Grandich Client Update - Formation Metals, one of these days ...
(firmenpresse) - Grandich Client Update - Formation Metals, one of these days ...
In my last update on FCO (July 19) I prescribed continued patience for ailing FCO shareholders. The first few days of September seem to be offering some relief as we saw the stock close at $0.96 at last week's end -- this up from their three month low over the summer of $0.77. Although shareholders, including myself, are expecting better performance than $0.96, the stock appears to be moving in the right direction. This may be in anticipation of some form of positive news or an update regarding management's financing efforts.
According to FCO management, their hands are tied when it comes to giving out details of their financing progress due to signed Confidentiality and Non-Disclosure Agreements. This, at the very least, indicates they are in discussions with potential financiers (as an aside, management informed me they have turned down financing offers that were not in the best interests of the shareholders -- I suspect these offers were solely equity based). They have indicated in past news releases what form the financing is expected to take shape, and at the end of the day, it will likely be comprised of three or more forms, namely, off-take (selling a portion of future production forward) and VPP arrangements (Volumetric Production Payments -- selling a portion of your revenue stream forward), Commercial Bank Debt and lastly, the issuance of Tax Exempt Industrial Bonds. These are all minimally dilutive means of raising the necessary capital to build the mine, some US$120 million.
FCO's Bankable Feasibility Study calls for a capitalization expenditure of US$138.7 million, but keep in mind they have already spent approximately US$15 million on long lead time mine equipment such as the ball mill and flotation cells. This equipment is stored in a nearby staging area awaiting transport to the minesite. They have also shaved another US$10 million or so of the cap-ex by optimizing the recovery flow sheets for cobalt at the refinery -- one advantage of delays is having your in-house engineers and metallurgists review, refine and optimize the feasibility study.
They inform me that the off-take arrangements involve primarily their secondary copper and gold streams, leaving the blue sky open for the vast majority of future cobalt production. This is further evidence that management believes the future for cobalt remains bright with expectations that demand will outstrip supply for the high purity cobalt metal their mine is expected to produce. It appears they want to structure their financing to capitalize on that prediction. Worthy of note, selling their gold production forward will have no effect on the project economics as outlined in their Bankable Feasibility Study, as gold revenues were not included in that study.
Back in March the company announced that it had received a non-binding term sheet and expressions of interest from a number of banks with respect to a senior secured project finance debt facility. Negotiating with banks is a lengthy process (they have been at it for several months now) with the bulk of the time taken up by the due diligence process. This process is expected to be helped along significantly once an off-take or VPP deal is signed as this demonstrates third party confidence that the project will realize future commodity production and revenue streams. Compared to Formation Metal's initially proposed debt instrument of high yield notes back in January that never materialized, commercial bank debt offers are usually far better interest rates, LIBOR + 3 to 5% versus the double digit rates of high yield notes.
The other potential means of assisting in a mine financing is to me the most interesting; the issuance of Tax Exempt Industrial Bonds. The seeds of this form of financing were planted over a year and a half ago and may just now be starting to sprout. You have to go back to a company news release put out in February 2009 that stated the company supported the establishment by the local Lemhi County Commissioners of the Industrial Development Corporation that could issue tax exempt industrial bonds. These bonds are part of the Obama stimulus package made available for eligible projects (according to management, such as the Idaho Cobalt Project) that are shovel ready, fully environmentally permitted and will create sustainable jobs. More recently, at the end of July, the local newspaper did a story on a meeting held by the Lemhi County Commissioners, where the County was designated as a "Recovery Zone" allowing Formation the option of utilizing the Industrial Development Corporation for the sale of tax exempt bonds. It will be interesting to see just how this non-dilutive means of potential financing pans out for FCO where it appears tangible progress is being made.
Of course, it is expected that at the end of the day a portion of the financing will include the issuance of equity, either in the form of shares and or warrants -- that is pretty much inevitable. The trick here is to get other less dilutive means of financing in place with the expectation of concluding an equity portion of the financing under stronger share prices.
Other news expected in the fall could be from their two drill programs currently running. The Virgin River Uranium project in the Athabasca Basin of northern Saskatchewan, joint ventured with Cameco and AREVA, has consistently returned impressive drill results where more than $20 million has been spent to date. Early in July they announced the discovery of a possible new mineralized zone running parallel to the existing deposit -- very positive news that fell on deaf ears.
In addition to the Virgin River drilling, later in July the company announced it had mobilized a rig to optimize mine design and assess rare earth elements on their Cobalt Project. The mine optimization involves drilling known extensions of the cobalt deposit that are proximal to the existing proposed portal and gain additional geotechnical data to optimize mine design. This is all about demonstrating reduced mining costs to increase future revenues.
The second goal of the program, to assess the REE's known to occur on the project, could prove to be an eye-opener. Although Formation has known about the occurrences of REE's on their project for years, they have elected not to talk about them until they could ascertain their potential economic significance. This program could prove to be very timely for shareholders considering the attention U.S. based sources of REE's have been receiving lately.
At the end of the day the question still remains just when will the financing be concluded and construction start. In a recent New York Times article covering the Idaho Cobalt Project and its importance to the U.S. society, the writer states "By this time next year, the Idaho Cobalt Project plans to unearth about 800 tons of ore a day from beneath these rugged mountains about 40 miles west of Salmon to be used in the production of hybrid vehicle batteries and industrial products ranging from jet engines to prosthetic hips." But you know the old saying; you can't always believe everything you read in the newspapers. Regardless, it's doubtful the NY Times reporter pulled this timeframe out of thin air after interviewing senior management for the story.
Formation Metals' latest corporate presentation posted on their website indicates a possible production start-up of Q4-2011 or Q1-2012. Given that they have estimated it would take around a year or more to construct the mine, this would infer they are hoping to see the financing concluded before the year is out. That remains to be seen, but in the mean time it seems management is doing all it can to put together a financing that will be done under the best possible terms for shareholders under prevailing market conditions.
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: 10.09.2010 - 11:39 Uhr
Sprache: Deutsch
News-ID 25153
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