Foraco International's $34M Chile Drilling Contract: A Strategic Play in Copper and Gold Exploration

Foraco International's recent $34 million drilling contract with Glencore at the Lomas Bayas mine in Chile's Atacama Desert represents more than a single deal—it signals a strategic recalibration of the company's focus on high-demand commodities and stable, resource-rich jurisdictions. As global demand for copper and gold surges, driven by the energy transition and inflationary pressures, Foraco's expertise in advanced drilling technologies and long-term client relationships positions it as a key player in a sector poised for growth.

Strategic Positioning in Copper and Gold Exploration

Chile, the world's largest copper producer, is a linchpin in the global supply chain for battery metals and gold. Foraco's three-year contract with Glencore—covering mine development, resource definition, and exploration—aligns with the critical need for new discoveries to meet rising demand. Copper, in particular, is essential for renewable energy infrastructure, with prices near record highs due to decarbonization efforts and supply chain bottlenecks. Foraco's deployment of reverse circulation and core drilling rigs, including its proprietary NGBF 800 remote-controlled model, ensures efficiency and safety in challenging environments like the Atacama Desert.

This contract also underscores Foraco's shift away from volatile markets. After exiting unstable regions such as Russia and parts of Africa, the company has doubled down on mature jurisdictions like Chile and Australia. This pivot reduces geopolitical risk while capitalizing on long-term contracts with Tier 1 clients like Glencore. The company's CEO, Tim Bremner, has emphasized that such relationships are foundational to Foraco's growth, enabling stable revenue streams as projects mature.

Valuation and Technical Indicators: A Cautionary Yet Promising Outlook

Foraco's stock (TSX:FAR) currently trades at a trailing P/E ratio of 6.11 and a forward P/E of 4.49, suggesting potential undervaluation relative to earnings. However, the stock has faced headwinds, with a 52-week decline of -32.58% and a beta of 1.22, indicating higher volatility than the market. Technical indicators paint a mixed picture: the stock recently crossed below its 200-day moving average (CAD 2.07) and sits at CAD 1.80, while the RSI of 48.74 remains neutral.

Despite these challenges, Foraco's strategic investments in automation and ESG-aligned practices could drive margin recovery. The NGBF 800's deployment in Chile, for instance, not only enhances operational efficiency but also aligns with investor demand for sustainable mining solutions. The company's Water division, which grew 40% in Q1 2025, further diversifies its revenue base, offering exposure to critical infrastructure projects such as water drilling for mining operations.

Pipeline Strength and Market Tailwinds

Foraco's project pipeline in Chile and Argentina is a key catalyst. While new contracts are in the early ramp-up phase—temporarily suppressing margins—management expects these to normalize as drilling operations scale. The Lomas Bayas mine project, in particular, is part of a broader trend: Glencore's Q1 2025 production report highlighted stronger copper output in the second half of 2025, aligning with Foraco's focus on battery metals.

The company's geographic diversification into North and South America, coupled with its technological edge, positions it to benefit from the “green metal” boom. Copper and nickel, critical for electric vehicles and grid storage, are expected to see sustained demand, and Foraco's role in their extraction is increasingly vital.

Investment Thesis: A High-Conviction Play in a Resilient Sector

Foraco International offers a compelling case for investors seeking exposure to the mining services sector. Its $34M Chile contract is a testament to its competitive advantages:
1. Commodity Alignment: Copper and gold prices are supported by energy transition tailwinds and macroeconomic dynamics.
2. Operational Expertise: Proprietary rigs and a focus on safety and efficiency reduce costs and enhance margins.
3. Strategic Discipline: Exit from unstable regions and focus on long-term contracts with industry leaders like Glencore mitigate risk.

While the stock's current technical indicators suggest caution, the fundamentals are robust. Foraco's low P/E ratio and improving pipeline—especially in Chile's high-grade mining zones—warrant attention. Investors with a medium-term horizon may find value in entering a position as the company transitions from ramp-up to full-scale operations.

For those skeptical of the stock's near-term volatility, a wait-and-watch approach is advisable. However, for those aligned with the energy transition and mining's critical role in it, Foraco's strategic positioning in Chile and its innovative capabilities make it a high-conviction play in a sector that is far from cyclical.