2010/11 drill holes in the current Mineral Resource estimation without Technical Report NI October 30, 2012 Page 1-18

26 adjusting any analytical results of either campaign, to address the observed systematic difference, is reasonable. MINERAL RESOURCES The Mineral Resource estimate presented in this section was prepared by Roche and released in January Focus then retained RPA to carry out a PEA on the Lac Knife deposit based on these current Mineral Resources. RPA has verified the Mineral Resources estimated by Roche prior to using them in the PEA. RPA has concluded that the current Mineral Resources are adequate and of sufficient quality to support a PEA. RPA accepted the Mineral Resource statement derived from the Roche Mineral Resource estimate with one modification. RPA has elected not to classify any Mineral Resources as Measured at this stage as a consequence of the uncertainty that, in RPA opinion, remains with regard to the difference in grade between the drill hole samples from 1989 and their 2010/11 twin counterparts. Also, the QA/QC program applied to the 2010/11 drilling campaign highlighted an issue with the reproducibility of the graphitic carbon grade of the CRM used. Consequently, RPA has reassigned the Measured Mineral Resources estimated by Roche to the Indicated category. In January 2012, Roche estimated 637,000 tonnes at 15.59% Cgr in the Measured category. The current Mineral Resources, modified to reflect the change in classification, are summarized in Table 1-1 earlier in this section. The Mineral Resources were estimated using a 3D block modelling technique and grades were interpolated using the Inverse Squared Distance interpolation method. The bulk density of the mineralized material was determined at 2.87 from density measurements taken during the 2010/11 twin hole drilling campaign. Graphitic carbon grade was interpolated from three metre composites in blocks five metres long, seven metres wide, and five metres high. Graphitic carbon assays were not capped prior to estimation. MINING METHODS RPA investigated the potential for open pit mining of the Indicated and Inferred Mineral Resources, using graphite prices and saleable graphite concentrates quantities appropriate for a PEA. The open pit mining option was evaluated with run-of-mine (ROM) material being processed at a rate of 300,000 tpa in a process plant on site, producing approximately Technical Report NI October 30, 2012 Page 1-19

27 46,600 tonnes of graphite concentrates with various grades and size classes. On the basis of this target production rate, the evaluation assumes a year-round owner operated approach with a minimal mining fleet. The ROM material would be transported directly to the crusher or occasionally be stockpiled and re-handled. Mining of mineralized material and waste, and overburden stripping would be carried out by the owner; the former activity would use conventional drill/truck/loader open pit methods consisting of drilling, blasting, and loading/hauling operations. The production equipment will be supported by an additional loader, bulldozers, a grader, and a water truck. In the absence of geotechnical information, pit slope angles and overburden pile design parameters were based on industry averages. Pit optimizations were carried out using pit slopes of 45. Open pit possibilities were investigated by pit optimization/floating cone analysis, using Whittle software, run on the Mineral Resource block model. Optimizations were performed based on typical costs for comparable operations and projects of a similar scale. Pit optimizations indicated that a significant proportion of the Mineral Resource would be economic to mine using open pit methods. Dilution and mining extraction factors of 5% tonnage and 95% of ore within a 20-year pit shell were applied to the above numbers, with dilution at zero grades. As a result, the diluted and recovered tonnage totals 6.0 million tonnes grading 15.66% Cgr. Waste within this pit shell totals 6.7 million tonnes, resulting in an average strip ratio of 1.12:1. The open pit would require the stripping of approximately 606,000 m³ of overburden. The proportion of Inferred Mineral Resources in the graphite-bearing material that may be potentially mineable via open pit is approximately 30%. As a result of its acid-generating potential, tailings and waste rock will be disposed of in a single purpose built basin to be formed by the construction of two dams and a low-level dyke in a natural valley at the southern end of Lac Knife. The dams and a low-level dyke would be made of overburden. Technical Report NI October 30, 2012 Page 1-20

28 Highlights of the production schedule are as follows: A short ramp-up to full production with 270,000 tonnes produced in Year 1 Mine production and processing of 300,000 tpa of potentially mineable resources consisting of graphite-bearing material, or 822 tpd Waste mining average of 335,000 tpa MINERAL PROCESSING AND METALLURGICAL TESTING A testwork program was carried out on composite samples extracted from different drilling areas and at various depths. Twenty-three different tests assessed the effectiveness of different recovery methods and their impact on graphite product distribution in different size classes. The concentration of graphite in the ore used for the various tests varied between 18.9% and 22%. A lock-cycle test was conducted which gave consistent results seemingly indicating that the results are reproducible. The main highlights from the testwork program are: Samples responded reasonably well to flotation. Recovery by flotation was generally enhanced by the addition of polishing mills (ceramic media). Adding a separation step for fine particles (-200 mesh) followed by a polishing grind did not provide conclusive results. These tests, however, were carried out on samples with concentrations ranging between 18.9% Cgr and 22.0% Cgr, while the nominal plant feed is expected at 15.66% Cgr (14.16% Cgr to 20.15% Cgr). Given this and the low technological risk associated with the chosen process, the recoveries obtained by the lock-cycle test are thus considered as representative of what could be achieved by the proposed flowsheet. The process design is based on an annual production capacity target of dry tpa and a nominal carbon head grade of 15.66%. Testwork was performed and the results used to develop a simplified process Block Flow Diagram (BFD) and form the basis of the process design criteria. The simplified BFD shows that following crushing, a graphite concentrate is obtained by a grinding and flotation separation circuit, and the resulting concentrate is then thickened, dried, and stored. The tailings generated by the concentration process pass through flotation cells to separate acid-generating tailings from clean non-acid tailings. Technical Report NI October 30, 2012 Page 1-21

29 The simplified BFD and the process design criteria were used to develop the process mass and water balances. This served as the basis for developing the preliminary selection and sizing of major process equipment on which the capital and operating costs estimates are based. THERMAL PURIFICATION The Project considers the thermal purification process of approximately 40% of the concentrate produced at the Lac Knife process plant. This portion of the primary concentrate production meets the specifications (+100 mesh, >95% Cgr) for a purification to 99.99% Cgr. Graphite concentrate of this purity is used in battery production and other applications at high prices. Focus has been provided with an expression of interest from an existing producer for the thermal purification on a contract basis. The producer would have the capacity for the purification of 20,000 tpa within 18 months from a commitment date between both parties. It has been assumed in the PEA that the purification would be done on a contract basis, with related losses of approximately 15%. There are two losses that need to be accounted for in the thermal purification process. The first is the shrinkage loss due to the thermal evaporation of the impurities which is approximately 5%. The second is the processing loss which is caused by the breakdown of some of the flake graphite during purification generating fines which are carried out in the off gases of the furnace and will range between 5% and 10%. PROJECT INFRASTRUCTURE The area of the proposed mine site infrastructure totals approximately 95 ha and lies over two watersheds. With the exception of most of the tailings and waste rock storage facility, the Project infrastructure would be located within the Lac Knife watershed. The Project infrastructure mainly consists of the following. Access and on-site roads totalling 39 km. Power line of 45 km to site and on-site substation and reticulation - maximum site power demand estimated at 3.5 MW. Process plant of a 300,000-tpa capacity. Technical Report NI October 30, 2012 Page 1-22

30 Other buildings comprising service building, accommodation camp and security gatehouse. Explosives storage. Fuel storage. Parking lot. Water supply wells and waste water management systems. Tailings and waste rock storage facility (TSF) within a unique site. Ore storage pad, and topsoil and overburden piles. Process plant fresh water feed system from Lac Knife. Industrial water management system comprised of recirculation circuit between TSF and process plant, collection and pumping systems for mine water and ore storage pad water run-off, water treatment plant and polishing pond. Drainage ditches. Landfill to manage non-hazardous industrial and domestic wastes. MARKETS AND CONTRACTS Natural graphite is used in a wide variety of applications ranging from refractories to lubricants to electrodes to anode materials in batteries. World production of graphite is estimated at approximately 2.5 million tonnes in 2011 (Industrial Minerals, March 2012). Natural graphite accounted for approximately one million tonnes of total production, with the remaining being synthetic graphite. Within the natural graphite segment, an estimated 400,000 tonnes is represented by flake graphite and the rest is lower grade amorphous graphite. Within the synthetic graphite segment, formed bodies such as electrodes and crucibles account for approximately 1.4 million tonnes, and powder approximately 100,000 tonnes (Industrial Minerals, March 2012). Estimated world flake graphite production in 2012 is projected to be 528,000 tonnes. Graphite prices are based on product quality and particle size. In general, higher purity, larger flake natural graphite commands a price premium over lower quality, smaller flake natural graphite. Amorphous graphite is typically lower quality and much finer in grain size than flake graphite and commands much lower prices. Synthetic graphite is generally high priced, with very high purity material commanding a significant price premium. Technical Report NI October 30, 2012 Page 1-23

31 In the recent period, there has been a rapid run-up in prices, with some retraction in the past few months. Expectations are that prices may continue to decrease over the next few months and then stabilize as the world economy gradually recovers. Thereafter, prices are anticipated to increase to accommodate the entry of new producers required to meet the forecasted increase in demand for high purity flake graphite. As Focus has initiated contacts with several major graphite consuming groups in North America, Europe and Asia, with marketing efforts focused on high value end users requiring superior quality product in terms of flake size and product purity, the Project major product opportunities are: Ultra high purity thermo processed battery grade product Medium to fine flake graphite concentrate Fine flake concentrate Based on the results from the lock-cycle concentrate production test and test recovery results from proprietary thermal purification processing of the high grade concentrate, projected overall annual product volumes with regards to the major product opportunities above are 19,900 tonnes, 11,200 tonnes and 15,500 tonnes, respectively. The projected product mix is based on expressions of interest received from various potential customers in North America, Europe, and Asia. Potential customers have provided Focus with product quality requirements and projected annual demand. RPA has reviewed these expressions of interest and is satisfied that there are sufficient indications of demand to support the projected production forecast. On this basis, RPA concludes that the Project meets the requirements for reasonable prospects for production. Current (September 2012) published prices for the Project major graphite product opportunities are detailed in Table 1-6. TABLE 1-6 GRAPHITE PRICES SEPTEMBER 2012 Focus Graphite Inc. Lac Knife Project Grade Basis Units Price Range Synthetic, 99.95%C, Swiss Swiss border US$/kg 20-7 Crystalline, 90%C, -100 mesh FCL, CIF European port US$/t 1,400-1,100 Amorphous powder, 80%-85%C, Chinese FCL, CIF European port US$/t Source: Industrial Minerals, September 2012 Technical Report NI October 30, 2012 Page 1-24

32 The price scenarios retained for the Project were based on price assumptions in the economic analysis: Battery Grade, 99.95% Cgr: US$10,000/t FOB mine (US$9,572/t CIF equivalent) +200 mesh, >90% Cgr: US$1,300/t FOB mine (US$1,237/t CIF equivalent) -200 mesh, >80% Cgr: US$800/t FOB mine (US$600/t CIF equivalent) No contracts relevant to the PEA have been established by Focus. Focus has not hedged, nor committed any of its production pursuant to an off-take agreement. ENVIRONMENTAL, PERMITTING, AND SOCIAL CONSIDERATIONS The Project has been subject to preliminary environmental baseline studies and environmental auditing which has included analysis of soil and water samples, the former detecting high levels of sulphur and the latter being poorly mineralized, with low metal content (except for iron and zinc) and low ph downstream from graphite deposits and outcrops but near neutral upstream. No organoleptic signs (odours, stains, iridescence) of contamination on the surface of the property (camp and mineralized outcrops) or in the surrounding area were observed. To meet the requirements of Directive 019, further information will be required on ground water characteristics, water quality and hydrology, archaeological potential, fisheries, terrestrial flora and fauna, and the social environment. Samples of tailings are acid-producing containing about 10% sulphur and low levels of heavy metals other than iron. Waste rock samples are also acid-producing. At the Provincial level, no Environmental Impact Assessment will be required for the Project if it remains at less than 7,000 tpd. A Certificate of Authorization (CA) will be required under the Environmental Quality Act which will include measures for monitoring (likely to be effluent sampling, contaminated drainage, groundwater), design of tailings basin and further environmental characterization studies. The sewage treatment and water works, solid waste management, power line (normally obtained by Hydro-Québec), and transport of hazardous materials are also likely to be subject to the CA or other approval processes together with possibly the access road. Technical Report NI October 30, 2012 Page 1-25

33 Approval at the Federal level under the Canadian Environmental Assessment Act is unlikely to be required, however, further investigations are required to establish whether any aspect of the Project may impact on fish habitat. Efforts to engage with the community of Fermont and the Aboriginal community have commenced and this program will continue in accordance with normal procedures for permitting new mines. A closure plan must be approved in accordance with the requirements of the Mining Act to include details of how the site will be reclaimed and provide a budget for the works and Financial Assurance. The concept for closure of the tailings and waste rock co-disposal facility has been developed in order to ensure that acid-producing tailings and waste rock will be sufficiently covered at the end of operations. The current plan allows the open pit to flood, which could be achieved in part by pumping water from Lac Knife. Over C$3.5 million has been included in the PEA cash flow for closure and reclamation costs. CAPITAL AND OPERATING COST ESTIMATES CAPITAL COSTS Capital costs were estimated using cost models, unit prices, suppliers budget quotes, preliminary designs, general industry knowledge and experience, and other information from recent similar projects. The mine, mill, and site infrastructure costs are summarized in Table 1-7. TABLE 1-7 CAPITAL COST SUMMARY Focus Graphite Inc. Lac Knife Project Cost Area Initial (C$ 000) Sustaining (C$ 000) Surface Infrastructure 18,749 3,366 Mining (incl. pre-stripping overburden/waste) 11,208 3,924 Processing 36,359 5,454 Tailings/Waste Rock & Water Treatment 3,067 9,132 EPCM (14%) 9,734 0 Indirect/Owner's (24%) 16,652 0 Technical Report NI October 30, 2012 Page 1-26

34 Cost Area Initial (C$ 000) Sustaining (C$ 000) Warehouse Inventory Contingency (25%) 24,175 0 Working Capital (3-month opex) 32,629 0 Closure and Reclamation 0 3,588 Total 153,507 25,464 The initial capital cost and the sustaining capital are respectively C$153.5 million and C$25.5 million. The full recovery of initial capital cost related to the working capital (three-month operating costs), and the recovery of half of the warehouse inventory initial cost, during the last year of the LOM, decrease the overall total. The total capital cost (Initial plus Sustaining less Working Capital and Inventory) considered for the purpose of this economic analysis is C$145.9 million. Engineering, procurement, and construction management (EPCM), indirect/owner's and contingency for all capital cost components vary according to cost area. In order to estimate these cost items, specific factors were used; namely, 14% and 24% factors for EPCM and indirect/owner's costs respectively were applied to initial direct capital costs, while a 25% factor for contingency costs was applied to both initial direct and indirect (including EPCM and warehouse inventory) capital costs. No EPCM, nor contingency, were applied on the working capital. OPERATING COSTS Operating costs were estimated using cost models, general industry knowledge and experience, preliminary designs, unit prices, supplier s budget quotes, operational performances, first principles and other information from recent similar projects, and includes consideration for manpower, electrical power consumption from Hydro-Québec, and reagents and other consumables. The LOM average operating unit costs for the Project are shown in Table 1-8. These average unit costs are slightly higher due to inefficiency during the first-year production ramp-up. Details on individual operating costs will be provided in the following sections. Technical Report NI October 30, 2012 Page 1-27

35 TABLE 1-8 UNIT OPERATING COSTS SUMMARY Focus Graphite Inc. Lac Knife Project Cost Area LOM Unit Cost (C$/t milled) Unit Cost (C$/t moved) Mining Stockpile re-handling Processing Tailings & Water treatment 0.46 G&A Sub-total operating cost at Lac Knife Thermal Purification Total Project operating cost The unit cost for purification on a contract basis was derived from a budget quote by an existing producer and considered the approximate 15% losses during the thermal purification process. PROJECT SCHEDULE A Project schedule has been prepared for the Project development and is presented in Figure 1-3. At this point in time, it is anticipated that the critical path for development of the Project will be associated with construction of the access road and power line. At different stages in the schedule, both activities will positively impact on the pace of construction, the access road to a greater degree. The construction phase, or pre-production period, will be two years and is exclusive of any fieldworks or studies required prior a Go decision would be taken. Technical Report NI October 30, 2012 Page 1-28

36 FIGURE 1-3 PROJECT SCHEDULE Note: Time scale: Quarter. RISKS AND OPPORTUNITIES A high level risk and opportunity assessment was carried out to identify major Project risks and also opportunities to improve the Project outcome. Mitigating strategies were also developed for the major risks, as well as development strategies for the major opportunities. These risks and opportunities are outlined in Tables 1-9 and Technical Report NI October 30, 2012 Page 1-29

37 TABLE 1-9 KEY RISKS AND MITIGATING STRATEGIES Focus Graphite Inc. Lac Knife Project Risk Mitigating Strategy Geology Inferred Resources may not translate into In-fill surface drilling program planned for 2012 Indicated and Measured categories on Lac Knife property Graphitic carbon grades assayed during the 2010 Progress with 2012 drilling campaign and make drilling campaign looks to be approximately 15% round-robin tests in laboratory to gain a better lower than the 1989 drilling campaign understanding Mining Pit slope angles (45 ) may be too steep Pit optimization inputs may be too optimistic because the concentrate prices used in the estimation may have been too high Geotechnical drilling and analysis planned To be refined in future studies Delays during pre-production phase causing start Complete a detailed construction schedule with of production to be postponed critical path for surface facilities Ore dilution higher than expected during mining Grade control during mining operation, for extraction example, drill cutting sampling Geotechnical Geotechnical issues with tailings and waste rock storage facility A full geotechnical investigation will be undertaken at the proposed location of the TSF site Water Issue with supplying industrial water Reuse water from the tailings pond Metallurgy Polishing grind process knowledge is limited and Perform additional testwork with the assistance design precision is low of mill supplier to improve the design Incomplete metallurgical information on more recent drill core Plant Design and Operations Many prices were updated from previous studies thus increasing the uncertainty on prices Tailings Issues with the location and technical design concept for co-disposal of acid-generating tailings and waste Adverse impact of Project on groundwater resources resulting from groundwater use and mine dewatering Quality of final water discharge does not meet environmental regulations Relationship with local community Relationship with First Nations Environmental Social Plan a complete metallurgical testwork program to better define the work index, composition, effect of head grade on process performances, testing on flotation of sulphide in tailings and variability of metallurgical characteristics in the ore body Obtaining more actualized budget prices for equipment in further stage Refine design and engineering aspects with further investigations into soil mechanics, hydrology and borrow pit location as required Complete additional studies and modelling to understand the existing hydrological and hydrogeological regime and to predict impacts of the Project. Optimize the design of polishing pond and water treatment plant Develop communications strategy to maintain good relationship with local population and Fermont official authorities Develop communication strategy to establish good relationship with First Nations Technical Report NI October 30, 2012 Page 1-30

38 Risk Mitigating Strategy Costs Overrun of operating costs Addressed in sensitivity analysis for PEA, more detailed estimates in future studies Overrun of capital costs Addressed in sensitivity analysis for PEA, more detailed estimates in future studies Energy cost (fuel, electricity) rise sharply Uncontrollable Rising cost of major consumables Negotiation of long term contract with consumables suppliers Adverse US$-C$ exchange rate Uncontrollable Marketing and Concentrate Sales Depressed natural graphite concentrate prices Financial Analysis incorporates sufficient NPV result in lower than expected revenue testing across high and low price projection. Metallurgical performance does not match expectation of grades, contaminant levels, and the size of carbon flakes leading to reduced revenue Develop high value end users market Complete additional lock-cycle tests and metallurgical testwork Regulatory Approval Postponement of Project due to delays in Commence environmental process sufficiently environmental approval and Project permitting early to allow for delays in approvals Co-disposal management approval (design, This approach must be validated as soon as concept and location) possible with the MDDEFP and the MRN Decrease in graphite concentrate prices Adverse US$-C$ exchange rate Revenue Uncontrollable Uncontrollable Notes: MDDEFP - Ministère du Développement durable, de l Environnement, de la Faune et des Parcs MRN - Ministère des Ressources naturelles Technical Report NI October 30, 2012 Page 1-31

39 TABLE 1-10 KEY OPPORTUNITIES AND DEVELOPMENT STRATEGIES Focus Graphite Inc. Lac Knife Project OPPORTUNITY DEVELOPMENT STRATEGY Geology Adding Mineral Resources and increasing grades More exploration drilling could be done Converting Inferred Resources into Indicated and In-fill surface drilling program planned for 2012 on Measured categories Lac Knife property Mining Pit slope angles may be conservative Carry out a geotechnical drilling program and analysis Potential to increase the throughputs may result in Refine in future studies - potential of increasing reductions of unit costs natural graphite Project concentrate market Geotechnical Optimize surface infrastructure locations, decreasing Rework design, more geotechnical investigations piled foundation utilization Metallurgy Gravimetric upgrading of ore before the grinding Make research on such technology and evaluate process can reduce the treatment cost his impact on process plant Plant Design and Operations Automation of some part of the process is very low Make research especially in drying and packaging and there is room for improvement that may reduce area for possible automation manpower Tailings Reduction in capital costs for construction Refine the co-disposal concept Improve mine site design with the objective of reducing environmental impacts Obtain social acceptance Reduction in operating costs Reduction in capital costs Obtain better concentrate sale terms due to high grade, better quality, and greater size of carbon flakes than expected Environmental Social Implementation of environmental impact assessment early during conceptual phase of the Project Maintain good relationships with local population and Fermont official authorities Costs Addressed in sensitivity analysis for PEA, more detailed estimates in future studies Addressed in sensitivity analysis for PEA, more detailed estimates in future studies Marketing and Concentrate Sales Carry out extensive marketing effort to obtain optimum terms once final predicted concentrate quality is understood Technical Report NI October 30, 2012 Page 1-32

40 2 INTRODUCTION Roscoe Postle Associates Inc. (RPA) was retained by Focus Graphite Inc. (Focus) to prepare an independent Technical Report on the Lac Knife Graphite Project (the Project) near Fermont, Québec, Canada. RPA retained Soutex Inc. (Soutex) to be responsible for metallurgy and mineral processing. This Technical Report is a Preliminary Economic Assessment and is considered by RPA to conform to National Instrument (NI ) Standards of Disclosure for Mineral Projects. RPA visited the Lac Knife Project site and field exploration camp on June 28, 2012 Focus is a public company that trades on the TSX Venture Exchange, the OTCQX, and the Frankfurt Stock Exchange under the symbols FMS, FCSMF, and FKC respectively. Focus is currently exploring the Lac Knife graphite deposit. In addition to Lac Knife, Focus has several other active exploration projects, including Kwyjibo, an iron oxide copper-gold and rare earth elements project located north of Sept-Iles, Québec (50% joint-venture with SOQUEM Inc.), and Romer, a precious metal and polymetallic project located in the Labrador Trough region of Nunavik, Québec. This PEA has evaluated an open pit mining approach combined with processing through a sequence of crushing, grinding, flotation, magnetic separation, thickening and drying, producing a primary concentrate of graphite of various grades and flake sizes. A portion of the concentrate will be further upgraded through thermal purification. The pre-production period will be two years and the mine life will be 20 years. The processing rate will be 822 tpd with an average mill recovery of 91.3%. This report is considered by RPA to meet the requirements of a PEA as defined in Canadian NI regulations. The economic analysis contained in this 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. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. There is no certainty that the reserves development, production, and economic forecasts on which this PEA is based will be realized. Technical Report NI October 30, 2012 Page 2-1

41 SOURCES OF INFORMATION Site visit were carried out by Marc Lavigne, M.Sc., ing., Senior Mining Engineering, and Robert de l Étoile, M.Sc.A., ing., Principal Engineer - Geology, of RPA. Mr. Lavigne and Mr. de l Étoile visited the Project on June 28, 2012 as part of the current PEA. Technical information reviewed included claim records, drill hole database, and previous studies and technical reports related to the Project. At site, items inspected included drill collars, surface geology, general aspects and physiography, and exploration camp facilities. Discussions were held with the following personnel from Focus: Mr. Gary Economo, President and CEO Mr. Tony Brisson, Vice President Exploration (now resigned) Mr. Marc-André Bernier, Technical Adviser and Director RPA verified and validated Mineral Resources, developed mining plans and schedules, estimated mining, tailings facility and project infrastructure costs, and conducted the financial analysis in this PEA. Soutex was involved in the metallurgy and mineral processing aspects, developed performance and design criteria based on SGS lock-cycle test results, and carried out preliminary design and capital and operating cost estimation for the process plant. Market and pricing information was provided by Focus and Mr. Donald Hains, P.Geo., of Hains Technology Associates. The documentation reviewed, and other sources of information, are listed at the end of this report in Section 27 References. Technical Report NI October 30, 2012 Page 2-2

42 LIST OF ABBREVIATIONS Units of measurement used in this report conform to the SI (metric) system. All currency in this report is Canadian dollars ($) unless otherwise noted. a annum kwh kilowatt-hour A ampere L litre bbl barrels lb pound btu British thermal units L/s litres per second C degree Celsius m metre C$ Canadian dollars M mega (million); molar cal calorie m 2 square metre cfm cubic feet per minute m 3 cubic metre cm centimetre µ micron cm 2 square centimetre MASL metres above sea level d day µg microgram dia diameter m 3 /h cubic metres per hour dmt dry metric tonne mi mile dwt dead-weight ton min minute F degree Fahrenheit µm micrometre ft foot mm millimetre ft 2 square foot mph miles per hour ft 3 cubic foot MVA megavolt-amperes ft/s foot per second MW megawatt g gram MWh megawatt-hour G giga (billion) oz Troy ounce ( g) Gal Imperial gallon oz/st, opt ounce per short ton g/l gram per litre ppb part per billion Gpm Imperial gallons per minute ppm part per million g/t gram per tonne psia pound per square inch absolute gr/ft 3 grain per cubic foot psig pound per square inch gauge gr/m 3 grain per cubic metre RL relative elevation ha hectare s second hp horsepower st short ton hr hour stpa short ton per year Hz hertz stpd short ton per day in. inch t metric tonne in 2 square inch tpa metric tonne per year J joule tpd metric tonne per day k kilo (thousand) US$ United States dollar kcal kilocalorie USg United States gallon kg kilogram USgpm US gallon per minute km kilometre V volt km 2 square kilometre W watt km/h kilometre per hour wmt wet metric tonne kpa kilopascal wt% weight percent kva kilovolt-amperes yd 3 cubic yard kw kilowatt yr year Technical Report NI October 30, 2012 Page 2-3

43 3 RELIANCE ON OTHER EXPERTS This report has been prepared by RPA for Focus. The information, conclusions, opinions, and estimates contained herein are based on: Information available to RPA at the time of preparation of this report, Assumptions, conditions, and qualifications as set forth in this report, and Data, reports, and other information supplied by Focus and other third party sources. For environmental aspects, and tailings and waste rock storage facility concept development, RPA has relied on Mr. Randy Knapp of Senes Consultants Limited. For graphite market and commodity prices, RPA has relied on Mr. Donald Hains, P.Geo, of Hains Technology Associates. For the purpose of this report, RPA has relied on ownership information provided by Focus. RPA has not researched property title or mineral rights for the Lac Knife Project and expresses no opinion as to the ownership status of the property. Except for the purposes legislated under provincial securities law, any use of this report by any third party is at that party s sole risk. Technical Report NI October 30, 2012 Page 3-1

44 4 PROPERTY DESCRIPTION AND LOCATION The information in this section is taken from Roche 2012 Technical Report with minor modifications. PROPERTY LOCATION The Lac Knife property is located south and west of Lac Knife, located on the North Shore, Québec, Canada. Fermont is the closest community and is located 27 km north-north east of the property. The Lac Knife Project is situated in the Esmanville Township on NTS map sheet 23B11. Road distance from Montreal to Lac Knife is approximately 1,300 km and by all-season highway 389, approximately 500 km from Baie-Comeau to Fermont. The property is centred at N and W. The property covers 2, ha. LAND TENURE The property consists of a total of 57 claims covering 2, ha. All claims are located in the province of Québec and are registered as CDC ( Claims désignés sur carte ). At the time of writing this report, the claims are registered under Focus Graphite Inc. as Québec Gestim claims client No Table 4-1 presents the status of the property claims as reported on Gestim ( on October 5, The expenditure credits to date total $168,319 applied against statutory work obligations of $136,900. Taxes of $7,011 are due on the expiry date of the claims. To the knowledge of RPA, Focus is the sole owner of the property with no option, royalty, or other outstanding liens, encumbrances, or agreements. Technical Report NI October 30, 2012 Page 4-1

45 Technical Report NI October 30, 2012 Page 4-2 TABLE 4-1 MINERAL TENURE OF THE LAC KNIFE PROPERTY Focus Graphite Inc. Lac Knife Project NTS Sheet Tenure Type Tenure Number Status Recording Date Expiration Area Date (ha) Owner (Percentage) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%)

46 Technical Report NI October 30, 2012 Page 4-3 NTS Sheet Tenure Type Tenure Number Status Recording Date Expiration Area Date (ha) Owner (Percentage) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) 23B11 CDC Active Focus Graphite inc. (100%) Source: Gestim, October 5,

47 Coats Island Charles Island Digges Islands Hu Baffin Island Big I. dso Frobisher Bay Canada Loks Land ns tra Mansel Island 60 it Edgell Island Resolution Island uk R. Povungnit Smith Island Akpatok Island Lac Couture R. Arna ud Ungava Bay R. A rna u d Ottawa Islands Payne Lake Labrador Sea Cape Chidley Island QUEBEC 58 Tassialouc 58 0 Inukjuak Koroc R. Hebron R. Melezes La Grande Riviere Naococane Lake ouane mouch R. Cha Deep River Sundridge South River taw a Gooderham Midland Bancroft 28 Fenelon Falls Madoc Havelock Legend: R. Saint-Charles-Borromee 40 Sainte-Julienne La Plaine Saint-Antoine Hull Gatineau Ottawa Osgoode Perth 7 16 Iroquois Prescott 1 Sainte-Catherine 20 Winchester s Saint-Michel-du-Squatec Cabano Notre-Dame-du-Lac Riviere-Bleue 17 Saint-Pacome Edmundston 20 1 NY 76 National Capital Plattsburgh Caribou Quebec 116 Lac-Etchemin 13 Bridgewater Oakfield Beauceville Warwick Drummondville Maine Sherbrooke Stratton VT 201 Bingham 1 Pittsfield Bangor Provincial Capital Cities International Boundary State/Province Boundary 0 0 Saint John 1 Letete Miles 130 KM 1 Bay of Fundy Lubec Seal Cove R Westville 104 Joggins 2 Wolfville Middleton Digby Iona 1 Truro St. Martins 101 Glace Bay St. Peter's Amherst Windsor Halifax Chester 9 Trenton Guysborough Sherbrooke Stewiacke Sheet Harbour Musquodoboit Harbour Louisbourg 4 Nova Scotia Arichat Canso Figure Primary Roads October Francois Burgeo Atlantic Ocean Fourchu 60 Focus Graphite Inc. Lac Knife Project Québec, Canada Location Map Highway La Poile Burnt Islands Quispamsis 1 Howland Montague Shediac Sussex 7 Cabot Strait Charlottetown 2 2 Codroy Pond Ingonish Cheticamp Grand Etang PEI 2 Mcadam Lincoln Old Town NH Alberton 2 2 Cap-aux-Meules Tignish Chipman Riverview Minto Gagetown Jackman 55 Orleans Stanley Woodstock 3 Lac-Megantic 112 Rock Forest Swanton Milton 95 Fredericton 173 St. George's Doyles Grande-Entree Richibucto Doaktown 1 Robinsons Ile Brion Iles de la Madeleine (Que.) New Brunswick Badger Millertown Newfoundland 460 Gulf of Saint Lawrence Grande-Riviere Newport 8 1 StephenvilleIsland of Lourdes do 8 2 Ashland 13 1 ngue 11 1 Norris Point Spruce Brook 132 Chatham Newcastle 50 Burlington Deer Lake Cox's Cove r Shippagan 11 1 Cartie New Carlisle Caraquet Bathurst Stockholm Trois-Rivieres Rouses Point 401 Morrisburg Matapedia Montreal Tweed 20 Trois-Rivieres-Ouest 105 Low Whitney Bracebridge Gracefield Cochrane 41 Parry Sound Vanier Saint-Augustin-de-Desmaures Mont-Laurier Maniwaki Ot Peribonca Bell R. 117 Chandler Caplan Cow Head Wolf Bay Ile d`anticosti d`ho Perce Nouvelle na North Bay Gaspe 132 Saint-Fabien 175 Charlesbourg Pointe-aDetr la-fregate oit Englee Great Harbour Deep Fleur De Lys Daniel's Harbour Seal Cove Trout River aques- Fontenelle Cap-Chat Amqui Rimouski Beaupre Baskatong Lake Mattawan Mont-Joli Clermont 138 Saint-Urbain La Tuque 175 Temiscaming it de J Saint-Jeande-Cherbourg 132 ecati Lake Kipawa La Baie Cabonga Reservoir Detro Madeleine-Centre Godbout tit M Parent Alma Jonquiere New Liskeard Lac Simard Cobalt 101 Ville-Marie Forestville Portneuf-Sur-Mer Roberval Val-d'Or 138 Matane 430 Port Saunders Kegaska Natashquan Port-Menier Les Islets-Caribou Sainte-felicite u Pe Saint-Felicien Senneterre 117 Malartic R. d Rouyn-Noranda 69 Betsiamites Baie-JohanBeetz Mingan Magpie Moisie Port-Cartier Baie-Comeau Gouin Reservoir. 167 Matheson Englehart Clarke City Baie-Trinite Bartletts Harbour Manitou Lake Riviere-Pentecote 113 an R Iroquois Falls shqu 109 Cochrane Nata Chibougamau St. Anthony Blanc-Sablon Vieux-Fort St Barbe Shekatika Conche La Tabatiere Lac des Eudistes R. Manicouagan Lac au Goeland Matagami 26 Manouane Lake Lac Mistassini Raleigh West St. Modeste Tete-a-la-Baleine e y R. Broadback R. Red Bay Lac Brule Lac Fournier guerit R. Mar awa Lake Evans Battle Harbour Minipi Lake Atikonak Lake Little Lake Manicouagan Reservoir Manicouagan Ontario 46 Labrador City Pletipi Lake Nott Happy Valley-Goose Bay Fermont Nemiscau Lake Rupert R. Broa dback R. Batteau Churchill R. Ossokmanuan Lake Opiscoteo Lake Québec Cartwright gle Lac Dalmas Rigolet North West River Eastmain River Moosonee 63 e Pa Lac Rambau Sakami Lake Charlton Island Verner R. d LAC KNIFE PROJECT South Twin Island 54 Newfoundland & Nipishish Lake Labrador Ea Akimiski Island Shapio Lake Smallwood Reservoir Kanaaupscow River North Twin Island White Gull Lake Resolution Lake Schefferville James Bay 17 cau Mistastin Lake er R. ine pis Lac Champdore Wheel la Bale ania Dog Island Nain Lac Privert R. R. C Sandy Lac Bienville R. Riv. de Bay u ca py pis am nia Sw Ca Grande Burton Lake Fraser R. ale Chakonipau Lake Lac Romanet R. Long Island Larder Lake ab ine Lac al`eau Claire 11 South Aulatsivik Island a`l Lower Seal Lakes Belcher Islands e R. Baleine R. a Cod Island R. la Riv a` R. auz es elez uz M Nedluk Lake Lake Minto Split Island Georg oak oks R. K ulic Tun illes Feu aux Riv. Hudson Bay Km 46

48 N N N N N N N N N E LAC KNIFE DEPOSIT E E E E Lac Knife E E E 389 April 2011 Legend: Property Limit Property Access Road Road 389 QCM Railway Hydro Quebec Power Line Source: Focus Graphite 2012 Figure 4-2 Focus Graphite Inc. Lac Knife Project Quebec, Canada Property Map Kilometres Coord. System: UTM NAD 83 Zone 19N N 4-5

49 5 ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY The information in this section is taken from the Roche 2012 Technical Report with minor modifications. ACCESSIBILITY Route 389 is the only all-season highway that connects the towns of Fermont and Baie- Comeau, Québec, with Labrador City and Wabush, Newfoundland and Labrador. Direct access to the Lac Knife property is provided by a 32 km dirt road starting south from Highway 389 approximately 3.2 km east of the ArcelorMittal Mont-Wright Mine entrance. The access road was constructed in 1989 by Mazarin Inc. (Mazarin) and is presently accessible by fourwheel drive vehicles and is maintained as a major snowmobile route by the snowmobile club in Fermont in the winter. Float planes can land on Lac Knife adjacent to the deposit. Commercial air service is available to the Wabush Airport 32 km northeast of Fermont. CLIMATE The climate in the region is typical of north-central Québec. Winters are harsh, lasting about six to seven months, with heavy snow from December through April. Summers are generally cool and wet, however, extended day-light enhances the summer work-day period. Early and late-winter conditions are acceptable for ground geophysical surveys and drilling operations. Mines in the area operate all year round. Technical Report NI October 30, 2012 Page 5-1

50 TABLE 5-1 CLIMATE DATA (FERMONT AREA) Focus Graphite Inc. Lac Knife Project Month Daily temperature ( C) Average Minimum Maximum Rainfall (mm) Precipitation Snowfall (cm) Total (mm) January February March April May June July August September October November December Year Source: Roche 2012 LOCAL RESOURCES Since the start of iron mining at Mont-Wright approximately 50 years ago, important infrastructure has been installed to service the exploitation of the four iron mines in the region: Mont-Wright (ArcelorMittal Minerals Canada), Carol Mine (Iron Ore Company of Canada IOCC), Wabush Mine, and Lac Bloom Mine (Cliffs Natural Resources). INFRASTRUCTURE Fermont, Québec is the closest municipality with about 3,200 inhabitants. Including Labrador City and Wabush towns in Newfoundland and Labrador, located 30 km away, the regional population is about 15,000. These municipalities combined have the infrastructure to provide accommodation, community services, a skilled mining labour force, as well as mining contractors and related services. Several truck transportation companies regularly service the region from Baie-Comeau. The Wabush airport is the nearest point for scheduled and Technical Report NI October 30, 2012 Page 5-2

51 charter flights from Sept-Iles, Québec, Montréal, and Newfoundland and Labrador destinations with four scheduled airlines operating daily flights. Two railway systems serve the region: 1. The Quebec Cartier Railway Company privately-owned and operated railroad that links ArcelorMittal s Mont-Wright facility to its Port-Cartier pellet plant and port (416 km) at approximately 15 km from the property 2. The Quebec North Shore and Labrador Railway Company (owned by IOCC), common-carrier railroad that links Labrador City to the Port of Sept-Iles (360 km) at approximately 30 km from the property. The Hydro-Québec main power line serving Fermont and the local mines passes less than five kilometres east of the property. PHYSIOGRAPHY Most of the Lac Knife area lies within a rolling glacial peneplain at about 670 m above sea level with local relief in the order of 75 m. More specifically, the deposit is situated on the north-trending ridge about 200 m west of Lac Knife. Glaciation left a veneer of silt-sand and sand-cobble-boulder moraine till covering the local bedrock. Much of the glacial cover is lacking gravel in the region. The average overburden depth estimated from the Mazarin drill holes and trenches is about four metres. The glacial deposits dominate the local topography and control most of the surface drainage. Lakes, swamps, and grassy meadows fill bedrock and drift depressions. Most of the area on the property and surrounding terrain is treed with moss and grass-cover. The intact forest includes the typical boreal mixture of fir and tamarack, with local stands of aspen and yellow birch. Ground cover is generally in the form of grasses, caribou moss, and shrubs, the latter typically comprising willow, arctic birch, alders, and Labrador tea. Technical Report NI October 30, 2012 Page 5-3

52 6 HISTORY The information in this section is taken from Roche 2012 Technical Report with minor modifications. GENERAL OVERVIEW The Lac Knife graphite showing was discovered by D. L. Murphy during a geological survey conducted by the Québec Ministry of Energy and Resources. The showing was described as a massive strip of graphite one metre thick. Between 1959 and 1960 only mapping work was done (Murphy, 1960). Interest in the discovery of a graphite deposit increased in the 1980s due to the price increase for graphite flakes. In 1985, with the aim of discovering other metallic or industrial prospects other than iron, Mazarin and Le Fonds d exploration minière du Nouveau Québec (Le Fonds) signed an exploration agreement wherein Mazarin retained 100% of the mineral rights and Le Fonds retained a 10% net profit royalty. Between 1986 and 1990, Mazarin conducted exploration work summarized in Table 6-1 which expanded the Murphy showing. Between 1989 and 1990, Mazarin completed prefeasibility and feasibility studies. In December 1989, Mazarin and Princetown Mining Corporation (Princetown) signed an agreement to put the deposit in production. At the end of February 1990, Princetown retired from the Project. In August 1990, Cambior signed a joint venture for an equal partnership with Mazarin for the Lac Knife Project. Cambior retained Magloire Bérubé to review the original Mazarin Mineral Resource estimate. In 1991, Mazarin hoped to bring the deposit in production, but the economy went into recession and graphite prices declined. In 2001, interest for the Lac Knife property increased as the graphite market was emerging for hydrogen fuel cell and other uses. Graftech Inc. (Graftech) conducted a study that demonstrated that the quality of the graphite of Lac Knife was better than most deposits being mined at that time. In 2002, Graftech and Mazarin planned a joint venture with the goal of starting production in 2004, however, the graphite market again declined and the Project did not proceed. During those years IAMGOLD Corporation (IAMGOLD) purchased Cambior which included the Lac Knife asset. Technical Report NI October 30, 2012 Page 6-1

53 IAMGOLD sold its 100% interest in the Lac Knife property to Focus on August 18, TABLE 6-1 SUMMARY OF EXPLORATION WORK ON THE LAC KNIFE PROPERTY Focus Graphite Inc. Lac Knife Project Year Company Type of work Summary Result 1959 Regional Geological Mapping 1982 Le Fonds Geophysical survey (Mag, EM- VLF) Geological Mapping 1986 Le Fonds/Mazarin Prospecting 1987 Le Fonds/Mazarin Prospecting Geological Mapping Geophysical survey (Mag, EM- VLF) Trench 1988 Le Fonds/Mazarin Prospecting 1989 Mazarin 1990 Mazarin/Cambior Source: Modified from Roche 2012 Diamond drill campaign. 99 holes for a total of 7,367 m. Bulk samples of 25 tonnes Historical Mineral Reserve estimation Pre-Feasibility Study (Roche) Feasibility Study (Roche and Davy) Historical Mineral Reserve estimation (Magloire Bérubé) Notes: 1. Le Fonds - Le Fonds d exploration minière du Nouveau Québec 2. Cgr graphitic carbon D.L. Murphy discovered the Lac Knife showing Lac Knife showing was found again. The area was subjected to detailed prospecting Trench on five metres with a grade of 12.8% The Lac knife showing extends to 120 m with an average width of eight metres. The best trench has a 16.5% Cgr on 25 m. 8.5 million tonnes at 16.7% Cgr. 8.1 million tonnes at 16.7% 5.5 million tonnes at 17.1% Cautionary statement The historical Mineral Reserve estimates mentioned in Table 6-1 should be treated with caution as they have not been verified by a qualified person and Focus is not treating them as current Mineral Reserves. Technical Report NI October 30, 2012 Page 6-2

54 HISTORICAL MINERAL RESOURCES Three historical Mineral Resource estimates were produced between 1989 and 1990 (summarized in Table 6-2). The interpretation undertaken by Mazarin in 1989 was used in the three Mineral Resource estimates. In May 1989, Mazarin, under the supervision of Roche, estimated a Mineral Resource of 8.5 million tonnes at 16.2% Cgr with a proven historical Mineral Resource of 1.2 million tonnes at 16.9% Cgr. In November 1989, Roche/Davy re-estimated the Mineral Resources with an updated density, which decreased from 3.0 g/cc to 2.89 g/cc. This new Mineral Resource was estimated with the same parameters as the previous one with the exception of the reduced density. The result was 8.1 million tonnes at 16.7% Cgr of total Mineral Resources and 1.2 million tonnes at 16.9% Cgr of probable resource. In November 1990, Mazarin and Cambior restricted the interpretation of the mineralized bodies and completed a new estimate using the same parameters but using a smaller area of influence. The new area limited the depth of the deposit to 75 vertical metres from 125 vertical metres. The resulting Mineral Resource was estimated at 5.5 million tonnes at an average grade of 17.1 % Cgr. Cautionary Statement The historical estimates presented in Table 6-2 below use categories other than the ones set out in NI and have not been prepared to the standards required by the instrument or modern estimation practices. Furthermore, they have not been verified by a qualified person and should therefore be treated with caution. Focus is not treating these historical estimates as current Mineral Resources. Technical Report NI October 30, 2012 Page 6-3

55 Technical Report NI October 30, 2012 Page 6-4 TABLE 6-2 Historical Year Classification Tonnes VARIOUS HISTORICAL MINERAL RESOURCES Focus Graphite Inc. Lac Knife Project Grade (%Cgr) Proven 3,682, Probable 1,238, Proven and Probable 4,921, Possible 3,563, Total 8,485, Proven 3,510, Probable 1,181, Proven and Probable 4,691, Possible 3,397, Total 8,089, Proven 3,661, Probable 258, Proven and Probable 3,919, Possible 1,555, Total 5,474, Source: Modified from Roche 2012 Notes: Cgr graphitic carbon Method Section (Interpretation by Mazarin). A cut off grade of 10% was used for the interpretation of the mineralized zone Density (t/m 3 ) Criteria Evaluated Depth (m) Same as above Same as above General Source Date No Capping value. No Capping value. No Capping value. Mazarin May 1989 Roche/ Davy Magloire Bérubé November 1989 November

56 7 GEOLOGICAL SETTING AND MINERALIZATION The information in this section was taken from the Roche 2012 Technical Report with minor modifications. REGIONAL GEOLOGY The graphite-rich Menihek Formation (Fm) paraschist and the Sokoman Fm iron formation of the Gagnon Group in the Grenville Province were derived from the Paleoproterozoic Labrador Trough basin sediments. In the Labrador Trough, the original sedimentary textures show that the iron formation units were deposited principally as chemical sediments with high iron and silica (chert) and characteristically low aluminum in a series of linked basins. Deposition probably was enhanced by biological activity. There is also evidence for clastic deposition and the formation of ferruginous oolites. Global iron deposition is related to several periods of biogenic oxygen increases in the atmosphere between 3.5 Ga and1.7 Ga, and the Labrador Trough and Minnesota-Michigan iron sediments formed between 1.88 Ga and1.7 Ga event. Clark and Wares (2005) describe the current synthesis of the Labrador Trough lithostratigraphy. The Trough extends some 1,800 km from northern Québec south and southwest with the original Trough being the low-metamorphic component north of the Grenville Front and the metamorphosed equivalents southwest of the Front. The formational nomenclature of the Labrador Trough geology is derived from the less-metamorphosed Labrador Trough formations. These units continue across the Grenville Front and their general relationships continue in that high metamorphic grade environment. The Grenville orogeny (1.16 Ga to 1.13 Ga (Emslie and Hunt, 1989), compressed the southwestern part of the Labrador Trough into the Gagnon Terrane in the Grenville Province (see Figure 7-1). The deformation superimposed medium to high metamorphic facies on the older deformed and metamorphosed Labrador Trough geology. Technical Report NI October 30, 2012 Page 7-1

57 FIGURE 7-1 GRENVILLE CHURCHILL IRON FORMATION DISTRIBUTION Source: Roche 2012 Grenvillian rocks are subdivided into a set of allochthonous terranes arranged in the form of a southeasterly dipping thrust stack emplaced over the southern margin of the Archean age Superior Province. Rock units within the thrust stack range in age from Archean to late Mesoproterozoic, with older units occupying the lower levels of the thrust stack and the younger units the higher levels to the southeast. The first-order subdivision of the Grenville involves recognition of: an external parautochthonous belt composed of Archean, Paleoproterozoic, and Mesoproterozoic rocks representing the southern margin of Laurentia during the Mesoproterozoic; an Allochthonous polycyclic belt composed of transported Paleoproterozoic and Mesoproterozoic rocks separated from the Parautochthonous belt by the Allochthon Boundary Thrust (ABT); and an Allochthonous monocyclic belt formed of rocks largely of Mesoproterozoic age The Gagnon Terrane has two lithostratigraphic assemblages with distinct ages (Hocq, 1994): older migmatitic paragneiss and younger mixed-lithology metasedimentary rocks. The Archean Ashuanipi migmatitic paragneiss forms the boundary against the Grenville Fault in the Gagnon Terrane to the base of the Ferriman Group. The younger Ferriman Group Technical Report NI October 30, 2012 Page 7-2

58 extends from the Grenville Front to southwest of Reservoir Manicouagan. The Lac Knife property lies in the south-central part of the Gagnon Terrane (see Figure 7-1). The Ferriman Group includes (from oldest to youngest) the Denault reefal dolomite/ Duley marble overlain by the Wishart/Wapussakatoo arenaceous and cherty quartzite and quartzrich gneisses near the top. The Sokoman iron formation with its chemically derived oxide-, silicate-, and carbonate-rich facies are the most studied component. The Menihek Fm mudstone/mica schist is derived from later uplift and increasing detrital sedimentation in basins. The basal units include the last remnants of the Sokoman chemical sedimentation and start of the graphite-rich basins; it becomes more uniform above the Sokoman-Menihek contact. The Menihek Fm hosts the graphite deposits in the Gagnon Terrane above the contact with the underlying Sokoman Fm. Interestingly, there is little record of high-carbon sediments in the equivalent unit north of the Grenville Front (Clark, pers. comm., 2007). The Gagnon Group stratigraphy is correlated with the Labrador Trough formations in Table 7-1. Note that the old Gagnon Group includes elements of both Cycle 1 (Attikamagen Group) and Cycle 2 (Ferriman Group). This was the former Knob Lake Group referred to in older literature. Since these are the same formations, the writer uses them consistently for Labrador Trough formations. Technical Report NI October 30, 2012 Page 7-3

59 TABLE 7-1 CORRELATION BETWEEN LABRADOR TROUGH AND EQUIVALENT GRENVILLE STRATIGRAPHY Focus Graphite Inc. Lac Knife Project Labrador Trough Grenville Province Paleoproterozoic <2.06 Ga to 1.89 Ga Neoproterozoic (1.19 Ga to 1.12 Ga KANIAPISKAU SUPERGROUP Choak & Tamarack River Formations No known equivalent Grenville Formations CYCLE 3 STARTS unconformity FERRIMAN GROUP GAGNON GROUP Basalt dykes/sills Menihek Fm flysch turbidite Sokoman Fm iron formation Ruth Fm ferruginous mudstone, chert Wishart Fm arenitic quartzite Ga Ga Hornblende-biotite-garnet gneiss (intrudes & caps Menihek Fm) Nault Fm quartz-biotite + garnet paragneiss + Graphite = Upper Paragneiss of Clarke (1977) Wabush Fm iron formation, various oxide-carbonatesilicate facies (date from felsic dykesin Lab Trough) Basal Silicate Iron Fm in Gagnon iron deposits Wapussakatoo Fm quartzite and dirty quartzite w/ variable mica and calcite CYCLE 2 STARTS unconformity CYCLE 1 ENDS ATTIKAMAGEN GROUP Denault Fm dolomite, < 2.06 Ga Duley Fm marble with quartz, calcsilicate marble unconformity Archean Ashuanipi Gneiss Ga Katsao Fm migmatic paragneiss Source: Roche 2012 Notes: 1. Ga giga annum 2. Fm Formation Of the three Grenville deformation events, two major ones, the D 1 and D 2 deformations dominate the folding pattern of the formations that resulted from interference folding into several large polyphase anticlinoria throughout the Gagnon Terrane. The D 1 formed the F 1 schistosity during the early part of the Grenville orogeny. The D 2 deformed the schistosity due to the high ductility at the peak or slightly post-peak of the orogeny, but did not form a Technical Report NI October 30, 2012 Page 7-4

60 second schistosity. Van Gool et al. (2008) in their work nearby in western Labrador, showed high strain relations that might appear to start a second foliation, but no penetrative foliation developed. Whether this was due to stress during D 2 or a later collision event is uncertain. The older D 1 deformation was compressed from the south-southeast, probably marking the onset of the Grenville orogeny. This resulted in a sinuous belt parallel with the ABT. It broadly controls the Sokoman-Menihek Fm distribution. The fold pattern shows a bimodal style. The dominant pattern has narrow, linear fold belts along the margins of broad anticlinoria (a series of anticlines and synclines that have the general uplifted outline of an arch). The belts are tightly folded with steep dips. The width tends to be narrow in proportion to the strike length. They extend several hundred kilometres in a generally west-southeast trend from the Grenville Front north of Wabush, Newfoundland and Labrador to the southwest side of Lac Manicouagan. The less common style occurs in the core of the anticlinorium arch. There, it occurs as relict broad areas of shallow dipping iron formation often with sharply folded contacts. Examples of the first type are Mont Reed, Mont Wright, Lac Bloom, and the Carol deposits. The second type is exemplified by the Lac Jeannine, Fire Lake, and Lac Olga deposits, as well as Peppler and Lamêlée deposits. Clarke (1977) notes that the Sokoman Fm often shows more intense fold features than do the basement paragneiss. The same is true in the several graphite deposits as well. The reasons may be that the Sokoman Fm and the graphite bands are more distinct ductile marker units, while the Katsao paragneiss and Denault marble lacks tracer beds that could document folds to the semi-regional scale. The younger D 2 event compressed the D 1 folds from the east-northeast. They form steep, tight folds with vertical to steeply northeast dips. The complex interference fold pattern is expressed on regional and deposit scales. On the flanks of the anticlinoria, D 2 folds are probably as deep as the D 1 set. In the anticlinoria core, however, they appear to be shallower. This is expressed by the steeply folded flanks of Lamêlée, Fire Lake, Peppler Lake, and Lac Bloom that do not significantly fold the centres of these open, bowl-shaped deposits. This feature may be explained by the uplifted centres of the anticlinoria. The interference effects of D 1 and D 2 are variable across the Gagnon Terrane. To the centre and west, four separate anticlinoria dominated by D 2 folding occur from the southwest edge of the Gagnon Group to the Carol deposit in Labrador. To the east, the increased D 2 compression leads to more thrust faults and steep folds (van Gool et al., 2008). The Lac Technical Report NI October 30, 2012 Page 7-5

61 Knife property is located in the western part of the easternmost anticlinorium that hosts the Mont-Wright and Kami iron deposits. The thrust movement also appears to have local dextral transpressional movement as well with concomitant shearing and displacement. Metamorphism has a significant effect on the iron formation mineralogy. The Grenville Province rocks characteristically have been subjected to amphibolite facies metamorphism in the area of Lac Knife and Mont-Wright. The principal economic commodity in the region is the iron oxide deposits of the Gagnon Group; metasedimentary graphite also occurs specifically near the base of the Menihek Fm above the Sokoman iron formation. PROPERTY GEOLOGY The Project is underlain principally by the mica-quartz-feldspar schist and paragneiss of the Menihek Fm. Mineralogy locally includes garnet and kyanite (or possibly sillimanite) plus minor bands of calcsilicate. The host rock of the graphite zones appears the same with the only significant variation being the amount of graphite (Bonneau and Raby, 1990) and variations in calcsilicate bands (Birkett et al., 1989). The Project is underlain principally by Menihek schist and protogneiss with graphite bands scattered throughout. The schist forms where the micas constitute a relatively high portion of the rock relative to associated quartz, feldspar and other prismatic minerals. The incipient protogneiss texture forms with the increase in the prismatic minerals, but it does not form the full banded gneiss texture (Birkett et al., 1989). There are few outcrops based on regional mapping by Murphy (1960) and property mapping by Mazarin (1989). Birkett noted that the gneiss had two types: silicate and calcsilicate. The silicate version has more Si and Al and less Ca as expressed by the proportions of quartz, K-feldspar Ca-feldspar, mica, garnet, and kyanite. The calcsilicate bands are marked by the presence of lower Si (less quartz and K- feldspar) and higher Ca expressed in minerals such as scapolite, tremolite, diopside, clinozoisite, calcite, and anorthosite plagioclase feldspar. Murphy interpreted the Menihek Fm as infilling a complexly folded, Y-shaped syncline with one arm trending north-northwest, the second striking west-northwest and the third striking south to south-southeast. The limit of the syncline is marked by the contact with the underlying Sokoman Fm with variable iron-mineral facies. Technical Report NI October 30, 2012 Page 7-6

62 The Sokoman Fm that bounds the north and west part of the Menihek appears to be quartz- Fe-carbonate facies since it has no magnetic signature on airborne surveys. The Sokoman unit east of the Project contains some magnetite in Fe-carbonate and Fe-silicate-rich units. The third, complexly folded Sokoman Fm layer southwest of Rivière aux Pékans, is a mixture of non-oxide and oxide facies of the more typical iron formation with the Denault Fm marble lying beneath it to the west. The drill grid area is to the west of Lac Knife, where the Mineral Resources are, and lies on the north-trending eastern fold limb with a strike of 355 and dipping approximately 30 east. Prospecting around the property by Mazarin discovered other graphite showings, suggesting potential for future discoveries. Previous interpretations of the detailed drilling by Mazarin showed a number of closed folds that formed part of its initial Mineral Resource estimation in The present interpretation recognizes that the graphite zones may be sheared en echelon along the northern trend and may, in fact, be more isolated bands. The present study maintained a tighter constraint with less interpretation as to potential fold closures. Further drill testing will aid in resolving the relations among the graphite bands. The geology of the Lac Knife Project is shown in Figure 7-2. Details on the mineralization are described in the next section. Technical Report NI October 30, 2012 Page 7-7

63 Technical Report NI October 30, 2012 Page 7-8 Source: Roche 2012 FIGURE 7-2 GEOLOGY OF LAC KNIFE PROPERTY

64 MINERALIZATION The graphite occurs as part of the metasediments integral to the Menihek Fm. It forms as part of local anoxic basins in the pelitic sediments. There is no indication of secondary hydrothermal or other transported, post-metamorphic deposition or upgrading. The present distribution and crystallinity of the graphite units are due to the Grenville metamorphic events. Birkett et al. examined 28 core samples for petrographic, electron-microscope and chemical studies (Birkett et al., 1989). They noted that the host rock of the tested graphite area was slightly more the calcsilicate than silicate variety. The Mazarin geologists logged the diopside and minor calcite, but did not record the other pale-coloured, low-fe calcsilicates, which can be difficult to identify visually without experience or microscope determination. Thus the distinction of host-rock lithologies observed in the Birkett study was not reliably reflected in the core logs. He also noted that within a given host rock, the presence/quantity of graphite was the only variable; no other mineral proportions changed with respect to graphite presence/content. He also noted that the total iron in the whole rock analyses was similar to the silicate rocks; the calcsilicate mineralogy suggests that, likely during metamorphism, the iron migrated to the original sulphides, changing pyrrhotite to pyrite, and deriving low-fe calcsilicate minerals. Another point was that vanadium (V) was enriched in the phlogopite mica near the graphite, which is consistent with a sedimentary origin for the carbon, since V is commonly scavenged by carbon in other sedimentary carbon-rich deposits. The margins of the graphite lenses and bands are sharp to rapid grade changes with background graphite on the order on <1% Cgr increasing to ~5% Cgr near the lens contacts. Grades within the lenses range from 5% Cgr to 60% Cgr with thin waste bands included. The lenses form elongated lozenges with lateral continuity from 90 m to over 300 m length based on the limited geometry tested to date. The depth of the lenses ranges from 40 m to over 120 m on the dip plane, while thickness of individual lenses ranges from less than 1.5 m to 35 m. Graphite occurs as flakes ranging from very fine grains up to 2 mm. Commonly the coarser flakes appear to form with graphitic carbon grades below approximately 25% and finer flakes Technical Report NI October 30, 2012 Page 7-9

65 above that. The industrial specification for coarse flakes is 0.2 mm (200 microns), demonstrating that even graphite flakes which are fine-grained to the eye can nevertheless provide high quality industrial material. Birkett et al. (1989) observed that the graphite occurs in four modes: 1. Independent grains with coarse to medium flakes larger than 0.7 mm. These are disseminated flakes to 2 mm and rosette clusters to 9 mm. 2. Independent grains in fine grains (less than 0.7 mm), which includes the higher grade graphite with ribbons of coarsely crystalline graphite (see sample 15124). 3. Graphite inclusions in gangue minerals as scattered fine grains, maybe relics of the original, unmetamorphosed graphite protected from metamorphic recrystallization. 4. Graphite inclusion interlayered with mica, mainly muscovite. The types (1) and (4) generally have carbon grades less than 25%, while type 3 is less than 4% Cgr. Type 2 is frequently the higher grade form with Cgr >25%. Birkett describes this in sample on the scale of a thin-section and conforms to the writer s observations of the core. He noted that the various types can occur anywhere and may be zoned only on a small scale. The controls on the formation and placement of the various types, except for Type 3 as relict original graphite, are unknown. This is consistent with observations at the core and outcrop level up to the scale of graphite grade distribution within the graphite lenses. The form of the lenses is determined by original sedimentary form modified strongly by regional structures. The general shape of the known Lac Knife deposits appears to be formed en echelon likely resulting from transpressional shearing during the D2 compression. Hence the lens length typically is longer than the width and dip distances. Technical Report NI October 30, 2012 Page 7-10

66 8 DEPOSIT TYPES The information in this section was taken from the Roche 2012 Technical Report with minor modifications. The graphite deposits hosted in the Menihek Fm in the Gagnon Terrane appear to have formed in local anoxic basins as carbonaceous sediments. Low oxygen levels preserved both the organic carbon and sulphide in pyrrhotite which were deposited together as is seen in modern anoxic basins globally. The source of the carbon was likely the abundance of single-celled pre-algae life. In the low-metamorphic grade Labrador Trough sediments near Schefferville, Québec and south along Menihek Lake (Newfoundland and Labrador) itself, little carbonaceous facies have been noted. This may simply be an artefact of where the principal geological surveying has been undertaken. Recent drilling in the Schefferville area has encountered very finegrained carbonaceous argillite near the base of the Menihek Fm. in thin bands to 1.5 m thick (Lyons, pers. observation, 2011). No record of carbon-rich sediments is made in Clark & Wares 2005, and no particular comments have made by the many authors whose works underpins that study (Clark, pers. comm., 2008). The Menihek Fm was formed as pelitic mud sediments filling emerging basins, probably with a number of localized anoxic basins. The general form of the metamorphic graphite deposits suggests the local scale of these basins. The known graphite deposits in the Gagnon Terrane have been typically small outcrops with little exploration work to develop dimensional data. Known deposits, namely Lac Knife (Québec), Lac Guerét (Québec), and the Kami iron deposit (Newfoundland and Labrador) show that the graphite often occurs as widespread, thin bands (<0.5 m) commonly near the base of the Menihek Fm above the upper non-oxide facies of the Sokoman iron formation. While the thinner graphite lenses appear to be discontinuous, they can coalesce rapidly to form more continuous and thicker graphite lenses over lateral distances exceeding two kilometres with upward of 70 m thickness. Technical Report NI October 30, 2012 Page 8-1

67 The grades of these deposits can reach up to 65% Cgr with trace to nil associated carbonate minerals. The reason for the higher grade zones is unknown. Protolith Labrador Trough formations do not show high carbon contents. The host sediments are typically quartz-micafeldspar with associated variable garnet, amphibole, and kyanite, so there are no minerals to leach and concentrate the graphite. One speculation was that the graphite may have been derived from pre-metamorphic carbon concentrated by processes similar to modern petroleum. Several small-scale examples of bitumen with sulphides have been documented in the sandstone infilling the large Lac Mistanissi basin near Chibougamau, Québec in which a similar petroleum model was proposed. Technical Report NI October 30, 2012 Page 8-2

68 9 EXPLORATION The information in this section was taken from the Roche 2012 Technical Report with minor modifications. A description of the historical exploration work conducted on the property is provided in Section History. Since 1990, the only exploration conducted by Focus consisted of the limited 2010/11 drilling campaign described in Section 10 (Drilling). Technical Report NI October 30, 2012 Page 9-1

69 10 DRILLING The information in this section (except Section 10.3) was taken from the Roche 2012 Technical Report with modifications. HISTORICAL DRILLING In 1989 a former owner, Mazarin, carried out a 99 drill hole program, totalling 7,367 m. Today, only drill logs and assay certificates remain. The original drill core was discarded on site in one of the bulk sample locations. The dump site has been rehabilitated and no evidence of core is visible today. Figure 10-1 presents a plan view of the drill layout (1989 and 2010/11) while Figure 10-2 presents a typical vertical cross-section. FOCUS 2010/11 DRILL PROGRAM The drilling program was planned by Roche with the support of Focus and conducted under contract by IOS Services Géoscientifiques Inc. (IOS) of Chicoutimi, Québec between December 7, 2010 and February 4, The field program was halted in mid-december until early January due to unseasonably warm weather, which made access impossible and cut the source of local supplies, as well as the year-end holidays. The drilling program was planned to total 1,000 m in depth. Roche selected the historical drill holes showing the maximum penetration into the graphite mineralization. These historical drill holes were selected to collect as much graphite possible to verify the correlation between the historical holes and the new holes. Sixteen targets, including substitutes, were selected from which 12 drill holes were completed for a total length of 1, m. The other sites were rejected due to access issues. The drill data is summarized in Table Technical Report NI October 30, 2012 Page 10-1

70 Y 050 X 100 X X X X X X X X 1 N 1550 Y 1500 Y 1450 Y 1400 Y 1350 Y 1300 Y 1250 Y 1200 Y 1150 Y 1100 Y 1050 Y 1000 Y Legend: 1989 Drill Hole Metres 2010 Drill Hole Local grid coordinates October 2012 Source: RPA 2012 Figure 10-1 Focus Graphite Inc. Lac Knife Project Quebec, Canada Plan View of the Drill Hole Layout 10-2

71 E 1200 E 1250 E 1250 E 1300 E 1300 E 1350 E 1350 E 1400 E 1400 E 700 Z Overburden 650 Z 600 Z Legend: 1989 Drill Hole 2010 Drill Hole Metres Local grid coordinates October 2012 Source: RPA 2012 Figure 10-2 Focus Graphite Inc. Lac Knife Project Quebec, Canada Typical Cross-Section Showing Drill Hole Layout (Section 1250)

72 TABLE 10-1 FOCUS 2010/11 DRILL HOLE SUMMARY Focus Graphite Inc. Lac Knife Project Drill Hole Easting Northing Elevation Azimuth Dip Length (m) Twinned with LK LK LK LK & LK-89-67* LK LK LK LK LK LK LK LK LK LK LK LK LK LK LK LK LK LK LK LK Total 1, Source: Roche 2012 Notes: 1. Coordinate system: UTM NAD 27 zone Collar coordinates surveyed by DGPS by Raynald Babin & Associe (RBA) of Baie-Comeau, Québec, values rounded to nearest metre for table. 3. LK is about equidistant between LK (18m), K (20m), and K (22m). The others are <9 m from the twinned hole. The Mazarin drill grid coordinates were reconstructed to UTM coordinates by IOS using several known old drill sites marked by casing as well as likely clearings, as well as DGPS surveying by Raynald Babin & Associe of Baie-Comeau, Québec, who has experience in mining surveying in the region. The new holes were generally within two to nine metres of the Mazarin coordinates. One hole, LK was farther from its twin than expected for unknown reasons. The analytical results were incorporated into Mazarin s 1989 database for the purposes of the Mineral Resource estimation in this Technical Report. Services de forage D.V. Inc. of St-Honoré, Québec used one skid-mounted hydraulic drill rig to drill BTW core (40.7 mm diameter). The rig was operated on two 12-hour shifts, seven Technical Report NI October 30, 2012 Page 10-4

73 days a week. Drill holes were intended to duplicate Mazarin holes, using same collar location as much as possible with the same azimuth, inclination, and depth. The program was supervised by Mr. Steeve Lavoie, geologist in training for IOS. The 12 drill holes were labelled LK to LK , sequential with Mazarin s 1989 holes. Hole deviation was measured with the use of a Flex-It surveying instrument measuring magnetic orientation and inclination with readings approximately 25 m in average. Information on the ground temperature and magnetic intensity of the rock was collected as well. Core was shipped by truck to the IOS facility in Chicoutimi, Québec where it was received, logged, and stored for logging and sampling. The core was logged by Mr. Jean-Paul Barrette, P.Geo, assisted by Mr. Lavoie. Logging was done with reference to the Mazarin drill log of the drill hole being twinned for comparison. Lithological names are based on those used in the 1989 as much as possible and coded according to a legend adapted from the Québec Department of Natural Resources. Core angles of significant structures were measured with a core protractor. Pictures of the core, both general and detailed view were taken with digital camera. Percentages of graphite and sulphides were systematically estimated. Descriptions and logs were captured in Excel spreadsheet and imported in Access database compatible with Gemcom GEMS (GEMS) software. Sections were drafted using GEM s Explorpac software, and then imported in Bentley Microstation for editing. The 12 twinned holes were compared with corresponding Mazarin 1989 holes. Two typical comparison examples are shown in Figures 10-3 and The statistical comparison between the corresponding intersections is shown in Figure Technical Report NI October 30, 2012 Page 10-5

74 FIGURE 10-3 TWIN HOLE COMPARISON BETWEEN LK VS. LK Source: Roche 2012 Technical Report NI October 30, 2012 Page 10-6

75 FIGURE 10-4 TWIN HOLE COMPARISON BETWEEN LK VS. LK Source: Roche 2012 Technical Report NI October 30, 2012 Page 10-7

76 The comparison is influenced by several factors: Reproducibility between laboratories, discussed in Section 11.0 Intra-laboratory errors and reproducibility issues within one laboratory discussed in Section 12.0 Variability in grades over short distances, as seen in the geostatistics in Section 14.0 FIGURE 10-5 FOCUS 2011 VS. MAZARIN 1989 GRAPHITE ANALYSIS Focus (2011) vs. Mazarin (1989) Graphite Analyses R 2 = Mazarin %Cgr Focus %Cgr Source: Roche 2012 Notes: Cgr graphitic carbon Most of the twinned holes show significant ranges in values between the corresponding original drill hole. In the detail within a mineralized range or composite interval, the high values will generally match high values, but the individual absolute grades can vary as much as 75%. Figure 10-5 illustrates that the composite grades as used in the Mineral Resource estimation shows a systematic bias of 15% (at r²= ) higher grades in the 1989 Mazarin data compared with the 2010/11 Focus data. This likely reflects differences between laboratory methods discussed in Section 11. Technical Report NI October 30, 2012 Page 10-8

77 The higher individual grades differences also have the geological variations beyond the +15% bias. Analysis of the block models by variograms and other tests show that the grades do not show anisotropy, even though the deposit lenses form distinct tabular bodies. The geological variation is often broader than the lab methods bias. Another factor could be intra-laboratory variations. There is not sufficient data to constrain that factor at this time. The twin-hole program was reasonably successful, although it would have been improved if the Mazarin hole locations had been better documented to allow the twin holes to have been located with greater accuracy. RPA OPINION ON FOCUS 2010/11 DRILLING CAMPAIGN The 2010/11 drilling campaign carried out by Focus aimed at confirming historical 1989 drilling results for which no core is available nowadays. A total of 12 holes were programmed to twin existing 1989 holes. The results obtained from the Focus campaign show that the 1989 sample results overestimate those of 2010/11 globally by a factor approaching 15%. More precisely, the difference is directly proportional to the grade with differences significantly higher than 15% when carbon grade is higher than 15% Cgr. One assumption made by Focus is that the analytical method used in 2010/11, which is reportedly different from the one used in 1989, has caused an underestimation of the Cgr grade. It is RPA s opinion that the information available today does not allow conclusion that the 2010/11 results did in fact underestimate graphitic carbon, however, doubt does remain as to the appropriateness of the methods used in 2010/11. RPA considers that the 2010/11 campaign did not reach its objective in terms of analytical results but nevertheless the 2010/11 holes have been able to confirm the presence of graphitic carbon and also the lithological interpretation of the mineralized zones. With today s knowledge of the situation, RPA cannot conclude which of the 1989 or 2010/11 is correct. This leaves a certain degree of uncertainty on the accuracy of the sample results available for Mineral Resource estimation. Technical Report NI October 30, 2012 Page 10-9

78 For that reason, RPA has elected not to classify Mineral Resources in the measured category. Section 14 provides more details on this aspect. It is RPA understanding that Focus will carry out a detailed study of analytical methods best suited to assay graphitic carbon using certified reference materials (CRM) and laboratory round-robins with the objective of selecting an appropriate method and laboratory in order to remove this uncertainty and bring back the high level of confidence in the Mineral Resource estimates. Such a program is scheduled to take place during the 2012 exploration drilling campaign. At this stage, RPA is of the opinion that the decision taken by Roche to combine the drill holes from 1989 and 2010/11 in the current Mineral Resource estimation without adjusting any analytical results of either campaign, to address the observed systematic difference, is reasonable. Technical Report NI October 30, 2012 Page 10-10

79 11 SAMPLE PREPARATION, ANALYSES AND SECURITY The information in this section was taken from the Roche 2012 Technical Report with modifications. Note: The information in this section refers to the 2010/11 drilling campaign. Sample preparation, analyses and security related to the 1989 drilling campaign is not available. RPA notes that no core from the 1989 campaign subsists as it was discarded by its previous owners. SAMPLE COLLECTION The drill crew put the core in wooden half-height boxes by the drillers with a length bloc in feet placed at the end of each run, typically 10 ft (3.0 m). Core boxes were collected by the IOS crew and returned to the Fermont facility where the metre blocks were verified and the recovery and Rock Quality Designation (RQD) were measured and recorded. The core was shipped by truck to the IOS facility at Chicoutimi where it was received and logged digitally. The core boxes were organized on pallets until the logging process was started. Prior to core logging, additional geotechnical data was collected, including fracture counts and types, and rock hardness (qualitative scale). Data was entered using the Geotic software which integrates with MapInfo and GEMS. Core boxes are labelled with aluminum tags showing the drill hole number, box number, and from-to metres. Logging was augmented with the Mazarin drill log of the drill hole being twinned for comparison. Lithological names are based on those used in the 1989 as much as possible and coded according to a legend adapted from the Québec Department of Natural Resources. The core was logged for lithology, structure, alteration, and mineralization. Pictures of the core, both with full-box and detailed views were taken with a digital camera. Data was entered into Geotic for integration with Access database software. Technical Report NI October 30, 2012 Page 11-1

80 Sampling was performed primarily at a 1.5 m length to match the Mazarin intervals, however, when the interval of interest was narrower or longer, or had significant lithological changes, the sample length may range with a minimum of 0.5 m and a maximum of 2.4 m. Samples of adjacent unmineralized rock at the margins of the mineralization as well as low grade intervals within the mineralized interval were taken separately if the length was > 1-m. Three-part uniquely and sequentially numbered sample tags were used with one part stapled in the core box at the start of the sample interval, one in the sample bag, and the last retained in the sample book. Data was entered into Geotic for integration with the Access database. The marked samples were cut with a diamond blade rock saw lengthwise and perpendicular to the structural trend of the core. Half of the core went into marked sample bags and the other half placed in the core box for reference. A total of 634 samples were collected and sent for analysis with additional Quality Assurance/Quality Control (QA/QC) materials inserted into the sample stream under the IOS protocol. Samples were shipped by truck to Inspectorate Exploration and Mining Services Ltd. (Inspectorate), based in Richmond, British Columbia, in consignments of one drill hole per shipment. Shipping information was recorded and entered into the database. Once the sampling was completed, both the sampled and unsampled core was stored sequentially on core racks inside the secure IOS warehouse to reduce oxidation of the sulphides. According to Roche, the core handling and sampling procedures were conducted very well with thorough monitoring controls. SAMPLE PREPARATION Inspectorate received the samples, verified them against the client s shipping documents, and logged them into its tracking system. Technical Report NI October 30, 2012 Page 11-2

81 Preparation was carried out under code SP-PU-PULP. Every sample was dried if necessary prior to staged crushing to P70% at -10 mesh. The sample was blended then riffle-split for a 250 g portion. The portion was pulverized to P85 of -200 mesh and placed in marked bags. The coarse reject greater than 6 mesh material and the fine rejects were stored in labelled plastic bags. The bags were flushed with nitrogen to inhibit oxidation of sulphides. They were stored in a refrigerated place until the assaying process was completed and results accepted in regard of QA/QC. Pulps and rejects were shipped by truck to IOS at Chicoutimi in sealed steel drums. Samples were analyzed for graphitic carbon and sulphur content using LECO Induction and 30-element Inductively Coupled Plasma (ICP) techniques, as follows. Graphitic carbon analysis (code C-GP-OR) uses the LECO furnace infrared spectrometry process with either a regular loss on ignition (LOI) method for samples with < 40% Cgr or a double loss on ignition (DLOI) method on high-grade samples, above 40% Cgr. Both processes require the sample to be digested in HCl to remove carbonates. In the LOI method, the sample is then weighed into a ceramic crucible, ashed at 550 o C to remove Organic Carbon content, leached with known amount of diluted hot HCl solution, and washed 10 times with de-mineralized water. When complete, the sample is dried at low temperature prior to analysis. The sample is placed in a LECO induction furnace, typically set at 1,050 o C, in order to convert the graphitic carbon to CO 2. The weight difference is recorded. The DLOI method applied to samples above 40% Cgr uses the same HCl leaching of carbonate which is then heated in the LECO furnace at 450 o C in order to evaporate organic carbon. The sample is weighed. This is referred as first loss on ignition. The partly roasted sample is then heated in the furnace to 900 o C and graphitic carbon is burnt-off. The sample is weighed again; this is the second loss on ignition. A correction is calculated from the sulphur content (LECO furnace) to take into account the oxidation of iron. Sulphur analysis by LECO (code S-LECO) uses the LECO Induction furnace to oxidize the sample. The sample is roasted in an oxidising atmosphere and the sulphur is converted to SO 2. Technical Report NI October 30, 2012 Page 11-3

82 Trace element analysis (code 30-AR-TR) was used on every second sample. The ICP-AES method uses a four-acid aqua regia digestion with 30 elements measured at trace levels. QUALITY ASSURANCE AND QUALITY CONTROL Inspectorate is an ISO certified laboratory, but is not indicated as ISO Inspectorate duplicated 103 carbon analyses, approximately 13% of the whole sample set. Inspectorate did not disclose any analytical results in terms of carbon reference material or calibration. It is therefore uncertain if such material was introduced and not disclosed, or simply not analyzed. Results on reference material were disclosed for sulphur and trace element analyses. Figures 11-1 and 11-2 show the duplicates by Inspectorate for carbon as graphite (Cgr) and for sulphur (S). The slope of the regression lines and the r² coefficient (correlation coefficient) is very close to unity which indicates very high reproducibility. FIGURE 11-1 GRAPHITE CORRELATION FOR 29 SAMPLE PAIRS Cgr% Inspectorate Duplicate vs Original Assays Duplicate assay Cgr% y = 0.994x R² = Original assay Cgr% Source: Roche 2012 Technical Report NI October 30, 2012 Page 11-4

83 FIGURE 11-2 SULPHUR CORRELATION FOR 32 SAMPLE PAIRS S% Inspectorate Duplicate vs Original Assays Duplicate assy S% y = x R² = Original assay S% Source: Roche 2012 The data shows that the laboratory correlations for graphitic carbon and Sulphur are very good. IOS introduced standards, duplicates, and blank samples as part of its QA/QC program. IOS introduced 29 duplicate samples (4.5% of the population), which were quarter-cuts of the sampled half core. The numbering of the original and duplicate quarter-cuts was nonsequential. This process aimed to test the reproducibility of the whole preparation and assaying process. Figures 11-3 and 11-4 show the correlations for the duplicate samples. Technical Report NI October 30, 2012 Page 11-5

84 FIGURE 11-3 IOS DUPLICATE VS. ORIGINAL SAMPLES FOR GRAPHITE Cgr% IOS Duplicate vs Original Assays Duplicate assay Cgr% y = x R² = Original assay Cgr% Source: Roche 2012 Notes: Cgr graphitic carbon Technical Report NI October 30, 2012 Page 11-6

85 FIGURE 11-4 IOS DUPLICATE VS. ORIGINAL SAMPLES FOR SULPHUR S% IOS Duplicate vs Original Assays Duplicate assy S% y = x R² = Original assay S% Source: Roche 2012 Fifty-five (55) blank samples were inserted, typically as the first sample on each hole and then every 20 samples, for a total population of 8.6%. The blank sample material was pure quartz vein pieces from the former Lac Bouchette high purity silica quarry. This material was used as blank material by IOS. An average of 0.03% Cgr was measured, with a maximum of 0.24%, suggesting the absence of contamination from the laboratory. The average iron content of 0.32% should be noted and is suspected to result from attrition of the crushing and milling equipment, which is fairly typical. Similarly, the average of 233 ppm of chromium suggests the use of alloy steel somewhere in the preparation circuit. Figure 11-5 shows the correlation for the blank samples. The sole outlier is a sample where the numbers were mixed up. Technical Report NI October 30, 2012 Page 11-7

86 FIGURE 11-5 CORRELATION OF BLANK SAMPLES Blank samples (n=55) %Cgr Samples Source: Roche 2012 IOS inserted standards into the sample stream. CRMs for graphitic ore are uncommon. The only ones found for this program were from the China National Analysis Center for Iron and Steel and had values of 9.91% and 76.50% Cgr. Their certification protocols and interlaboratory testing is not available, and they are indicated as assayed using gravimetric methods by ascarite absorption. CRM NCS-DC is a silicate matrix graphitic ore certified at 9.91% Cgr with a standard deviation of 0.08%. CO 2 is also reported at 0.67% and sulphur at 2.59%. This material was introduced six times, with assayed values of 8.89% Cgr, ranging from 8.22% to 9.84%. The average reported value was about 1% lower than the certified value, or 89% relative. Standard deviation was comparable to what was noted for the twinned samples. Sulphur was assayed at 2.62%, very close to the certified value. Another CRM from the China National Analysis Center for Iron and Steel, NCS-DC was inserted three times. This material represents a very high grade graphitic ore, certified at 76.50% Cgr, with a standard deviation of 0.08% and a sulphur content of 0.14%. Two of the assays were analyzed by Inspectorate, reporting 66.2% and 69.2% Cgr, while the third Technical Report NI October 30, 2012 Page 11-8

87 was carried out by ALS-Minerals and reported at 68.2%. These values underscore the certified value by about the same relative proportion as for NCS-DC A series of mixed CRMs were made using various proportions of the NCS-DC certified 76.50% Cgr and NCS-DC certified at 2.91% Cgr. The mixture was prepared by the IOS certified chemist in the IOS laboratory using 0.01 gr accuracy (0.03% by weight). Two samples were also prepared using the aforementioned mixture with CRM SX (0.681% S) and WMS-1a (28.17% S) from Canmet, aiming at controlling the sulphur content. It can be noted that graphitic carbon is systematically underscored by assays, by a proportion similar to that which has been obtained on pure reference material. The average relative paired difference stands at 11.1% between the certified and assayed value. Sulphur is well replicated. Figures 11-6 and 11-7 illustrate the comparison between the calculated graphitic carbon (Cgr) and sulphur (S) values in the IOS samples and the analytical results. It appears that IOS used a variety of graphitic carbon grades in its blends. These have not been tested by round-robin procedures. FIGURE 11-6 IOS IN-HOUSE GRAPHITE STANDARDS CALCULATED VS. ANALYZED Cgr% Standard IOS (calculated) vs, Inspectorate (analysed) IOS y = x R² = Inspectorate Source: Roche 2012 Notes: 1. IOS IOS Services Géoscientifiques Inc. 2. Inspectorate Inspectorate Exploration and Mining Services Ltd. Technical Report NI October 30, 2012 Page 11-9

88 FIGURE 11-7 IOS IN-HOUSE SULPHUR STANDARDS CALCULATED VS. ANALYZED S% Standard IOS (calculated) vs. Inspectorate (analysed) IOS y = x R² = Inspectorate Source: Roche 2012 Notes: 1. IOS IOS Services Géoscientifiques Inc. 2. Inspectorate Inspectorate Exploration and Mining Services Ltd. The in-house standards provide a high correlation for best-fit (r² coefficient) regression and intercept showing a high reproducibility. Roche stated that it would be preferable to see a better validated standard with perhaps two grades within the population grade range to augment the NCS-DC certified reference material. This does not, however, change the assessment that every effort has been made by IOS to ensure high quality QA/QC procedures. The data can be used in Mineral Resource estimation. SECURITY The core is stored inside the IOS warehouse in Chicoutimi along with the sample rejects stored in steel barrels under a nitrogen atmosphere to reduce oxidation of the sulphides. Technical Report NI October 30, 2012 Page 11-10

89 RPA OPINION ON QA/QC PROCEDURES The 2010/11 drilling campaign included a QA/QC program that included the use of blanks, duplicates, and CRM. In this regard, RPA considers that the program was adequate and conforms to industry standards. The results of the analysis of CRM samples, however, showed negative difference between the CRM reference grade and the laboratory results. A similar observation can be made when comparing samples from 1989 and their 2010/11 twins. RPA acknowledges that it appears graphitic carbon is an element that is difficult to analyze but considers that more studies should be undertaken to control this effect. It seems that commercial CRM is difficult to obtain and one avenue would be to create an in-house batch of reference material that could be analyzed through a comprehensive round-robin exercise involving several commercial laboratories. It is RPA opinion that the differences observed in the CRM results coupled with the differences between the drill holes from 1989 and their 2010/11 twins, introduce a level of uncertainty that should be addressed. For this reason, as mentioned above and as will be detailed in the Mineral Resource estimate section, RPA considers that no Mineral Resources should be classified as Measured at this stage. Technical Report NI October 30, 2012 Page 11-11

90 12 DATA VERIFICATION The information in this section was taken from the Roche 2012 Technical Report with modifications. FIELD VERIFICATION Mr. Edward Lyons, géo., and qualified person, visited the several work sites of the Lac Knife Project between October 2010 and March The initial site visit was made to the property near Fermont, Québec on 14 October 2010, accompanied by Gary Economo, president of Focus and André Roy, Project Manager of Roche for an overview of the Project. On January 17, 2011, Mr. Lyons visited the IOS laboratory and office facility in Chicoutimi. IOS shipped the drill core from the Project to its facility for detailed logging, sample preparation, and selected tests, such as density. The drill core remains there in storage. On January 19, 2011 Mr. Lyons visited the property accompanied by Steeve Lavoie, the IOS project geologist, while the drilling was underway in the final third of the twin-hole program. The original drill sites for the Mazarin holes were located in several locations from existing drill casing or definitive evidence of drilling, including old burlap pieces, core bits, pieces of drill pipe, etc. Most drill locations, however, were small openings in the sparse forest. The grid coordinates in NAD 27 were reconstructed by IOS, and these new coordinates were validated in the field. IOS personnel marked twelve sites for Focus twin-hole program. The holes were carefully marked with front and back-sight pickets and a reference picket with aluminum tag placed. All coordinates were taken with hand-held GPS units. The finished hole was marked with a wood post with an aluminum tag showing the drill hole number. Roche agreed these procedures were reasonable under the circumstances and recommended that the Mazarin drill collars be verified again in the field, during the nonsnowy part of the year. Roche further recommended that all holes (old and new) be properly marked and surveyed with a DGPS unit competently operated. The data should be tied into regional benchmarks. The drill core was properly marked with legible metreage blocks correctly placed during the second field site visit. Core trays were legibly marked and handled with due care by both the Technical Report NI October 30, 2012 Page 12-1

91 contractor and IOS personnel. The boxes were transported by snowmobile to a small logging shed where a reconnaissance log was done by the site geologist. The core was then covered and transported by truck from Fermont to Chicoutimi for more detailed processing. At the IOS laboratory in Chicoutimi, the core was received with a reception tracking system and placed either on core racks internally or carefully palletized and stored in a secured yard adjacent to the facility for later processing. The core was logged in a systematic way with data input into computers. The logging geologist followed the names and divisions used in the original Mazarin logs, as far as possible. Samples were selected on the same lengths and contacts as selected by Mazarin. Samples were saw-cut with half in the sample bag and the other half replaced in the core box. Sample tags were secured in the core box. The samples were tagged with three-part sequentially numbered tags, and then shipped to the laboratory by truck. IOS kept serial documentation of the samples. The processed core was palletized and stored at the IOS secured yard at its facility at Chicoutimi. The writer observed these elements in his several site visits and found the works to be satisfactory. Roche is of the opinion that the core was properly handled and tracked and that the sampling was done to a reasonable standard of care. Roche did not collect check samples during the visits. DATABASE VERIFICATION Database verification is discussed in Section 14 (Mineral Resource Estimate). Technical Report NI October 30, 2012 Page 12-2

92 RPA AND SOUTEX 2012 DATA VERIFICATION RPA s mandate is to undertake a Preliminary Economic Assessment (PEA) on the basis of the Mineral Resources estimated by Roche as documented in the Roche 2012 Technical Report. RPA has verified the work done by Roche including a summary review of the drill hole database and geological interpretation. RPA considers that the data used by Roche to estimate the Mineral Resource was adequate and of sufficient quality to support a Mineral Resource estimation taking into account the comments expressed by RPA regarding Mineral Resource classification. RPA engineers R. de l Etoile and M. Lavigne visited the site on June 28, Several of the drill sites from the 2010/11 drilling program were visited and the location of holes were clearly identified by metal casings capped with a metal cap engraved with the drill hole number. Each of the drill holes from 2010/11 which were visited were found at their expected locations. Several attempts were made to locate the position of the drill holes from the 1989 drilling program. No casing or other kinds of hole identification were found, however, at some expected drill hole locations, evidence of human activity and drilling was observed. The original cut lines used to survey the holes and other exploration activity was visible with identified pickets in place. RPA is reasonably confident that the drill holes from 1989 did actually exist and considers that it is acceptable to use the information related to these drill holes in a Mineral Resource estimation. RPA notes that the 1989 core was not kept by its previous owners and it is reported that the core was dumped in one of the bulk sample pits and later re-vegetated. RPA engineers could not see evidence of the core dump. RPA engineers also observed several locations where bulk material was taken in the 1990s. Evidence of work and earth moving could be observed and exposed mineralized graphite bearing rocks were able to be examined. Technical Report NI October 30, 2012 Page 12-3

93 At the time of the visit, a crew of geologists and operators were establishing a base camp as the 2012 drilling campaign was being set-up. RPA did not take independent check samples during the visit. The data related to the mining, processing, and economic aspects of the study have been largely produced and obtained directly by RPA and/or Soutex. The marketing information, forecasted saleable end product quantities that were supplied by Focus were verified by RPA market study specialist. Focus provided RPA with potential customer expression of interest to support market forecasts. Commodity prices were also obtained and verified independently by RPA market specialist. Focus also provided RPA and Soutex with a potential producer expression of interest to support the thermal purification operating cost on a contract basis and minimal technical data. SGS conducted a series of metallurgical test that served as the basis for the conception of block flow diagram and equipment sizing. Soutex verified the coherence and pertinence of obtained results. RPA and Soutex are of the opinion that the mining, processing, economic, and market related data used are adequate to support a preliminary economic assessment level study. Technical Report NI October 30, 2012 Page 12-4

94 13 MINERAL PROCESSING AND METALLURGICAL TESTING METALLURGICAL TESTWORK BACKGROUND In 1991, Cambior and Mazarin performed a feasibility analysis on the Lac Knife Project. The testwork for this Project was carried out at the Mineral Research Centre of the Ministry of Energy and Resources of Québec and consisted of laboratory metallurgical studies and treatment studies at a pilot plant scale. In 2002, a series of tests was carried out under the supervision of SNC-Lavalin for Mazarin. This work aimed at characterizing the ore and performing preliminary laboratory ore tests in order to develop a process flow diagram. In 2011 and 2012, Focus completed a series of tests. The testwork program was carried out on composite samples extracted from different drilling areas and at various depths. The metallurgical testwork was conducted at SGS. Results were analyzed by Soutex. NATURE AND EXTENT OF TESTING Between September 2011 and June 2012, a testwork program was conducted at SGS. The purpose of the program was to study the effectiveness of different recovery methods on Lac Knife ore and their impact on graphite product distribution in different size classes. A total of 23 different tests were conducted on bulk samples obtained from different drill core. The concentration of graphite in the ore used for the various tests varied between 18.9% and 22%. The most interesting results in terms of global recuperation were obtained by applying a seven-step process: Primary grinding followed by flash flotation cells. The tailings of the flash flotation cells pass through a secondary grinder followed by rougher cells. The combine concentrates from flash flotation and rougher cells pass through a polishing grinding stage (ceramic media) followed by a magnetic separator. Technical Report NI October 30, 2012 Page 13-1

95 The magnetic concentrate passes through a second polishing mill (ceramic media) which is followed by cleaners to obtain a first concentrate. The non-magnetic concentrate passes through a series of cleaners followed by a 48 mesh screen. The screen oversize (+48 mesh) passes through a third polishing mill (ceramic media) and a series of cleaners to obtain a second concentrate. The screen undersize (-48 mesh) passes through a fourth polishing mill (ceramic media) and a series of cleaners to obtain a third concentrate. Following the first results obtained using the method described above, a lock-cycle test was conducted to validate the described process pertinence. Table 13-1 summarizes the obtained results: TABLE 13-1 LOCK-CYCLE TEST RESULTS Focus Graphite Inc. Lac Knife Project Concentrate Flake Size Distribution (%) Graphitic Carbon Grade (% Cgr) Recovery (%) +48mesh mesh mesh mesh mesh mesh Total The main highlights from the testwork program are: Samples responded reasonably well to flotation. Recovery by flotation was generally enhanced by the addition of polishing mills (ceramic media). Adding a separation step for fine particles (-200 mesh) followed by a polishing grind did not provide conclusive results. ASSUMPTIONS ON RECOVERY ESTIMATES A series of tests were performed using bulk samples issued from various drilled core. The obtained results for the 23 laboratory tests and for the lock-cycle test are consistent and seem to indicate that results are reproducible. These tests, however, were carried out on Technical Report NI October 30, 2012 Page 13-2

96 samples with concentrations ranging between 18.9% Cgr and 22.0% Cgr, while the nominal plant feed is expected at 15.66% Cgr (14.16% Cgr to 20.15% Cgr). Given this and the low technological risk associated with the chosen process, the recoveries obtained by the lockcycle test are thus considered as representative of what could be achieved by the proposed flowsheet. Technical Report NI October 30, 2012 Page 13-3

97 14 MINERAL RESOURCE ESTIMATE SUMMARY The Mineral Resource estimate presented in this section was prepared by Roche and released in January Focus then retained RPA to carry out a PEA on the Lac Knife deposit based on the current Mineral Resource estimate. RPA has verified the Mineral Resource estimate prepared by Roche prior to using it in the PEA. RPA has concluded that the current Mineral Resource estimate is adequate and of sufficient quality to support a PEA. RPA accepted the Mineral Resource statement derived from the Roche Mineral Resource estimate with one modification. RPA has elected not to classify any Mineral Resources as Measured at this stage as a consequence of the uncertainty that, in RPA opinion, remains with regards to the difference in grade between the drill holes samples from 1989 and their twin counterparts from Also, the QA/QC program applied to the 2010/11 drilling campaign highlighted an issue with the reproducibility of the graphitic carbon grade of the CRM used. Consequently, RPA has reassigned the Measured Mineral Resource estimated by Roche to the Indicated category. In January 2012, Roche estimated 637,000 tonnes at 15.59% Cgr in the Measured category. Table 14-1 presents the current Mineral Resources, modified to reflect the change in classification. TABLE 14-1 SUMMARY OF MINERAL RESOURCES JUNE 30, 2012 Focus Graphite Inc. Lac Knife Project Above 5% Cgr Category Tonnage (t) Grade (% Cgr) Measured 0 Indicated 4,938, Total Measured + Indicated 4,938, Inferred 3,000, Notes: 1. CIM definitions were followed for Mineral Resources. 2. Mineral Resources are estimated at a cut-off grade of 5% Cgr. 3. Numbers may not add due to rounding. 4. Cgr graphitic carbon Technical Report NI October 30, 2012 Page 14-1

98 The sub-sections below generally (with minor modifications) reproduce the text from Roche 2012 Technical Report, with the exception of the sub-section titled RPA Opinion on the Current Mineral Resource Estimate. TWIN HOLE DRILLING In winter 2010/11, Focus drilled 12 BTW diamond drill holes twinned with the original Mazarin sites in order to confirm the historical data. These twinned holes were designed to test historical drilling. The results are presented in Section 10. EXPLORATION DATABASE Data used to estimate the Mineral Resource was provided by the client in the form of a Microsoft Excel Spreadsheet. The drill hole database contains 111 exploration diamond drill holes consisting of 99 historical drill holes from the Mazarin exploration campaign of 1989 and 12 drill holes from the twin-hole drilling campaign executed between December 2010 and February In addition to the electronic format, Roche received a hard copy of the historical database. The database consists of 8,611 m of core and 3,240 assays for Cgr% (2,606 historical and 634 new). Most drill holes were sampled in 1.5 m intervals for assays inside the zone which showed mineralization. All the drill hole data was imported into GEMS. A total of 105 drill holes were used to estimate the Mineral Resource. Historical and actual drill holes were used for the estimation. DENSITY Historical density data compiled by Roche (1991) showed three composite samples made of 32 samples from 32 drill holes which represented 1,054.6 m of core. Beckman pycnometer measurements on the three sample pulps (fines) returned The number and method of the pycnometer analyses is not available. The density for core measured in air/water (typical method) was not detailed as to source, quantity, and composites, if any. The density measured in air was cited as The relationship between bulk density measured in air vs. the pycnometer method would have the former equal or less than the latter, since the fines can have significant reduction in natural porosity. Technical Report NI October 30, 2012 Page 14-2

99 IOS measured bulk density on selected core samples from 2010/11 using the air/water displacement method in its laboratory. The average density was Roche used 2.87 as the density of mineralized material for the Mineral Resource estimation. COORDINATE SYSTEM Data was supplied in UTM NAD 27 zone 19 and in Mazarin s local project grid system. Coordinates in a local system were assigned based on the historical drilling layout. The local grid north has an azimuth of in the UTM coordinate system. As the origin of the local grid system was in the middle of the property, more than half of the property has negative coordinate values. For this study, Roche added a value of 1,750 to the grid Y coordinates and 1,300 to the grid X coordinates to avoid negative values. The same elevation values were kept. GEOLOGICAL INTERPRETATION ON VERTICAL CROSS-SECTIONS Historical sections produced by Mazarin were digitized in GEMS. A total of 23 vertical sections were defined for the Lac Knife deposit. Those sections were defined along the drill hole pattern with a spacing of 25 m. The sections were used for the geological interpretation. A typical section is represented in Figure Technical Report NI October 30, 2012 Page 14-3

100 Z 1200 E 1250 E 1300 E 1350 E 1400 E Overburden 650 Z 600 Z Legend: % CGR Metres Local grid coordinates October 2012 Source: RPA 2012 Figure 14-1 Focus Graphite Inc. Lac Knife Project Quebec, Canada Typical Geological Vertical Cross-Section 1250

101 GEOLOGICAL INTERPRETATION AND DEFINITION OF ZONES Roche revised the previous Mazarin (1989) geological model based on the historical mineralized zones interpretation. The Mazarin sectional interpretations were digitized in GEMS using the same parameters. Originally Mazarin defined three mineralized zones: East Zone, Centre Zone, and West Zone. The interpretation was based on a simple multiple folding sequence of one graphite layer. Roche revised the interpretation to include new observations from the 2010/11 drilling campaign. The fold hinges were eliminated due to the lack of data in the Mazarin and Focus logs. The present interpretation includes five mineralized zones. The two new zones were formed by the separation of the original west zone into three simpler shapes separated by waste host rock. Mineralized zones were defined using a cut-off grade of 5% Cgr. On each drill hole section, the boundary polylines were digitized for each mineralized zone. Interpretations of the mineralized zones were mainly supported by grade continuity along strike and dip. The sections were spaced at 25 m intervals. Interpretations were done manually on section then adjusted to create 3D solids in GEMS. All terminal sections were extrapolated 12.5 m on trend. This represents half of the section spacing. When the mineralized zone showed a good continuity over three sections in strike and dip, an additional 12.5 m or 25 m were added to the extension in all directions to a maximum of 37.5 m. No zone was extended below 120 m from the surface. Extensions were taken into consideration during the classification of the Mineral Resources. Closed polylines were connected on the sections to define geological solids, as presented in Figure The five solids were visually checked in plan and vertical section to ensure accuracy with the drill holes used for the interpretations. No triangulation errors were generated during the creation of the mineralized zones. Solids used in this estimation have been trimmed with the rock surface. Technical Report NI October 30, 2012 Page 14-5

102 FIGURE 14-2 MINERALIZED ZONE SOLIDS Source: Roche 2012 COMPOSITES Diamond drill hole assay data was composited in equal lengths of three metres constrained by the mineralized zones described above. The composite database was created by GEMS. Composites were generated from the raw graphitic carbon assays and were calculated inside the mineralized zone from the start to the end of the intercept with the solids. The length of the last composite was adjusted to fit inside the mineralized solid. The value of zero was attributed to non-assayed intervals. Technical Report NI October 30, 2012 Page 14-6

103 STATISTICS BASIC STATISTICS Basic statistics were run on the composited data. As shown in Table 14-1, the statistics of the three-metre composites are similar to the basic statistics of the raw assays. Raw assay data was extracted from assay data inside geological solids in order to compare the same population. A coefficient of variation under 0.5, as observed on the three- metre composite population, is likely to demonstrate a dataset with a normal distribution. The histogram of three-metre composites shows a symmetrical bell shape typical of a normal distribution (see Figure 14-3). TABLE 14-2 BASIC STATISTICS OF ASSAYS AND COMPOSITES INSIDE MINERALIZED ZONES Focus Graphite Inc. Lac Knife Project Original Assay 3-Metre Composite Number of Samples Minimum (Cgr) Maximum (Cgr) Mean (Cgr) Median (Cgr) Standard Deviation Variance Coefficient of Variation Source: Roche 2012 Notes: Cgr graphitic carbon Technical Report NI October 30, 2012 Page 14-7

104 Technical Report NI October 30, 2012 Page 14-8 Source: Roche 2012 FIGURE 14-3 HISTOGRAM OF THREE METRE COMPOSITES

105 HIGH GRADE TREATMENT The population shows a normal distribution with no outliers or secondary populations. Thus, no grade capping was used in the present estimation. SPATIAL ANALYSES Variography was run on the three-metre composites. The spatial study was carried out using GEMS. The variogram map (see Figure 14-4) presents the results of the study by showing the gamma value in relation to the orientation which enables the selection of the best orientation to perform the variography analysis. The lower gamma values are shown by cooler colours, which means smaller grade differences are observed in each sample pair. In this case, the variogram map shows similar gamma values in any direction. This was consistent in the variograms of all directions. They uniformly showed a high nugget effect and reached the sill value rapidly. FIGURE 14-4 VARIOGRAM MAP Source: Roche 2012 The omnidirectional variogram analysis was performed for two different lags, three metres and 25 m, to find the best variogram result. The three-metre lags (see Figure 14-5) were done to analyze variation of the grade along the hole. The 25 m lags analysis (see Figure Technical Report NI October 30, 2012 Page 14-9

106 14-6) was done to analyze the continuity of the grade at the scale of the drilling grid. The results of both analyses are summarized in Table The variogram analysis of both lags shows a high nugget effect, which is shown in the drilling as a highly variable grade for the graphite in the same mineralized zone. This relationship was also observed in the twin holes. TABLE 14-3 OMNIDIRECTIONAL VARIOGRAM RESULTS Focus Graphite Inc. Lac Knife Project Omnidirectional Variogram 3 -Metre Lags 25-Metre Lags Number of structures (spherical) 1 1 Nugget Sill Range Source: Roche 2012 Technical Report NI October 30, 2012 Page 14-10

107 Technical Report NI October 30, 2012 Page Source: Roche 2012 FIGURE 14-5 OMNIDIRECTIONAL VARIOGRAM THREE METRE LAGS DISTANCE

108 Technical Report NI October 30, 2012 Page FIGURE 14-6 OMNIDIRECTIONAL VARIOGRAM TWENTY-FIVE METRE LAGS DISTANCE Source: Roche

109 BLOCK MODEL A 3D block model was developed using GEMS. Blocks were five metres long, seven metres wide, and five metres high. The 3D model contained 120 columns, 120 rows, and 40 levels. The origin in the local coordinate system is: 1000 for x, 940 for y and 750 for z. Rock Type values were assigned to each block firstly by using rock surface and topographic surface. A percentage model for the mineralized zone was applied to all blocks below rock surface to give a value of the proportion of each block inside the mineralized zone. Rock types are used in the grade interpolation as boundaries. In the present estimation, the boundaries are defined as hard. GRADE INTERPOLATION The graphitic carbon grade interpolation was done by using three metre composites. The methodology used was the inverse of the distance to the power of 2 (ID 2 ). Graphitic carbon grade was interpolated in each block inside the mineralized zone using three different passes. Estimation parameters (see Tables 14-4 and 14-5) were based mainly on the geometry of the mineralized zones. Search ellipses have the same dimension for each zone, but different orientations. Figure 14-7 shows a typical vertical section with the interpolated grade. Categories were applied during the grade interpolation. TABLE 14-4 ESTIMATION PARAMETERS ORIENTATION OF THE SEARCH ELLIPSES Focus Graphite Inc. Lac Knife Project Pass 1 Passes 2 and 3 Ore Zone Major Minor Dip ( ) Azimuth ( ) Azimuth ( ) West Zone 1 no rotation West Zone 2 no rotation West Zone 3 N/A Central Zone no rotation East Zone N/A Source: Roche 2012 Technical Report NI October 30, 2012 Page 14-13

110 TABLE 14-5 ESTIMATION PARAMETERS SEARCH ELLIPSE DIMENSIONS Focus Graphite Inc. Lac Knife Project Pass 1 (m) Pass 2 (m) Pass 3 (m) Anisotropy X Anisotropy Y Anisotropy Z 5m Source: Roche 2012 Technical Report NI October 30, 2012 Page 14-14

111 E 1250 E 1300 E 1350 E 1400 E 700 Z Overburden 650 Z 600 Z Legend: % CGR Metres Local grid coordinates October 2012 Source: RPA 2012 Figure 14-7 Focus Graphite Inc. Lac Knife Project Quebec, Canada Block Model Grade Distribution. Section 1100

112 MINERAL RESOURCE CLASSIFICATION This Mineral Resource estimate was classified into Indicated and Inferred categories. The search ellipses described in the above section were used to assign the category of each block. The classification was done automatically by the three different passes and adjusted by visual checks. Blocks estimated during passes 1 and 2 were classified as Indicated and those estimated during pass 3 were classified as Inferred. The automatic method used the value given by the search ellipse. The smaller search ellipses correspond to the highest degree of confidence and the bigger search ellipse corresponds to the lowest degree of confidence. The first pass and the second pass, described above, were only applied to mineralized zones defined by a regular 25 m by 25 m drilling pattern, namely West Zone 1, West Zone 2, and Central Zone (Indicated category). West Zone 3 and East Zone were only estimated by pass 3 and assigned to the Inferred category since the drilling was done on 75 m section spacing. MINERAL RESOURCE ESTIMATE The Mineral Resource estimate presented in this Technical Report is effective as of June 30, It uses Indicated and Inferred classifications. Mineral Resources are not equivalent to Mineral Reserves as no economic viability has been demonstrated. In addition, there can be no assurance that Mineral Resources in a lower category may be converted to a higher category, or that Mineral Resources may be converted to Mineral Reserves. All mineralized zones were used in this estimate. Table 14-6 shows the Mineral Resource estimate at a 5% Cgr cut-off. Technical Report NI October 30, 2012 Page 14-16

113 TABLE 14-6 MINERAL RESOURCE ESTIMATE JUNE 2012 Focus Graphite Inc. Lac Knife Project Above 5% Cgr Category Tonnage (t) Measured 0 Grade (% Cgr) Indicated 4,938, Total Measured + Indicated 4,938, Inferred 3,000, Notes: 1. CIM definitions were followed for Mineral Resources. 2. Mineral Resources are estimated at a cut-off grade of 5% Cgr. 3. Numbers may not add due to rounding. 4. Cgr graphitic carbon. To ensure a reasonable prospect of economic extraction, a Whittle-optimized open pit scenario was performed by Roche. By comparing this Whittle shell to the reported Mineral Resources, less than 2% of the tonnage fell outside of the Base Case pit shell. Roche concluded that all interpolated blocks qualified as Mineral Resources. Note: The test of reasonable prospect of economic extraction was done by Roche prior to the PEA that is the subject of this Technical Report. Economic parameters used by Roche do not result from those derived in the PEA. RPA is of the opinion that the Mineral Resource estimate at a cut-off grade of 5% Cgr is reasonable. RPA OPINION ON THE CURRENT MINERAL RESOURCE ESTIMATE The mandate given to RPA was to carry out a PEA on the Lac Knife Project on the basis of the Mineral Resources estimated in January 2012 by Roche after review by RPA. RPA accepted the January 2012 Mineral Resource estimate and considered it adequate to support a PEA with the following comments. 1. The majority of the drill hole data used to estimate the Mineral Resources was derived from a drilling program in Since no core exists of these holes, Focus carried out, in 2010/11, a twin hole drilling campaign consisting of 12 holes. The Technical Report NI October 30, 2012 Page 14-17

114 comparison between both campaigns highlighted uncertainty with respect to graphitic carbon content and the difficulty of assaying this element. It is RPA opinion that the drill holes from 2010/11 did not fully confirm the 1989 results since a significant difference was observed. Moreover, RPA cannot positively determine which of the campaigns is correct. RPA agrees that at this stage both campaigns can be used together for the purpose of estimating the Mineral Resources but has elected not to classify any Measured Mineral Resources, contrary to Roche s previous statement. As a result, RPA has converted Roche s January 2012 Measured Mineral Resources into Indicated Mineral Resources. 2. RPA has reviewed the process of geological interpretation and grade interpolation used by Roche and identified minor issues. RPA is of the opinion that these issues only affect the robustness of the estimates in a minor way and the estimates are therefore considered adequate for a PEA level study. RPA has substantiated these findings to Focus and assumes the identified issues will be addressed at the next Mineral Resource estimation that will benefit from more recent drilling data. RPA is of the opinion that the graphitic carbon assay results are sensitive to the analytical method used and that a comprehensive evaluation of methodology and commercial laboratories should be carried out in order to clarify the uncertainty highlighted by the 2010/11 twin hole drilling campaign. Such evaluation should include laboratory round-robins using CRMs. Technical Report NI October 30, 2012 Page 14-18

115 15 MINERAL RESERVE ESTIMATE Mineral Reserves have not yet been estimated for the Lac Knife Project. Technical Report NI October 30, 2012 Page 15-1

116 16 MINING METHODS RPA investigated the potential for open pit mining of the Indicated and Inferred Mineral Resources, using graphite prices and saleable graphite concentrates quantities appropriate for a PEA. Open pit mining option was evaluated with run-of-mine (ROM) material being processed at a rate of 300,000 tpa in a process plant on site, producing approximately 46,600 tonnes of graphite concentrates with various grades and size classes. Infrastructure requirements, for road access, power, and for room and board facilities, were also considered. Environmental considerations include the impact of the pit, waste rock dump, and tailings storage. The city of Fermont is currently experiencing a lack of lodging, a situation which looks likely to continue at least into the near future. This fact, combined with the current labour scarcity and the current trend in the mining industry to provide room and board in remote locations, lead to the decision to build a camp for workforce lodging (fly-in/fly-out schedule). The targeted production rate enables the open pit option to be evaluated with a year-round owner operated approach with a minimal mining fleet; a lower production rate would have required a seasonal contract mining approach. The ROM material would be transported directly to the crusher or occasionally be stockpiled and re-handled. OPEN PIT MINING The production rate is assumed to be 300,000 tpa or 822 tpd of graphite-bearing material. Mining of mineralized material and waste, and overburden stripping would be carried out by the owner. The owner-operated mining will be carried out using a conventional open pit method consisting of the following activities: Drilling performed by conventional production drill Blasting using ANFO (ammonium-nitrate fuel oil) and a down-hole delay initiation system Loading and hauling operations performed with front-end loader, and rigid frame haulage trucks Technical Report NI October 30, 2012 Page 16-1

117 The production equipment will be supported by an additional loader, bulldozers, a grader, and a water truck. GEOTECHNICAL ASSESSMENTS In the absence of geotechnical information, pit slope angles were selected based on industry averages. Pit optimizations were carried out using pit slopes of 45. Design parameters for the overburden pile were also selected based on industry averages. These assumptions will have to be further assessed as the Project is advanced. HYDROLOGICAL / HYDROGEOLOGICAL ASSESSMENTS Hydrogeological and hydrological conditions may have an impact on pit design parameters. At this stage of the Project, industry average pit slope angles were used. Capital expenditures and operating costs related to water management were part of the cost estimation process. The hydrogeological/hydrological conditions will have to be further assessed as the Project is advanced. SEISMICITY Seismicity issues were not considered in conceptual design at this point in the Project. The seismicity will have to be assessed and considered in subsequent more advanced engineering stages of the Project. MINE DESIGN Open pit possibilities were investigated by pit optimization / floating cone analysis, using Whittle software, run on the Mineral Resource block model. Pit optimizations indicated that a significant proportion of the Mineral Resource would be economic to mine using open pit methods. Whittle pit optimizations were performed based on typical costs for comparable operations and projects of a similar scale. Cost details for optimization purposes were as follows: Technical Report NI October 30, 2012 Page 16-2

118 Open pit mining $7.00/t moved Re-handling, Milling & Tailings $45.00/t milled G&A $15.00/t milled The value of final production was estimated based on process recoveries and concentrate grades for the various size classes that can be produced with the Lac Knife graphite-bearing mineralization, and the adjusted three-year trailing average prices for those size classes and their inherent characteristics. Also, the cost of insurance and freight (CIF) to port of destination was considered in the revenue calculations, as it is usual for sellers to pay for this under commercial terms on the graphite market. The marketing / selling department cost was finally added to CIF to generate a value which was used to float cones in the Whittle software. The average process recovery and concentrate grade of 91.3% and 92% Cgr respectively, combined with the average market price and the CIF/marketing/selling cost of US$1,260 and $180 per tonne of concentrate produced at the mine site process plant, were used for Whittle pit optimizations. Details are provided and discussed under appropriate sections in this report. The mill cut-off grade that can be estimated using all the above optimization parameters is equal to 5.6% Cgr which confirms the minimum grade of 5% Cgr used previously to delineate and estimate the Mineral Resources. As indicated under the geotechnical assessment sub-section, pit slope angles were selected based on industry averages and pit optimizations were carried out using pit slopes of 45. Pit optimizations do not include individual benches or ramp design. For the pit size, production requirements, and recommended equipment fleet, RPA considers mining of 10 m to 12 m benches in two cuts and development of an 18 m wide ramp, including ditches and safety berm, to be appropriate for the open pit operations. The ramp should be designed with a maximum 10% gradient with the exit appropriately located in order to minimize distances to the mill and the waste rock dumps. A general site plan of the Project is included in Figure The plan shows the location of main surface facilities as open pit, tailings pond and dams, stockpiles, waste disposal area, process plant, camp facilities and haul roads. Technical Report NI October 30, 2012 Page 16-3

119 PRODUCTION QUANTITIES The ultimate optimized pit shell (revenue factor of 1.0) based on the previous economic parameters contains 7.6 million tonnes (Mt) of potentially mineable material, at a grade of 15.81% Cgr. On this basis, over 25 years of production would be possible at the process rate of 300,000 tpa of graphite-bearing material. As the final years of such a duration would be immaterial to the Project economics, it was decided to restrict the analysis to a 20-year life span. Consequently, the optimized pit shell at a revenue factor of 0.7 was retained, totalling 6.0 Mt of potentially mineable material at a grade of 16.44% Cgr. Figure 16-2 shows isometric views of the 20-year and the ultimate pit shells. Dilution and mining extraction factors of 5% tonnage and 95% of ore within the 20-year pit shell were applied to the above numbers, with dilution at zero grades. As a result, the diluted and recovered tonnage remained at 6.0 Mt while the grade decreased to 15.66% Cgr. Waste within this pit shell totals 6.7 Mt, resulting in an average strip ratio of 1.12:1. The open pit would require the stripping of approximately 606,000 m³ of overburden. The proportion of Inferred Mineral Resources in the graphite bearing material that may be potentially mineable via open pit is approximately 30%. Technical Report NI October 30, 2012 Page 16-4

120 N Facility Metres Figure 16-1 Focus Graphite Inc. Lac Knife Project Quebec, Canada General Site Plan October 2012 Source: RPA 2012

121 FIGURE 16-2 ISOMETRIC VIEWS OF 20-YEAR AND ULTIMATE PIT SHELLS 20-year Pit Shell looking Northeast Ultimate Pit Shell looking Northeast Technical Report NI October 30, 2012 Page 16-6

122 WASTE ROCK AND OVERBURDEN/TOPSOIL STORAGE The Lac Knife Project will co-dispose of the tailings and waste rock in a single purpose-built basin because of their respective acid-generating potential. The tailings and waste rock co-disposal basin was designed to receive both materials generated by the Project over the Life of Mine (LOM). A total of approximately 6.6 million m³ of tailings and waste rock would be disposed of into the dedicated basin. As shown in Figure 16-1, the tailings pond/waste disposal area is located south of the open pit, at the southern end of Lac Knife within a natural elongated valley. The basin will be formed by the construction of dams to the north and south for the initial stages. A low head dyke will also be required along the western perimeter. It has been assumed that dams and dyke would be made of overburden stripped over the open pit. PRODUCTION SCHEDULE As mentioned previously, the open pit was evaluated with an owner mining fleet operated year-round. The open pit mining will be carried out on one 12-hour shifts per day, and seven days per week. Staffing will be on a 14/14 rotating shift system being carried out by two shift crews. Processing will be on the same rotating shift system but will be carried out on two 12- hour shifts per day, seven days per week, with four shift crews. Highlights of the production schedule are as follows: A short ramp-up to full production with 270,000 tonnes produced in Year 1 Mine production and processing of 300,000 tonnes per year of potentially mineable resources consisting of graphite bearing material, or 822 tpd Waste mining average of 335,000 tonnes per year The production schedule is summarized in Table Technical Report NI October 30, 2012 Page 16-7

123 TABLE 16-1 PRODUCTION SCHEDULE Focus Graphite Inc. Lac Knife Project Year Mined Graphite- Bearing Material Mined Waste Year Mined Graphite- Bearing Material Mined Waste (t) (t) (t) (t) , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,276 Total 5,970,000 6,709,126 MINE EQUIPMENT The mine equipment fleet for the open pit operation, listed in Table 16-2, was selected based on comparison with operations of similar size and using InfoMine USA Inc. TABLE 16-2 OPEN PIT MINING FLEET Focus Graphite Inc. Lac Knife Project Type Quantity Front End Loader 4 m³ 2 Haul Trucks 35 t 3 Rotary Drill cm 1 Dozer 150 kw 2 Grader 200 kw 1 Bulk Explosive Truck 1 Water/Sand Truck 1 Service Truck 1 Pickup Truck 5 Light Plants 10 kw 4 The above quantities are expressed in total pieces of equipment needed. Technical Report NI October 30, 2012 Page 16-8

124 MINE INFRASTRUCTURE AND SERVICES This sub-section is dedicated to infrastructure directly associated with mine operations. For all other general infrastructure located at surface, see Section 18 (Project Infrastructure). MATERIAL HANDLING The mineralized material and waste will be hauled out of the pit with the off-highway equipment fleet listed previously. The waste will be transported and co-disposed into the tailings pond, located south of the open pit. The graphite-bearing material (mill feed) will be delivered directly into the primary crusher or stockpiled nearby. Crushing will be performed prior to feeding the process plant. An ore storage pad is required to provide temporary storage and mill feed as necessary. In this regard, a lined ore pad is provided because of the acid-generating potential. The overall lined pad will be 60 m x 70 m with 40 m x 50 m available for ore storage. The storage area will be lined with 0.5 m of sand to protect the liner and would have an access ramp for truck access. The liner will be HDPE liner founded on a 0.3 m sand blanket. DEWATERING The dewatering system will comprise dewatering wells surrounding the open pit footprint. A pumping network will also be installed to pump water run-off from the open pit (two pumps). As open pit pumped water is assumed to be in contact with sulphides, it will be directed through the water treatment system, in the same manner as stockpile water run-off, comprised of a water treatment plant, and a polishing pond, prior to its release into the environment. EXPLOSIVES AND DETONATORS Detonators and explosives will be stored in approved explosives magazines. They will be located at a safe distance from the mining operations. The explosives and detonators magazines will be located west of the open pit, far enough from buildings and working areas to meet safety standards. The selected site is shown in Figure Technical Report NI October 30, 2012 Page 16-9

125 Suppliers will deliver explosives and detonators directly into dedicated magazines for storage until use. Technical Report NI October 30, 2012 Page 16-10

126 17 RECOVERY METHODS PROCESS FLOWSHEET This section of the report, prepared by Soutex, explains the process design basis which has been established in order to define the process design criteria, further develop the mass and water balance, and identify the major process equipment which may be required. It should be noted that equipment selection is preliminary and is based on a combination of the following: Testwork results Handbook references Vendor information Previous studies Soutex s experience on similar projects A preliminary plant Block Flow Diagram (BFD) and a general processing plant description for each of the various areas are provided. The information contained in this section has been used for the capital and operating cost estimates presented in Section 21 (Capital and Operating Costs). DESIGN CRITERIA The process design is based on an annual production capacity target of dry tpa and a nominal carbon head grade of 15.66%. Testwork was performed during the course of this study and the results were used to develop a simplified BFD and form the basis of the process design criteria. Table 17-1 presents the sources of information used to obtain or estimate the design criteria. Technical Report NI October 30, 2012 Page 17-1

127 TABLE 17-1 DESIGN CRITERIA SOURCES Focus Graphite Inc. Lac Knife Project Source Code A B C D E F G H I J K Description Criteria provided by owner Standard industry practice Soutex recommendation Vendor-originated criteria Criteria from process calculations Engineering handbook data Assumed data Criteria Provided by technology supplier Metallurgical test result International, country, local and industry design codes and regulations Budget quote from supplier Table 17-2 presents the nominal design throughput and design criteria for the plant. These formed the basis for the preliminary sizing of major equipment. TABLE 17-2 PLANT DESIGN CRITERIA Focus Graphite Inc. Lac Knife Project Parameter Value Units Source Feed Characteristics Carbon g Head Grade (nominal) % A Carbon g Head Grade (maximum) % A Carbon g Head Grade (minimum) % A Ore Moisture 5.0 % A Ore Specific Gravity 2.86 t/m 3 A Operating Schedule Scheduled Operating Days 365 d/y B Crushing Circuit Availability 40.0 % B Plant Availability 92.0 % B Operating Hours 24 h/d B Technical Report NI October 30, 2012 Page 17-2

128 Parameter Value Units Source Shifts 2 shift/d B Production Rate Production Target (dry) 300,000 tpa A Crushing Circuit Plant Feed Rate 2,055 tpd E Crushing Circuit Plant Feed Rate 85.6 tph E Nominal Plant Feed Rate 822 tpd E Operation Plant Feed Rate 893 tpd E Operation Plant Feed Rate 37.2 tph E Average concentrate production at 92.0 % Cgr 46,641 tpa E Average tailings production 253,359 tpa E Average Acid Generating tailings 75,000 tpa E Average Non-Acid Generating tailings 178,359 tpa E Milling Cost Total milling cost 41 $/t C Electric power cost $/kwh C Notes: t metric tonnes; tph metric tonnes per hour; tpd metric tonnes per day; tpa metric tonnes per annum; Cgr graphitic carbon Table 17-2 shows anticipated concentrate production at 46,641 dry tpa and tailing production at 253,359 dry tpa. It should be noted that a portion of the tailings will be acid generating and therefore managed in a separate stream from the remaining non-acid-generating portion. Further points to note are that plant and crushing circuit availability are based on modern day plant design, and that the concentrate average grade of 92.0% is derived from testwork results and has been used to form the basis of the concentrate design criteria. Table 17-3 presents the list of design criteria for the concentrate circuit. Recoveries, product size distribution, and product size grades are derived from testwork results. Technical Report NI October 30, 2012 Page 17-3

129 TABLE 17-3 CONCENTRATE DESIGN CRITERIA Focus Graphite Inc. Lac Knife Project Parameter Value Units Source Concentrate production Concentrate production at 92.0 % Cgr 5.8 tph E Mag Cleaning Concentrate Production 8.9 % I +48 mesh Concentrate Production 31.8 % I -48 mesh Concentrate Production 59.3 % E Product recovery by size classes +48mesh Concentrate 14.8 % I +65mesh Concentrate 12.7 % I +80mesh Concentrate 6.3 % I +100mesh Concentrate 6.5 % I +200mesh Concentrate 22.4 % I -200mesh Concentrate 28.7 % I Total Concentrate 91.3 % I Product size distribution +48mesh Concentrate 16.2 % I +65mesh Concentrate 13.9 % I +80mesh Concentrate 6.9 % I +100mesh Concentrate 7.1 % I +200mesh Concentrate 24.6 % I -200mesh Concentrate 31.4 % I Product grade by size classes +48mesh Concentrate 95.8 % I +65mesh Concentrate 94.8 % I +80mesh Concentrate 94.9 % I +100mesh Concentrate 94.6 % I +200mesh Concentrate 93.2 % I -200mesh Concentrate 86.5 % I Total Concentrate 92.0 % I Note: tph tonnes per hour; Cgr graphitic carbon Table 17-4 presents the list of design criteria related to the process tailings. The global tailings production is estimated at 31.4 tonnes per hour (tph). Technical Report NI October 30, 2012 Page 17-4

130 TABLE 17-4 TAILINGS DESIGN CRITERIA Focus Graphite Inc. Lac Knife Project Parameter Value Units Source Tailings production Tailings production at 92.0 % Cgr 31.4 tph E Rougher Tails Production 83.9 % I Mag Cleaning Tails Production 3.5 % I Primary Cleaning Tails Production 9.5 % I -48 mesh Cleaning Tails 2.3 % I +48 mesh Cleaning Tails 0.8 % E Note: tph tonnes per hour; Cgr graphitic carbon PROCESS BLOCK FLOW DIAGRAM Taking into consideration the testwork results, the process flowsheet presented in the simplified process BFD shown in Figure 17-1 was adopted. Following crushing, a graphite concentrate is obtained by a grinding and flotation separation circuit. The resulting concentrate is then thickened, dried and stored. The tailings generated by the concentration process pass through flotation cells to separate acid-generating tailings from non-acidgenerating tailings. Technical Report NI October 30, 2012 Page 17-5

131 FIGURE 17-1 SIMPLIFIED PROCESS BLOCK FLOW DIAGRAM Raw Ore Crushing Grinding & Separation Tailings Separation Acid Generating Tailings Thickening Non-Acid Generating Tailings Concentrate Drying & Storage The simplified process BFD shown in Figure 17-1and the process design criteria presented earlier have been used to develop the process mass and water balances. Details of the mass and water balances as well as the process BFDs for each circuit are provided below in Figures 17-2 to The mass balances shown are for nominal conditions and take into consideration plant utilization. These serve as the basis for developing the preliminary selection and sizing of major process equipment. Technical Report NI October 30, 2012 Page 17-6

132 Figure 17-2 Focus Graphite Inc. October 2012 Prepared by Soutex, 2012 Lac Knife Project Quebec, Canada Crushing Circuit Block Flow Diagram

133 Figure 17-3 Focus Graphite Inc. October 2012 Prepared by Soutex, 2012 Lac Knife Project Quebec, Canada Grinding & Separation Circuit Block Flow Diagram

134 Figure 17-4 Focus Graphite Inc. October 2012 Prepared by Soutex, 2012 Lac Knife Project Quebec, Canada Concentrate Thickening, Drying & Storage Block Flow Diagram

135 Figure 17-5 Focus Graphite Inc. October 2012 Prepared by Soutex, 2012 Lac Knife Project Quebec, Canada Utilities Block Flow Diagram

136 Figure 17-6 Focus Graphite Inc. October 2012 Prepared by Soutex, 2012 Lac Knife Project Quebec, Canada Tailings Block Flow Diagram

137 PROCESS DESCRIPTION CRUSHING The crushing circuit is a two-stage circuit consisting of a jaw crusher and a cone crusher and is considered to have a 40% operating time. At the first crushing stage, ore from the mine is delivered by truck to a 550 hp jaw crusher. The material is then conveyed to a vibrating screen with 19 mm openings to separate coarse particles and fine particles. The screen oversize (+19 mm) is conveyed to a 550 hp cone crusher operating in closed circuit with the screen. The screen undersize (-19 mm) is conveyed to an 850 t silo at a rate of 85.6 dry tph. GRINDING AND CRUSHING The graphite concentration is performed through a sequential process of grinding, flotation, and magnetic separation. The grinding and separation circuit is considered to have a 92% operating time. The crushed ore is extracted at a rate of 37.2 dry tph from the silo to feed a 500 hp and 5 x 6.5 primary grind mill. A belt scale installed on the primary grind mill feed conveyor indicates the rate of ore extraction, the accumulated tonnage milled and is used to automatically control the ore and water addition to the mill. The primary grind mill is operated at 70% solid. The mill discharge is diluted at 35% solid before being sent to four flash flotation cells. The flash flotation tails are sent to a 475 hp and 12 x 14 secondary grind mill operating in closed circuit with cyclones. The cyclones overflow is sent to a bank of nine units of threecubic-metre rougher cells for a total rougher retention time of 18 minutes. The rougher flotation rejects, representing approximately 70% by weight of the dry feed, are directly sent to the tailings flotation pump box. The flash flotation and rougher concentrate are processed through a 10 x 12.5 polishing grind mill. The mill discharge is separated by a magnetic separator. The magnetic concentrate is reground in a 5 x 5.5 secondary polishing grind mill operating at approximately 60% solid. The secondary polishing grind mill discharge is then sent to flotation columns operating in closed loop at 30% solid. A density analyzer is placed at the secondary polishing grind mill discharge and is used to automatically control the water Technical Report NI October 30, 2012 Page 17-12

138 addition before the flotation columns. The magnetic flotation concentrate is sent to the concentrate thickener and the magnetic flotation tails go directly to the tailings flotation pump box. The magnetic separator tails (non-magnetic) are also processed through flotation columns operating in closed loop. The non-magnetic flotation tails are directly sent to the tailings flotation pump box. The non-magnetic flotation concentrate is screened by a 48 mesh vibrating screen. The screen oversize passes through a third polishing grind mill of 5 x 5.5. The mill is operated at approximately 70% solid. The third polishing mill discharge is floated in small flotation columns operating in closed loop at 30% solid. A density analyzer is placed at the third polishing grind mill discharge and is used to automatically control the water addition before the flotation columns. The 48 mesh screen oversize flotation concentrate is sent to the concentrate thickener and the 48 mesh screen oversize flotation tails go directly to the tailings flotation pump box. The screen undersize passes through a fourth polishing grind mill of 9.5 x 12. The mill is operated at approximately 30% solid. The third polishing mill discharge is floated in flotation columns operating in closed loop. The 48 mesh screen undersize flotation concentrate is sent to the concentrate thickener and the 48 mesh screen undersize flotation tails go directly to the tailings flotation pump box. THICKENING, DRYING AND STORAGE The magnetic concentrate, -48 mesh screen concentrate and +48 mesh screen concentrate are thickened to 30% to 35% solid in a thickener. Flocculants are added to the thickener to help the sedimentation of concentrate and the clarification of the overflow. The thickened concentrate is sent to a horizontal belt filter. The majority of the filtrate water is recycled to the thickener while the filter cake at approximately 75% solid falls into a rotary dryer. The rotary dryer is used to dry the concentrate to approximately 99.5% solid. The dryer burner operates with light oil fuel. The combustion gas and water vapor are exhausted to the atmosphere by a ventilation system. Technical Report NI October 30, 2012 Page 17-13

139 The dry concentrate is then sent to a stock tank and later screened on a triple deck screen. The three decks opening are 48 mesh, 100 mesh and 200 mesh. The triple deck screen is completely enclosed and operates under a negative pressure. Each screen fraction product flows by gravity to its designated silo. An automatic sampler is installed at each silo feed. UTILITIES The following reagents are used throughout the process: Flocculants. Used in the thickener to improve the settling rate. Kerosene. Used in flotation cells to improve concentrate recuperation. Methyl Isobutyl Carbinol (MIBC). Used in concentrate and sulphide flotation cells. Potassium Amyl Xanthate (PAX). Used in sulphide flotation cells to improve acid tailings material separation. Light Oil. Used to supply fuel to the rotary dryer. TAILINGS The tailings are produced at a rate of 31.4 dry tph at approximately 34% solid. A portion of the tailings generated by the process will be acid generating and will be disposed of separately from the non-acid generating tailings. To do so, tailings are processed in a series of nine sulphide flotation cells of three cubic metres each for a total retention time of approximately 20 minutes. Once separated by flotation, acid tailings and non-acid tailings are pumped independently and disposed at different locations in the tailings pond to meet the deposition plan presented in the tailings pond management section of this report. ENERGY, WATER AND PROCESS MATERIALS CONSUMPTION Energy, water, and reagent consumption required to operate the process described above is summarized in Table Data shown in the table is on an annual basis. Technical Report NI October 30, 2012 Page 17-14

140 TABLE 17-5 ANNUAL ENERGY, WATER AND REAGENT CONSUMPTIONS Focus Graphite Inc. Lac Knife Project Description Units Annual Consumption Energy Jaw Crusher MWh 1,139 Cone Crusher MWh 1,139 Primary grind MWh 2,337 Secondary grind MWh 2,257 Polishing grind MWh 2,619 Pumping MWh 3,425 Other MWh 4,030 Total MWh 16,945 Reagent Kerosene kg 19,500 MIBC kg 33,000 Grinding steel kg 300,000 Grinding ceramic kg 120,000 PAX kg 25,336 Flocculant kg 1,399 Dryer Fuel kg 2,098,840 Water Total water t 595,163 Fresh water t 59,516 Table 17-5 shows that energy consumption of the various mills and crushers represents 56% of the global plant energy consumption. Fuel consumption by the dryer is also significant. EQUIPMENT LIST Table 17-6 presents a list of the major process equipment used as the basis for developing the capital cost estimate in Section 21 (Capital and Operating Costs). Technical Report NI October 30, 2012 Page 17-15

141 TABLE 17-6 MAJOR EQUIPMENT LIST Focus Graphite Inc. Lac Knife Project Equipment Description Number Crushing Jaw Crusher 410 kw 1 Cone Crusher 410 kw 1 Crushing Circuit Screen 1 Storage Silo 850 tonnes 1 Conveyors and feeders (all) 1 Grinding and Separation Primary Grind mill 5' x 6.5' 370 kw 1 Secondary Grind mill 12' x 14' 350 kw 1 Flash Flotation Cells 3 m 3 4 Flotation Cells (Roughers) 3 m 3 9 Cyclone Cluster 5 x Cyclone 8'' 1 Polishing Grinding Mill #1 10' x 12.5' 1 Polishing Grinding Mill #2 5' x 5.5' 1 Polishing Grinding Mill #3 5' x 5.5' 1 Polishing Grinding Mill #4 9.5' x 12' 1 Magnetic Separator 2 Flotation Columns 8 Grinding Circuit Screen 1 Grinding and Separation Pumps (all) Including sump pumps 1 Concentrate Thickening, Drying and Storage Thickener 1 Belt Filter 1 Rotary Dryer 1 Triple Deck Screen 1 Silos (2 sets of 4) 50 tonnes 8 Concentrate Thickening, Drying and Storage Pumps (all) Including sump pumps 1 Utilities Process Water Tank 1 Fresh Water Tank 1 Air System Dryer, Receiver, Compressor and Blower 1 Utilities Pumps (all) 1 Reagent Flocculants Preparation System 1 PAX Preparation System 1 MIBC Preparation System 1 Oil Tank 1 Reagent Pumps (all) Including sump pumps 1 Tailings Sulphide Flotation Cells 3 m 3 9 Tailings Pumps (all) 1 Technical Report NI October 30, 2012 Page 17-16

142 THERMAL PURIFICATION PROCESS The Project considers the thermal purification process of approximately 40% of the concentrate produced at the Lac Knife process plant. This portion of the primary concentrate production meets the specifications (+100 mesh, >95% Cgr) for a purification to 99.99% Cgr. Graphite concentrate of this purity is used in battery production and other applications at high prices. Focus has been provided with an expression of interest from an existing producer for the thermal purification on a contract basis. The producer would have the capacity for the purification of 20,000 tpa within 18 months from a commitment date between both parties. It has been assumed in the PEA that the purification would be done on a contract basis, with related losses of approximately 15%. There are two losses that need to be accounted for in the thermal purification process. The first is the shrinkage loss due to the thermal evaporation of the impurities which is approximately 5%. The second is the processing loss which is caused by the breakdown of some of the flake graphite during purification generating fines which are carried out in the off gases of the furnace and will range between 5% and 10%. Technical Report NI October 30, 2012 Page 17-17

143 18 PROJECT INFRASTRUCTURE The area of the proposed surface infrastructure totals approximately 95 ha and lies over two watersheds (see Figure 16-1, General Site Plan). With the exception of most of the tailings and waste rock storage facility, the Project infrastructure would be located within the Lac Knife watershed. The tailings pond effluent would be managed so that it enters Lac Knife through a water treatment plant and/or a polishing pond, or through an emergency spillway, in excess of the design storm. ROADS An existing dirt road provides direct access to the Lac Knife property. The 34 km access road to be developed as part of the Project has been assumed to follow the existing road corridor and will be a forest-class gravel road. Approximately 5 km of on-site roads are required for the mining operation and to access site buildings and other infrastructure. The service roads have a planned width of 10 m while the production roads from the open pit to the ore storage pad, primary crusher, overburden/top soil piles, and tailings and waste rock storage facility, have a planned width of 18 m. As waste rock from the open pit shows apparent acid-generating potential, the material for on-site road construction will have to come from outside borrow pits. POWER SUPPLY AND DISTRIBUTION Hydroelectric power is available at the existing Hydro-Québec Normand substation less than 30 km from the site. The maximum power demand will be in the order of 3.5 MW. The power line to the mine site will be approximately 45 km in length and will serve the process plant, accommodation camp, pumping stations, mechanical shop, warehouse, service buildings, and site lighting via an on-site substation near the mill and a local electric line network. Technical Report NI October 30, 2012 Page 18-1

144 FUEL STORAGE A central fuel storage system with tanks contained within a bunded area will be installed adjacent to the process plant and close to the mine services area. This fuel storage will mainly serve the concentrate drying system and refuelling requirements for the mine fleet and light vehicles. PARKING LOT A parking lot will be located at the security gate with a capacity to provide 40 spaces for visitors and personal cars of the workforce. BUILDINGS Two main buildings will be provided for use by site personnel during the operational phase of the mine, namely a service building and an accommodation camp. A security gatehouse will also be provided. These buildings will be installed in modules on a concrete base. The service building will be two storeys. Costs include the complete supply and installation of building foundations and mechanical and electrical equipment for all buildings and are provided in Section 21. ADMINISTRATION AND SERVICES OFFICE One part of the service building will provide office space to accommodate mine management, administration, and engineering/geology staff. A first aid room, training and meeting rooms, and a mine dry room will also be provided. GARAGE, MAINTENANCE SHOPS AND WAREHOUSE The other part of the service building will provide the following uses on the ground floor: A garage, incorporating a wash bay, mechanical bays and a welding workshop Other workshops for welders, carpenters, pump and accessories maintenance, and electrical and instrumentation workers Warehouse for parts storage Technical Report NI October 30, 2012 Page 18-2

145 The second floor will provide a cafeteria above the warehouse and offices for maintenance foreman above the electrical equipment maintenance area. ACCOMMODATION CAMP - OPERATIONS An accommodation camp will be constructed north of the industrial site to house the permanent mining and process plant workforce. It is anticipated that the camp will have a total capacity of approximately 55 people and will provide sleeping rooms, a kitchen/dining facility, a clinic, a laundry, and recreation facilities. ACCOMMODATION CAMP - CONSTRUCTION Temporary accommodation for the construction phase will be located adjacent to the site of the permanent accommodation camp. The temporary camp will be removed upon completion of construction. TELECOMMUNICATIONS Communications services for the Project will include existing commercial in-country cell phone systems, data/internet communications via satellite, and satellite cable services for television entertainment. TAILINGS AND WASTE ROCK STORAGE FACILITY A portion of the tailings and much of the waste rock will be acid-generating and as such require special management. Previous feasibility studies recommended that flooding of the waste rock and tailings would be the preferred method for both the operational and long term management of the wastes. In the past, it was commonplace to use a local lake basin for submersion of wastes but this approach has become less acceptable to regulators and increasingly unpopular with the public. Although lake disposal is still possible (subject to designation and approval by the Federal Minister of Environment), it is typically only applied when other alternatives are not reasonably available. As mentioned previously, the Lac Knife Project will co-dispose of the tailings and waste rock in a single purpose-built basin. This has the advantage of having only one disposal area which requires a smaller footprint and simplifies closure requirements. Technical Report NI October 30, 2012 Page 18-3

146 TAILINGS AND WASTE ROCK MANAGEMENT CONCEPT The management plan for the Project calls for the separation of the tailings into two tailings streams. These are a sulphide concentrate tailings stream and an inert non-acid-producing tailings. Testing will be required to verify the characteristics of the two tailings streams, however, it is expected the tailings will have the characteristics as shown in Table TABLE 18-1 CHARACTERISTICS OF ACIDIC AND CLEAN TAILINGS STREAMS Focus Graphite Inc. Lac Knife Project Stream Sulphide Concentrate Clean Non Acid Tailings Split 30% 70% Sulfur Content ~ 30% <1% Acid-Generating Potential ~1000 kg/t Non acidic The non-acid tailings are projected to have about 10% carbonate minerals and have a significant neutralization potential. This material will make excellent cover material for acidic tailings. For the projected mine life, ore, tailings and waste rock quantities are as shown in Table Total volume of tailings and waste rock requiring disposal are about 4.95 million tonnes (3.2 million m 3 ) and 6.7 million tonnes (3.35 million m 3 ) respectively. TABLE 18-2 ORE, TAILINGS AND WASTE ROCK QUANTITIES Focus Graphite Inc. Lac Knife Project Total Mass Material (t) Ore 6,000,000 Volume to dispose (m 3 ) Acid tailings 1,485, ,571 Clean tailings 3,465,000 2,357,143 Total Tailings 4,950,000 3,205,714 Waste Rock 6,700,000 3,350,000 Total Tailings + Waste 11,650,000 6,555,714 Annual production 582, ,786 Technical Report NI October 30, 2012 Page 18-4

147 Ministère du Développement durable, de l Environnement, de la Faune et des Parcs (MDDEFP) requires specific mitigation measures for ore and tailings management. Site Selection Previous studies have identified three tailings sites for three different process plant locations; one tailings storage facility (TSF) per mill location, and only one scenario with the process plant at Lac Knife. The previous TSF site at Lac Knife was located approximately one kilometre south of the open pit/process plant complex southwest of Lac Knife. A second site (Site 2) was identified at Lac Knife in this review and is located approximately 1.5 km south of the open pit / process plant in a valley at the southern end of Lac Knife. Either of these two sites could be developed to store the projected quantity of tailings; Site 2 has the lowest development costs and is the preferred location. Site 2 is within the current claim boundary and has been selected at this time to be the Project TSF for the preliminary economic assessment. Additional mapping and geotechnical studies for both Site 1 and 2 should be undertaken before a final selection is completed to confirm storage capacities and dam volume requirements. Site 2 Description Site 2 is an elongated valley extending from the south end of Lac Knife for approximately 1.5 km. The valley is bounded on the east by high ground. The central portion of the valley bottom is projected to have an elevation of 645 m (approximately two metres above Lac Knife). The Western ridge of the valley is lower ranging in elevation from approximately 653 m to 657 m. Although geotechnical testing has not been completed at this time, it is expected that the foundation soils will be comprised of low permeability soils (till) and bedrock. The basin will be formed by the construction of dams to the north and south for the initial stages. A low head dyke will also be required along the western perimeter. These structures will be raised in stages to expand capacity as production proceeds. The overburden (characterized as being a sand-cobble-boulder moraine till) will be used in dams/dyke construction with excess material stored in a stockpile on site. The total quantity of overburden required for tailings dam construction is about 690,000 m 3 which is somewhat greater than the expected mine overburden stripping. For this reason an overburden borrow pit would be required and located nearby at appropriate time. Should the overburden till not Technical Report NI October 30, 2012 Page 18-5

148 be acceptable for dam construction, alternative borrow sources at higher cost would need to be located. A general plan view of the tailings and waste rock storage facility is included in Figure CO-DISPOSAL MANAGEMENT CONCEPT As previously described, tailings will be discharged in two separate streams, one acidic and one clean non-acid. The Stage 1 pond will be raised with dam crests to an elevation of 656 m with water level at the m elevation. Based upon available mapping, the Stage 1 pond will have a capacity of approximately 2,200,000 m 3 (1,600,000 m 3 tailings and waste rock and 600,000 m 3 for water cover and storm water storage). Stage 1 will provide storage for about five years. Acidic tailings and waste rock will be disposed subaqueously below the m elevation. Clean tailings can beach the water level to enhance the capacity of the basin. Initial deposition of clean tailings will be from the northern dam. The objective will be to ensure there is a section of alkaline tailings against the dam. In Year 3, the clean tailings deposition will be moved to the southern dam to again allow for a barrier of alkaline tailings to be formed. Acidic tailings and waste rock will be placed internally within the basin at a minimum of 200 m from the north dam and the south dam. Stage 2 will see dam crests raised to an elevation of 659 m. This will provide a total capacity of approximately 4,100,000 m 3 for tailings, waste rock, and water storage and will meet the requirements of the current Project until Year 10. Acid tailings and waste rock would be disposed below the m elevation in the central portion of the basin. Stage 3 will see dam crests raised to an elevation of 664 m. This will provide a total capacity of approximately 7,100,000 m 3 for tailings, waste rock, and water storage and will meet the requirements of the current 20-year Project storage requirements. Acid tailings and waste rock would be disposed below the m elevation in the central portion of the basin. Technical Report NI October 30, 2012 Page 18-6

149 N Facility Figure Metres October 2012 Source: RPA 2012 Focus Graphite Inc. Lac Knife Project Quebec, Canada Tailings and Waste Rock Storage Facility 18-7

150 The storage capacity associated with each of the construction/raising stages is summarized in Table TABLE 18-3 TSF CAPACITY BY DEVELOPMENT STAGE Focus Graphite Inc. Lac Knife Project Stage Total Volume Available m 3 Available Storage waste/tailings m 3 Water Storage Requirement m 3 Stage Capacity Years Total Capacity Years Stage 1 (to 656 m elevation) 2,206,000 1,606, , Stage 2 (to 659 m elevation) 4,111,000 3,511, , Stage 3 (to 664 m elevation) 7,100,000 6,556, , (1) Note (1) Additional storage is provided in waste rock pore spaces and for alkaline tailings above the pond level. This will provide more than one million m 3 of additional storage. Clean tailings will be deposited from the dyke along the western perimeter to form a layer of alkaline tailings. As the basin sections become filled with acidic tailings and rock, they will be covered by alkaline tailings by deposition above pond level from the eastern and western perimeters. It is expected that at the time of closure 75% of all acidic waste will be covered by a layer of alkaline tailings. For the remaining areas, the tailings pond will be dewatered and clean tailings and/or residual overburden will be used to cover the tailings. The total surface area of the tailings and waste rock basin will be approximately 60 ha. At closure the pond water will be removed. The acidic materials will be 1.0 m to 1.5 m below ground surface, saturated and encapsulated in alkaline tailings. It is expected that the acidic material will remain saturated while the surface cover will be dry and vegetated leaving a stable surface for long term closure. The basin will include a decant structure or reclaim barge which will be used to reclaim water to the mill. Excess water will be directed to the polishing pond or treatment plant if required. It is expected that the ph of the tailings pond water will remain neutral through lime addition as necessary at the mill and that no treatment of the discharge should be necessary. An emergency spillway will also be provided to pass in excess of the design storm as stipulated in Directive 019. Figure 18-2 provides a north-south conceptual section of the tailings basin during operation and at closure. Technical Report NI October 30, 2012 Page 18-8

151 Not to scale Stage 1 - Operating Conditions North Dam - El. 656m Clean Pond maximum water level - El m South Dam - El. 656m alkaline tailings Submerged Acid Tailings and Submerged Waste acid Rock. tailings Top and el 628.5m waste rock Lac Knife Glacial till over bedrock (assumed) Projected water table at closure Stage 3 - Closure Conditions Cover will will be be alkaline tailings with overburden as required North Dam - El. 664m Clean alkaline tailings Summerged Acid tailings and Saturated Waste acid Rock. tailings Top and el m waste rock Final South Dam - El. 664m Lac Knife Glacial till over bedrock (assumed) Figure 18-2 Focus Graphite Inc. October 2012 Source: RPA 2012 Lac Knife Project Quebec, Canada TSF Conceptual North-South Section

152 SOLID WASTE MANAGEMENT Allowance is provided for a small landfill adjacent to the tailings area to manage nonhazardous industrial and domestic waste. The landfill will be a trench disposal system with cells excavated in glacial till and routinely covered. WATER SUPPLY AND WASTE WATER MANAGEMENT MINE WATER AND ORE STORAGE WATER Mine water will arise primarily from precipitation falling directly on the pit as well as a small amount of groundwater from the pit walls. Hydrogeological studies have not yet been completed but it is assumed that maximum mine water flows be approximately seven litres per second. All water from the mine will be directed to a primary sump in the pit where settling and short term water storage will be provided as necessary. The water will be pumped to a water treatment plant located approximately one kilometre south of the pit. It is expected that mine water will become acidic and as such pumps and pipelines will be designed to handle acidic drainage by being constructed of stainless steel and plastic respectively. The ore storage water, also arising from precipitation, will be stored in a sump within the foundation of the pad and then be pumped as necessary to the water treatment plant via the mine water pipeline. As with the mine water, this water has the potential of being acidic. Total drainage from the site would be minor at about 2,000 m³/y to 3,000 m³/y. A two litre per second pump would be used to transfer water to the mine water pipeline. TAILINGS WATER Tailings water will be reclaimed for use in the mill and will meet virtually all process water demands excepting for mandatory freshwater uses (potable water, pump seals, some reagent makeup). Given losses of process waste water to tailings porewater, it is unlikely the discharge from the tailings basin would exceed that from precipitation and runoff waters from the local watershed. A preliminary water balance assessment on the tailings pond suggested that for a one square kilometre watershed, the annual runoff will be approximately 400,000 m 3 /y or approximately 12.6 L/s. Runoff will vary seasonally ranging from essentially no discharge in the winter to >100 L/s during high runoff events. Technical Report NI October 30, 2012 Page 18-10

153 Tailings water is expected to meet discharge quality requirements with the possible exception of total suspended solids. The overflow will be discharged to the polishing pond located adjacent to the north end of the tailings pond. Should treatment be required, the tailings decant overflow would be blocked and the discharge pumped to the treatment plant via the reclaim pipeline which passes beside the treatment plant. POLISHING POND The polishing pond will be located at the site of an existing shallow pond adjacent to the proposed tailings area. The existing pond is expected to completely freeze in the winter and as such is not considered to constitute fish habitat (to be confirmed). The existing pond covers an area of approximately two hectares and is believed to have a mean depth of less than one metre. The polishing pond will be raised by the construction of a small dyke at the outlet valley which will allow for a pond with a water capacity of approximately 50,000 m 3. This will provide a nominal settling time of more than one month at average discharge conditions. The polishing pond will be equipped with a stop-log structure and overflow weir to allow for flow monitoring. The ph and flow will also be monitored at the point of discharge from the pond. WATER TREATMENT PLANT The water treatment plant will be located to the south of the mine adjacent to the polishing pond. The plant size has been designed to process: 7 L/s from the mine; and 25 L/s from the tailings pond (twice mean effluent flow should treatment be required). The only requirements for treatment are neutralization to manage acidity and settling for control of suspended solids and iron precipitates. The plant includes: an agitated reactor for mixing lime (capacity 15 m³); an agitated lime storage tank (capacity 10 m³); a ph control system to control lime addition (lime loop and pinch control valve); a flocculent makeup and storage package plant; and a building to house equipment complete with heating and ventilation (50 m²). Lime demand is not known at this time. Assuming a 200 mg/l demand for treatment of mine water at a rate of seven litres per second, the daily lime demand would be approximately 120 Technical Report NI October 30, 2012 Page 18-11

154 kg or 1.2 m³/d of 10% lime slurry. It is likely that small amounts of iron precipitate will be formed and these will be settled in the polishing pond. If in the future iron levels in the mine water become elevated, there may be a need to install a clarifier to separate and manage the iron precipitate. Allowance has been included in the operating costs for sediment/precipitate removal. WATER SUPPLY The Project will have three sources of water: 1. Drilled wells (two) to provide potable water to the site 2. Reclaim water from the tailings basin 3. Makeup raw water from Lac Knife The wells will need to provide approximately 21 m³/d of water (assuming 70 people on site at 300 L/d). It should be noted that no well testing or construction has been completed to date. The reclaim water from the tailings pond will be the primary source of water for the mill except during start-up and periods when the reclaim line is not in service. For the 822 tpd operation at the mill, there could be a need for upwards of 1,000 m³/d to 2000 m³/d of makeup water when the reclaim line is not available. Under most conditions, water use would be less than 200 m³/d. Water for fire hydrants will be supplied from Lac Knife. The water will be pumped to a tank dedicated for fire emergencies. Six fire hydrants will be connected by a 200 mm diameter HDPE pipe and will be used to provide fire protection around the mine site. SEWAGE DISPOSAL The current plan is to provide two septic tank/tile field systems, one to serve the mill and service buildings, and one for the accommodation camp. The global capacity is projected to handle total daily flows of 21 m³/d and the two wastewater treatment systems would be located adjacent to the mill and close to the accommodation camp respectively. In the event that soil conditions are not suitable, small package sewage plans could be considered with the treated discharge directed to the tailings pump box. Technical Report NI October 30, 2012 Page 18-12

155 19 MARKET STUDIES AND CONTRACTS GRAPHITE MARKETS AND PRODUCT PRICES GRAPHITE MARKETS Natural graphite is used in a wide variety of applications ranging from refractories to lubricants to electrodes to anode materials in batteries. Refractory applications account for the single largest segment of demand, followed by various applications in steelmaking and the foundry industries. Friction products such as brake linings are also a significant consumer of graphite. There are numerous small volume applications ranging from heat management applications for electronic devices to pencils which represent in total a significant portion of demand. Battery applications are emerging as a significant end use. Synthetic graphite is used as the cathode material in alkaline batteries and very high purity natural flake graphite is preferred as the anode material in lithium ion batteries. Volume requirements in anode applications can be particularly significant; for example, estimated graphite/lithium requirements in popular lithium ion battery anode compositions, according to Argonne National Laboratory (2009), are: Lithium nickel/cobalt/aluminum (NCA) Lithium iron phosphate (LFP) Lithium manganese oxide (LMO) 8 kg graphite/kg lithium 13 kg graphite/kg lithium 15 kg graphite/kg lithium Natural flake graphite is also preferred for use as a separator material in fuel cell applications. Figure 19-1 illustrates the current (2011) estimated distribution of graphite consumption in the United States. Technical Report NI October 30, 2012 Page 19-1

156 FIGURE 19-1 ESTIMATED DISTRIBUTION OF GRAPHITE CONSUMPTION - UNITED STATES 2011 Source: US Geological Survey World production of natural graphite is dominated by China and India. The US Geological Survey reports the following distribution of production for the 2006 to 2010 period (Table 19-1). World production of graphite is estimated at approximately 2.5 Mt in 2011 (Industrial Minerals, March 2012). Natural graphite accounted for approximately one million tonnes of production, with the remaining being synthetic graphite. Within the natural graphite segment, an estimated 400,000 tonnes is represented by flake graphite and the rest is lower grade amorphous graphite. Within the synthetic graphite segment, formed bodies such as electrodes and crucibles account for approximately 1.4 million tonnes, and powder approximately 100,000 tonnes (Industrial Minerals, March 2012). Estimated world flake graphite production in 2012 is projected to be 528,000 t (Industrial Minerals, March 2012). China is the dominant producer, with an estimated 66% share of production, followed by South America (primarily Brazil) at 18%, other Asia (mainly North Korea) at 9%, North America at 4% and Europe at 2%. Other sources account for approximately 1% of estimated world production of natural flake graphite. Technical Report NI October 30, 2012 Page 19-2

157 TABLE 19-1 ESTIMATED DISTRIBUTION OF NATURAL GRAPHITE PRODUCTION 2006 TO 2010 Focus Graphite Inc. Lac Knife Project Country 2006 (t) 2007 (t) 2008 (t) 2009 (t) 2010 (t) Austria ,000 Brazil, marketable 76,194 (3) 77,163 (3) 76,200 r, (3) 76,200 76,000 P Canada 28,000 28,000 27,000 25,000 25,000 China 720, , ,000 r 450,000 r 600,000 Czech Republic 5,000 3,000 3, India, run-of-mine (4) 120, , , , ,000 Korea, North 30,000 30,000 30,000 30,000 30,000 Korea, Republic of 68 (3) 52 (3) 73 r, (3) 48 r 50 Madagascar 4,857 (3) 5,421 r 5,000 e 5,000 5,000 Mexico, amorphous 12,500 12,500 7,229 r, (3) 5,011 (3) 6,759 Norway 2,300 2,000 2,000 2,000 2,000 Romania ,000 r 20,000 Sri Lanka 5,756 r, (3) 9,593 6,615 r 7,000 r 8,000 Sweden Turkey, run-of-mine (5) ,236 r, (3) 2,400 r, (3) 3,000 Ukraine 5,800 r 5,800 5,800 5,500 r 5,800 Uzbekistan Zimbabwe 6,588 (3) 5,418 r, (3) 5,134 r, (3) 2,463 r, (3) 2,000 Total 1,020,000 1,110, ,000 r 762,000 r 925,000 Source: US Geological Survey Notes: p Preliminary. r Revised. e Estimated. -- Zero (1) World totals and estimated data are rounded to no more than three significant digits; may not add to totals shown (2) Table includes data available through May 4, 2011 (3) Reported figure (4) Indian marketable production is 10% to 20% of run-of-mine production. (5) Turkish marketable production averages approximately 5% of run-of-mine production. Almost all is for domestic consumption. Technical Report NI October 30, 2012 Page 19-3

158 The demand for natural flake graphite is projected to increase very rapidly in the next few years. The US Geological Survey projects a requirement to double natural flake production. This rapid increase in demand is due to two factors: unit growth in high demand applications such as lithium ion batteries, and the requirement for spherical graphite. Spherical graphite is produced from high purity natural flake graphite. Process yields in production are currently quite low, typically only 25% to 30%. Synthetic graphite can be substituted in some applications, but has poorer technical performance compared to natural graphite. GRAPHITE PRICES Graphite prices are based on product quality and particle size. In general, higher purity, larger flake natural graphite commands a price premium over lower quality, smaller flake natural graphite. Amorphous graphite is typically lower quality and much finer in grain size than flake graphite and commands much lower prices. Synthetic graphite is generally high priced, with very high purity material commanding a significant price premium. Lower quality synthetic graphite is typically priced at approximately the same level as high quality, medium size flake graphite, although there can be major variations from the general norm. Current (September 2012) published prices for various grades of natural and synthetic graphite are detailed in Table 19-2 (bold type denotes reference price ranges for the Project's major product opportunities). Figures 19-2 and 19-3 illustrate trends in graphite pricing from January 2005 through September As can be seen, prices can fluctuate significantly. Since late 2010 there has been a rapid run-up in prices, with some retraction in the past few months. Expectations are that prices may continue to decrease over the next few months and then stabilize as the world economy gradually recovers. Thereafter, prices are anticipated to increase to accommodate the entry of new producers required to meet the forecasted increase in demand for high purity flake graphite. Technical Report NI October 30, 2012 Page 19-4

159 TABLE 19-2 GRAPHITE PRICES SEPTEMBER 2012 Focus Graphite Inc. Lac Knife Project Grade Basis Unit Price Range Large flake, 94%-97%C, +80 mesh FCL, CIF European port US$/t 2,200 1,800 Medium flake, 94%-97%C, mesh FCL, CIF European port US$/t 1,900 1,600 Fine flake, 94%-97%C, -100 mesh FCL, CIF European port US$/t 1,500 1,200 Crystalline, 90%C, +80 mesh FCL, CIF European port US$/t 2,000 1,400 Crystalline, 90%C, mesh FCL, CIF European port US$/t 1,450 1,150 Crystalline, 90%C, -100 mesh FCL, CIF European port US$/t 1,400 1,100 Crystalline, 85%-87%C, mesh FCL, CIF European port US$/t 1,300 1,000 Amorphous powder, 80%-85%C, Chinese FCL, CIF European port US$/t Synthetic, 99.95%C, Swiss Swiss border US$/kg 20 7 Synthetic, fine, 97%-98%C CIF Asia US$/t 1, Synthetic, fine, 98% -99%C CIF Asia US$/t 1,500 1,000 Source: Industrial Minerals, September 2012 FIGURE 19-2 NATURAL GRAPHITE PRICES 2005 TO SEPTEMBER 2012 Graphite Prices $3,500 $3,000 $/t, del. European Port $2,500 $2,000 $1,500 $1,000 Large flake, 94%-97% C, +80 mesh Medium flake, 94%-97% C, mesh Fine flake, 94% - 97% C, -100 mesh Crystalline, 90% C, +80 mesh Crystalline, 90% C, mesh Crystallline, 90% C, -100 mesh Crystalline, 85%-87% C, mesh Amorphous powder, 80%-85% C, Chinese $500 $0 Jan Sept 2012 High Jan Sept 2012 Low Average Moving Quarterly Average Technical Report NI October 30, 2012 Page 19-5

160 FIGURE 19-3 GRAPHITE PRICE TRENDS 2005 TO SEPTEMBER 2012 $3,000 Graphite Prices by Grade Quarterly Average of High and Low Range $2,500 Quarterly Moving Average, $/t $2,000 $1,500 $1,000 Large flake, 94%-97% C, +80 mesh Medium flake, 94%-97% C, mesh Fine flake, 94% - 97% C, -100 mesh Crystalline, 90% C, +80 mesh Crystalline, 90% C, mesh Crystallline, 90% C, -100 mesh Crystalline, 85%-87% C, mesh Amorphous powder, 80%-85% C, Chinese $500 $0 PROJECT MARKETS AND PRICES Focus has initiated contacts with several major graphite consuming groups in North America, Europe, and Asia. Marketing efforts have been targeted to high value end users requiring superior quality product in terms of flake size and product purity. To date, Focus has identified the following major product opportunities: Ultra high purity thermo processed battery grade product based on large flake, high purity concentrate Medium to fine flake graphite concentrate, mesh, +90% Cgr concentrate Fine flake concentrate, -200 mesh, +80% Cgr concentrate Production quantities for each major grade category are based on the lock-cycle concentrate production test results and test recovery results from proprietary thermal purification processing of the high grade concentrate. Projected overall product volumes and product qualities are detailed in Table Technical Report NI October 30, 2012 Page 19-6

161 TABLE 19-3 PROJECTED PRODUCT MIX Focus Graphite Inc. Lac Knife Project Grade Tonnes (maximum annual) (1) Product Characteristics Battery Grade 16,900 (2) >99.95% Cgr, +100 mesh Medium Grade 11,200 >90% Cgr, mesh Fine Grade 15,500 >80% Cgr, -200 mesh Total 43,600 Notes: 1. Totals are rounded. 2. Inclusive of conversion recovery factor from 19,900 t of primary concentrate. 3. Cgr graphitic carbon. The projected product mix is based on expressions of interest received from various potential customers in North America, Europe, and Asia. Potential customers have provided Focus with product quality requirements and projected annual demand. RPA has reviewed these expressions of interest. Multiple product enquiries have been received for the various grades, with total potential demand exceeding the available production limits indicated elsewhere in this report. Focus has provided trial quantities of product to potential customers and has received a positive response from them. RPA is satisfied that there are sufficient indications of demand to support the projected production forecast. On this basis, it is RPA s opinion that the Project meets the requirements for reasonable prospects for production RPA has reviewed various price scenarios and has assumed the following price assumptions in its economic analysis: Battery Grade, 99.95% Cgr: US$10,000/t FOB mine (US$9,572/t CIF equivalent) +200 mesh, >90% Cgr: US$1,300/t FOB mine (US$1,237/t CIF equivalent) -200 mesh, >80% Cgr: US$800/t FOB mine (US$600/t CIF equivalent) Freight and insurance costs are projected to be approximately $63/t for product sold to customers in the United States, $200/t for deliveries to Europe and $428/t for deliveries to Asia. Technical Report NI October 30, 2012 Page 19-7

162 MARKETING CONCLUSIONS RPA considers these graphite prices to be appropriate for a PEA-level study, however, RPA notes that the recent market volatility introduces considerably more uncertainty than a comparable base or precious metals project. CONTRACTS No contracts relevant to the PEA have been established by Focus. Focus has not hedged, nor committed any of its production pursuant to an off-take agreement. Technical Report NI October 30, 2012 Page 19-8

163 20 ENVIRONMENTAL STUDIES, PERMITTING, AND SOCIAL OR COMMUNITY IMPACT ENVIRONMENTAL STUDIES Roche carried out very preliminary baseline and limited environmental studies on the Lac Knife Project in 1989, 1990 and 1991, and conducted an environmental audit in SENES Consultants Ltd. has subsequently reviewed and supplemented or updated this information where necessary under the current PEA. ENVIRONMENTAL SITE CHARACTERIZATION The region is characterized by a hilly topography (about 50 m 100 m high). Valleys are typically covered by small creeks and peatlands. The area is partially forested with lichens on barren lands which is typical of this part of the Boreal Region. The forest is considered to have no material commercial value. The area is host to mammals including big game animals (black bear, moose, and woodland caribou). The woodland caribou is considered as threatened in Canada (Species at Risk Act) and vulnerable in Québec (Loi sur les espèces menacées ou vulnérables; L.R.Q., c. E-12.01). Soil samples collected near graphite outcrops during the 2010 environmental audit showed sulphur content exceeding Level C criteria of the Soil Protection and Contaminated Lands Rehabilitation Policy published by MDDEFP. Waters sampled collected in 1989 in the study area were mainly neutral, very soft, had a low suspended solids content, and were poorly mineralized (low conductivity, low ion content and low dissolved solids levels). Metal content was also low (except for iron and zinc). Water samples collected during the 2010 environmental audit showed low ph for stations located downstream from graphite deposits and outcrops, but near neutral ph for upstream stations. During the 2010 environmental audit, no organoleptic signs (odours, stains, iridescence) of contamination on the surface of the property (camp and mineralized outcrops) or in the surrounding area were observed. Barrels of petroleum hydrocarbons (diesel fuel and other hydrocarbons) present at various locations on the property in the early 2000s were not seen Technical Report NI October 30, 2012 Page 20-1

164 during the visit. The barrels were quite likely appropriately disposed of (transported to Fermont) as part of the rehabilitation of the property in summer 2009 by IAMGOLD. It is, however, possible that they may have been buried on site as there is no proof of their transportation to Fermont for disposal. IAMGOLD may be able document the 2009 reclamation. No other material liabilities were found in the 2010 audit by Roche. The mine site characterization work completed to date provides some information on site characteristics but additional data will be required to meet the requirements of Directive 019 sur l industrie minière (as amended March 2012). Information will be required on the following: Ground water characteristics. A series of groundwater wells will be required to gather baseline information down gradient of the tailings dams (assume 5 wells). Water quality and Hydrology. Baseline studies on water quality and flows in the region will need to be updated. Archaeological/historical resources survey of the mine footprint. Fisheries investigation of the proposed polishing pond to confirm it is not fish-bearing waters. Inventory of terrestrial flora and fauna in the mine site and region. Inventory/description of the social (human) environment TAILINGS CHEMICAL CHARACTERISTICS Samples of tailings were obtained in previous investigations conducted between 1989 and The tailings are acid-producing containing about 10% sulphur. Static acid rock drainage testing was completed. The tailings are primarily comprised of silicate minerals as shown in Table Chemical analyses of the samples are shown in Table As a general comment, the tailings are acid-generating and contain low levels of heavy metals other than iron. Technical Report NI October 30, 2012 Page 20-2

165 TABLE 20-1 MINERALOGY OF TAILINGS SAMPLES Focus Graphite Inc. Lac Knife Project Major phases (based on X-ray diffraction and optical microscopy) Quartz : SiO 2 Phlogopite : K 2 (Mg, Fe) 2 [Si 6 Al 2 O 20 ] (OH, F) 4 Muscovite :K 2 Al 4 [Si 6 Al 2 O 20 ] (OH, F) 4 Diopside : CaMg [Si 2 O 6 ] Pyrrhotine : Fe (1 x) S Calcite : CaCO 3 (with a little MgCO 3 ) Minor phases (based on X-ray diffraction and optical microscopy) Plagioclase : Ca [Al 2 Si 2 O 8 ] + Na [AlSi 3 O 8 ] (few) Trace phase (based on X-ray diffraction and optical microscopy) Chlorite : (Mg, Al, Fe) 12 [(Si, Al) 8 O 20 ] (OH) 16 Sphalerite : ZnS Limonite : FeO (OH) (H 2 O)x Graphite : C Source: Centre de Recherches Minérales du Québec (in Roche 1990) TABLE 20-2 CHEMICAL ANALYSIS OF TAILINGS Focus Graphite Inc. Lac Knife Project Chemical Compound 8903 (%) Compound 8906 (%) Source: Roche 1990 SiO Al 2 O Fe 2 O MgO CaO Na 2 O K 2 O TiO MnO P 2 O Zn S 8.3 (1) 11.9 (2) Cg Notes: 1. Real analysis in laboratory tests: 7.7%S 2. Real analysis in laboratory tests: 11.6%S Technical Report NI October 30, 2012 Page 20-3

166 WASTE ROCK CHEMICAL CHARACTERISTICS Waste rock samples have been analyzed and it is apparent that the majority of waste rock is acid-producing as shown in Table TABLE 20-3 ACID GENERATION RESULTS WASTE ROCK SAMPLES Focus Graphite Inc. Lac Knife Project Parameter Sulphur % Initial ph Final ph Buffer capacity Theoretical production of acid (kg/t) Acid potential yes yes yes yes yes yes yes yes yes yes Parameter Sulphur % Initial ph Final ph Buffer capacity Theoretical production of acid (kg/t) Acid potential yes no yes yes yes yes yes yes yes yes Source: Cambior (1991) in Roche 2012 ENVIRONMENTAL MANAGEMENT AND MONITORING PROGRAMS ENVIRONMENTAL MANAGEMENT Focus is committed to a high standard of environmental health and safety performance and as such is developing management systems for the site consistent with ISO and OSHA Standards. Environmental and safety control officers will work at the site to implement the daily management requirements and assure the site is meeting all monitoring and reporting requirements for its permits and safety programs. These personnel will report to the mine manager or his designate. Technical Report NI October 30, 2012 Page 20-4

167 ENVIRONMENTAL MONITORING REQUIREMENTS The operational monitoring requirements for the mine site will be set out in the Certificate of Authorization (CA) for the mine to be issued by the MDDEFP under the Environmental Quality Act. Generic requirements for environmental monitoring are outlined in Directive 019 (updated March 2012). These include: 1. Effluent sampling. Parameters and frequency of effluent sampling are stipulated. The requirements are: continuous flow and ph monitoring for flows exceeding 1000 m 3 /d on average; measure flow, total suspended solids (TSS), and ph three times per week; weekly sampling for As, Cu, Pb, Zn, Fe and Ni (total metals); monthly toxicity sampling; and annual scans per Table 2.4 of Directive Contaminated drainage. Contaminated water from the mine, stockpiles or other contaminated areas must be sampled quarterly and analyzed for ph, flow, As, Cu, Pb, Zn, Fe and Ni (total metals). 3. Groundwater. Groundwater monitoring is required at the tailings pond. The sampling requirements include: Semi-annual sampling for ph, As, Cu, Pb, Zn, Fe and Ni (dissolved metals) as well as major ions (Ca 2+, HCO 3 -, K +, Mg 2+, Na +, SO 4 2- ) and electrical conductivity. 4. Reporting. Directive 019 stipulates the requirements and formats for submission of monthly and annual reports. Post Closure monitoring requirements are outlined in section 2.10 of Directive 019. During the reclamation period, monitoring requirements remain essentially unchanged from the operation phase. After about six months, sampling frequency may be reduced. Once reclamation is complete, sampling frequency is reduced to bi-monthly for a minimum period of 5-10 years. For the Lac Knife Project, the monitoring period would be 10 years given the presence of acidic tailings, waste rock, and pit walls. PROJECT PERMITTING PROVINCIAL REQUIREMENTS The Fermont Region is home to many current and historic mining operations. Permitting is typically straightforward and no Environmental Impact Assessment (EIA) will be required for Technical Report NI October 30, 2012 Page 20-5

168 the Lac Knife mine if the Project remains at <7,000 tpd. Major permits are issued by Québec Regional Office of the MDDEFP. There are currently no permits in place to allow for mining at the site, however, the following is a list of key permits which will need to be obtained. CERTIFICATES OF APPROVAL The primary environmental permit required for a mine in Québec is a CA which is issued by the MDDEFP. Directive 019 under section 22 of the Environmental Quality Act describes in detail the requirements for permitting of the mine. This includes measures for monitoring, design of the tailings basin, characterization of the environment, water and wastes and requirements for reporting. A CA under Section 22 (for sewage treatment and water works), Section 48 (air emission controls) and section 54 (solid waste management) will also be required. MINING LEASE The mining lease is obtained through the Ministère des Ressources naturelles (MRN). CLOSURE PLAN A closure plan must be filed and approved by the MRN in accordance with requirements of the Mining Act. The plan must include details of how the site will be reclaimed and provide a budget for the reclamation works. Financial assurance must be posted to cover the closure costs. OTHER REQUIREMENTS There are other permits which may include CAs for the power line (normally obtained by Hydro-Québec) and/or the access road, and a Waste Generator Number (for transport of hazardous materials). The Lac Knife Project is located north of the 49 th parallel and therefore within the area of the Plan Nord, an area of nearly 1.2 million km 2 promoted for economic, social, and environmental development by the Québec Government, announced in May On February 5, 2012 the provincial government unveiled the guidelines that are to frame the government s commitment to dedicate 50% of the area of the Plan Nord territory to environmental protection, safeguarding biodiversity, strengthening the natural heritage and non-industrial development by The implications of Plan Nord on mining at this site are Technical Report NI October 30, 2012 Page 20-6

169 uncertain, however, it is considered unlikely that the plan will materially impact upon the development. According to the zoning legislation of the MRC de Caniapiscau, all activities are allowed in the territory covered by the Lac Knife Project, including mining. The Moisie River planned aquatic reserve is located west and south of the property at relatively short distance along the Rivière aux Pékans. FEDERAL GOVERNMENT The Federal government may or may not be involved in the permitting process and this will depend upon whether there is a Federal permit or approval required which triggers an assessment under Section 5 of the Canadian Environmental Assessment Act (CEAA). The provisions of the CEAA would be triggered if a lake was required for disposal of mine waste / tailings or if fisheries habitat would be altered or destroyed by any of the Project s components, including the access road. The Federal triggers in this case would be the designation of a lake by the Minister of the Environment (under Schedule 2 of the Metal Mining Effluent Regulation) and compensation for alteration, disruption, or destruction of fish habitat (addressed under section 35 of the Fisheries Act). The proposed development as currently envisaged should not trigger a Federal review under CEAA, subject to further investigations at the polishing pond location and the existing/proposed road corridor. SOCIAL OR COMMUNITY REQUIREMENTS The Lac Knife property is located in the regional municipality county (MRC) of Caniapiscau which is located north of the 55 th parallel and extends to the provincial border with Newfoundland and Labrador to the east. Although there are no local population centres, the Project is located within the Québec Innu traditional hunting territory. The Aboriginal community of Uashat mak Mani-Utenam (ITUM) is divided into two bands the Uashat and the Mani-Utenam. Both are located in the Sept-Îles area, about 300 km south of Fermont. The sustainable use of the forests and, more precisely, the wildlife are important values within the Innu culture. In the past, the resources Technical Report NI October 30, 2012 Page 20-7

170 were used for survival but later became exchange goods, for example for the fur market. The decline of the fur trade market has had a significant impact on the traditional way of life, however the land is still used by the Innu for hunting, trapping and fishing. Focus has proposed to meet with the communities and determine if there are any issues or concerns with the development and how it would affect their traditional use of the area. As noted in the Project Permitting sub-section above, the Lac Knife Project is within the Plan Nord territory and the implications on mining at this site are uncertain. The Project area is accessible by an access road connecting to highway 389. The access road to the property is also used as snowmobile trail in the winter. The Fermont region receives its electricity from the Normand station, a 315 kv power line coming from the Montagnais station. Also, Hydro-Québec projects the construction of a new power line of 315 kv (Montagnais-Normand). There is also the Hart-Jaune power station along highway 389. MINE CLOSURE REQUIREMENTS TAILINGS AND WASTE ROCK CO-DISPOSAL FACILITY The concept for closure is to have all acidic waste saturated and covered by alkaline tailings or residual overburden from the overburden stockpile. For planning purposes it was assumed that at closure the pond would be removed and 25% or about 15 ha of tailings would remain uncovered by alkaline tailings. This will require a minimum of 150,000 m 3 of additional tailings or overburden to be relocated to assure the surface is covered with a minimum of 1.0 m to 1.5 m. Once covered, the final 60 ha would be graded for drainage control and the surface will be vegetated. OPEN PIT The plan is to allow the pit to flood. The expected volume of the pit to the overflow is approximately five million m 3. Annual drainage to the pit at seven litres per second would approximately be 220,000 m 3 /y. If allowed to flood naturally it would take about 22 years to flood. During this period the mine would fill with acidic water. In order to reduce the time for flooding, the excess water in the tailings pond (~500,000 m 3 ) and additional site drainage Technical Report NI October 30, 2012 Page 20-8

171 could be diverted to the pit and water could be pumped from Lac Knife. This should reduce the flooding time to 2 to 3 years. Lime would be added to the pit during flooding to assure that once flooded, the overflow will be neutral. It is assumed that approximately 100 t of lime will be required during the flooding period. Once flooded only a small portion of the high wall will remain exposed and could produce some acidic drainage. Given the high carbonate content of the residual low grade ore material left in the pit, it is likely that adequate alkalinity will be present to prohibit acid conditions from occurring. POLISHING POND At closure, the polishing pond dam would be breeched and the basin dewatered to allow for removal accumulated sediment and sludges. These materials would be disposed in the tailings pond or open pit. Provision has been included in the operating costs for cleaning the pond in year 10 and year 21. ORE STORAGE PAD At closure, the contaminated sand would be excavated and disposed in the tailings pond. The liner would be removed and disposed. The disturbed area would be graded and vegetated. OVERBURDEN AND TOPSOIL PILES At closure, the remaining overburden, if any, and the topsoil would be used for land reclamation purposes. The disturbed areas would be graded and vegetated. SOLID WASTE LANDFILL At closure, the small landfill adjacent to the tailings area to manage non-hazardous industrial and domestic waste would ultimately be covered/graded with glacial till and vegetated. BUILDINGS AND INFRASTRUCTURE The intention is to demolish the buildings and dispose of the rubble in the pit. Where feasible, scrap metals will be recovered and recycled. The disturbed areas will be graded and seeded. Technical Report NI October 30, 2012 Page 20-9

172 21 CAPITAL AND OPERATING COSTS CAPITAL COST ESTIMATES SUMMARY The mine, mill, and site infrastructure costs are summarized in Table All costs in this section are in 2012 Canadian dollars unless otherwise specified. TABLE 21-1 CAPITAL COST SUMMARY Focus Graphite Inc. Lac Knife Project Cost Area Initial (C$ 000) Sustaining (C$ 000) Surface Infrastructure 18,749 3,366 Mining (incl. pre-stripping overburden/waste) 11,208 3,924 Processing 36,359 5,454 Tailings / Waste Rock & Water Treatment 3,067 9,132 EPCM (14%) 9,734 0 Indirect/Owner's (24%) 16,652 0 Warehouse Inventory Contingency (25%) 24,175 0 Working Capital (3-month opex) 32,629 0 Closure and Reclamation 0 3,588 Total 153,507 25,464 The initial capital cost and the sustaining capital are respectively C$153.5 million and C$25.5 million. The full recovery of initial capital cost related to the working capital (three-month operating costs), and the recovery of half of the warehouse inventory initial cost, during the last year of the LOM, decrease the overall total. The total capital cost (Initial plus Sustaining less Working Capital and Inventory) considered for the purpose of this economic analysis is C$145.9 million. Capital costs were estimated using cost models, unit prices, suppliers budget quotes, preliminary designs, general industry knowledge and experience, and other information from recent similar projects. Technical Report NI October 30, 2012 Page 21-1

173 Engineering, procurement, and construction management (EPCM), indirect/owner's and contingency for all capital cost components vary according to cost area. In order to estimate these cost items, specific factors were used; namely, 14% and 24% factors for EPCM and indirect/owner's costs respectively were applied to initial direct capital costs, while a 25% factor for contingency costs was applied to both initial direct and indirect (including EPCM and warehouse inventory) capital costs. No EPCM, nor contingency, were applied on the working capital. SURFACE INFRASTRUCTURE Surface infrastructure costs include general site preparation, construction of on-site roads and the 34 km access road, buildings construction, equipment and furniture, power supply and distribution, fluid pumping networks, fuel storage and distribution, and fire protection. Surface infrastructure capital costs are shown in Table TABLE 21-2 SURFACE INFRASTRUCTURE CAPITAL COST Focus Graphite Inc. Lac Knife Project Cost Area Initial (C$ 000) Roads (34-km access, upgrade from existing) 3,950 Site Preparation (Civil Work) 600 Service Buildings and Fuel Station 2,250 Accommodation Camp 3,190 Explosive Magazines, Gate House 500 Construction Mobile Equipment 75 Power Supply and Distribution 7,602 Telecommunications 582 Total 18,749 Sustaining capital for surface infrastructure was estimated at $187,000 annually from Year 2 to Year 19 inclusively, which totals $3.4 million over the LOM. MINING Mining capital costs include mining equipment fleet purchases, open pit site preparation, overburden, and waste pre-stripping, ore stockpile footprint preparation, overburden and topsoil pile footprint preparation, all ditches and other ancillary installations. Technical Report NI October 30, 2012 Page 21-2

174 Equipment is the most expensive cost item of the mine capital. Mine fleet was estimated based on open pit operations of a similar scale. Equipment costs were obtained from suppliers on the basis of budget quotes. Unit costs were applied to overburden and waste quantities to be extracted during the preproduction period in order to estimate related capital. Mining capital costs are summarized in Table TABLE 21-3 MINING CAPITAL COST Focus Graphite Inc. Lac Knife Project Cost Area Initial (C$ 000) Mining Equipment 6,073 Overburden Stripping 3,213 Waste Pre-Stripping 1,372 Site Preparation and Ditches 550 Total 11,208 The sustaining capital for mining is estimated to be $3.9 million over the LOM. This includes $11,000 and $425,000 every two years, from Year 2 to Year 18 inclusive, respectively for ditches maintenance and the replacement of the mining fleet during the LOM. PROCESSING The overall processing facilities as described in Section 17 are estimated at $36.4 million, using similar factored plant costs. The cost breakdown is summarized in Table Technical Report NI October 30, 2012 Page 21-3

175 TABLE 21-4 PROCESSING FACILITY CAPITAL COST Focus Graphite Inc. Lac Knife Project Cost Area Initial (C$ 000) Civil, Structure and Architecture 7,903 Crushing 8,712 Grinding and Separation 13,051 Concentrate Thickening, Drying and Storage 3,916 Reagents 911 Utilities 947 Tailings (including pipelines to tailings pond) 919 Total 36,359 Except for the civil, structure and architecture cost area above, each other cost item is related to a specific process sector and accounts for mechanical equipment, piping, electricity, instrumentation, and installation. The overall process plant sustaining capital for building maintenance and miscellaneous items is estimated at $5.5 million over the LOM, with a recurrent cost of $909,000 every three years starting Year 3. TAILINGS/ROCK STORAGE AND WATER TREATMENT The capital costs related to the tailings and waste rock storage facility together with the water treatment system include the following: Tailings and polishing ponds dams and dykes construction, site preparation, spillway and decant structures and instrumentation (ph and flow measurements) Water treatment plant equipment, piping, electrical, instrumentation and the building Sewage treatment system with a 70-person capacity Ore storage pad construction with liner, processed sand, truck access ramp and acid resistant pumping system Drilling of two potable water wells with equipment Environmental items such as monitoring supplies and site characterization fieldwork. Technical Report NI October 30, 2012 Page 21-4

176 The breakdown of this cost item is summarized in Table TABLE 21-5 TAILINGS/ROCK STORAGE AND WATER TREATMENT CAPITAL COST Focus Graphite Inc. Lac Knife Project Cost Area Initial (C$ 000) Tailings/Waste Rock Dams and Dyke (Stage 1) 1,686 Polishing Pond 183 Effluent Treatment Plant 363 Sewage Treatment Plant 100 Ore Storage Pad 385 Potable Water Wells 50 Environmental Items 300 Total 3,067 The sustaining capital for the tailings and waste rock storage facility totals $9.1 million over the LOM and occurs at Year 4 and Year 9 with respective disbursements of $3.4 and $5.7 million. These costs are related to two stages of dams and decant structure raisings, and spillway relocation. INDIRECT AND OWNER S COSTS Indirect costs consist of mill start-up/commissioning and first load, equipment freight, and employee training. Owner s costs are operating costs that occur during the pre-production period, broadly comprising of general and administration (G&A) expenses and G&A labour salaries, plus costs inherent to the temporary construction camp and for power generation prior to installation of the power line which will feed the site. In order to estimate indirect and owner s capital costs, a factor of 24% was applied to initial direct capital, similar to the way in which EPCM estimates were derived. From RPA s experience this factor represents a consistent proportion of indirect capital costs to direct capital costs for operating projects. Applying this factor, indirect and owner s costs are estimated to be $16.7 million. Technical Report NI October 30, 2012 Page 21-5

177 WAREHOUSE INVENTORY The capital cost relative to the warehouse inventory is for mining and processing spare parts. A factor of 2% was applied on processing and mining fleet direct capital costs for a total of $934,000, half of which is recovered during the last year of the LOM. WORKING CAPITAL The working capital is equivalent to three months of operating costs and takes into account the thermal purification costs. The total amount injected into the Project to build up the working capital totals $32.6 million which is fully recovered at the end of the LOM. As a reminder, 19,900 tpa out of the total 46,640 tpa of concentrate produced at the Lac Knife process plant meets the specifications (+100 mesh, >95% Cgr) for a purification to 99.99% Cgr. Graphite concentrate of this purity is used in battery production and other applications at high prices. The Project considered the purification of this portion of the primary concentrate production on a contract basis by an existing producer. CLOSURE AND RECLAMATION For costing purposes, mine closure consists of the rehabilitation of disturbed areas namely the tailings pond, the open pit, the polishing pond, the ore storage pad, and the process plant as well as general site remediation, and post-closure activities and monitoring. Additional detail regarding the type of closure and reclamation work to be undertaken is set out below: Tailings surface reshaping and pipelines removal Pumping to flood the open pit, lime treatment and bolder fencing Cleanup of the polishing pond and breaching of the dam Removal and disposal of ore storage pad contaminated materials and liner, and surface reshaping; Buildings salvage and demolition General surfaces reshaping and seeding/re-vegetation Post-closure water treatment and monitoring as per Directive 019 requirements (and as in the operation phase for costing purposes) The breakdown of this cost item, considered as sustaining capital, is summarized in Table Technical Report NI October 30, 2012 Page 21-6

178 TABLE 21-6 CLOSURE AND RECLAMATION CAPITAL COST Focus Graphite Inc. Lac Knife Project Cost Area Sustaining (C$ 000) Tailings Pond 1,895 Open Pit 165 Polishing Pond 50 Ore Storage Pad 31 Process Plant and Other Buildings 800 General Site Remediation 150 Post-Closure Activities 497 Total 3,588 EXCLUSIONS Costs associated with the following are excluded from the capital costs estimate: Project financing and interest charges Land acquisition, leases, rights of way and water rights Escalation during the Project Permits, fees and process royalties Pre-feasibility and Feasibility studies Environmental impact studies Any additional civil, concrete work due to the adverse soil condition and location Taxes Import duties and custom fees Geotechnical and geomechanical investigations Hydrogeology investigations Rock mechanics study Metallurgical testwork Exploration drilling Fluctuations in currency exchanges Project application and approval expenses OPERATING COST ESTIMATES SUMMARY The LOM average operating unit costs for the Project are shown in Table These average unit costs are slightly higher due to inefficiency during the first-year production ramp-up. Details on individual operating costs will be provided in the following sections. Technical Report NI October 30, 2012 Page 21-7

179 TABLE 21-7 UNIT OPERATING COSTS SUMMARY Focus Graphite Inc. Lac Knife Project Cost Area LOM Unit Cost (C$/t milled) Unit Cost (C$/t moved) Mining Stockpile Re-handling Processing Tailings & Water Treatment 0.46 G&A Sub-total Operating Cost at Lac Knife Thermal Purification Total Project Operating Cost MINING Mine operating costs were estimated using cost models, general industry knowledge and experience, preliminary designs, and other information from recent similar projects. The unit mining cost was estimated to be $6.86/t moved with the owner operated mining fleet. The re-handling of graphite-bearing material between the stockpile and the crusher was estimated at $2.55/t re-handled and was assumed to occur over a tonnage equivalent to one month of operation each year. PROCESSING Process operating cost is estimated at $40.63 per tonne milled at full production and is itemized in Table The cost is estimated from similar industrial minerals projects in similar geopolitical jurisdictions and includes consideration for manpower, electrical power consumption from Hydro-Québec, maintenance, packaging, reagents and other consumables (fuel for concentrate drying amongst others). Technical Report NI October 30, 2012 Page 21-8

180 TABLE 21-8 BREAKDOWN OF MILL OPERATING COST Focus Graphite Inc. Lac Knife Project Unit Cost Cost Area (C$/t milled) Manpower Electrical Consumption 3.40 Reagents Consumables 1.83 Packaging 5.00 Total TAILINGS AND WATER TREATMENT Annual operating costs related to the tailings and polishing ponds and to the water treatment plant are summarized in Table The total annual cost has been estimated at $132,000, with the exception of Year 10 for which the total is $232,000 because of the polishing pond cleanout requirements. Over the LOM the average unit cost is $0.46/t milled all considered. The operating cost items of Table 21-9 which occur from Year 21 to Year 31 during closure and post-closure activities were included in sustaining capital under closure and reclamation and reported in Year 20, for cash flow analysis purposes. TABLE 21-9 BREAKDOWN OF TAILINGS AND WATER TREATMENT COST Focus Graphite Inc. Lac Knife Project Cost Area Annual Cost (C$) Tailings Pond Pipeline relocation (incl. in process cost) --- Waste rock grading (incl. in mining cost) --- Water Treatment Plant 86,300 Monitoring 26,750 Sample Collection/Analysis 8,950 Landfill Operations (excavation/cover) 10,000 Polishing Pond Cleanout (Year 10) 100,000 Total 132,000 (or 232,000 at Year 10) Technical Report NI October 30, 2012 Page 21-9

181 GENERAL AND ADMINISTRATION G&A costs are comprised of salaries for administration personnel and high management staff as well as costs for material and supplies, access road maintenance, insurance and taxes, and communications. The remaining costs are for room and board and workforce transportation to/from the mine site which accounts for approximately 40% of the total. G&A costs have been estimated at $3.5 million per year or $11.76/t milled on average over the LOM (based on 300,000 tpa). The breakdown is provided in Table TABLE G&A ANNUAL COSTS SUMMARY Focus Graphite Inc. Lac Knife Project Annual Cost Cost Area (C$ 000) Salaries 1,305 Material and Supplies 688 Room and Board 1,205 Manpower Transportation 312 Total 3,510 THERMAL PURIFICATION The thermal purification cost is based on a preliminary budget price provided by a current producer. It amounts to $5,512/t of primary concentrate from the Lac Knife process plant entering the thermal purification process; 19,900 tonnes being of the desired standard for the Project. Given the purification process losses would be approximately 15%, this cost equates to $367.45/t milled on average over the LOM. MANPOWER Manpower estimates are based on typical manpower requirements for open pit operations and processing plants of similar scale, and similar fly-in/fly-out schedules. Manpower estimates for the various administrative units are shown in Table Technical Report NI October 30, 2012 Page 21-10

182 TABLE MANPOWER SUMMARY Focus Graphite Inc. Lac Knife Project Unit Operation Maintenance Supervision and Services Total Administration Mine Mill Total Technical Report NI October 30, 2012 Page 21-11

183 22 ECONOMIC ANALYSIS The economic analysis contained in this 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. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. There is no certainty that the reserves development, production, and economic forecasts on which this PEA is based will be realized. The Project economic evaluation is based on operating and capital costs as discussed previously. The Project evaluation work includes an economic summary, discounted cash flow analysis, as well as capital and operating costs estimates. RPA considers the PEA to have an estimation accuracy of +35% to -15%. The economic analysis shows that, at a long-term average graphite concentrate price of US$4,196/t, the Project has a pre-tax Net Present Value (NPV) at a 10% discount rate of C$246 million. This takes into account the purification of a portion of the primary concentrate from 95% to 99.99% Cgr in order to benefit from higher selling prices, as referred to in previous sections. Total pre-tax undiscounted cash flow is C$926 million. The Projectspecific product grouping and pricing which supports the average graphite long-term price is summarized in Table Technical Report NI October 30, 2012 Page 22-1

184 TABLE 22-1 SALEABLE PRODUCT GROUPING AND PRICING Focus Graphite Inc. Lac Knife Project Concentrate Sizing Concentrate Quantities (tpa) +48 mesh 7, mesh 6, mesh 3,100 Production Grouping (tpa) Grouping Specifications Market Price (US$/t) (1) +100 mesh 3,200 19,900 (2) +100 mesh / 95.1% Cgr 10, mesh 5, mesh 6,100 11, mesh / 93.2% Cgr 1, mesh 15,500 15, mesh / 86.5% Cgr 800 Total / Average 46,600 46,600 4,196 Notes: 1. FOB mine; based on September 2012 Industrial Minerals published prices, and detailed in Section ,900 tpa of primary concentrate meet specifications for thermal purification to 99.99% Cgr with a 15% loss during the purification process. The total LOM capital is approximately C$146 million, including approximately C$24 million in contingency capital. The average LOM operating cost is C$435.06/t milled. This includes C$367.45/t milled for thermal purification on a contract basis. Over the LOM, the Project will produce an average of 46,640 tpa of graphite concentrate at an average grade of 92% Cgr from 300,000 tpa of graphite-bearing material at a head grade of 15.66% Cgr. Over the LOM, the pre-tax Internal Rate of Return (IRR) is 32.1% with a payback period of approximately 2.8 years. The cash flow is summarized in Table 22-2 and a summary of key criteria is provided below. ECONOMIC CRITERIA REVENUE Approximately 820 tpd processing rate based on 365 operating days per year. Average recovery of 91.3%. Exchange rate US$1.00 = C$1.00. Technical Report NI October 30, 2012 Page 22-2

185 Graphite concentrate market price: US$4,196 per tonne of saleable products. Transport and Insurance charge of C$237 per tonne of primary concentrate. Annual total marketing charge of C$250,000. Revenue is recognized at the time of production. COSTS Pre-production period: 2 years. Mine life: 20 years. LOM production plan as summarized in Table Mine life capital totals C$146 million. Average operating cost over the mine life is C$ per tonne milled. Technical Report NI October 30, 2012 Page 22-3

186 Technical Report NI October 30, 2012 Page 22-4 TABLE 22-2 PRE-TAX CASH FLOW SUMMARY Focus Graphite Inc. - Lac Knife Project Year Units Total/Avg Mining Mined Graphite-Bearing Material tonnes 5,970, , , , , , , , , , , , , , , , , , , , ,000 Mined Waste tonnes 6,709, , , , , , , , , , , , , , , , , , , , , ,873 Total Material Moved tonnes 12,679, , , , , , , , , , , , , , , , , , , , , ,873 Stripping Ratio Processing Mill Feed tonnes 5,970, , , , , , , , , , , , , , , , , , , , ,000 Head Grade %Cgr Average Recovery % 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% 91.3% Concentrate Grade %Cgr 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% 92.0% Graphite Concentrate tonnes 927,971 53,991 52,845 50,344 50,761 50,046 47,665 46,265 45,610 45,848 45,938 45,789 44,330 43,913 44,211 44,062 43,348 42,157 42,455 43,616 44,777 Revenue Payable Graphite Concentrate tonnes 927,971 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 46,640 43,674 44,777 On-site Concentrate Inventory tonnes - 7,351 13,556 17,260 21,381 24,787 25,812 25,437 24,407 23,615 22,913 22,062 19,752 17,025 14,596 12,018 8,726 4, Market Price (avg per tonne of LK concentrate) US$/tonne 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 4,196 Exchange Rate $C/$US Gross Revenue C$'000s 3,893, , , , , , , , , , , , , , , , , , , , ,884 Marketing C$'000s 5, Concentrate transportation/insurance (avg per tonne of LK conc.) C$'000s 219,929 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 11,054 10,351 10,612 Total Charges C$'000s 224,929 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 11,304 10,601 10,862 Royalty C$'000s Net Revenue C$'000s 3,668, , , , , , , , , , , , , , , , , , , , ,022 NSR C$/t Operating Costs Mining C$/t mined Mill Feed Re-handling (1/12 of annual ore tonnes) C$/t rehand Mining C$/t milled Mill Feed Re-handling (1/12 of annual ore tonnes) C$/t milled Processing C$/t milled Contract Purification C$/t milled Tailings & Water Treatment C$/t milled G&A C$/t milled Total Operating Costs C$/t milled Mining C$ '000s 85,607 3,836 4,426 3,789 4,104 4,422 4,303 5,121 4,984 4,905 5,030 4,975 4,557 4,289 4,280 4,383 4,332 4,004 3,641 3,406 2,819 Mill Feed Re-handling C$ '000s 1, Processing C$ '000s 243,800 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 12,190 Contract Purification C$ '000s 2,193, , , , , , , , , , , , , , , , , , , , ,683 Tailings & Water Treatment C$ '000s 2, G&A C$ '000s 70,200 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 3,510 Total Operating Costs C$ '000s 2,597, , , , , , , , , , , , , , , , , , , , ,398 Operating Margin C$ '000s 1,071,556 54,989 54,392 55,030 54,715 54,397 54,516 53,698 53,835 53,914 53,688 53,844 54,262 54,529 54,539 54,435 54,486 54,814 55,178 43,670 48,625 Capital Cost Surface Infrastructure C$ '000s 22,115 5,625 13, Mining (incl. pre-stripping ovbd/waste) C$ '000s 15,132 2,755 8, Processing C$ '000s 41,813 14,544 21, Tailings & Water Treatment C$ '000s 12,199 3,067 3,404 5,728 EPCM (14%) C$ '000s 9,734 3,216 6,518 Indirects/Owners (24%) C$ '000s 16,652 5,502 11,150 Warehouse Inventory C$ '000s (467) Contingency (25%) C$ '000s 24,175 7,910 16,265 Working Capital C$ '000s - 32,629 (32,629) Closure and Reclamation C$ '000s 3,588 3,588 Total Capital Cost C$ '000s 145,875 39, , ,096 4, , , , , , (29,508) Pre-Tax Cash Flow Undiscounted Pre-Tax Cash Flow C$ '000s 925,681 (39,551) (113,956) 54,989 53,769 53,934 50,688 54,210 52,984 53,511 53,212 47,090 53,065 53,657 52,730 54,342 53,916 53,339 53,863 54,627 53,646 43,483 78,133 Cumulative (39,551) (153,507) (98,518) (44,749) 9,185 59, , , , , , , , , , , , , , , , ,681 Project Economics Pre-Tax NPV (8%) C$ '000s 316,067 Pre-Tax NPV (10%) C$ '000s 245,955 Pre-Tax NPV (12%) C$ '000s 191,913 Pre-Tax IRR % 32.1% Pre-Tax Payback Period Years 2.8

187 SENSITIVITY ANALYSIS Project risks can be identified in both economic and non-economic terms. Key economic risks were examined by running cash flow sensitivities on: head grade; recovery; graphite market price; operating cost per tonne milled; and capital cost The pre-tax NPV (at 10%) sensitivity analysis has been calculated for -20% to +35% variations on the above items, with the exception of recovery which has been calculated for - 20% to +5%. The NPV and IRR sensitivities are shown in Table 22-3, Figure 22-1, and Figure 22-2 The Project is most sensitive to graphite concentrate price, followed by head grade, recovery, operating costs then capital costs. There is minimal to no effect on NPV and IRR when the head grade and recovery factors are adjusted above base case because of the market ceiling on graphite concentrate sales TABLE 22-3 SENSITIVITY ANALYSIS Focus Graphite Inc. Lac Knife Project Sensitivity to Head Grade Cgr (%) 10% Million IRR $ % $ % $ % $ % $ % $ % Sensitivity to Recovery REC% 10% Million IRR 73.0 $ % 82.2 $ % 91.3 $ % 93.6 $ % 95.9 $ % Technical Report NI October 30, 2012 Page 22-5

188 Sensitivity to Graphite Concentrate Price US$/t 10% Million IRR 3,357 -$29 6.8% 3,776 $ % 4,196 $ % 4,616 $ % 5,035 $ % 5,665 $ % Sensitivity to Operating Cost Per Tonne Milled C$/t milled 10% Million IRR 348 $ % 392 $ % 435 $ % 479 $ % 522 $ % 587 -$82 0.8% Sensitivity to Capital Cost C$ million 10% Million IRR 117 $ % 131 $ % 146 $ % 160 $ % 175 $ % 190 $ % Technical Report NI October 30, 2012 Page 22-6

189 FIGURE 22-1 NPV SENSITIVITY ANALYSIS $800,000 $700,000 (C$ 000s) $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 Sensitivity to Head Grade Sensitivity to Graphite Price Sensitivity to Capex Sensitivity to Recovery Sensitivity to Opex -$100,000 $ $200,000 Factor Change FIGURE 22-2 IRR SENSITIVITY ANALYSIS 80.0% 70.0% IRR (%) 60.0% 50.0% 40.0% 30.0% 20.0% Sensitivity to Head Grade Sensitivity to Recovery Sensitivity to Graphite Price Sensitivity to Capex Sensitivity to Opex 10.0% 0.0% Factor Change Technical Report NI October 30, 2012 Page 22-7

190 23 ADJACENT PROPERTIES The Lac Knife property is bordered to the west by the Moisie River Protected Area along Rivière aux Pékans and by the Sainte-Marguerite Hydro-Electric Area to the South. These lands are restricted for exploration. Nevado Resources Corporation holds an extensive property, being explored for iron, along the east limit of the Lac Knife claims. North of the property, two private prospectors, Charles Dearin and Glenn Grisbach, hold small land positions. Bertrand Brassard, another private prospector, has a claim to the southeast. No indication of additional graphite was found nearby beyond the property. There are no other significant properties in the area surrounding the Lac Knife property. The adjacent properties are shown in Figure Technical Report NI October 30, 2012 Page 23-1

191 FIGURE 23-1 ADJACENT PROPERTIES Focus Graphite Inc. Source: Roche 2012 Technical Report NI October 30, 2012 Page 23-2