Forum Energy Metals (TSX-V:FMC) surprised the Canadian markets earlier this month when it revealed that it had secured $30m deal with Rio Tinto Exploration over its Janice Lake sedimentary copper project in Canada. With the support of a major mining player, Forum has been granted the fire power needed to realise the true potential of its asset, which it believes to mirror the giant Udokan Deposits of the Lake Baikal region in Siberia. Here, CEO Rick Mazur and VP exploration Ken Wheatley talk through their decision to enter the copper sector, the value presenting itself at Janice Lake, and progress across the rest of Forum’s portfolio.
Forum was established in 2004 as a uranium exploration firm. However, following an extended bear-run in the uranium market in the wake of the 2012 Fukushima nuclear disaster, the company decided to extend its focus into the wider energy metals market last year. After changing its name from ‘Forum Uranium’, the business selected the copper market as its first foray into previously uncharted territory.
Forum’s decision to get exposure to the red metal is favoured by the general outlook of the commodity analyst community. Many experts expect copper prices to experience a sharp swing upwards over the coming years following a recent, well-publicised downturn across most commodity markets in the face of weak global growth and US/China trade tensions.
On the demand side, this shift is expected to come down primarily to two factors. First-of-all, China’s acceleration into a phase of infrastructure development is expected to require an unprecedented amount of copper. A good example is the country’s ‘belt and road’ initiative, which aims to create the world’s largest platform for economic cooperation covering policy coordination, trade, financing, and social partnerships. Most notably, the initiative is expected to include a continuous network of highways, railways, ocean routes and ports, with plans to expand over 68 countries and several continents at a cost of $4trn to $8trm.
The second demand driver is expected to be an increased uptake of electric vehicles (EVs) over the coming decades. On average, EVs contain 183lbs of copper compared to just 18-49lbs in conventional cars. With the number of EVs on the road expect to hit 125m by 2030 - compared to c.3.1m in 2017 - Citigroup expects prices of the metal to pass $9,000 by 2028. In comparison, the metal current sits below $6,500/t.
Meanwhile, on the supply side, many analysts believe that a sustained downturn has created an environment where too few copper projects are coming on stream to meet the predicted explosion in demand for the metal. Likewise, China’s plans to ban all scrap copper imports by 2020 as part of broader environmental reform is expected to provide international producers and processors with a significant opportunity.
‘Copper is the mother of all base metals,’ adds Mazur. ‘When economies are growing, huge amounts of copper are required for areas like construction and power. These are the biggest drivers for the market. The EV sector is also crucial because it presents a huge amount of incremental growth that has caught suppliers completely off guard. Overall, the fundamentals for the copper market are very, very strong, so it seemed a great space for us to enter.’
Forum’s copper exposure comes from a sedimentary copper project called Janice Lake found 55km from Cameco’s Key Lake processing facility in Saskatchewan, Canada’s number-one rated mining jurisdiction. The organisation optioned a 100pc interest in the asset last February from Transition Metals in exchange for 8m of its shares and $250,000 worth of staged cash payments over four years. Transition will also retain a 2pc net smelter royalty on metal produced from the site.
Map showing location of Janice Lake project
The deal covered 17,600 hectares of staked claims in an area called ‘the most significantconcentration of sediment-hosted copper showings yet known in the Wollaston Domain’ by the Saskatchewan Geological Survey. Limited drilling in the area before Forum’s entry appears to support this claim, with operators encountering mineralisation for 6km on the Janice trend.
Specifically, Noranda drilled 0.77pc copper over 33m including 1.6pc copper over 6m, within 35m of the surface back in 1993 while Phelps Dodge discovered a new zone in 2003 including 0.72pc copper over 26m. Likewise, grab samples collected by Transition have returned values ranging from 0.34 to 9.35pc copper and 0.7 to 61.7 g/t silver.
According to Mazur, these results highlight the potential for the discovery of multiple near-surface, sediment-hosted copper deposits. Sediment-hosted deposits are estimated to account for around a quarter of worldwide copper production and frequently contain higher concentrations of the metal, alongside accessory base and precious metals, than porphyry deposits.
Specifically, Mazur says the age and depositional environment at Janice Lake are similar to the giant Udokan Deposits of the Lake Baikal region in Siberia and the Revette deposits of Montana, USA. With Udokan boasting JORC compliant measured and indicated resources of 1.822 billion tonnes grading 1.01pc copper and14.3 g/t silver, these parallels could be highly significant. As such, Mazur says Forum immediately was keen to take advantage of Janice Lake’s lack of development in spite of its early-stage prospectivity.
Likewise, to take advantage of the broader potential for sediment-hosted copper deposits on offer in the more expansive Janice area, Forum has increased its presence significantly since last February’s deal. Firstly, the firm staked an additional 15,331 hectares of claims covering over 30km in the region alongside transition last year.
Then, earlier this month, the business announced that it had staked a further 19,312 hectares to the southwest, doubling the size of the property to 38,250 hectares.
‘The attraction of this project when we acquired was that over a 6km trend there were only 40 drill holes ever drilled. Firms were hitting copper everywhere, but operators were never really able to put it together,’ says Mazur. ‘We think there is potential for a huge copper deposit in this sedimentary basin. The drilling that was done previously showed excellent economic grades and persistent copper over 6km, so that’s why we staked the 24km trend.’
To make the most of its first-mover advantage, Forum completed a drilling programme of its own at Janice Lake several months after entering the area. This comprised four holes targeting the JS-2 area of historical drilling completed by Phelps Dodge to extend Janice Lake’s known strike of copper mineralisation.
The programme was an immediate success, with all four holes encountering copper mineralisation within 80m of the surface. Highlights included a 19m intersection grading 1pc copper including 5.7m of 2.18pc copper within a 50.5m interval grading 0.45pc copper. Forum also encountered a 15m zone of mineralisation containing 1.09pc lead and 0.62pc zinc within a 5m intersection grading 0.39pc copper and 4.3 g/t silver. Wheatley says the results suggest mineralisation at Janice Lake is hosted by mafic-rich stratigraphy within more felsic units. In Layman’s terms, this opens up the possibility for multiple layers of copper mineralisation:
‘I think we have multiple horizons of copper mineralisation that were not necessarily recognised by previous operators. They drilled along strike, but I do not think they realised that that was just one of the layers of copper. We see a series of layers of mineralisation. So, the whole area is mineralised. If we can find some sweet spot areas, then it will help to understand the area better,’ he says. ‘The trick now is going to be getting some grade holes to show that it is economical. The next stage will be hundreds of thousands of metres of drilling to prove up an orebody. That is what it takes to get to pre-feasibility. We think the potential here is to develop an open pit mining resource and mine a lot of tonnes of copper.
This drilling success did not go unnoticed, with both Forum and Janice Lake taking a major step forward earlier this month when Rio Tinto Exploration Canada entered into an option on the project. The mining major has entered a joint venture agreement with Forum that will see it commit to $3m in exploration at Janice Lake over the next year-and-a-half.
Alongside this, Rio Tinto has also been granted two options. The first of these gives its four years to acquire a 51pc stake in Janice Lake by spending $10m on exploration, making $490,000 in cash payments.As a bonus, the business must also service Forum’s remaining $200,000 worth of underlying cash payments to Transition for acquiring Janice Lake in the first place.In other words, Forum has negotiated a multi-year deal with a world-leading mining company on a project that it is yet to acquire itself fully. The second option gives Rio Tinto the right to earn a further 29pc stake in Janice Lake by spending another $20m in exploration over three years while making additional cash payments of $150,000.
Encouragingly, Rio Tinto is already planning a high-resolution airborne magnetometer survey over the entire extent of Janice Lake alongside c.7,000m of drilling in 25-30 holes to meet its 2019 exploration commitments. Mazur says this sort of support from a business like Rio Tinto is transformational for Forum because it will allow it to realise Janice Lake’s true potential:
‘The Rio Tinto deal is exceptional at this stage of the project. The company obviously sees what we see- Janice Lake’s potential to become a mine. We are pleased to have the team on board- Rio Tinto is obviously one of the biggest copper producers in the world, so the technical team it can bring to this is tremendous. We are really excited to have the company come in to the project and build a mine for us.’
Forum also offers exposure to several additional assets beyond Janice Lake, which MiningMaven will cover in great detail in a future report. One of the most significant of these is its 100pc-owned Quartz Gulch cobalt exploration project in America’s Idaho copper belt. Quartz Gulch is based around 5kms to the south-east of the past-producing Blackbird cobalt mine and the eCobalt Solutions Idaho cobalt project - currently, the only permitted cobalt mine under development in North America.
Although Janice Lake remains Forum’s primary focus at present, Mazur says he believes that the business could benefit from having a significant strategic foothold in Idaho as conditions in the cobalt market develop: ‘We are locked-in at the best cobalt area in North America, adjacent to former production and a developing mine,’ he says. ‘Cobalt is a vital element in the cathode of Li-ion batteries and will be for years to come. The primary source of cobalt is currently the DRC, which is very unstable. I think battery suppliers are increasingly seeking out a secure source of cobalt, so that is why we are getting into the metal in the US.’
Forum also has a majority interest in seven drill-ready uranium exploration properties in Canada’s Athabasca Basin, where some of the richest deposits for the metal are found globally. The projects are under the direction of Wheatley, a professional geologist who boasts an exploration discovery record of eight uranium deposits. Four of these became producing mines.
Mazur tells us the company will return to the projects when conditions in the uranium market begin to recover: ‘Although the market went soft on us, we believe things will come back into balance. The demand for uranium in China is huge and growing – the country is building nuclear power plants as part of its 20-year plans to replace all of its coal-fired power generation.’
Map showing location of Athabasca Basin prospects
The parallels being drawn between Janice Lake and hugely successful sedimentary copper projects alongside the asset’s ability to attract a major mining player at such an early stage are very encouraging. With guidance from Forum’s highly experienced management and technical team and financial firepower from Rio Tinto, the project really has been granted the best possible shot at realising its potential.
Beyond Janice Lake, the assets present across the remainder of Forum’s portfolio both ensure diversification and give investors additional exposure to powerful global trends like increasing nuclear power and EV usage. Although positive, market reaction to the Rio Tinto deal was somewhat muted. With a work programme coming up and investors growing privy to Janice Lake’s prospectivity, it will be interesting to see where Forum’s shares go from here.
Author: Daniel Flynn
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