First Class Metals shares have been in hot demand since its July IPO by dint of its impressive project portfolio in Ontario, Canada.
by: Charles Archer
First Class Metals (LON: FCM) launched its London IPO on the Main Market in late July, priced at 10p per share. Described as ‘quite an achievement’ in a rapidly deteriorating market’ by Chairman James Knowles, the metals explorer is already up to 15.5p, boasting a market cap in excess of £10 million.
And while Knowles finds it ‘very hard making comparisons of FCM to other junior resource small-caps,’ I believe FCM fully deserves a speculative spot in the portfolio, with a view to taking a larger position dependent on future positive results.
First Class Metals overview
FCM holds 100% ownership in seven claim blocks covering some 180 square kilometres in the Hemlo-Schreiber-Harte greenstone belt in Ontario, Canada. The famous mining area enjoys a thriving sector, including juniors and titans such as Barrick Gold and Silver Lake Resources, many of which are both actively mining and exploring for additional resources.
Notably, the area’s geology already has significant producing mines generating both base and precious metals. And excluding the 23 million oz Hemlo deposit, the belt’s discovered gold endowment remains far below the average for similar Archean terranes — a fact not lost on the company’s management, which is actively seeking other exploration targets in the region.
At the onset, one encouraging sign is its strategic shareholder Power Metals (and Power Metals Canada) which hold 27.91% of the company’s shares and operates across North America, Africa, and Australia. Insiders also hold a proportion of FCM stock, including Knowles (and family) and Executive Director Ayub Bodi (and family), both at 15.48%.
Insiders with ‘skin in the game’ is usually a good indicator for investors.
Key projects
FCM’s flagship project is North Hemlo, which covers four large claim areas prospective for gold and base metal discoveries. Based on the northern limb of the Hemlo Greenstone Belt, the project is geographically close to Barrick’s own mine. Nearby projects are already being exploited by neighbouring small caps within the area, including Palladium One, Hemlo Explorers, and Panther Metals.
The company has completed a helicopter-borne low-level high-definition magnetic survey over more than 4,000 line-km of the project, with the data currently being processed for interpretation. More invasive drilling and trenching is expected to follow, pending the results.
The two other ‘priority projects’ are Esa and McKellar, both of which sport encouraging early signs of strong potential.
Esa sits 11km from Hemlo between two plutons — geological structures which are often accompanied by precious and base metal-containing fluids. Early groundwork has already identified trace elements in the project.
McKellar covers an 11 square kilometre claim just west of Generation Mining’s Marathon palladium project. The potential is clear from both past exploration and historic showings, with sampling retrieving multi-ounce gold and silver occurrences alongside instances of base metal, molybdenum and rare earth element anomalism.
FCM is now conducting a detailed review of all available information on both projects, with follow-up ground exploration, stripping, and trenching expected to follow soon after.
In recent developments, on 12 December the company entered into a 60 days exclusivity agreement on a ‘highly prospective, strategically located lithium project.’ While key details are being kept under wraps by an NDA, FCM noted that the project’s ‘critical minerals’ are being supported by Canada’s recently relaunched $2.8 billion Critical Minerals Strategy.
Earlier in 2022, FCM was awarded the maximum $200,000 grant from a total award pot of $5 million from the Ontario Ministry of Mines. Knowles believes ‘the background and professionalism’ of experienced CEO Marc Sale was key to this award, and further thinks that Canada’s updated strategy could ‘provide encouragement via grants (and) swifter permitting which benefits all parts of the cycle up and downstream to develop early-stage projects into the mines we need tomorrow.’
The Chair also notes the long-term impact of the supply gap in critical minerals, and the price support this should give FCM as it progresses into resource development.
Furthermore, First Class Metals has also provided a recent update on its West Pickle Lake project, in which Palladium One has Earn In/JV rights. Assay results showed a ‘massive sulphide discovery,’ of an exceptionally high grade 3.1% Nickel Equivalent over 10.1 meters.
Where next for First Class Metals in 2023?
To be clear, this is the first of two FCM articles, with the second to be published in Q1 2023 containing significantly more detail on the company’s various exploration activities as they develop. It is only a brief overview of the company’s potential; there isn’t the word count to cover its other four projects.
However, there are two underappreciated aspects of FCM’s project portfolio. The first is that while the company built its initial core portfolio in a deal to take over all Power Metals’ Hemlo properties in September 2021, it has built on this by slowly acquiring interests from the ‘very fragmented (area, with) lots of small operators and even private individuals owning parcels of land.’
This painstaking process (forgive the pun) is not something that a major would consider doing, and brings me to the second aspect, which is the potential for buyouts of individual projects by adjacent miners in the area.
This would, at the very least, be conditional on ‘clear defined success’ with its preliminary work and positive analysis of the current ‘mountain of results’ FCM is sitting on. However, having done the legwork there is a healthy potential for profit.
Majors operating in the area already have a working knowledge of the geology, have mining plants in place, offtake agreements, and policies to reduce capex costs through the recession. Expanding production at an initial site is far cheaper and faces far less opposition than exploration and opening a virgin site elsewhere.
Of course, the focus is on the here and now. But this all leaves First Class Metals as an excellent speculative buy to enter 2023.
For clarity and context: FCM Chairman James Knowles’ Q&A in full
- 2022 saw IPO listings in London drop by 90%. How did you find the process?
The process was at times quite challenging, we came up against a rapidly deteriorating market which held little risk capital appetite for new IPO’s and a listing process for the Main Market which is a very complex approval process. Ultimately though we achieved both primary aims, a successful fund raise, and we also had the prospectus approved by the UKLA (FCA). We are probably one of the last sub £30m market cap companies to list on the LSE post the rule changes in late 2021. Overall, quite an achievement.
- Do you think the risk-reward profile of FCM shares compares favorably with other FTSE small-cap favorites, such as GWMO or GCAT?
I do think it is very hard making comparisons of FCM to other junior resource small-caps and I would prefer to focus on our strengths. We have a wide diverse portfolio of projects, including the flagship North Hemlo property. NH also incorporates the West Pickle Lake JV with Palladium One Inc which has returned some very encouraging high grade nickel sulphide drill results since the point of IPO. WPL is about 8% of a 90km2+ district scale property, so it is fair to say going forward we expect the greater opportunity here exists on our 100% owned property. To the South West of the WPL discovery we have an extensive land package, which we have been working on throughout the summer into early winter and have a substantial amount of material in the labs awaiting assays. The other ‘key projects’ are Esa, sat just above the Barrick Hemlo 23m Oz gold mine, Sunbeam a high grade past producing gold mine, McKellar which is an exciting early-stage polymetallic property holding numerous elements including REEs, and four smaller projects in the Hemlo-Schreiber belt which are all highly prospective.
If I must compare (generically against our peers) I feel we are diversified over multiple projects, albeit with a key focus on NH and the ones mentioned in more detail above. I also think the experience of the Board in past large scale Au discoveries (Marc Sale) sets us apart.
- How did FCM manage to acquire ownership of such promising claims? Do you think the mining titans operating in the area may consider a buyout at some point?
We played quite a patient game of slowly expanding to enlarge the main property into the district scale 90km2+ you see today. Several acquisitions and opportune staking culminating in a deal to take all Power Metals PLC Hemlo properties in September 2021 built the core portfolio. The whole area was of a very fragmented nature, lots of small operators and even private individuals owning parcels of land. This made it impossible to view the area from a district exploration level or allow any large-scale systematic exploration. The scale we have now to operate on North Hemlo does really benefit the situation and this is one of the main reasons we have been able to complete one of the most detailed exploration programs (sampling/mapping etc) seen on the ‘North Limb’ of Hemlo for many a year.
The mining titans operating around us (very closely) are Barrick and Silver Lake Resources. If we can progress these properties and start to show the potential, we hope they hold, post issuing of results of the first pass. It would be nice to think they would be interested. With further subsequent programs you would hope the majors would be taking at least a watching brief, but this is exploration, and we must have some clear defined success first!
That’s the job we are now focussed upon. First, though we need to collate, assess, and publish a mountain of results that are now starting to flow through from the labs. Marc Sale is trying to get a very snowbound Thunder Bay in Ontario today to meet with Emerald Geological who led the field campaign for a four day ‘summit meeting’. After this, we should in early 2023 start to get out a considerable amount of pent up news flow.
- Will Canada’s relaunched $2.8 billion Critical Minerals Strategy benefit FCM directly or indirectly, given FCM is the only UK company to have received a grant from the Canadian government in the past?
Undoubtably this is not only good news for FCM but for Canada and all who aspire of seeing a successful green energy transition. We need more critical metals, and this new strategy will likely provide encouragement via grants, swifter permitting which benefits all parts of the cycle up and downstream to develop early stage projects into the mines we need tomorrow.
Earlier this year we successfully applied and got awarded $200,000 from the Ontario Ministry of Mines to supplement our North Hemlo work programs. That grant came from an award pot of $5m of which $200k was the max issue. So, in effect we took 1/25th of the overall allocation. For a new unlisted company this really was a fantastic kudos. I put this down to the background and professionalism of the ‘in-country’ team Marc brought with him to FCM. This gave the Ministry confidence to make us a major recipient of their annual ‘flagship’ OJEP grant. There will likely be opportunities again next year and we will look to apply when available.
- In your opinion, are hard commodity prices more sensitive to the coming global recession or to the long-term shortage gap between rising demand and falling supply?
I think we must look first and foremost at the impending supply gap, especially in critical metals. The junior sector has been very much in decline for several years but I expect 2023 to start seeing an uplift. Investment is needed by the majors into new exploration and this will feed down to our sector. Everywhere you look analysts are stating the supply deficit in key critical metals will lead to shortages and ultimately price increases in the coming decade. What’s the saying, “metals are the new oil”?
By Charles Archer
Charles Archer is an experienced financial writer specialising in monetary law. With a background in stock market and private equity analysis, he’s worked for many years as a freelance investment author, and has had articles published in a wide range of regional and national titles, both online and in print. He holds a BA (Hons) degree in History and Politics, as well as a Master’s degree in Law from the University of Law, the UK’s largest legal training institution. Charles believes the key to successful investing lies in quality research, and aims to offer a unique viewpoint that investors cannot find elsewhere.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
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