Fortune Bay (FOR) - Does Optimised PFS Provide Hope To Investors?

September 30 2020, 13:22 GMT+01:00

Fortune Bay (FOR)

  • TSX-V: FOR
  • Shares Outstanding: 29M
  • Share price C$1.28 (14.09.2020)
  • Market Cap: C$36M

Verran is new to Fortune Bay. He comes from the world of uranium having worked at Denison in Saskatchewan where Fortune Bay's assets are located. They have 2x 100% owned gold projects; combined they have a historic 2.1Moz of M&I, with potential exploration upside. They are hoping to advance their Goldfields as they have been underexplored.

We were keen to understand if this is more than just another company hoping to take advantage of the current excitable gold market. Is there a project with solid fundamentals? Verran is equally keen to explain why he and the board are excited about what they see in front of them. They are open-pit targets. And Verran says the 2011 is well written and they hope to be able to improve on it.

They raised $2.7M in May, they have $1.8M in cash today. All very tight. Hoping to drill, work on a resource estimate and high-level PFS review. They will need to raise capital soon, once they have re-look at the data they have. Is there any urgency with this team?

We Discuss:

  1. 3:00 - Company Overview
  2. 4:37 - Business Foundation and History: The Plan
  3. 7:34 - 2011 PFS Relevant Numbers & Economics Today
  4. 9:05 - Corporate Structure: Cash Position, Raises, Team Experience
  5. 11:45 - Accelerating the Process: Plan of Action
  6. 14:29 - Standing Out as a Gold Explorer: Why Fortune Bay?
  7. 18:33 - Money Allocation and Goals to Meet Before the Next Raise
  8. 20:59 - Company VS Market: Obstacles and Limitations
  9. 23:30 - Management Shareholding, Objectives & Targets

Matthew Gordon: Give us that 1-minute overview of the business and then we'll pick it up from there.

Dale Varren: Fortune Bay is a Gold explorer and developer listed on the TSX-V under the symbol FOR. The company is two 100%-owned Gold projects located in Saskatchewan, Canada and in Chiapas State, Mexico. Combined, the projects host 2.1Bnoz in measured and indicated and 0.9Moz in inferred resources. Those are historical estimates, and both projects offer significant exploration and development upside. These projects have been under the radar for some time. They've been inactive and recently we set on a path to unlock value in these assets. Just over a month ago, at the end of July, we announced plans to the Goldfields project to advance that through various exploration and development activities and that's expected to deliver numerous catalysts over the next 12-18-months.

Matthew Gordon: When you say underexplored, no-one cared that you existed, is that what you mean?

Dale Varren:  We went through a lull in the Gold market, from 2011 we had a bit of a false start, and in 2016. The Gold market picked up significantly recently, so the company is moving, the project is moving and it's certainly a really exciting time to be doing that.

Matthew Gordon:. Is this just another one of those companies that's been dug out of the cupboard and put in front of people hoping that you'll find enough investors to put money into this to give it a chance?

Dale Varren:  For companies, these are really exciting times, the company went through a whole bunch of different transactions back in 2014-2016 when the current company was formed. Since then, there's been a lot of interest in these projects, but no actual work is done and obviously, with the uptick in the Gold price it's really excited the board to get the projects moving. I was brought on just over 2-months ago.

Matthew Gordon: What have you been brought in to do? What do you think you're going to be able to do for these assets which other people couldn't do?

Dale Varren:  I was really excited by this opportunity when it came across my desk, just firstly in terms of a company in today's market with Gold resources on the books at decent grades. They're both open-pit targets. The projects hadn't had much done on them and the Gold price having moved up so much, at the Goldfields project there's already a PFS that was done in 2011 that had robust economics. Obviously, we know what happened subsequent to 2011 with the lull in the Gold price, but we've started to look at all that in detail and we are really impressed with the work that's been done there, the quality of the work. We've had independent consultants come on and review that PFS and it's a robust study. The real exciting part is we get to build on that study and it's a study that was done using a Canadian Gold price of CAD$1,250/oz. Today the Canadian Gold price has more than doubled: sitting at around CAD$2,600/oz. On that basis alone, it's a really exciting project to move forward in this market. Obviously, things have to be relooked at instead of CAPEX/OPEX, and that's not even including what we see on the exploration side. There's a lot of potential around both the deposits on the Goldfields property both Box and Athona.

Matthew Gordon: What are the relevant numbers from the PFS that you can talk about today?

Dale Varren:  The 2011 PFS is an open-pit mining scenario of the box and Athena deposits. Box going first, having approximately just over 70% of the resources. It's a 13-year mine life with a mill capacity of 5,000t per day. Gold recoveries at Box of 91%, at Athona 91%. In terms of the economic highlights, using that Gold price of CAD$1,250 p/oz, the CAPEX was CAD$149M using a 14% contingency. The NPV produced was CAD$144M. That's a pre-tax NPV at a 5% discount rate, and the IRR produced was 19.6%, also on a pre-tax basis. Those real economics are certainly robust. Obviously, in today's terms, we need to plug in a new Gold price and we also need to relook at those CAPEX/OPEX costs and make sure they are going to be realistic in today’s terms.

Matthew Gordon: How are you going to move this thing forwards? Start with the corporate structure: who is involved. How much money have you got in place?

Dale Varren:  The corporate structure: this company was run by a chairman, Wade Dawe, who goes back to the early 2000s when he started Linear Goldcorp. They had some success and went to Brigus Gold. Eventually, Brigus Gold merged with Apollo Resources and that sold to Primero. That was a big success, and it's out of that transaction that these assets came into play. Wade is still on the board and he's helping drive the strategy forward. The company is well-funded. We've got a lot of insider ownership. Both board and management owning around 19%, so there's a strong alignment with shareholders there. He is really excited to take our strategy and put it into our projects and execute on that.

Matthew Gordon: Have you been able to raise capital? If so, how much? What are the plans?

Dale Varren:  Going back to May, we raised CAD$2.7M in hard dollars and that's being used to fund the company now through various activities. Our current cache is around CAD$1.8M. That's going to see us well into next year. In terms of what we're doing on the technical side, we have some fieldwork plans for September, we initiated a mineral resource estimate. We are doing a PFS and high-level review, various activities on the go but we are looking to drill, really as soon as possible, at Goldfields. That's going to require some additional funding so we'll look to the markets later this year and look too obviously, flow-through financing would be attractive. We haven't decided on an exact amount yet, we are still in the process of looking through the data defining drill targets, that involves creating new geological models for the Box and Athona deposits. That's going to guide our exploration and we're going to be able to put a really solid plan around that, look at what it's going to cost and then we can look to raise the money for that project.

Matthew Gordon: Wade Dawe - Are you under any pressure from Wade to accelerate in order to take advantage of the current environment?

Dale Varren: There is a strong drive from the board to move this project. We have an aggressive strategy, but we realise that strategy is realistic, one advantage in Saskatchewan is that it's a great place to operate; everyone knows that it's a top-ranked jurisdiction in Canada. My experience there with Dennison Mines, having done lots of drilling programs in Northern Saskatchewan and studies. I’m familiar with all the players in the space, and we really have a good plan to advance that quickly.

We differentiate ourselves from other companies in that we're not starting a PFS from scratch. We've got so much great data to build upon. There's been so much good work done in the past. We really feel that that allows us to fast-track this project in terms of both advancing the development path, in terms of a future PFS, but also in terms of exploring the project where we see a huge amount of potential.

Matthew Gordon: What sort of company are you going to be?

Dale Varren: That's right. That immediate focus on Goldfields and doing that. Absolutely

Matthew Gordon: What happens when you get the PFS?

Dale Varren: With Goldfields, we are going to keep marching down that development path and continuing to de-risk the project. We want to create a project that's going to interest the mid-tier miner. Once we've done a PFS we will be in tandem with the updated mineral resource estimate followed by a potential future PFS. We're going to be doing exploration and based on those results, we can then look to include those additional resources in either an updated PFS or put it all together into a Feasibility Study. But if we create a good project in a good jurisdiction, we believe there is going to be interesting as we move down that path.

Matthew Gordon: What's your plan for growth for this company? What are shareholders buying into?

Dale Varren: In the short term, they are buying into Goldfields, that's our main story. That's where we're going to focus. We're not going to confuse shareholders with lots of different assets. We're going to have a real focus that's got a catalyst and we're going to move that project forward as quickly as we can. Obviously, creating a good project you have lots of favourable opportunities outcomes down the road and that's going to create value for shareholders. At Athona, it's a fantastic project, a great asset. It's not as advanced as Goldfields. We can't move that down the development path line as quickly, the exploration path, so we are currently looking at that project in detail. We are looking at the data, pulling it apart. There's a lot of opportunities, a lot of value to be unlocked, lots of exploration potential development outside, and we look at various options to advance that and we may not advance that necessarily ourselves. We might look to find a suitable partner that can advance that project for us, and that's obviously finding the right person in the right company, the right operational capability, financial capability as well.

Matthew Gordon: Now or down the line?

Dale Varren: There's certainly been a lot of interest in the project going back prior to me joining, and currently it's a great asset. The people who know about it know it's a good project, so there's certainly interest in it, we just need to look at evaluating a potential suitable partner and then see how that unfolds over the coming months.

Matthew Gordon: Plus, you don't have the money to do too much with it yourself?

Dale Varren: That's right. You know that capital is valuable to us, that is shareholder capital. We want to really allocate that wherein the short term we can we can use that effectively. We certainly see the value to do that, but not at the same time necessary, and that's where I think the value could be in sharing some of that risk with another suitable partner and focusing our story on Goldfields in the short term.

Matthew Gordon: What happens to the team down there? Would you look to partner?

Dale Varren: We're open to various options at this stage. It could be anything from an outright acquisition where, if there are some cash and shares, we can use some of that to even fund Goldfields in the shorter term. We'd also be open to earn-in option agreements. There have been earn-in option agreements on the project in the past, Kinross was there in 2007 to 2009, and they did the last really significant work in terms of drilling on the project. So, there's been those types of arrangements in the past and we'd certainly look to attract a partner to do something similar in future.

Matthew Gordon: Where do you think the market is attributing value? Are they giving you any credit for Mexico, Ixuatan?

Dale Varren: Absolutely, I think there is value in there, it's hard to answer that question; we don't have analysts’ coverage yet. It's still early days for us so it's hard to see exactly where the market is putting the value. The value in our story is having two advanced projects and having a plan for one of them in the near term with another one a little down that pipeline

Matthew Gordon: Two advanced projects, do you seriously think these are advanced projects?

Dale Varren: We consider them advanced exploration projects in that sense, we're not a junior explorer. We're not going out and doing greenfields exploration. We've got two assets with resources, and we're looking to expand those resources and take this project through development stages to de-risk them.

Matthew Gordon: What do you think you need to deliver before you can go out and raise this money at the end of the year?

Dale Varren: Where we stand at the moment, we've got these good assets. With Goldfields, we are busy putting together geological models. The project, going back to 2011, the models that were created were very simplistic and the exploration was done just on chasing mineralisation. There was no emphasis on understanding the structural controls on these deposits. By developing good models that can guide exploration and demonstrate targets on the deposits, that's going to help us raise that money.

Matthew Gordon: Can you break  down as to how you intend to spend CAD$1.8M between now and into next year?

Dale Varren: We've initiated a mineral resource estimate and that process really involves, as we've got to put together a technical team; we've got a technical director and a senior project geologist for the Goldfields projects. We are really pulling apart that data, putting it into solid databases. We are reviewing that in detail. That's obviously taking the time. We are doing a QAQC on that and then we'll move into a fieldwork stage where we will be looking at the rocks, doing a historical tour, looking at the outcrop, some of the trenches and building these geological models, and that's going to form the basis for mineral resource estimates. A lot of the spend over the next while will be focused on out-field activities involving the data and then leading into a mineral resource estimate. At the same time, we will be allocating money to a high-level PFS review. We've started that process and we've done an initial exercise to look at the PFS. We will be continuing that through Q3 and Q4 this year to basically look at where the opportunities and risks are with doing a new PFS and also identifying any data gaps so when it comes to next year, combined with our potential drilling program, we will also be looking to collect any additional data needed to go towards a PFS Study.

Matthew Gordon: What were some of the things that you saw when you walked in that made you nervous?

Dale Varren: On face value, when you look at the company's assets, you pull the tech reports off SEDAR, you have a quick look through and you think, this looks great. But of course, you're looking at a resource estimate from a PFS going back to 2006, the PFS which includes the resource estimates going back to 2011. You open these up you think, what am I going to discover here? Is there going to be any skeletons in the closet, and what we found is everything's been really well done. This is not just coming from our company side, but from independent consultants, who say that the PFS that was done is a really robust study. The feedback we've had on it has been very complimentary. On top of that, we are seeing opportunities in that PFS for creating more value on the project and improving economics.

Matthew Gordon: Are you at all worried that if Gold falls back or resets a bit, you're going to be left behind?

Dale Varren: I think we were already seen as a robust project at CAD$1,250/oz, so we've got a lot of buffers to work with. We're really confident that with what's in place already in terms of that historical PFS, plus the exploration upside, we can really create a much better project here. The exploration itself – we are seeing high grades that were drilled below the resource estimate that hasn't yet been included, and it's open at depth. This is at Box and there's similar exploration potential at Athona. There are lots of ways to grow and improve this project. Even if the Gold price does pull back, we're in a really strong position to advance on an existing PFS that is robust.

Matthew Gordon: You've come in. Have you bought any shares yourself?

Dale Varren: I have. I bought 60,000 shares.

Matthew Gordon: Have you been given any?

Dale Varren: I haven’t been given any. I am obviously incentivised with some options that are linked to certain performance objectives, but those I bought with my own money.

Matthew Gordon: What sort of objectives do they set you?

Dale Varren: It's all about creating shareholder value.

Matthew Gordon: What does that mean?

Dale Varren: You want the share price up, grow the market cap for the company as well. Those objects are very much aligned with the path we've selected. When I came on board, we had some really good strategy sessions and we decided how to do we move this these projects forward, and that was rolled into my performance incentives and our broader teams. The board also has significant ownership in the company, so we feel very much aligned with shareholders.

Matthew Gordon: What are the other things that you are incentivised by? What targets do boards set CEOs?

Dale Varren: It's really about technical objectives to deliver value on the project, both in terms of resource expansion, in de-risking the project through studies - those types of initiatives really to move the project forward. Our company has got a commitment to really putting money in the ground, not only having a lot of necessarily corporate type spend overheads but focusing on the ground. We believe if we explore well, add ounces with the drill bits, the project's value is going to come for us, that's where we are really focusing shareholder money to get the best returns taking the projects forward.

Matthew Gordon: Thanks for that interesting story. I appreciate you spending the time today talking us through it.

Dale Varren: Thanks, Matt. Thanks for having us.

Company Website: https://fortunebaycorp.com/

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