I want to ask your opinion on Fortune Minerals. With two positive feasibility studies and exposure to gold, bismuth, cobalt and coal, is the market ignoring the long term potential of this company over the next five years?
Fortune Minerals Limited is a development stage mining company that is advancing their NICO cobalt, gold, bismuth deposit in the Northwest Territories and the Klappan anthracite coal deposit in British Columbia. The company intends to use their Klappan holdings to raise cash to cover the equity portion of the budget needed to bring NICO to production by 2012. BNP Paribas has been engaged to secure $200M - $250M in financing for NICO. Let's see what trends are in place.
The three-year chart tells the tale of a stock that has broken below its 50 and 200 day moving averages and its trend line which are yellow flags. A nice advance has taken a breather. The RSI indicated that FT was overbought in January of this year and its been bleeding profits since then. The MACD also signalled a reversal at the same time. It did catch a bounce off the 200 day moving average in late March but it wasn't enough to get FT back on the rails and headed higher.
The six-month chart provides a tighter shot of the recent action. The volume has also thinned out considerably and as we know, you must have volume for a stock to climb. I would tend to agree that the market might be overlooking the potential of FT, but let's look at the roadblocks.
They need to find a joint venture partner, a buyer, or some other form of liquidity for the coal asset in order to fund the development of the NICO deposit. They also need to secure loans to push NICO down the track. These both introduce additional risks to the operational and geological risk in the project.
These risk factors are also why you can buy shares in FT at these prices or perhaps lower. Many years ago, Ted Carter taught me that when we are speculating on a mining stock, treat each unknown as a question posed by investors. Right now the questions are, when and how will FT finance its equity share of development and will BNP Paribas secure the loan package it needs.
The market response has been to sell until there are more details forthcoming.
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