Securing Critical Supply

Securing Critical Supply

Formation Metals  FCO.TO

SP: $1.00
S/O: 90.7 million
Market Cap: $90 million
http://www.formationmetals.com


Initiating coverage @ $1.00
Rated: Strong Buy
Discourse: Ownership of stock/warrants



On this edition of Resource Corp, I am going to feature a cobalt company that is feeling blue. Formation Metals has somewhat under preformed the market in the last 52 weeks; but I sense that the market will change its tune very soon!

Idaho's new walk to fame.


Potatoes were Idaho's claim to fame but Formation Metals will put the great potato state back on the map with this sizable cobalt deposit. I know it is hard to believe but high grade cobalt can be found outside of the Congo, so if you want politically de-risked exposure to cobalt Formation is the place to be. 65% of the world's cobalt comes from Africa and if I was a betting man I would say that 45% of the 65% came from Congo, if anyone owns First Quantum they know the pain first hand of investing in Congo, they recently had a mine that got seized, so if a company with a 14 billion dollar market cap gets robbed like that you betcha that the pirate government of Congo would not be shy on stealing your exploration companies project! The Ram project is the only feasible large scale cobalt deposit in North America.

Cobalt 101

So you guys are probably wondering why I am not blogging the hottest gold play with 1600 gold, why Cobalt? What the hell is Cobalt a color?
Cobalt is a gray, hard, lustrous metal, which was first discovered in 1739 , most people think that the metal is blue the color Cobalt is blue but the metal is plain old gray. Cobalt is a rare base metal, most of it is a byproduct of copper or nickel mining. It is very rare to find a pure cobalt deposit like the Ram Project.
About 32% of Cobalt is used for industrial uses such as paints, drill bits, ball bearings, and 36% for environmental such as solar panels, fuel cells, and batteries for hybrid vehicles, and 22% for strategic uses such jet engines and turbine blades and 9% for electronics including propulsion systems, cell phones, memory chips and hard disk drives. As you can see, Cobalt is a critical metal with many uses. With China and India going on a aircraft buying spree Cobalt will be in high demand, trust me the skies are looking blue for cobalt producers. The Paris Air Show shattered aircraft sales records, for those of you not familiar with the Paris air show it is the world's biggest convention for aircraft sales. Boeing estimates India alone will buy $150 billion dollars of jets in the next 20 years.
Securing the safe and consistent supply for rare elements such as Cobalt are key to the security of North America, right now we are the largest consumers of Cobalt and all of it is imported, I believe that Formation will be a key supplier of Cobalt in the USA, if you are a Formation shareholder you are probably sipping pina coladas and laughing because Formation Metals owns the sole cobalt deposit in North America!

MineOnomics

The capex for the Idaho cobalt deposit stand at $141,903,963. The IRR using a conservative $22.52 cost per pound price is 22.30%, currently the spot price of cobalt is at $18.25, the price of Cobalt was over $50 before the great recession of 2008.  Proven and Probable Reserve category of 29.5 million pounds of cobalt, 31.4 million pounds of copper and 37 thousand ounces of gold. The project is expected to have a 10 year mine life, with further drilling this can be expanded as the project is still open in directions. The company has 20 targets and only four have been drilled, only one is used for the Project's proven and probable reserves. This project has the potential to be MASSIVE.  The company plans on producing 3.3 million pounds a year with a 22 dollar average cost the company will bring in almost 75 million dollars after subtracting 25 million for the cash cost you are left with approximately 50 million dollars in earnings a year.

Buy truckloads of Formation NOW!!!

 
Jennings Capital recently put a speculative buy rating on Formation for $2.60, this thing is the real deal. The management team has made spectacular deals, they picked up a Hydro Metallurgical plant about 200 miles away for 1.2 million, the replacement cost for the plant is roughly 80 million! They have also have raised money in the toughest of markets.
The Ram mine has near term production potential, the company is on track for construction. High lead items have already been ordered and the company is about to enter a highly lucrative construction period, usually mining companies appreciate drastically because of constant news flow.
Formation also has 2 "secret" uranium projects in Saskatchewan, they have a JV with Cameco and AREVA, the two heavyweights in the uranium industry. The company also has a copper project in Idaho, I am sure once there is cash flow coming in the management at Formation will want to dip there toes in more projects.
Remember a 80 million dollar PP was done at $1.50 earlier this year, so by buying the warrant and the share you are paying $1.28, you are getting a better deal than the big boys!!!
I would recommend picking up the warrants along with the shares for extra leverage, if what me and the boys at Jennings Capital are thinking is true expect a 10 bagger within a few years, add all the pieces together and I think that Formation Metals is a very strong buy at current prices, I see very little downside and tremendous upside!