Focus Graphite (CVE:FMS) (PINK:FCSMF) said Monday that it has signed a letter of intent to earn up to a 60 per cent interest in Lara Exploration's (CVE:LRA) Canindé graphite project in Brazil, in a deal worth $7 million.
The Canindé graphite project is located in Ceará State in northeast Brazil and comprises 15,615 hectares of exploration licenses.
Under the terms of the deal, Focus will act as the operator of the Canindé project exploration program throughout the duration of the agreement.
Focus can earn an initial 51 per cent interest in the project by spending $2.5 million on exploration (including a minimum of 2,000 metres of drilling) within three years of signing a definitive agreement, as well as issuing 500,000 common shares to Lara.
Focus can then elect to earn an additional nine per cent in the project by investing a further $4.5 million on exploration and by delivering a preliminary economic assessment (PEA) within two years.
The parties said reconnaissance work by Lara has identified a number of anomalous weathered bedrock outcrops with flake graphite bodies up to approximately 10 metres wide. These outcrops are associated with wider zones of lower-grade disseminated graphite flake occurrences along a 16 kilometre long, north-northwest trending zone within the property.
The agreement is subject to TSX Venture Exchange approval, and both parties are aiming to complete the deal by August 31.
Focus, an emerging mid-tier junior mining company, is the owner of the highest-grade (at 16 per cent) technology graphite resource in the world, also known as the Lac Knife deposit in Fermont, Quebec.
The company's goal is to become the lowest-cost producer of technology-grade graphite, and is invested in the development of graphene applications and patents through Grafoid Inc.
In early May, Focus inked a licensing agreement with Hyrdo-Quebec's technology research institute, IREQ, allowing it to develop a graphite purification facility and anode production facility for lithium-ion batteries.
The new, Focus-owned facility will transform first-production graphite sourced from the Lac Knife deposit to battery-grade material.
The licensing agreement consists of two parts, the first of which is related to Focus' development of a graphite purification process that brings Lac Knife's processed graphite to 99.95 per cent carbon, for use in lithium battery applications.
The second part of the deal provides for the production of anodes for lithium-ion batteries, with IREQ to provide technical support and to co-operate in future material and processing improvements.
The new purification and production facilities will be built in Québec, and will be owned and managed by Focus.
The purification facility will be designed to produce 15,000 tons of spherical battery-grade flake graphite at peak by 2015, whereas the anode production facility will be designed to produce up to 5,000 tons of anodes.
In exchange for the technology license, support and future commitments, IREQ will receive a licensing fee that will be paid in cash over a three-year period, representing less than 10 percent of the current working capital.
IREQ will also get a royalty fee based on a percentage of future sales, the parties said.
In February, Focus raised $10 million, on top of the $20 million it raised last year, which it plans to use to cover exploratory drilling costs in 2012. The Lac Knife project is currently in the midst of a PEA, with the report expected to be published this month.
The Lac Knife deposit contains 4.9 million tons of measured and indicated resource grading 16 per cent carbon as graphite (Cgr) and 3.0 million tons of inferred resource grading 16 per cent Cgr, the bulk of which is intended for use in technology applications.
Focus shares were trading at 72 cents as at market close on Friday June 1.