I repost the following interesting exchange from Canada's Stockhouse blog overnight:
I think it’s important to remember that since 2011, the Cobalt price had languished below $15/lb. So even after the recent sharp correction we are nearly double that. Ecobalt’s ICP feasibility study reports an estimated mining cost of $5.05/lb. Keep in mind this is for underground mining. If FCC could open pit mine at Iron Creek, their OpEx would be a fraction of that. But even conservatively using the $5/lb. there is close to $25/lb profit there. FCCs initial resource estimate (which is sure to grow) reports 45M lbs of contained Cobalt. 45Mlbs*$25/lb = $USD1.25B of profit to be made there. Give it a 15 year mine life and you’re looking at $USD75M/ annum profit. A basic 10x P/E multiple would result in a $USD750M market capitalization, which is roughly 10X current MC. So say what you will, but if the Cobalt price can remain high, or better yet continue to rise, there is the potential for a very luractive situation here. Let the big boys figure out financing and off-takes and all that stuff. They know what they’re doing. They’re going to do what’s best for shareholders as they are shareholders themselves! Trust me, they don’t want excess dilution any more than you or I. They will find a way. Be patient and have some trust. There is serious long-term potential here. Short-term is anyone’s guess. But if you’re placing a bet on Cobalt, I don’t believe there’s a better place to park your money right now than FCC. Long and Strong! GLTA
AND
Thanks RTC..... those sound impressive... $750m MC and the 10X current MC.... IF we didnt have any dilution ( improbabdle) could it be also 10 X the current SP ?
AND
Not sure I understand the question. If you’re asking if it’s possible that FCC could have 10x it’s current SP one day - Absolutely. There’s also a chance they go completely bankrupt and cease to exist. Anything’s possible in the stock market and commodity juniors can be extremely volatile. They don’t have the same insulation from market downturns as large caps or even non-commodity-focused juniors. That said, they also tend to offer a lot more upside. So you certainly have more downside risk, but it comes with multi-bagger potential. Most commodity junior will either strike out or hit a home run. There’s not much in between. And there are a lot more strikeouts than homeruns. So if you are looking to place a bet on the success of a particular commodity, it is extremely important you choose the right investment. The fundamentals and management team need to be there to give yourself the best chance at that home run. That’s why I’m long FCC. Fundamentals and management team. If Cobalt is a success as commodity, there is a very high chance FCC will hit that home run. If it isn’t, there’s a very high chance FCC will strike out. I’m placing my bet on the former. I like the Cobalt story and, in my mind, no other cobalt exploration junior has nearly the same quality fundamentals or management. Picture another scenario. Over the next few years the Cobalt story begins to unfold and the Co price establishes a floor around the $40 mark. At Iron Creek, FCC is able to have continued success on the drill bit and expand their already promising resource to the 100Mlbs some people believe is contained at IC. Now there is $35/lb profit, they have tons of institutional and off take interest, they build the biggest mill they can, capable of producing 5Mlbs/annum, and they have a mine life of 20+years. This brings profit of $USD175M/annum at IC. Meanwhile, while they are making money at IC, they are drilling out other properties and finding new mineable resources. Now there is growth potential. Now they are a growth company and have a higher P/E ratio. Say 15. That’s a $US 2.6B MC. Roughly 35X today’s MC. This is my home run scenario. The strikeout scenario is the Cobalt price tanks and FCC ceases to exist. Or the Cobalt price holds and FCC bungles the ops at IC and have zero success on the drillbit in Ontario.Both of these scenarios are possible. I believe in the cobalt story and I believe the home run potential justifies the risk in being heavily invested in FCC. If if you are asking a general question on if it is possible that if the MC were to rise 10-fold, and in the meantime more shares had been issued, what would that do to the SP? MC/#shares=SP. So if more shares had been issued, no the SP would not be 10X today’s SP. A disappointing example would be if things got really rough and they ended up issuing another say 180M shares over the next few years they’d have roughly 1.5X the shares on issue. The MC would still be 10X current MC, however it would make for a SP of 6.66X current SP. Dillution is never ideal. Excessive dillution can be disaterous. It’s management’s job to find ways to increase shareholder value. Dillution will never be considered unless it’s necessary in order to move forward. I don’t pretend to have a crystal ball. There are just too many variables and too many unknowns to say with absolute certainty that FCC will be a home run success for investors. I’m saying if I’m the Skipper, I’m really like the guy I have at the plate.
Ash here.
Which explains much of the market uncertainty around FCC and why I am keen though cautious about the short term.
Ash
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