Fortune Minerals Hopes for Cash from Revenue Mine Acquisition

When the Investing News Network caught up with Fortune Minerals (TSX:FT,OTCQX:FTMDF) at the beginning of April, the diversified resource company was preparing to release an updated feasibility study for its NICO gold-cobalt-bismuth-copper project and working with Deloitte to advance financing options. 

A lot has happened since then. Fortune has not only released the updated feasibility study for NICO, but also put out a technical report for the project; in addition, the company has released its Q1 financial results. But perhaps most significant is the fact that it has set in motion a plan to purchase the producing Revenue silver mine, located in Southwestern Colorado.

All about Revenue

Fortune’s foray into silver may have come as a surprise to some — after all, until now the company has primarily focused on NICO, as well as on its Arctos anthracite project. However, in a conference call this morning, Robin Goad, Fortune’s CEO, said his company has long been looking to acquire a precious metals producer.

With that comment in mind, it’s not hard to see why Fortune took an interest in Revenue. As is outlined in the company’s press release, Revenue has a measured resource of 215,300 short tons, an indicated resource of 586,300 short tons and an inferred resource of 684,200 short tons. The measured and indicated categories together contain 16.3 million ounces of silver, while the inferred category contains 10.1 million ounces of the white metal.

More importantly, Goad said that reaching commercial production at Revenue will require no lengthy processes. That’s because Revenue is a fully permitted and constructed mine whose concentrator and surface facilities are in the midst of ramping up to 400 tons per day. When that happens, Revenue will operate for 13 years, putting out an annual 1.78 million ounces of silver in addition to gold, lead and zinc by-products. That production will happen at a low cost — net of by-products, Revenue has a project C1 cash cost silver price of US$8.02 per ounce and a “breakeven free cash flow silver price” of $12.42 per ounce.

Final pluses for Revenue are its location in a historic mining district and its status as a past producer; those qualities mean it is surrounded by skilled workers and good infrastructure. Specifically, it is “serviced by roads connected to the Colorado highway system, the Colorado electrical grid, and other services.” The fact that Revenue is in a resource-rich region also means that in the future, its mill may be able to process material for other nearby mines.

Deal details

Of course, Revenue’s many positive qualities raise the question of why the three companies selling it — Silver Star Resources, Star Mine Operations and Revenue-Virginius Mines — are willing to let it go. Addressing that issue in today’s conference call, Jim Williams, principal of the selling group, said that Fortune was chosen over a number of other companies because it has the potential to “be developed into a meaningful company.”

In terms of how the deal will progress, Fortune has incorporated a Colorado subsidiary called Fortune Revenue Silver Mines to acquire Revenue from the sellers mentioned above. Already, Fortune has paid them $2 million and issued 32 million shares in its capital stock for a 12-percent participating interest in the mine. It will be able to increase that interest to 100 percent if it pays a further $14 million and issues a promissory note to pay up to $36.8 million “in deferred quarterly installments over 3.5 to 5.75 years determined by revenue targets commencing in August, 2015.” The company must also “assume obligations to make two deferred payments totaling US$ 4.5 million and pay a 2% net smelter return royalty” capped at $9 million to Revenue’s former owners.

That may sound like a lot of money, but Fortune’s management team seems confident that raising it won’t be a problem. That’s partially because Procon Resources, Fortune’s strategic partner, has already helped the company raise C$3,087,148.40 by exercising its pre-emptive right to buy up to 7,717,871 shares of Fortune priced at $0.40 each. Beyond that, the team said in this morning’s call that it is looking at all available financing opportunities.

What’s next?

Fortune’s fast-paced progress is unlikely to abate in the near future. Revenue will of course continue ramping up to commercial production, while Fortune will work towards completing the next payment required to fully acquire the mine.

That said, Goad was very clear that Fortune’s other projects, particularly NICO, will by no means fall by the wayside now that the company has a producing asset. Indeed, the company’s press release states that cash flow derived from production at Revenue will in part support “financing efforts to develop the NICO mine and refinery in Saskatchewan.” Goad is also hopeful that the acquisition will open up Fortune’s shareholder base and lead to a rerating of shares, allowing the company to perhaps attract more funding from a wider variety of sources.

All told, Fortune certainly looks like a company worth keeping an eye on moving forward.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

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