Focus Graphite Provides Little Exposure to Graphene

In a previous article, we mentioned how publicly traded investments in graphene are limited, although recently we have seen several graphene IPOs on AIM; Haydale (LON:HAYD) and Applied Graphene Materials (LON:AGM). We also discussed how some junior graphite mining companies are attaching themselves to the graphene story. One graphite exploration company with no revenues, Focus Graphite (OTCMKTS:FCSMF), has been attached to the graphene story since 2012 via their investment in privately held Grafoid.

 On September 9, 2011, Grafoid Inc. was incorporated. The Graphoid website does not make mention of company leadership but a fact sheet on the website lists Gary Economo as the CEO and co-founder of Grafoid. Gary Economo is also stated to be the CEO of Focus Graphite as seen in this November 2013 investor presentation providing a whole new dimension to the relationship between these two companies. The fact sheet also lists Dr. Gordon Chiu as a co-founder and CTO along with Jeff York who is Chairman and co-founder. Mr. York is currently CEO of Farm Boy, an Ontario based food store chain. The company recently appointed Mr. Thomas H. Cruikshank as a strategic advisor. Mr. Cruikshank was previously CEO and Chairman of Haliburton and resided on the Board of Directors at Lehman brothers until its demise.

The website fact sheet also makes the following statement:

The Grafoid partnership is currently the largest producer of graphene in the world. The company has raised some $10m over the last year and established a $6.9m research, development and joint venture partnering budget for 2013. With locations in Ottawa, Kingston, Montreal, New York, London, Munich, Athens and Singapore, the company is moving forward with MesoGraf™ production facilities in Canada and United States to complement its current production facility in Singapore.

The “Grafoid partnership” consists of the below “publicly announced” entities:

Grafoid_Partnerships

It hardly seems likely that the entities in this collective constitute “the largest producer of graphene in the world”, so Grafoid would most likely need to have undisclosed partnerships with producers such as Vorbek, Angstron, or XG Sciences in order to make that claim. Nevertheless, Grafoid debuted MesoGraf™ in May 2013 in Singapore which they claim is the “first graphene to be trademarked in the world” and is “the global standard for graphene”. According to Grafoid CTO Dr. Chiu, the production of Mesograf is a one-step process that will “allow you to skip the fifteen steps you go through in the purification of graphite”. Tom Konrad of Forbes expressed his reaction to Grafoid as “too good to be true” after a brief interview with Gary Economo, CEO of Grafoid and Focus.

Grafoid announced last month the signing of a memorandum of understanding (the legal equivalent of a gentleman’s agreement) between Grafoid and Mitsui to identify and develop market opportunities in Japan for Grafoid’s MesoGraf™. Grafoid has also recently announced that they have “entered into the additive manufacturing space” by signing an agreement with Altamat to Mass Produce MesoGraf™ 3D Printed Materials. Altamat is said to be an “advanced materials manufacturing consultancy” yet nothing can be found on Google about Altamat.

Focus Graphite and Grafoid

So does being an investor in Focus Graphite (OTCMKTS:FCSMF) provide you with an investment in Grafoid? The answer is yes but very little. While previously Focus was a majority holder in Grafoid, dillutive financings by the latter brought Focus’s ownership of Grafoid to 13% as of December 2013. Focus values this investment at $1,882,924 . With Focus Graphite having a current market cap of $52 million, an investor who owns Focus Graphite will have minimal exposure to Grafoid through their Focus shares. Given that the Grafoid investment represents just 6% of Focus Graphite’s current $30.82 million in assets of which 19% is cash and 60% is exploration and evaluation assets as well as exploration properties, an appreciation in the Grafoid investment will have minimal impact to the bottom line at least for now. While investors may not achieve meaningful exposure to Grafoid by investing in Focus Graphite, at least the financials which value the Grafoid holding will provide some sort of proxy as to the valuation of Grafoid going forward. A 13% investment valued at $1.88 million would give Grafoid an implied valuation of around $14.5 million.

UPDATE: On January 31, 2014, Focus Graphite announced that its Board of Directors has approved the conversion of a $1,500,000 loan provided to Grafoid into 3,000,000 common shares in Grafoid at $0.50 per share. At face value, this brings the Grafoid investment to $3.38 million which would then represent 11% of total assets.

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