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Peter
Grandich Client Update on Formation Metals
Client
Update -- Enough is Enough When It Comes to Formation Metals
Posted by Peter Grandich at 12:12 PM on Wednesday, March 24th, 2010
I spoke with FCO (T-FCO $1.22) management today to see if they had any
insight for me on their recent rapid decline in share price. The short
answer is no. They, like me, have been fielding a lot of enquiries lately
and are quite stumped at this market reaction. I could sense the
frustration in their voice, when they have worked diligently to get their
100% owned Idaho based cobalt mine to the final permitting and
construction stage only to see a lackluster response in their share
performance. According to this persistent management, there is no
material reason for the panic selling we've seen of late. At the risk of
being wrong on defining a "bottom" of any stock, it seems to me
the stock is over done to the downside.
Management pointed out to me the valuation given them by a respected
independent mining analyst as recently as last month. Readers can check
out their website to track down this source. Remember, this valuation was
made when the then current proposed financing arrangements ($60 million
in equity and $100 million in high yield notes) was much more dilutive than
today's proposed financing arrangements.
Regarding their financing efforts, it seems they have changed paths at
least three times in as many months, and although this may have sent a
confusing message to the public, each time the terms were re-done under
more seemingly favorable conditions for the existing shareholders (less
equity to issue, and/or better terms on the debt) -- although once again,
the markets failed to react favorably to this.
At the end of the day management decided to go it alone on a small equity
raise (the current $8.6 million non-brokered equity financing at $1.50
announced March 18), as they have been working with commercial banks on
the debt side versus dealing with hedge funds and high yield notes. It
seems that cobalt's recent listing on the LME has given cobalt some
credibility in the markets and has drawn the attention of commercial
banks to funding the project, although this won't likely happen
overnight. This should be very good news for the shareholders as
commercial bank rates are usually far better than the previously proposed
high yield notes. They have also informed me that there exists a lot of
interest in off-take arrangements (selling product forward) for all of
their proposed production metals, namely copper, gold and of course
cobalt. This is another way management is seeking to minimize equity
dilution in raising the funds to build the mine.
They still have time to pull this off without impacting their proposed
production start-up date of Q2, 2010. Stage I of construction, designed
for the winter months, is underway and is comprised of surveying, site
preparation and tree clearing -- you can review some of this progress in
new photos posted on their website. Stage II is planned for later in the
spring, when the bulk of the snow is off the hills and breaking ground
and concrete pouring starts. They won't need to raise the bigger dollars
until then, and this current smaller financing is designed to get them to
that stage. Stage III expected to start later in the summer or in the
fall, and is the final stage of construction. It is at this stage
management hopes to have the bank debt in place to take their first draw
down, and the later the better for that move as, logically, they are
looking to minimize the time between starting to pay interest and
starting to generate cash flow from mining operations.
As far as upcoming news goes, most likely it can be finance related as
management is anxious to get this behind them. This could either be
regarding current non-brokered equity financing, or news on commercial
bank debt financing and possibly associated off-take arrangements.
They could also put out news on an update on Stage I of construction
although that is no secret and would unlikely have an effect on the share
price. As well, they could announce an update on their Athabasca Basin
Virgin River Uranium Project, joint ventured with Cameco and AREVA, where
two rigs have been turning. Cameco (the operator) has been spending al
lot of time and money defining the extent of their Centennial Deposit on
that project, where quite spectacular results have been coming from in
the past. That program must be drawing to a rapid close with the approach
of spring breakup.
FCO Management has taken a number of hits over the years, and they appear
not about to back down now. This is one persistent and dedicated group of
people. It seems more patience is the current prescription for ailing FCO
shareholders.
Remember it's always darkest before the dawn.
http://grandich.agoracom.com/2010/03/client-update-enough-is-enough-when-it-comes-to-formation-metals/
You can also view this News Release on our website at:
http://www.formationmetals.com/s/News.asp?ReportID=391330
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