FormationCapital (FCO-TSE $.36) - In my last newsletter, I commented that any positive movementin the markets should be reflected in this company. Needless to say, the markets have yet todeliver despite the significant advancements made by Formation Capital onits100%-owned Idaho Cobalt Project (ICP), which appears just weeks away fromapproval formine construction. Like manyother junior resource stocks, I believe it has been over done onthe downsideThecompletion of the appeal resolution process, administered by the Salmon-ChallisNationalForest for the Idaho Cobalt Project, is now a mere two weeks away. The completion of thisprocess paves the wayfor the issuance of a final mine permit in conjunction with the RecordofDecision (ROD) that was issued in June of this year. The ROD and Final EnvironmentalImpactStatement for the Idaho Cobalt Project were issued after seven years ofenvironmentalanalysis by government agencies and input from the public. It has been a long (and at timesfrustrating)process that is nearing completion, and management fully expects to seetheForest Service uphold the Record of Decision that will give them the greenlight to startconstruction 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 Iwould be skeptical ofthis assurance, however this does not surprise me as thebulk of the financing is expected to bein the form of high yield debt, which inthese turbulent equity markets is attractive due to itsguaranteed ROI. Reading between the lines on their September08 news release updating theengineering and procurement status of the project,now 78% complete as at July 31, it appearsthat escalating capitalizationexpenditures is not a concern, as it is these days with so manyother miningprojects, since the majority of the big ticket items have already beencommitted.In an August 14, 2008, surprising news release (and four days priorto the appeal deadline),Formation announced they had come to a joint agreementwith one of the largestenvironmental groups in Idaho – the Idaho ConservationLeague (ICL). The ICL believed morecouldbe done to protect the environment by working with Formation in the funding offutureenvironmental projects (up to $150K per annum) than could be achieved byappealing theROD. Surprising for anenvironmental group? Normally, yes. ButFormation’s cobalt projecthas a mine plan that is extremely environmentallyfriendly to begin with.Despite the ICL powerhouse not appealing, four othergroups did appeal; a local individual,Boulder-White Clouds/Earthworks, the NezPerce Tribe and Noranda Mining.Curiouslyenough, Noranda Mining, (now owned by Xstrata - the fifthlargest mining company in theworld) who owns 100% of the old Blackbird MineSite and 40% of the cleanup liability, didappeal, while Rio Tinto, through theacquisition of Alcan, holds 60% of the cleanup liability,did not appeal. In any case, the Forest Service, as well asFormation, have been meeting with all appellants and hope to wind up theresolution process shortly. The Company advises me that there remain a fewtasks to complete before mine constructioncan begin. Besides the completion of the appealresolution process, the final determination ofthe amount for the bondrequirement and the receipt of the National Pollution DischargeEliminationPermit remain. Both these items are notexpected to cause any delays.
Anotherstep of paramount importance, which Formation has already completed, wasthesubmission of a modified Mine Plan of Operations to the Forest Service incompliance with theenvironmental requirements set out in the ROD. Also to Formation’s credit, as wasannouncedin the second week of September, was the ruling by the SeventhDistrict Idaho Court grantingthe Company access across the neighboringBlackbird Mine site for mining purposes.This wasvery good news as a favorable court ruling was one of the morecontentious stipulations in theROD that is now behind them. Unfortunately, it was announced the same daythe S&P/TSXComposite Index dropped 487 points and had little effect ontheir share price.Obviously, management is confident they will receive theirfinal mine permit for this primary,high-purity cobalt project as evidenced bytheir preparations for construction and start-up.Key personnel continue to behired with the recent addition of an Environmental Manager,Purchaser, andController. The mine site’s directwebsite, www.idahocobalt.com, also showsa Mine Superintendant is the Company’snext position to be filled. I’ve noticednew photos ontheir www.formcap.com website showing the arrival of mineequipment to one of their stagingareas.This is no doubt creating a sense of excitement for the local residentsof the town ofSalmon as this equipment represents the plus 150 jobs the minewill support.In concert with the majority of resource stocks, Formation’s shareprice has taken its hitsdespite release after release of good news – a hallmarkof institutional selling in decliningmarkets – and is certainly not indicativeof the company’s market potential.Regardless ofmarket activity, management continues to aggressively pushforward with companyobjectives to have shovels hit the ground this fall. True to form, one company official hasaplaque displayed in their office that quotes Samuel Johnson, “Great works areperformed, notby strength, but by perseverance” - something this company hasplenty of.
