Saturday 1st October 2016

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Diversified, De-risked, Undiluted

Fortune Seeks Partners as it Moves to Production

By Greg Klein

With two projects slated for production within 12 months of each other, the year 2014 should be a big one for Fortune Minerals Ltd TSX:FT. The projects are diverse—gold, cobalt, bismuth and copper at NICO in the Northwest Territories and anthracite coal at Mount Klappan in northwest BC. Both projects have been test-mined. Much of the infrastructure is either in place, on its way or in storage. Additionally, as President/CEO Robin Goad explains, the company intends to recruit deep-pocketed partners to reduce equity dilution.

Last August, Fortune teamed up with South Korea’s POSCO in a JV that gives the world’s third-largest steel producer a 20% interest in Mount Klappan. Fortune gets an estimated $181 million in return, with $30 million up front, to develop the mine and a rail connection. POSCO will fund 20% of operating costs and receive 20% of production from one of the world’s largest undeveloped anthracite deposits.

Fortune Seeks Partners as it Moves to Production

Mount Klappan’s four deposits total 107.9 million tonnes coal measured, 123 million tonnes indicated and 359.5 million tonnes inferred. Its Lost Fox deposit has a reserve of 85.6 million tonnes proven and 16.1 million tonnes probable. After wash-plant processing, that reserve translates into 51.6 million tonnes proven and 9.2 million tonnes probable reserves of the 10% ash pulverised coal injection (PCI) product used in steelmaking.

Last November’s feasibility study projects a $768.4-million CAPEX for the first four years of a minimum 20-year lifespan for an open pit producing an initial three million tonnes a year.

Based on a price of $175 per tonne PCI, the study projects a pre-tax IRR of 25.4% and an 8% discounted NPV of $1 billion. At $300 a tonne, the study projects a pre-tax IRR up to 60.2% and an 8% discounted NPV up to $ 3.8 billion.

The transportation plan entails building tracks on an existing CN rail bed to the main line 150 kilometres away, which connects with the Ridley Coal Terminal at Prince Rupert, gateway to Asia.

Electricity should be on its way to the region, with BC Hydro’s 344-kilometre transmission line expected for completion in 2013.

“Our POSCO agreement puts money in place to take Mount Klappan through permitting, detailed engineering and some additional work,” says Goad. “At the same time we’re working closely with the community, where we have very significant support, and on finding an additional minority partner that will fund the project into commercial operation.”

Fortune seeks a JV partner for NICO too. “Our plan is to fully finance both projects right through to commercial operation with minimal equity dilution,” he explains.

NICO has underground and open-pit proven and probable reserves of 907,000 ounces gold, 82 million pounds cobalt, 109 million pounds bismuth and 27 million pounds copper. The project’s 2008 feasibility study, however, is out of date.

“We’re now completing front-end engineering and design. We’re going to come out with a new financial model, and we’ll have a new reserve estimate coming out very shortly. At the same time, we’re completing the permitting process and working very hard on community engagement.” Goad says.

A key aspect of the project is the plan to ship concentrate to the company’s refinery in Saskatchewan. “NICO will be using a very simple flotation concentration process to reduce 4,650 tonnes of ore per day to only 180 tonnes of concentrate. That means only five truckloads of material, just 3.7% of the original mass, will leave the NICO site for Hay River each day. That’s a critical economic attribute.”

Both projects have been test-mined; both projects have been assessed in positive bankable feasibility studies; both have been pilot-plant processed —Robin Goad

From Hay River, concentrate will travel by rail to Fortune’s Saskatchewan Metals Processing Plant near Saskatoon. The refinery will offer much lower costs for power, production and labour than could be found in the NWT.

At this advanced stage, NICO might be described as a mine in waiting. It’s also a mine in storage. Fortune has bought and dismantled Newmont’s TSX:NMC Golden Giant Mine buildings, metallurgical labs and other infrastructure, with the intention of shipping and reassembling them at NICO. Goad says the Golden Giant transplant offers another de-risk benefit.

“The Tlicho [aboriginal] government is generally very supportive of our project,” Goad says. The environmental review is progressing as well. “We just completed a conformity check on our developments assessment report [with the NWT Mackenzie Valley Review Board], and I think we’re the first company in history to have zero deficiencies.”

About 24 kilometres from NICO sits a possible satellite project, Fortune’s Sue Dianne Deposit. It hosts an indicated 43-101 of 149.1 million pounds copper, 19,000 ounces gold and 855,000 ounces silver, with an inferred category of 28.3 million pounds copper, 3,600 ounces gold and 122,000 ounces silver.

Goad concludes, “Both projects have been test-mined; both projects have been assessed in positive bankable feasibility studies; both have been pilot-plant processed. We’ve done things like buy the Golden Giant mine to reduce risks. We’ve not only offer compelling value, but we’ve done a lot to reduce risk in terms of diversifying our assets and the work that we’ve conducted to advance both projects.”

At press time Fortune had 110.79 million shares outstanding at $0.82 a share for a market cap of $90.85 million.


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