Abitibi Metals is aiming to close the valuation gap to its peers

Quebec-based Abitibi Metals (TSXV: AMQ; FRA: FW0) is a model resource company. In a short period of time, the company has raised more than C$20 million in fresh capital from investors to advance a polymetallic deposit, B26, in the well-known Abitibi mining region, previously held by the semi-public company SOQUEM in Quebec. The project is located just five kilometers from the Selbaie mine, which produced for over 20 years and was in operation until the early 2000s.

B26 almost became part of the expansion of the Selbaie mine, but the timing of government exploration and the weak copper price at the beginning of the millennium stood in the way. The similarities between Selbaie and B26 are obvious: B26 has a similar surface structure and a similar mineral composition. In addition, the Selbaie mine was characterized by a very strong yield, similar to the metallurgical tests at B26, which were carried out as early as 2018. The theory of close kinship is also supported by the fact that Selbaie started as an open-pit mine that went underground. In contrast, B26 was initially considered to be a purely underground deposit, partly because of the copper prices at the time.

Now, though, Abitibi Metals plans to use its near-surface drilling to demonstrate that the project has significant open-pit potential in addition to the high-grade underground mine. Furthermore, the strategy aims to show that the two previously unconnected parts of the deposit in the east and west are connected. Abitibi is fully funded for 16,500 meters of drilling over the remainder of 2024 and 20,000 in 2025.

Figure 1: Chart development of Abitibi Metals. The share price development reflects the fact that the company is digesting C$20 million in fresh money from financings at an average price of C$0.40.

Earn-In in record time

To acquire 80 percent of the B26 project, Abitibi must invest CAD 14.5 million in exploration and then present a preliminary feasibility study (PEA). Instead of the seven years originally planned, Abitibi Metals is expected to complete this earn-in in just two years. A new resource estimate is in preparation and it is planned that the PEA will be completed in the fourth quarter of 2025 and presented in the first quarter of 2026. PEAs are often prepared when exploration is complete. However, Abitibi Metals not only wants to complete the mandatory earn-in program, but also to ensure through further drilling that the market understands that the PEA is only a milestone and not the end of the development. In the opinion of Abitibi CEO Jon Deluce, the project easily warrants annual drill budgets of 50,000 to 75,000 meters.

The neighboring Selbaie mine provides the blueprint for success

Abitibi’s growth thesis is based on a comparison with the Selbaie mine, which operated until the early 2000s, although the copper price was significantly lower then than it is now. The reason why the Quebec government, together with BHP, made the B26 discovery in the late 1990s was to find additional material for the Selbaie mine’s mill. In 1997, when the mine was coming to an end, the entire contact zone was drilled to find an additional source of sulfide ore.

While no massive sulphide source was found at surface at the time, there is no doubt that the project would have advanced to production had the continuity of the B26 deposit been demonstrated in time, which was accomplished with the B26 resource in 2018. The Québec government has been involved in the project and has developed it since the discovery. The government’s mandate was to keep the mining town and the mine open, but the development was not fast enough at the time and the commodity prices were not favorable enough. This is different today: Abitibi is focusing on the open-pit thesis in addition to the formerly drilled underground deposit, thus responding to the changed commodity prices.

Just the beginning: Abitibi Metals’ market capitalization has risen from CAD 5 million to CAD 40 million

Abitibi Metals’ market capitalization has grown from C$5 million (in November 2023) to C$65 million within a year and is currently at C$40 million, of which around C$15 million is in cash. Abitibi is in the category of explorers that start with a historical resource and build real value through continuous de-risking alone – new discoveries are a bonus. The big role model is Foran Mining (TSXV: FOM), which is developing a comparable polymetallic project in Sasketchewan and plans to bring it into production in 2026. Foran Mining was a stock in the 20 to 40 cent range for a long time until they made some new discoveries. Today, Foran is trading at more than C$4.00 with a market capitalization of C$1.6 billion.

Abitibi Metals has an earn-in of a historical indicated resource of 7.0 million tons at 2.94% copper equivalent and inferred 4.4 million tons at 2.97% copper equivalent from 2018. CEO Jon Deluce sees the potential of the B26 deposit as more likely to be 30 to 50 million tons. Abitbi Metals has the advantage over many competitors in that drilling can be carried out all year round. Deluce emphasizes: “From now until about May next year, we will be continuously drilling and delivering drill results. A big difference is that we are located in the northern Abitibi and our project is next to a past producer. We have a power line, a substation and a road that is passable all year round. The Quebec government has built a gravel road right into the heart of the deposit.”

Abitibi also owes a treasure trove of more than 115,000 meters of historical drilling to its predecessors. The old drill cores are stored in a warehouse in Val d’Or. Recent observations suggest that there is a lot of material from the historical drilling that lies outside the high-grade zone and has yet to be sampled. In particular, there is a lot of so-called “disseminated material” that needs to be sampled and that is potentially within a possible open-pit model. Since Abitibi has access to these drill cores, the company benefits greatly from past investments. Apparently, the low copper price over a long period of time meant that no value was placed on the disseminated material at the time. But in the current copper market, half a percent copper near the surface is very attractive and very suitable for a successful open-pit mine.

Given the size and scale of similar deposits in the Abitibi area, Abitibi Metals’ geologists see a very good chance that the B26 mineralization could be a much deeper system. The company has therefore recently completed the first deep drill holes down to 1,400 meters. Two drilling rigs are now in operation, which will drill holes between 500 and 800 meters deep. This may sound deep, but for projects of this type in the Abitibi region it is actually still comparatively shallow.

Valuation gap to established competitors

Polymetallic deposits such as those of Abitibi Metals, Arizona Mining or Foran Mining are in demand. The large companies want copper and gold, and they recognize how economical these polymetallic systems are, where they work on the basis of copper yields and get the rest out of the ground as additional profit. Abitibi wants to show that there is a lot of catch-up potential in the valuation by directly comparing it to other deposits. The discrepancy becomes particularly apparent when comparing in-situ value and enterprise value. Deluce says that one of his main goals is to bring this valuation gap to the attention of a wider audience, including institutional investors.

Figure 2: There is a valuation gap between Abitibi Metals, Foran Mining and Arizona Metals Corp, which Abitibi would like to close in the coming months. In particular, the company compares its own enterprise value with the in-situ value of its competitors’ known resources.

Abitibi is also trying to emulate Foran Mining in another respect. Foran at one point received a 100 million financing from a pension fund that bought the shares so that they were no longer tradable. Abitibi Metals CEO Jon Deluce believes that Abitibi has a chance of repeating this success story. After all, Abitibi was able to complete its recent equity offering without issuing warrants. This project warrants it, but we want to make sure that we continue to finance from a position of strength, at the right terms, without being forced into unfavorable financing.

Figure 3: Abitibi Metals’ role model is Foran Mining. Foran’s chart shows the sustainable value of production-ready polymetallic deposits in Canada.

Half of the world’s copper production comes from politically unstable regions, so the focus is increasingly on copper supplies from stable regions. Quebec stands out, partly because there is so much financial support, returns on invested capital and institutional financing from government agencies that provide equity investments and are very patient shareholders. In addition, there are functioning partnerships with the First Nations, who are very pro-mining.

The stated goal at Abitibi is to ultimately sell the project to a major. To do that, the project needs a clear path to development and production, because that is what is important to the major mining companies. Since Abitibi Metals has a government partner that is interested in creating jobs, there is alignment of interests to bring this project into development. Jon Deluce is convinced that B26 will one day be an attractive acquisition opportunity for a large company. He can imagine that Abitibi could secure a 5-10% stake from a large mining company within the next six months. “This would give us additional credibility,” says Deluce.