From penny stock to powerhouse, FNX Mining Company Inc.’s journey to a leading player in the world-famous Sudbury Mining Camp is one that’s captured the imagination of investors and geologists alike.
This formidable company has defied the odds, rising from a small junior to an ever-expanding producer capable of challenging historical players like CVRD Inco and Xstrata Nickel.
In fact, from 2002 through 2006, FNX has been the single largest explorer in the Sudbury area, having spent $100 million. By the end of 2007, the company will have drilled a whopping two million feet of core, totaling nearly 400 miles, or the distance between Toronto and Timmins.
This aggressive exploration has allowed FNX to maintain an impressive level of constant growth as it has consistently made new and significant discoveries in the shadows of former producing properties. As a result, it has managed to replace all reserves mined from 2004 through 2006, and things are on track to do the same in 2007.
What’s more, production has regularly increased by up to 50 per cent year to year, with estimates indicating a possible million tons between its two active properties by the end of 2007. That number is expected to grow to nearly 1.8 million by 2010 as FNX brings additional properties into production.
“We’re the new kids on the block,” Terry MacGibbon, executive chairman of FNX, says. “We work hard, we keep our heads down, and if the ducks and the stars all line up, we hope we do well.”
In 2006 alone, FNX generated $169.9 million in revenue and net earnings of $68.7 million, just three short years after shipping its first ton of ore.
In fact, the company has been profitable from its very first quarter of production – an unheard-of feat, given that most producers often require years to break even.
At the heart of FNX’s success lies a simple strategy, but it’s one that MacGibbon notes has rarely been successfully imitated elsewhere.
Referred to as the FNX model, the strategy was first conceived by MacGibbon during his 30-year tenure at Inco, where he served in various roles, including the director of the company’s international exploration efforts. In this position, he observed the tendency of the oil industry both at home and abroad to attempt to diversify by purchasing mining properties and then divesting themselves of them in leaner times. He theorized that there lay great merit in acquiring such “non-core assets” from major mining companies, especially given the existing infrastructure would drastically lower start-up costs.
After casting out of “Mother Inco” to head up fledgling junior Fort Knox Gold Resources – later known as FNX Mining – in 1997, he had to wait four years to put his ideas into practice. When Inco put five Sudbury properties up for bid in 2001, MacGibbon jumped at the chance.
FNX was able to acquire a full 100 per cent of the mineral rights after raising the requisite $30 million in a scant 20 months. This achievement was a significant coup for the company, marking one of the largest rounds of financing for the mining sector at the time, given the fresh scars the Bre-X scandal had left on the investment community.
After turning up encouraging results at its McCreedy West site, FNX out-sourced much of its non-exploration work to Dynatec to handle the mining end, while processing and waste storage was taken care of by Inco.
This combination of strategic property acquisition and diligent out-sourcing has contributed to much of the company’s success, MacGibbon says, putting it in a position even he couldn’t have imagined years prior. What was a single-employee outfit in 2001 has become a sprawling workforce that is set to reach 1,000 employees by year’s end.
“It’s interesting, because in 2001, the share price was $0.25. If someone were to have purchased $10,000 worth of our stock at that point, it’d be worth over $1 million today.”
However, regular growth has given FNX the opportunity to bring additional expertise in-house. The option to acquire Dynatec’s mining services is still being explored, but if pursued, will increase FNX’s workforce to 1,800, making the company one of North America’s more significant mining contractors.
Its focus on safety resulted in no lost-time injuries in 2006. After working five years without a single lost-time injury, its exploration team earned the first PDAC/AMEBC Safety Award for exploration groups in Canada in April 2007.