IE for graphite one compared to all its

IE 7720

Engineering Risk and Decision Analysis 

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(ENG/GEO) In-Situ: in millions of metric tonnes (1000 kg).  This metric was viewed as clearly
probabilistic.  Is FRC’s 50% discount
approach to treating Inferred a better, more conservative metric?

Fundamental Research Corporation® (FRC) is leading investment research house in
the Canadian mining sector, so its opinion matters greatly to resource
investors and Graphite One is the has most likely the largest flake graphite
deposit in the world at its Graphite Creek property. The world now can see that
graphite one does not have a detailed measure in indicated category (M).
Graphite one clams that it has inferred graphite only which is 50% of the measured
and indicated category. The values of the FRC about graphite one was not great
when compared to its competitors which was measured at 10.35 Mt which was a
1000kg and M was not evaluated as of then as the stage of PAE wasn’t
still completed and it was still in resources stage. In case of Stan’s approach
In-situ was higher for graphite one compared to all its competitors which was
as high as 10.3 with a Manson graphite being at 9.8 and energizing resources at
7.8. the total ore quality discovered in-situ value may fluctuate significantly
going from inferred to M. The physical positioning and quantity of the
ore itself with the actual ore richness percentage will directly impact the
extraction cost. As graphite, one is not in operation condition it needs
revenue through the shares so which would help graphite one to reach the
operation stage through the inferred ore.

in my opinion FRC’s 50% discount approaching treating inferred as a better and
more conservative medic because graphite one clams to have only inferred as the
value of M&I is higher for which graphite one need to do more exploration
which would cost more. If it’s a new ore then the market value would make a lot
of difference in the investments and not only that and if the ore consists of
high graphite flake content it can become a selling point as the investors are interested
in how much amount of graphite is there and how to deal with it. This approach
is better than FRC as in this each risk its impact and mitigations are
considered unlike in FRC where individual risks are masked and make no understanding
how they are to be dealt with. Secondly as the graphite one is not fully in operational
stage the capital is not required from the investors and the shares can be done
by calming it as inferred ore. From this we see that 50% discount approach for
inferred is more conservative metric. The other reason which is given by Stan
regarding the ore in situ verification is that when the graphite one is in operation
condition the total ore quantity discovered may fluctuate from the inferred to
M. The additional drill testing will be making M’s valuation category
more thorough and will be modifying operational planning which would cost much
higher. Thus, from observing all the above conditions I can conclude that it’s
overall a better metric.



Location – Distance to Market:  this is
an added metric to represent transportation costs associated with moving the
ore itself.  Given that sea, rail and
truck costs are dramatically different, is this metric too simplistic?

Distance to market is a new matric. It is added by Stan. Stan reviewed the individual
risks identified by the FRC. He also developed the strategies to mitigate those
risks. The risk for the location identified by Stan was that the Alaska new
water port in accordance to investors point of view had impact on cost and
schedule. Stan thinks that Movement of ore by sea is a Rough Order of Magnitude
(ROM) is easier and cheaper than rail which is a ROM easier and cheaper than
truck. Each location considered in US coast guard study had different cost,
schedule and technical feasibility. United states had approved the optimal
location for graphite one and the ore can be sealifted at the mine location
itself. The residual risk that is developed was that if the development of the
port is delayed then graphite one must initially move graphite via truck to
other medium. The mitigation idea is to use ice roads during winter to the
seaports and wait for the spring ice breakup. Thus, all the above are the new matrices
that Stan has adding in graphite one evaluation.

my opinion firstly, the cost to construct the port is very high and when it
comes to spring season there is no backup plan to deal with it thus the graphite
must be transported by other means. Inclusion of different type of
transportation in matric is not necessary. As the matric should be considered
in the point of view of the investors. The construction of   port near the mining site is not necessary as
the amount of graphite mined will be less which can be transported by any other
means. Secondly meeting demands via road transport can be very difficult as the
roads are covered by ice in winter and waiting for the ice to brake during
spring for transportation to the seaports can be very risky considering both
the graphite one and its customers. Failing to deliver on time can be a
downfall to the new firm as they are planning to run the operations by the customers














3) Regulatory Ease for Supply – this factor is added
as each mid-market junior mining enterprise must pass U.S. regulations,
particularly with the EPA and U.S. corporate desires to move to a greener,
sustainable supply chain. What would be your case to ignore this metric?

Sol: A more sophisticated variance structure was added
by Stan to compare the inferred vs M ore values. He also added two more
metrics 1) Regulatory ease of supply and location-Distance to market which is
important since graphite one will be a U.S based supplier and have some
advantages not considered in FRC’s analysis. Important thing to notice is that
DO has initially assessed and then conducted the basic risk mitigation plan for
each identified FRC individual risk. This is an additional matric which
represents progress of each mining enterprise must do to pass regulations in U.S..
Which is particularly important with the EPA and U.S. corporations, given that
the current need for companies to move to a greener and sustainable supply
chain. As per the risk evaluation table and after PEA evaluation table it seems
that the graphite one has been rated as high as ease in both the tables which
means that graphite one is a very good choice for companies such as tesla, GM
and ford which need graphite for batteries. 2) They give no understanding as to
what the enterprise is doing to address the actual risks. This process of
identifying risks, categorizing them to technical, cost and schedule dimensions
and then doing mitigation planning and mitigation execution is very smart,
productive business.

In my opinion, the regulatory ease for supply is an added
matric which needed to be avoided firstly. There is high ease of supply in US
which means that it might be difficult for graphite one to export graphite to
other companies, thus limiting itself to American market. From the above scenario,
the main concern is that other companies also face these issues but we know
that the cost of extraction, testing and transportation is much higher in US
compared to most other countries and in case of exporting they also might have
to pay high import traffic. Though there are many advantages to the graphite
one form this matric my opinion if the if the matric is ignored then
regulations and enterprise that need to pass in U.S. might not be the same for
a very long time as graphite one is the only U.S based mid-sized graphite ore
and the regulations might be changed to satisfy other enterprises. Thus, the
above mentioned are my opinion for avoiding regulatory ease for supply matric.











4)Share Risk – Dean, Anthony and Stan decided to keep
this metric even though it does not represent the enterprise risks accurately.
Would you get rid of it?

Sol: In the April 2014 assessment graphite, one was
selling its share at 0.15$ per share and the FRC’s assessment was positive and
gave a major boost to graphite ones share as it was evaluated at 0.15$ per
share which was more than what they were selling at earlier. Regardless of the
generally positive report, Graphite One felt strongly that they were
undervalued and needed a path forward to address investor concerns highlighted
in the FRC report. Most troubling but unavoidable, was that FRC rated Graphite
One’s Share Risk at 5 (Highly Speculative) which directly impacts investor confidence.
Highly speculative means that the company has no history of generating earnings
or cash flow possibly operating in a new industry with new, unproven these stocks which are considered highly speculative although the
metric does not represent the enterprise risk accurately. So dean, Anthony and
Stan decided to keep the matric.

In my opinion, I would not eliminate this matric. The reason
is that the FRC has reported graphite one as a highly speculated so the company
could not earn any of the revenues in future as their revenues would directly impact
investors. From the FRCs report we know that the share price of graphite one is
currently decreasing which gives the graphite one executives the opportunities which
they do not miss to showcase to reduce risk so that can ask about the returns
and understand the share risk. Adding share risk to the matric is necessary as
it would help graphite one to increase their share price in future. The other
reason is that we can observe that the graphite one valuation begore the risk
reduction the share risk was at 5 i.e. highly speculative and after the risk
mitigation in 2015 the share was reduced to 3 i.e. average risk which means
that Profits and cash flow are sensitive to economic factors although the
company has demonstrated ability to generate positive earnings and cash flow.













5)The data in Appendix B is sufficient to conduct
sensitivity analysis. This is the modified, post risk mitigation utility
analysis.  Key differences are reduced
risk with in-situ and large flake numbers. 
The improved distributions shown in page 2 of Appendix B reflect the
mitigation of Risks 2 and 3.  Risk 4 is
addressed with a Stage Maturity datum improvement for Graphite One.  Also, the Share Risk is modified with the
assumed, improved Share Risk value for Graphite One in 2015.  The team assumed that significant, solid
investment will come from completing the risk mitigation process.  Is that a fair extrapolation in your opinion?

Sol: From the appendix b we can observe that the
results are modified when compared to the pre risk mitigation to the post risk
mitigation utility analysis key differences are reduced risk with in situ and
large flake no when we see the other differences such as in situ at pre -risk
mitigation it was at 10.4 compared to the post mitigation which is 10.5 and the
appendix b also reflects the risk mitigation of risk 3 and risk 4 large flake
and ore in situ verification and risk 4 addressed the stage mantuary datum and
the share of risk is totally modified from the pre risk mitigation to post risk
mitigation. We can also find the key differences in the share risk which is at
no 5 i.e. highly speculative according to FRC’s and the company cannot produce
any profits in future. Post mitigation the number has changed from 5 to 3 which
is average risk according to FRC’s is that the company can provide profits and
generate the cash flows which are sensitive to economic factors although the company
has demonstrated the ability to generate positive cash flow and earnings. There
is also an increase in in-situ graphite from 0.83 to 0.95 in SUF value. Three
is also a change in the probabilistic no in in-situ graphite flake percentage.

In my opinion the team assumed that the significant
solid investment will come from completing the risk mitigation which is fair
because we know that before the mitigation process was not done the graphite
one significantly had very less ways to attract the investors because prior to
mitigation process graphite one had high risk with in-situ and large flake no
which is significantly improved post mitigation and also the share risk no
investors will come forward in order to invest or buy the share before the
mitigation is done as the FRC has reported the graphite ones risk no as 5 which
means it is highly speculative which cannot get any profits in future and by
observing this no investors would come forward to buy the shares so the share
price will be reduced. After the mitigation process FRC reported the graphite
one’s risk no as 3 which means average risk. We also know that the high
regulatory risk ease of supply will help doing business with companies such as
ford, tesla etc. The improved risk share will only reassure investors about the
potential capabilities of graphite one. so the team assumed significantly solid
investments will come which seems to be fair extrapolaton.