I normally don't look at long shots because I try to avoid gambling when it comes to putting my money on the line. While every investment is a gamble to some degree, when you buy companies that don't have a proven product and are burning through cash, the risk of major or total loss is high. Having said that though, if you buy at the right price and with the right circumstances, it can be worth making a play given the potential reward although you still have to keep such bets small. One such play I believe is Foran Mining (FOM).
FOM is an exploration company located in East Saskatwean that owns a few VMS deposits which contain primarily copper and zinc. VMS stands for Volcanic Massive Sulfide. Pretty interesting stuff. Its flagship project is McIlvenna Bay which has the potential to be a significant copper and zinc mine. Here's the thing about exploration companies on the TSXV - they are a dime a dozen and all of them would seem to have "potential" but the vast majority end up either going bust or diluting their shareholders into infinity which is why I generally avoided these plays, but because of the carnage that has taken place in this space in recent years I have become more open minded as there's gotta be some worthwhile prospects trading on the cheap that were unduly trashed. One of them appears to be FOM which has a rare confluence of positive factors going for them. They have management and significant investors with great reputations and deep pocks. The Chairman is Darren Marcombe who once worked for Newmont Mining. He restructured this company in 2010 and brought in his former colleagues Pierre Lassond and David Harquail as significant investors. He then hired the CEO Patrick Sores who had just come off a success leading a company that got acquired. FOM's flagship property is sizable and appears to have attractive fundamentals, it operates in a safe, mining friendly jurisdiction, has infrastructure already in place (roads, power) and is located 60 km from the mining town of Flin Flon which means there's readily available personnel. There's a mid sized mining company called Hudbay Minerals nearby (which is the founder and vital employer of Flin Flon) which operates 2 mines similar to the one that FOM hopes to be to build. They only have about 7 years worth of ore remaining in their mines surrounding Flin Flon without any worthy prospects (apparently) which means FOM is in a perfect position to be acquired by Hudbay sometime in the future and it wouldn't happen 6-7 years from now either as it would probably take at 2-3 years to permit and build the mine before it's ready for production and Hudbay would almost certainly not wait until the last minute to replenish their inventory which means FOM could be acquired in the not too distant future. The more they can prove their resource is in fact economical the greater the chance they will get acquired by Hudbay or someone else.
They are conducting a Preliminary Economic Assessment a.k.a. Scoping Study which should be complete by year end or early next year. If that checks out, the next step would be a Feasibility Study which I've learned is what you need to have done in order to provide the highest level of confidence/proof to financiers that the resource in question would make for a profitable mine. I spoke to Darren Marcombe at length and based upon his calculations (not the company's) he thinks McIlvenna Bay could have a NPV(8%) of $250M with a capital cost of about $250M. This NPV number is based upon a 24M ton resource which assumes that the current indicated and inferred resources in their most recent 43-101 technical report end up becoming actual reserves. That's a rather aggressive assumption and I'm not sure what other numbers he's plugging in but he knows more than I do and even if he's just half right it would be quite significant given FOM's current $16 M market cap.
Looking into mining companies such as FOM and NSU has forced me to learn new things. Prior to this I had no idea what a Scoping Study was or that you need to be aware of the major difference between a resource and a reserve. Mining is no doubt a tricky and complex business and there's no way I will be able to understand all the details of a report but I can tell you that I know a lot more now than I did just a few weeks ago. I'm getting to know what the important terminology is and the basic rules of thumb. For instance, it usually takes several years i.e.7-10, to go from discovery of a deposit to building a mine. After reading the historical news releases of these companies and others, I can see that there's a lot of ups and downs with the mine development and operation of it even with the successful, profitable companies like NSU. There always seems to be unexpected developments that even geologoist experts couldn't have predicted and things often take longer to develop that you would hope for which is why timing and the price you pay is important. With FOM I may very well be a little early unless base metal prices heat up in the next few months and the "animal spirits" create a rising tide that lifts all boats situation. Either way, I think FOM is worthy of a small bet at 19 cents given the potential catalysts and large payoff.
.
