Grandich's Blog

Formation Capital (FCO-TSE $.36) - In my last newsletter, I commented that any positive movement in the markets should be reflected in this company.  Needless to say, the markets have yet to deliver despite the significant advancements made by Formation Capital on its 100%-owned Idaho Cobalt Project (ICP), which appears just weeks away from approval for mine construction.  Like many other junior resource stocks, I believe it has been over done on the downside

The completion of the appeal resolution process, administered by the Salmon-Challis National Forest for the Idaho Cobalt Project, is now a mere two weeks away.  The completion of this process paves the way for the issuance of a final mine permit in conjunction with the Record of Decision (ROD) that was issued in June of this year.  The ROD and Final Environmental Impact Statement for the Idaho Cobalt Project were issued after seven years of environmental analysis by government agencies and input from the public.  It has been a long (and at times frustrating) process that is nearing completion, and management fully expects to see the Forest Service uphold the Record of Decision that will give them the green light to start construction of the mine.

Of course, they still need to raise some $165 million to build the mine and put up a bond, which according to management, is on track.  In other circumstances I would be skeptical of this assurance, however this does not surprise me as the bulk of the financing is expected to be in the form of high yield debt, which in these turbulent equity markets is attractive due to its guaranteed ROI.  Reading between the lines on their September 08 news release updating the engineering and procurement status of the project, now 78% complete as at July 31, it appears that escalating capitalization expenditures is not a concern, as it is these days with so many other mining projects, since the majority of the big ticket items have already been committed.

In an August 14, 2008, surprising news release (and four days prior to the appeal deadline), Formation announced they had come to a joint agreement with one of the largest environmental groups in Idaho – the Idaho Conservation League (ICL).  The ICL believed more could be done to protect the environment by working with Formation in the funding of future environmental projects (up to $150K per annum) than could be achieved by appealing the ROD.  Surprising for an environmental group? Normally, yes.  But Formation’s cobalt project has a mine plan that is extremely environmentally friendly to begin with.

Despite the ICL powerhouse not appealing, four other groups did appeal; a local individual, Boulder-White Clouds/Earthworks, the Nez Perce Tribe and Noranda Mining.  Curiously enough, Noranda Mining, (now owned by Xstrata – the fifth largest mining company in the world) who owns 100% of the old Blackbird Mine Site and 40% of the cleanup liability, did appeal, while Rio Tinto, through the acquisition of Alcan, holds 60% of the cleanup liability, did not appeal.  In any case, the Forest Service, as well as Formation, have been meeting with all appellants and hope to wind up the resolution process shortly.

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