Agnico lifts Foran stake but copper project costs jump

Canada’s Agnico Eagle (TSX, NYSE: AEM) is increasing its stake in Foran Mining (TSX: FOM) which is coping with increased capital costs for its McIlvenna Bay copper-zinc-gold-silver project in Saskatchewan. 

The country’s largest gold miner by market capitalization is investing $90 million (US$64 million) to lifts its ownership in Foran to 13.5% from 9.9% by purchasing 30 million voting common shares at $3 each, the companies said Wednesday. 

The private placement, part of Foran’s broader $350 million financing effort, includes backing from the $15-billion federal government Canada Growth Fund and Toronto-based Fairfax Financial Holdings, which has US$96.8 billion under management.

The funding announcement comes after Foran this month hiked its estimated capital cost for McIlvenna Bay by 22% to $1.08 billion from $886 million. BMO Capital Markets called it “a disappointing development, particularly given Foran recently filed an updated technical report and provided a construction update.” 

“Our net asset value declines about 22% and we downgrade Foran from Outperform to Market Perform (Speculative) with a $3.75 [share price] target,” mining analyst Rene Cartier wrote in a note. “New copper mines are scarce, and we will continue to monitor progress towards commercial production.” 

Shares in Foran Mining fell 4.6% on Thursday in Toronto to $3.10 apiece, valuing the company at $1.24 billion. Agnico Eagle stock was up 1.3% to $148.24 each for a market cap of $74 billion. 

Flin Flon belt

The McIlvenna Bay project in the Flin Flon greenstone belt, has the region’s largest undeveloped volcanic-hosted massive sulphide deposit. Its resource is 39 million indicated tonnes grading 1.2% copper, 2.16% zinc, 0.41 gram gold per tonne, and 14 grams silver. It equals 2.04% copper-equivalent.

A 2022 feasibility study outlined an 18-year mine capable of producing an average of 65 million lb. of copper equivalent annually (34.5 million lb. of copper, 58.6 million lb. of zinc, 17,500 oz. of gold and 435,200 oz. of silver).

Construction is about a third completed, according to Foran, with $381 million spent towards the first stage and $701 million remaining to completion. The increased capital budget includes about 46% due to non-recoverable sales taxes and reduced pre-commercial production revenue credits, the conpany said. The budget includes $40 million for working capital, $25 million to $30 million for exploration and the same again for corporate expenses, according to Foran.

Funding 

The developer is banking on $645 million in cash net of payables, credit facilities of $148 million to $153 million, a federal Strategic Innovation Fund contribution of as much as $25 million, a Critical Minerals Infrastructure Fund grant of up to $15 million and investment tax credits of $10 million. Foran sees a surplus of $32 million to $57 million if everything falls into place.

“With this, however, federal government contributions have timing uncertainty,” BMO’s Cartier said. “Tax credit timing is also uncertain, and not expected during the construction phase, but any proceeds received would support future deleveraging as well as phase two investment plans.” 

The new Foran shares placement is to close in two tranches, pending regulatory and shareholder approvals. The first tranche is expected to close on or around May 28. The second will follow as soon as shareholder approval is secured.

Agnico’s strategic partnership with Foran began in August 2024, granting the gold miner certain ownership threshold rights. Recent changes to the agreement now allow Agnico to raise its stake to 19.99% and gain additional board representation if the Vancouver-based developer expands its board.