Janice Lake copper project, Saskatchewan, Canada; Source: Mining.com/Transition Metals Corp.
1. Introduction
As a pure play uranium explorer since 2004, things looked increasingly
grim after Fukushima happened in 2012 for Forum Uranium. After years of
struggling, CEO Richard Mazur decided together with the board that they had
to change course. On February 28, 2018, the company name was changed into Forum
Energy Metals Corp. (FMC:TSX.V), reflecting the new direction into metals
needed for the ongoing energy transition from oil to electricity, with new
focus on for example copper, nickel and cobalt. Management particularly
believes in copper, as only a few new projects have come online, China is
planning to ban scrap imports next year, is planning large infrastructure
spending and the developing EV market could have a significant impact on
demand, all potentially resulting in severe supply/demand tensions in the
future. Only three weeks before this, Forum optioned the large Janice Lake
sedimentary copper project from Transition
Metals Corp. (XTM:TSX.V).
The markets didn't exactly improve after this, so Forum wasn't out of the
woods yet. Notwithstanding this, it completed a small drill program on Janice
Lake, each of four shallow scout holes hitting copper, and two decent
intercepts in Q4, 2018. Fortunately for it, giant Rio Tinto Plc
(RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) also noticed these drill
results, and took a closer look at them. This resulted in a C$30M JV between
Rio Tinto and Forum on May 9, 2019, which was exactly what Forum was
searching for, as Janice Lake was a very promising, but also very large scale
copper project, way too large to explore by a tiny junior like Forum itself.
What Janice Lake is about and what this deal could imply for Forum Energy
Metals is something that will be discussed in the following article.
All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.
2. The company
Forum Energy Metals is an exploration company searching for energy metals,
including copper, nickel, platinum, palladium and uranium in Saskatchewan,
Canada. In addition, Forum has established a strategic land position in the
Idaho Cobalt Belt, in order to find cobalt. Forum originated as a uranium
explorer 15 years ago, focusing on the Athabasca Basin in Saskatchewan, but
broadened its horizon early 2018. I view the company as a hybrid prospect
generator, as it drills its own projects, but also regularly arranges joint
ventures with large partners as it has with Rio Tinto earlier this year.
Forum has an extensive portfolio of uranium projects, the Janice Lake copper
project, the Love Lake palladium project and the Quartz Gulch Cobalt project,
but I will be focusing on its flagship Janice Lake copper project in this
article.
Saskatchewan is the best jurisdiction for mining projects according to the
Policy Perception Index (PPI) of the most recent 2018 Fraser Institute Survey of Mining Companies. It ranks no less than 1 out
of 83 jurisdictions worldwide, with a perfect score of 100 out of 100. The
PPI is the most important figure of this survey, as it indicates the mining
friendliness of a jurisdiction, which encompasses corruption, permitting,
speed of administrative processing, politics, local sentiment, etc. The
Survey is usually published in the last week of February, and handles the
year before.
The management team is led by veteran president and CEO Richard Mazur,
P.Geo, MBA, who has 35 years of experience as a geologist, financial analyst
and senior executive on a variety of commodities like uranium, gold,
diamonds, base metals, coal and industrial minerals. The driving forces on
the exploration front are two Athabasca uranium experts: Ken Wheatley, P.Geo,
who has 37 years of experience as a geoscientist on uranium projects, and
Boen Tan, PhD, who has 35 years of experience as a geologist in uranium
exploration, and Ken and Boen are assisted by Jim Atkinson, P.Geo, MSc, geological
consultant with over 45 years of experience on base and precious metals
deposits and mines. The Board of Directors adds considerable value in the
field of financings, law and accounting.
Forum Energy Metals has its main listing on the main board of the TSX
Venture, where it's trading with FMC.V as its ticker symbol. With an average
volume of about 89,596 shares per day, the company's trading pattern is not
very liquid at the moment, but I expect this to improve when good drill
results will come in from the ongoing program at Janice Lake by JV operator
Rio Tinto.
The company currently has 107.49 million shares outstanding (fully diluted
127.365 million), 15 million warrants (the majority is due @C$0.10 or more,
of which 4.3 million warrants are expiring in March, April and June 2020, and
11 million warrants @C$0.10 in April 2024) and several option series to the
tune of 4.38 million options in total, priced at C$0.10, expiration dates
from Nov 2020 onwards. Forum sports a tiny market capitalization of C$5.9
million based on the August 30, 2019, share price of C$0.055.
The company has a healthy shareholder base, as 15% is held closely by
Institutionals, 9% by Holystone Energy, 8% by Transition Metals, 3% by Lumina
Capital and 6% by management, Board of Directors and insiders. Forum has an
estimated working capital position of about C$0.1 million, as it raised
C$550,000 in April this year but had C$198,000 left at May 31, 2019,
which was the end of Q2, 2019 for the company. Therefore it is raising a
small amount of C$75,000 flow through at the moment, so it can explore its
Love Lake nickel-copper-PGM project in Saskatchewan by mapping and sampling, while
Rio Tinto is doing the heavy lifting at Janice Lake.
Share price; 2 year time
frame
As can be seen in the chart, the share price was gradually grinding lower,
as both uranium and copper weren't performing well since the beginning of
2018. Forum started showing up on radars when the Rio Tinto JV deal was
announced in May, generating massive volumes for a brief period of time. It
seems the share price has bottomed as 3–4 cents are multi year lows, also for
the old ticker which can't be showed at Tmxmoney.com, and I view these levels
as a good buying opportunity, as drilling is well on its way now, and results
can be expected relatively soon, as mentioned. Let's have a look at Forum's
flagship project Janice Lake, and the JV itself.
3. Janice Lake/JV with Rio Tinto
It started all with Forum entering an agreement in February 2018 to
acquire 100% of Janice Lake from Transition Metals, for staged payments
totaling $250,000 (US$186,000) over four years, spending the same amount on
exploration within six months and issuing 8 million shares. The Janice Lake
sedimentary copper project is part of the Wollaston Copper Belt, and is
located in the south eastern part of the Athabasca Basin in Saskatchewan:
These type of sedimentary copper deposits can be extremely large, with the
most significant deposit being Udokan in Russia (1.8Bt @ 1% Cu and 14g/t Ag
Measured and Indicated), which is the third largest undeveloped copper
deposit worldwide, but they are also found in the DRC and Montana, USA. Forum
raised some money, and started drilling the JL-1 target at Janice Lake in
August 2018 by itself.
The results, which were announced in Q4, 2018, were not spectacular but
decent:
These assays were almost true width, with a margin of +/-10%. Hole FEM-01
and FEM-02 are just economic, comparable (or better) with gold at 1g/t open
pit and a 5:1 strip ratio. Final assaying delivered some low grade zinc, lead
and silver as well. Mineralization seems to increase in grade and depth to
the southwest. This is the reason CEO Mazur was asked by Rio Tinto to stake
an additional 30km of claims on strike in this direction. According to Mazur,
Forum was targeting 100Mt @0.4-0.6% Cu at the time, but Rio Tinto is aiming
at an at the very least five times bigger target now.
As can be seen in the following section of several hundred meters long,
combined with comparable historical drill results by Noranda, Phelps Dodge
and the Saskatchewan Government up to 6km to the northeast, indicated that
there is potential for discovering a very large, near surface mineralized
envelope:
As can be seen, the interpreted orange mineralized zone seems to be
layered now and then. This seems to be only the tip of the proverbial
iceberg. The company describes this as follows:
"Logging of the drill core and petrographic studies suggest that
mineralization is hosted by mafic-rich stratigraphy within more felsic units,
opening the possibility for multiple layers of copper mineralization."
This is probably the key in understanding Janice Lake correctly, and also
the potential cause for operators like Noranda and Phelps Dodge for not
seeing economic potential earlier. As VP Exploration Ken Wheatley states in
this interview:
"I think we have multiple horizons of copper mineralisation that
were not necessarily recognised by previous operators. They drilled along
strike, but I do not think they realised that that was just one of the layers
of copper. We see a series of layers of mineralisation. So, the whole area is
mineralised. If we can find some sweet spot areas, then it will help to
understand the area better,' he says. 'The trick now is going to be getting
some grade holes to show that it is economical. The next stage will be
hundreds of thousands of metres of drilling to prove up an orebody. That is
what it takes to get to pre-feasibility. We think the potential here is to
develop an open pit mining resource and mine a lot of tonnes of copper."
Wheatley thinks as most layers dip 40 grades to the northwest, that the
thickness of the entire package of layers is at least 500m, visualized by
this schematic section:
In order to be economic at extrapolated depths of around 300m and deeper,
grades and thickness have to increase significantly as it would indicate
partially underground mining, but it is still early days. On top of this,
Wheatley also thinks there is a second, parallel trend alongside Janice
Trend:
"In addition, a second mineralized trend, named the Genie Trend,
parallels the Janice Trend. It appears to be a repeated section by faulting
of the prospective stratigraphy, significantly expanding the potential for
further copper mineralization."
And let's not forget how large this Janice Lake project really is, as
Forum has staked claims along a 52km trend now, including the entire
Wollaston Copper Belt mentioned earlier:
After finishing this drill program, and pitching the story successfully,
Forum was able to announce a JV agreement with Rio Tinto Exploration Canada
Inc. ("RTEC") on its Janice Lake sedimentary copper project in
Saskatchewan.
These are the highlights of the JV terms, per the news release of May 9, 2019:
- RTEC will commit to $3 million in exploration over the
next 18 months.
- RTEC has been granted a four year option to acquire a
51% interest in the Janice Lake Project by spending $10 million in
exploration, making $490,000 in cash payments, and servicing the
remaining $200,000 in underlying cash payments to Transition Metals
Corp. as per the terms of the Forum/Transition Option Agreement dated
February 5, 2018, to earn 100% interest in the Janice Lake Project.
- RTEC has a second option to earn a further 29% interest
(total 80% interest) by spending a further $20 million in exploration
over a three year period (total $30 million) and making further cash
payments of $150,000 (total $640,000).
- Upon RTEC vesting an interest, it may elect to form a
joint venture on terms agreed to by the parties. Under the joint
venture, a party whose interest is diluted below 10% is converted to a
1% Net Smelter Return Royalty capped at $50 million.
- Forum has staked a further 19,312 hectares to the
southwest, which doubles the size of the property to 38,250 hectares and
covers the entire 52 km of the Wollaston Copperbelt. These new claims
have been added to the Option Agreement.
This is, of course, a very interesting deal for Forum, as it had issues
raising cash throughout 2018 and 2019, and an amount of C$3 million would
have been out of reach for sure in the current subdued base metals sentiment,
preventing Forum from doing serious drilling and solid news flow.
RTEC has planned a high-resolution airborne magnetometer survey over the
entire extent of the property and approximately 7,000 meters of drilling in
25–30 holes in 2019 to meet its first year exploration commitment. The survey
has been completed, target holes have been defined and drilling is on its
way.
As Forum has added this map to their presentation, it could very well be
that Rio Tinto is following its strategy of proposed drill fences (in
yellow), which I already discussed with Mazur in January around the VRIC
conference:
But Rio Tinto has enough knowledge and experience in-house to determine
the best exploration strategy for themselves, of course. I expect Rio to
release all results at once in one batch, and shortly afterwards reveal if it
is going to continue with the JV or bail out. But as the trends are so large,
it could be that it takes another shot at it next year, who knows. To be
balanced about this, the same situation could be observed at the BHP-Aston
Bay JV, on the equally large Storm Copper project, but BHP chose to return
the project to Aston Bay after just one limited (but very expensive as it was
more Nordic) drill program, so it is possible. I must say that BHP, more than
Rio Tinto, is pretty risk averse and has very high standards regarding
deposits and success rates, so this might help Forum in seeing Rio taking
multiple shots at Janice Lake.
In order to err on the safe side, I am treating this as a binary play, but
an interesting one as Rio obviously isn't killing time, and not seeing this
as some kind of recycled stranded asset, and the upside seems to be very
significant. If this really appears to have Tier I potential, maybe think
Reservoir Minerals upside (acquired in 2016 by Nevsun for US$365 million) in
4–5 years from now, although Timok Upper Zone wasn't even Tier I. I pulled
some old numbers from my spreadsheets to give a further impression of what
copper assets could fetch, although copper prices were much higher at the
time of course (now US$2.56/lb Cu):
For example, a 500Mt target @1% Cu generates 11B lb Cu, and if this is
economic at C$2.56/lb Cu it might be able to be valued at an arm-waving
US$200-250 million, if for example Rio decides to buy Forum out. For
something of another comparison, Teck sold a 30% stake in Quebrada Blanca to
Sumitomo, which is basically an earn-in for US$1.2 billion, as Sumitomo pays
for most of the expansion capex here. The mine is scheduled to produce 16.5B
lb Cu for the remaining life of mine. So big copper is a game of big numbers,
if Rio really strikes it big, all Forum has to do is keeping the lights on by
doing a few small raises, until Rio is ready for a buyout. I should put in a
little disclaimer about this, as I, for example, don't know if Forum has to fund
pro rata economic studies and permitting. But I can imagine Rio Tinto doing
in-house studies for such a potentially large project, and probably providing
Forum with an offer they can't refuse, well before Rio Tinto wants to develop
this all the way into feasibility study, etc.
4. Conclusion
It is rare to see a super major like Rio Tinto doing a JV with a (at the
time) C$4 million market cap junior, worth C$30 million. In my view, there
must be a reason why Rio is so interested in Janice Lake. I am very curious
if the new theory of Forum VP Exploration Ken Wheatley will solve the puzzle
that the likes of Noranda and Phelps Dodge couldn't solve in the past. Rio
Tinto is drilling now, and the big question for me is, aside from the
impending results of course, which I assume as probably being consistent and
economic but not earth-moving at first sight, what its thresholds will be.
Hopefully, we are about to find out in a month or two. I am curious.
Janice Lake project; Source: Transition Metals
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