Formation Metals’ financial statements shows a definite movement in the right direction
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“Jet engines are a BIG user of cobalt.”
Um, sorry, that was weird…sent the correction and it somehow posted the original again. Hey, I like the company, but I didn’t meant to post it twice!
Oh yeah John W, you did!
Seriously, not investment advice, but I do really like this deal.
Big Al
John, you are probably already aware of this, but there are warrants that are also stupid cheap. They (FCO.wt) offer 7 times the leverage and expire March 10, 2014. The exercise price is $2.00. For the true believers, these offer fantastic upside.
Since out-of-the-money warrants don’t tend to track the shares precisely, it might be best to hold both. Though once in-the-money, the warrants will pay off BIG. They are currently trading at 9 cents.
Matthew, you are a wise person…one of my questions to Rick H. was just about warrants, the numbers, exercise prices, potential dilution. Even if someone worried about dilution, the stock has to go up 3-4x in price (I think there are some 1.55 warrants in there too). I still haven’t checked the latest numbers, too busy travelling. I appreciate it.
Dilution is never welcome, but at least with the exercise of warrants, the company receives cash. With 33 million warrants issued at a $2.00 strike price, Formation would benefit to the tune of $66 million. Options, on the other hand, dilute with no benefit to the company. Luckily there are only 2.9 million options outstanding (about 3% of the float).
At this stage I’m sure Formation would have plenty of legitimate use for the extra cash, so the benefit is worth the dilution in my opinion. I also think $2.00+ could be reached much sooner than most of us think.
It is also worth mentioning that the warrants are very likely to outperform the shares even if we only go to $1.00 – $1.50 this year, since there will still be more than a year left on the warrants one year from now. Speculative interest is sure to get ahead of itself at some point, as it always does.
I agree. They need only $70 million to fully fund the rest of mine construction, then the doors open for business. That’s what markets are for of course, to invite investment so business can begin. I wish I had $70 million, I’d fund it myself. (well, either that or my own personal F/A-18)
I brought up the dilution as I know that subject is on many people’s minds in general, and I had been asked about Formation’s warrants by some friends, so was already looking into it. I think .07 for a $2 warrant is pretty attractive. Even excluding fundamentals, markets do indeed overshoot.
Sorry, .09 for $2 warrant. I’m calling TD on Monday.
I am obviously highly prejudiced on Formation, and had wanted to present some counterpoint, but there isn’t much to see. They do have to complete the $70 mil financing due to BNP Paribas ending their agreement to fully finance Idaho Cobalt Proj. This is almost certainly due to the Euro emergency for all banks to shore up their capital ratios in case of a PIIGS default (which is about a done deal in Greece), not to any operational problem at Formation, but, it is a hurdle. Formation also has expenses in several of it’s other exploration projects, and like any explorer, this will burn some cash. Warrants, which Matthew above and Mr. Honsinger and all agree on the basic numbers, are high-priced (good thing) and though they will dilute 33% of the float, the stock has to rise in value nearly 4 times for that event to happen. For the amount of cash the cobalt mine will produce, these are baby-negatives. I know many of us at Al’s site are looking for ideas, so I hope this helps some.
It’s nice to know we’re on the same page as the vaunted Trader Tracks. As always Rog, thank you for both the free stuff here and for your sub’s (who get it first!).
You know, considering the time left and the price of the underlying shares, the current fair value for these warrants is more like .20 — and even at that price they would still offer 3x leverage.
I think the current opportunity is the result of tired investors who participated in the private placement in March, 2011. That offering was done at $1.50. With the shares off by two-thirds, and the market currently VERY risk averse, it’s easy to see where the bargain price came from. I just hope it lasts a little while longer! So far, I’ve been filled at all 5 price points from .105 to .085 and am prepared to buy all the way to zero. Hey, I can dream!
Matthew, isn’t that kind of you, to provide a market all the way down to 0! You get get any lower than my 0.01 stink bid…
What, no stink bid at .005? One cent is okay but you chicken out below that?! At least you won’t be competing with me if it goes there.
[Just kidding of course!]
Formation was one of top picks in Trader Tracks this week. We did a major story on the company and recommend the shares through our newsletter – Traderrog
Some interesting tidbits (I own the stock, so have a few grains of salt):
* At it’s recent .58 price, Formation is actually trading for a negative Enterprise Value, despite being less than 1 year away from turning up North America’s only high-purity cobalt mine.
* Formation also and already generates a modest $10 million gross rev on gold production.
* Formation’s own Bankable Feasibility Study uses a fairly conservative case to get $34 million/year for the next 10 years (net of mine and labor cost, 7.5% discount rate), valuing the stock at 3.75 based purely on the Idaho project, and current Proven and Probable reserves of 29.5 million pounds cobalt extracted from 2.6 million tons ore. However, the project could grow much, much bigger with around 50 million more tons in the area to be explored.
* Down in Phoenix, Honeywell, General Dynamics, Lockheed and Boeing are all hiring the beat the band due to 777, 787 and F-35 contracts, amongst others. Jet engines are a bit user of cobalt.
OK, you get the idea. Sorry to pump it, but c’mon….this stock is just stupid-cheap.