Now, we face a third more prolonged crisis, brought on by U.S and Eurozone debt, financial market equity selloffs, uncertain financial markets and weakened commodity prices. But as always, the markets are cyclic and will recover. As such, your current management is focused on preserving its core asset, and is taking decisive action to ensure a strong treasury. This will allow your Company to not only survive, but also take advantage of opportunities in these weak markets.
When Formation completed the first stage of financing the construction of its Idaho Cobalt Project in March of 2010, it successfully raised $80 million at $1.50 per share when cobalt prices were trading over US$20 per pound and the market for raising capital was attractive. Since that time cobalt prices have fallen to a low of about US$10.50 per pound along with many other commodities which has constrained access to capital for all junior resource companies. Unfortunately this has negatively impacted not just our stock price but stock prices across the sector as a whole. To add fuel to the fire, Formation was heavily weighted in institutional shareholders who have steadily been liquidating their equity positions. Dundee has obviously figured out an alternative agenda for themselves as they have used this turmoil to increase their share position as recently as November 2012.
So what is the right strategy when facing such market conditions? Based on our experience, exactly what we are executing on:
-- Put major capital intensive projects temporarily on hold;-- Look for opportunities to strengthen the balance sheet by divesting non- core assets;-- Constrain costs and conserve cash;-- Reduce debt carrying costs; and-- Remain flexible so that when the market turns we can resume with what is fundamentally an excellent project.
In addition, Formation has also ensured a strong free cash position by taking active and aggressive steps to preserve its cash position through a number of cost cutting measures including:
-- Significant total compensation reductions;-- Eliminating positions at the head office, refinery and operations offices in Salmon;-- The negotiation of the reduction of outstanding payables;-- Downsizing Formation's head office-space; and-- The cancellation of all non-essential outsourced consulting.
Having managed the company for over two decades, management has overcome several financial crises and has ALWAYS come out on top. Recent articles from Minesite.com covering the proposed sale of the refinery and Formation's future prospects state:
"When combined with the redemption of a US federal stimulus loan in the spring, which freed up US$9.5 million that was being held as collateral while simultaneously erasing US$44.5 million of debt, the asset sale will leave the company totally debt free, after the repayment of a US$5 million convertible debenture."
"Management has successfully monetized a non-core asset significantly de-risking the company as a whole in these trying economic times. They've proven themselves to be quick on their feet and decisive in their actions while responding to the unprecedented financial meltdown and erosion of metals prices which have plagued the industry."
"So, with the Idaho Cobalt Project ready to become the only primary cobalt producer in North America, Formation's flagship project could soon present an even more compelling argument for investment and development."