Paying premim prices for First Class? FCM

Exploring the explorer First Class Metals - part of POW

Imagining what zig zag shaped lithium deposits might look like

Dear reader

I last wrote about First Class Metals (Ticker: FCM) in POW Wow where I spoke of Spooks and Spikes.

The spike was Golden Metal Resources GMET which has since double bagged.

The spook was FCM which has gone into suspension pending their overdue 2023 accounts. The accounts were released this week.

Both are part owned by Power Metals (ticker: POW)

FCM 2023 Accounts

Income - Nil; Operating Loss - £1.6m; Loss Per Share 2.1p per share.

Assets £3.8m, Debt £0.7m, NAV £3.1m.

FCM 2024 Progress

£100k grant from the Canadium Ministry of Mines. 79th GRP Limited to sell 100% of the McKellar and Enable projects. The combined sale price is £270k. In addition FCM has entered into a £230k working capital term loan with 79th GRP.

The sale price of McKellar/Enable pro rata to the % of claims puts FCM on a £4.7m valuation. The sale price pro rata to the % of area puts this on a £2.3m valuation.

This assumes that Enable and McKellar are representative of FCM’s assets. They are not. Whilst each offers potential for upside, and both are permitted, neither have a JORC resource, and neither have been drilled. Even the sampling is fairly early on.

Sunbeam, Zigzag North Hemlo and Kerr’s are all more advanced and more quantified. Placing a 3X valuation would be appropriate based on their more advanced state.

If we do that Sunbeam as a ratio of claims is “worth” £8.5m. Based on the probably gold that’s £2.65 per ounce of probable gold. You can read more about that £2.65/ounce here:

ZigZag is £42k. That’s 0.4p per tonne of lithium! Which of course is ridiculously cheap. You can read about the 2.5 tonnes for a penny here:

North Hemlo arrives at a valuation of £2.9m.

Kerrs meanwhile is £0.75m (minus £0.1m that FCM need to pay for Kerrs). Which is £1.94 per ounce of resource.

That gets us to a £12.2m valuation across the top 4 properties alone.

Next Steps:

Further asset sales are probably ahead, including potentially further sales to 79th Resources. It is important to understand that 79th Resources plan a listing on the TSX. It seems to me that an IPO on two early stage properties isn’t overly exciting. All of their other projects are in Guinea, West Africa.

An IPO with 9.9 million tonnes of Lithium, or 3.3 million ounce of gold, or 19g/t assays - any of those would “sound” right.

An IPO with all three would sound very alright.

Of course 79th might buy other resources than those from FCM. But with gold prices exceeding $2,300 an ounce are there many Canadian projects up for sale? I have no idea but I would suspect the answer is no. Lithium prices are low but as a strategic mineral the Americans have just made a multi billion dollar loan to Thacker Pass. Would the Canadian government do the same? Again I have no idea, but the threat of Chinese domination of battery metals and cutting off supply is a spectre in Western government’s minds.

POW

POW’s FCM holding is valued at £0.5m. POW’s market cap of £21.5m contains the GMET holding book value £13.8m, the JV with Ucam book value £3.8m, the sale of New Ballarat book value £0.8m and FCM just £0.5m.

£2.6m is left in the price, covering the Molopo, Tati, Haneti and Silver Peak projects. The Ion IPO, the FDR IPO, the Wilan Project JV with AAJ, the 5 NSRs over holdings being developed by Ucam, by RRR, by AAJ and by Kavango.

POW also owns 75% of GSAe.

Plus any upside from any and all of the above - including of course FCM.

Conclusion

Overall, the 2023 FCM accounts can be read as a terrible failure. Lack of cash, no revenue, forced raises, further dilution ahead. You could point at the share price and decry the “value destruction” after a 17.5p high at the end of 2022 dropping to 2.6p today. You could say there’s terrible risks.

Certainly all of that is true. And risks do remain.

You have to be comfortable that FCM is a pre-discovery and that is not dissimilar to winning the lottery. Once a find is announced then that asset can be subject to intense speculation.

It appears the company owns some interesting assets, in an interesting jurisdiction, and has recently managed to sell a fairly insignificant pair of assets albeit for a fairly insignificant amount - £0.27m - to a business keen to list in Canada. I call them assets but there was no discernable asset on the balance sheet for either property. All the exploration was expensed to the P&L so the sale is profit to the P&L with no reduction from the balance sheet. A hidden asset if you will.

It’s true £270k is a small amount, but that, and its loan, keeps the lights on for 8 months more. A lot can happen in 8 months.

Other asset sales and further exploration for starters.

Regards,

The Oak Bloke.

Disclaimers:

This is not advice

Micro cap and Nano cap holdings might have a higher risk and higher volatility than companies that are traditionally defined as "blue chip".