The Jam Factory Jam today, jam today is the cry from a few on the board. Such frustration is wholly unnecessary imho. The BoD does not hold back the PEA without good reason. As I eluded to in a post earlier this week, I suspect it is the complexity of the upgrade circuit, external relationships, partner IP etc. I remember we had a member of this BB note that there is an expected update coming soon from Gary, I assume he has spoken to Gary, so why don’t we all be a little more patient until some news arrives.
There are so many positive aspects to this investment, they far out-weigh any negatives. Indeed the only negative I have ever heard is the Ni43/PEA etc is late, where is it? The PEA will be delivered when it is ready. I don’t want a rushed and ill thought out document to be presented to me as an investor. I want a diligent and well-presented representation of the economic potential I already know exists here to be confirmed to me.
The facts here already speak for themselves. The big picture is good, the detail is fantastic.
16% grade, we are highly likely to see the lowest production costs in the world. My own calculations based on firm NGC BFS data lead me to the sub-$200 per tonne cash cost, even when I inflate the NGC costs by a highly prudent 47% average per tonne of ore processed. (reference 7/10/2012 post).
Simply put, this leads us to the highest industry margins (reference 7/10/2012 post). When I looked at 95% production & $1,800/t revenue, the advantages were very clear in the numbers. Up to 90% margins, a considerable advantage over our competitors (eg; NGC at 54% margin on their BFS).
Scalability is also such an important factor, all by virtue of our high grade ore. FMS can produce over 130,000tpa at 95% on an 2,500tpd plant. If you are also the preferred low cost supplier, the phrase ‘cornering the market’ comes to mind. Resulting price war? Fine, we are the best equipped to weather the storm. Another way to think about it is to consider a competitor comparison. If a competitor at 93% capacity can produce 15,900tpa 95% on a 2,500tpd plant and they produce spherical graphite with 60% losses (10% upgrade to 99.9% and 50% shaping loss), they only have the ability to produce 6,400 tonnes of spherical graphite per year. FMS with an ability to produce 130,000tpa at 95% with 80% losses (10 upgrade to 99.9% and 70% shaping loss) can produce 26,000 tonnes per year. 4 times the amount for the same base processing of ore and base capex investment.
The scalability advantage leads FMS to the vertical integration model it seeks to employ. It can produce high volumes of 95%, 99.9%, 99.99%, Spherical and Anodes, all from the base of a 2,500tpa plant. Any competitor who looks to match our production levels is looking at investing in base plant capacities of 5,000 (8%) to 20,000tpd (2%) if utilising the same base 95% process. Some may have some process advantages further down the line, but nothing I have modelled so far comes anywhere near arresting the ore grade advantage.
We know Canada is a great place to do business, the corporate tax rate was reduced to 15% in 2012, with an 11.9% Provincial rate in QC. Contrast this with Australia at 30% or the US at 39%.
Quebec is still considered one of the best mining provinces in the World, ranking in 5th in the Frazer Institute Report for 2011 (regardless of Bill 14, Lac Knife is Northern Quebec, not urban, Fermont is a company town & Mittal are next door). Investment in QC mining is expected to be $4.4b in 2012, up 62% on 2011. QC will overtake ON in 2012 and more than 50% of all Canadian mining investment will be targeted in QC in 2012. Exploration tax credits can range from 15%-38.75%, or alternatively there is the tax incentive of flow-through, available to investors at 25%.
We do have a potential royalty issue risk from PQ in the Sept 4th elections, but this would look to bring QC in line with British Columbia, New Brunswick, and Newfoundland and Labrador. They are also in place in Australia, China, India, Michigan and Arizona. For example, all the major mining states in Australia use royalties on mineral production, not profit, with rates between 3% and 8%. This issue needs putting into a FMS perspective. A 5% royalty on gross revenue ($28.6m from the base 95% example) drops less than 5% from our gross margin, down to 85.4%.
Other positive aspects of conducting business in Quebec serve in part to mitigate this risk and I have always chosen not to incorporate such advantages into my calculations to date. For example, the crushing, milling and processing are energy intensive. In QC in 2011 business customers paid 4.78c/kWh. In ON, they paid 9.8c/kWh. We pay half, on the likely second largest direct cost after labour in the production operation, compared to competitor locations.
There are a myriad of other advantages: HQ opening doors, Kwyjibo is imo currently attributed nil value in the SP, but we are looking to produce a second NI43-101 for our company from the 2012 summer program. Further out we have Romer and Labrador, benefitting from Plan Nord, potential railway and port capacity increases and IOC investment in the region.
And finally, our 40% in Grafoid. Rutgers, CVD, NDA’s giving real credibility to a long term value there.
With the natural de-risking along the way, this company is shaping up as a potential decade hold imo.
You may want jam today, I prefer to show patience, as I really do want the whole jam factory tomorrow.
GLTA, my assumptions/calcs so DYOR.
https://www.stockhouse.com/Bullboards/MessageDetail.aspx?s=FMS&t=LIST&m=31258231&l=0&pd=0&r=0
https://www.hydroquebec.com/publications/en/comparison_prices/pdf/comp_2011_en.pdf
https://www.oecd.org/ctp/taxpolicyanalysis/oecdtaxdatabase.htm#C_CorporateCaptial
https://www.pwc.com/en_ca/ca/mining/publications/canadian-mining-taxation-2011-04-en.pdf
https://www.theglobeandmail.com/report-on-business/economy/economy-lab/growth-in-mining-sector-reshaping-quebec-economy/article535937/
https://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/mining-survey-2011-2012.pdf
https://www.montrealgazette.com/business/Plan+Nord+Quebec+rail+plan+stirs+hope+concern/6905861/story.html