$FOSYF : Forsys Metals — The Glaring Value Proposition

Long-Term Price Case$65/lb. U308
Flagship ProjectNorasa
Mineral Reserves90.7 Mlbs.
Shares Outstanding156,900,000
Market Cap$18,511,250
Average Annual Production5.2 Mlbs.
Recovery92.4%
LoM15 Years
Payable Product77,800,000 lbs.
True All-in Cost (TAIC)$55.16/lb.
Gross Revenue$5,057,000,000
Royalty($151,710,000)
Gross Income$4,905,290,000
Total Operating Costs($2,701,216,000)
Operating Profit$2,204,074,000
Income Taxes (37.5%)($826,527,750)
Total Capital Costs($‭612,100,000‬)
Net Income$765,446,250
Net Profit Margin15%
Absolute Cost Structure (ACS)85%
MTQ Score (Higher is Better)0.2
True Value$4.87/sh.
True Value Discount (TVD)98%
Cash Flow Multiple5x
Annual Cash Flow$51,168,000
Future Market Cap$255,840,000
Future Market Cap Growth1,282%
Target$1.63/sh.

Notes: All Values in U.S. Dollars

Like GoviEx, Forsys Metals needs to bide its time for substantially higher uranium prices. Though the economics technically work at the Base Case ($65/lb.), the Net Profit Margin is too thin. To be successful, the Net Profit Margin needs to rise above 30% and the Absolute Cost Structure needs to drop below 70%, which implies a spot uranium price of $80/lb.

So where is the value?

The Forsys Metals value proposition stems from a discrepancy between share price and True Value, as the present discount to True Value is 97%. Similarly, the value proposition for Bannerman Resources stems from its 97% discount to True Value, as opposed to value being derived from Net Profit Margin or Absolute Cost Structure, neither of which are particularly good at a Long-Term Price Case of $65.

Conclusion

We take it for granted that the merits of the Forsys Metals story have not gone unnoticed and that it is daily becoming more ripe as an acquisition target. Naturally we’d like to witness and profit from Market Cap growth up to 1,282%, but we would also be delighted to learn that the Norasa Project had found a good home on an acquirer’s long-term development schedule.

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