Formation Metals Inc.: Client Update by Newsletter Writer Peter Grandich
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Formation Metals Inc.: Client Update by Newsletter Writer Peter Grandich
I've been getting a lot of emails from FCO shareholders (the disgruntled ones) asking me to explain why their share price is so depressed. According to FCO management there is no material reason for the decline in share price, outside of the fact they have yet to announce anything concrete on the progress of their Idaho Cobalt Project mine financing efforts to construct their mine, mill and refinery. Due to non-disclosure and confidentiality agreements, management has advised me they cannot discuss any details regarding potential financiers. They have told me and everyone else it seems, that the financing is progressing and they are involved in talks with potential off-takers in addition to some commercial banks regarding debt financing. But this is no secret -- this has been their plan for months now.
Management's plan remains the same. They reported in their February 24, and March 16, 2010 news releases, they are in discussions with off-takers and commercial banks. In a recent interview by Minesite.com, CEO Mari-Ann Green re-iterated their plan to initially raise a sizeable amount of mine finance through off-take arrangement(s). Such an arrangement would give the commercial banks additional due diligence assurances with the plan to then negotiate a commercial bank debt agreement. With both these finance avenues in place, and hopefully by that time a share price that reflects these developments, they could then conclude the mine financing with equity. The transcripts of that interview are posted on their website at www.FormationMetals.com.
This spring they concluded a $10 million financing; $2 million in equity at $1.50 (which I note all management participated in) and $8 million in an unsecured convertible (at $1.50) debenture. Quite an accomplishment considering they closed those financings when their stock was trading at $1.25. They have gotten a fair amount of criticism regarding the debenture, but I really don't see how they had much of a choice -- they needed to top up the till and get some money in the door so they wouldn't have their backs against a wall during their mine financing negotiations. They structured the debenture in such a way as to protect their assets -- the key word here is unsecured debenture, meaning in a worst case scenario if they could not service the debt, they can pay the interest in shares. Their assets, the cobalt mine and refinery, cannot be used as collateral and I'm told it can't be taken away from them.
I have been asked some questions regarding the status of the company FCO sold the debenture to as they have been filing bi-monthly Default Status Reports with the TSX. They are not a client of mine and any questions should be made to them directly. I'm told the party FCO sold the debenture to was forced to sell off their assets last year relating to coal mining operations in South America. New management faced a company with no revenues and over $100 million in debt. They were obliged to address numerous problems created by a combination of factors that included falling coal prices and the financial market collapse and had no choice but to declare a financial emergency with the Toronto Stock Exchange. The company is now apparently solvent with cash in the bank from the sale of their assets. The new board is developing a new business strategy for the company "to invest and aid growth in projects in the mining, metallurgical and mineral industries", which helps explains their investment in Formation Metals.
The other criticism over the debenture is that FCO gave up 15% of the Company for a mere $8 million. That assumption is based on the premise that the entire debenture will be converted to shares at $1.50 -- it is management's objective to pay off this debenture in cash from mine finance proceeds or from future mining operations revenue before any conversion takes place. As far as management knows, the company they sold the debenture to doesn't own a single share of FCO. Even if all the interest on the debenture were to be paid in FCO stock, they would end up with only a fraction of the outstanding shares -- but only time will tell how it will all play out at the end of the day.
To give credit where credit is due, Formation Metals has completed Stage I construction of its Idaho Cobalt Project and is awaiting the completion (or at least immanent closure) of the next phase of mine financing to commence Stage II construction, which is only prudent. Stage I consisted of site preparation, surveying and tree clearing at a nominal cost, while Stage II will require bigger dollars to commence earth moving and concrete pouring efforts.
Formation announced in June that it had strengthened its Board with the addition of two new directors, one of whom invested a significant sum in their $1.50 private placement. According to their news release, these gentlemen bring considerable mining, financing, taxation and government consulting experience to the Company. These actions demonstrate management's commitment to evolving the company into a profitable producer with an experienced and capable board at the helm.
Also in June, the company announced it had finalized an agreement for a power line right of way for its cobalt project. This is a significant development and is exactly the type of progress mine financiers like to hear. Management has always assured its shareholders that the power line right of way was not a critical issue as the law was on their side, but the fact that this agreement was struck outside of the courts seems like a good omen and a sign of cooperation between neighbors.
Lastly, I feel the need to comment on Formation's news release earlier this month regarding their Athabasca Basin Virgin River uranium project joint ventured with Cameco and AREVA. It seems the news fell on deaf ears but the underlying positive implications of the discovery of a new mineralized horizon running parallel to the existing Centennial Deposit cannot be over emphasized. This could prove to be a very significant find for the project. Cameco (the operator) has indicated that they will be following up on this discovery with drilling this summer and at the same time will continue to develop and expand the Centennial Deposit with further step out and infill drilling. With signs that the uranium markets are starting to make a rebound, this discover could prove to be very timely. I will be looking out for the results of this drill program currently in progress.
As I prescribed in my last update on FCO, continued patience seems to be the treatment for ailing FCO shareholders -- at least for the moment. Management's assurance that much is going on behind closed doors and that mine finance progress is being made may have some shareholders rolling their eyes. However, judging by their track record throughout the development of their cobalt project to the mine finance and construction phases of development, positive progress on mine financing still appears in the cards.
Formation Metals Inc. is dedicated to the principles of environmentally sound mining and refining practices, and believes that environmental stewardship and mining can co-exist. Formation Metals Inc. trades on the Toronto Stock Exchange under the symbol FCO.
Formation Metals Inc.
"Mari-Ann Green"
Mari-Ann Green,
C.E.O.
For further information please contact:
E.R. (Rick) Honsinger, P.Geo., V.P. Corporate Communications
Formation Metals Inc., 1730 -- 999 West Hastings Street, Vancouver, BC, V6C 2W2
Tel: 604-682-6229 - Email: inform(at)FormationMetals.com - Web: formationmetals.com
Leseranfragen:
Formation Metals Inc.
Formation Metals Inc.
Head Office:
Suite 1730 - 999 West Hastings Street
Vancouver, B.C. CANADA
V6C 2W2
Tel: (604) 682-6229
Fax: (604) 682-6205
For Investor Relations, please contact:
604-682-6229, ext 6
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Datum: 20.07.2010 - 17:38 Uhr
Sprache: Deutsch
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