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Focus Graphite Story

 

 

Portfolio Updates – Plus, Insight on Junior Resource Investing



Dear Energy & Scarcity Reader:

I hope you saw yesterday's ESI alert. There's a new recommendation there. It's Focus Metals (FMS: TSX-V), an Ottawa-based mineral developer with a world-class graphite deposit in the wilds of Quebec -- but it's near electric power and a railhead.

The Focus Story

Focus is putting together a very doable mine-mill project with a three-year timeline. In addition to graphite, Focus holds rights to a nice rare earths and copper deposit, also up in mining-friendly Quebec. This latter claim is intriguing, but I really like the graphite play.

When I met CEO Gary Economo last week in New York, he told me that his "focus" (so to speak) is on getting the graphite deposit into gear. That's the cash register for this company. And that works for me. Bend some metal. Build that mine!

One great thing about mining graphite is that it's not over-the-top complex. That is it's not like you need rocket science levels of hydro-metallurgy, like you do with rare earths. Graphite is a pretty straightforward mining and milling concept. With Focus, there's an utterly phenomenal ore body that gives this play so much potential value. It's among the best ore bodies of its kind anywhere in the world.

Focus shares took a strong upward pop yesterday. Part of it was the fact of the ESI recommendation hitting the wires. But the shares already had momentum, based on an excellent presentation in New York last week by Mr. Economo at a conference sponsored by Murdock Capital.

At the Murdock Capital presentation, I saw money managers typing on their "CrackBerry" devices, apparently with buy orders. That's not how ESI works, of course. Heck, I don't even have a CrackBerry. I'm just an old-fashioned cell phone kind of guy.

Still our advantage at ESI is that we're among the early investors with Focus. The rest of the investing public is out there, waiting for this idea to filter through into the free blogs, investment-oriented media and such.

Share Price Discussion

Yesterday, we saw what happens when large retail interest hits a small-cap Canadian junior stock. After the ESI write-up, Focus shares traded upward. But past a certain price move and volume, the automatic trading kicked in.

That is, trading went way beyond "just" ESI readers buying shares. There are computers at trading houses in Toronto and New York. They detected action and started trading away -- for 20 times the normal volume of Focus shares.

A lot of yesterday's trading volume for Focus was from brokers who don't know or care if the company makes graphite or baby food. That's why I gave you a "buy" limit of 95 cents for your orders. I don't want you to trade in and wind up paying too much. If you're in Focus now, that's a good thing. If not, look for a price pullback and keep the buy-up-to price at 95 cents. There’s no reason to chase shares higher in the short term. Be patient and I believe you'll be rewarded over time.

Focus has every appearance of becoming a solid, ultra-valuable resource play. In my view, it's like another UNX Energy (UNX: TSX-V). It's like what we're seeing with Reservoir Capital (REO: TSX-V). It's like what we have with IC Potash (ICP: TSX-V). All three of these ideas have a great underlying resource development idea.

So Focus needs to stay on track and develop its mineral assets. Then it could easily turn into a company that large institutions and money managers want to buy. Indeed, if you look at the charts, that kind of buying seems to have started among the New York crowd last week.

Focus is on a medium-term development timeline -- three years. It'll spin off huge cash when it's up and running. So from the current market cap of about $65 million, this company could justify a much higher number. Say, in the $300 million range over the next eight months or so. Even higher in 18 months as management shows more progress on development. I believe we'll see the share price appreciate.

Right now, though, you have to respect the risks. Focus Metals is a Canadian junior. It has over $3 million in the bank, and it's spending it on development. There's no product coming out -- not yet. There's no cash flow. No earnings. No profits. No dividends. Management has to work hard and execute its plan.

I'm very optimistic, or I wouldn't discuss Focus. I'll watch what happens. But you've got to understand that it's not like you're buying shares in an established, technology-leading, cash-rich player like Goldcorp or Schlumberger.

Graphite

While I'm discussing Focus, let me emphasize that its product, graphite, is a critical strategic material. That's among the most important reasons why I like this idea. We're not mining sand and gravel. Heck, we're not mining lead and zinc.

Graphite has all sorts of uses, from insulating rocket engines to draining heat away from the electronics of your iPad. That, and you'll find graphite in things as diverse as carbon rods in electric arc steel making and the ultra-capacitors that the Navy uses in its new system to launch airplanes off aircraft carriers -- the new electromagnetic version of the old steam catapult.

And when you use graphite in, say, high-performance brakes? Oh, man. Those carbon pads grab so hard that you can almost stop time.

 

 

That's just a taste of how useful graphite is. And to be sure, there are more and more, better and better uses for graphite rolling out of the research labs and patent mills of the world. But I don't want to turn this update into a long tutorial on graphite. I'll discuss the ideas more in the future. But for now, just say that I'm glad I found Focus.