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Formation Metals Inc. (TSX:FCO,OTCQX:FMETF) is a well-established Canadian mineral exploration and mine development company focused on cobalt production in Idaho, USA. The company’s flagship property is its wholly-owned Idaho Cobalt Project, the nation’s only environmentally-permitted, primary cobalt deposit. Formation’s main objective is advancing the project to production in order to provide North American consumers with responsibly mined, battery grade cobalt chemicals.
Cobalt is an essential element used in the production of rechargeable batteries required for portable electronic devices as well as electric and hybrid electric vehicles. The battery market now accounts for 49 percent of world refined cobalt consumption. Cobalt’s second largest use is for critical applications in the aerospace sector which includes the production of both air and land based jet turbine engines. The supply/demand balance for cobalt is projected to move into deficit territory in 2016.
In April 2015, Formation Metals completed a positive Preliminary Economic Assessment (PEA) on the Idaho Cobalt Project (ICP). In March 2016, Formation received the final metallurgical report on bench test production from ore samples from the ICP. The results demonstrated that the company can successfully produce high purity, battery grade cobalt sulfate from the project.
Formation is currently working to initiate a Definitive Feasibility Study on the ICP as well as to secure offtake agreements with potential end-users. The company is looking to Q1 2017 for the study’s completion.
- Wholly-owned near production project with unique primary cobalt deposit in the USA, which has no domestic cobalt supply despite being the worlds’ largest consumer of cobalt.
- Strong market demand for cobalt fueled primarily by the Electric Vehicle rechargeable battery sector.
- Planned vertical integration – Mine to Market with opportunity to produce a range of value added products.
- Significant resource growth potential – Mineralization open along one strike directions and at depth, with several untested targets within property boundary.
- Pure cobalt play not tied to the instability of primary nickel and copper mines from which the majority of current cobalt production originates.
- Environmental permits in place and planned Feasibility Study supported by recent $4.4 million financing.
Environmentally Sound, Ethically Sourced Cobalt
With major companies like Apple, Samsung and Sony coming under fire for failing to ensure their products do not contain conflict minerals, environmentally sound and ethically sourced battery grade cobalt chemicals are essential to the growing electronics market. The Idaho Cobalt Project offers a unique potential for consumers to secure such materials, mined safely and responsibly in the United States.
Formation Metals’ Idaho Cobalt Project will have a small environmental footprint with underground mine design and no liquid tailings pond (half of the tailings will be pumped underground, the remaining tailings will be dry stacked and stored onsite on a lined tailings waste storage facility. The company has an agreement with the Idaho Conservation League and local indigenous groups to promote remediation of the water shed area for fish habitat in Lemhi County, Idaho.
Key Property: Idaho Cobalt Project
The Idaho Cobalt Project is a near production-stage property with a high grade, primary cobalt deposit located near the town of Salmon, Idaho. The project includes the proposed Cobalt Production Facility— a stand-alone hydrometallurgical facility to be located on a railhead in southern Idaho, that will process mine concentrates into cobalt sulfate, copper sulfate, copper concentrate, magnesium sulfate and gold.
2015 PEA shows robust economics and revenue by-products
The 2015 PEA for the Idaho Cobalt Project uses an updated resource, mine model and mine schedule with intentions to produce cobalt and copper sulfate chemicals and gold at the Cobalt Processing Facility.
The PEA has demonstrated the project’s diversified product potential. The base case revenue stream for all its products over the life of mine (LOM) is approximately US$983 million of which the majority, US$690 million, is attributed to cobalt sulfate. In addition to cobalt sulfate, the project will produce copper concentrate and gold metal with a value of approximately US$100 million over LOM and a significant amount of saleable by-products for the agricultural industry, namely copper sulfate and magnesium sulfate.
Over the LOM, the project is expected to produce approximately US$140 million worth of copper sulfate and approximately US$55 million of magnesium sulfate. Formation is currently pursuing potential off-take agreements for all the Idaho Cobalt Project products.
The total revenue and net present value from each of the products produced during the LOM using base case prices are summarized in the table below.
Resource upside potential
The ICP project has plenty of upside potential of resource growth as mineralization remains open at depth and along one strike direction. Twelve additional targets have been identified of which four have been drill tested with several intercepts exceeding current cut-off grades.
Advancing toward feasibility and production
Formation had previously completed an Environmental Impact Statement on the project and has received a positive Record of Decision from the U.S. Department of Agriculture National Forest Service allowing for the construction of the mine and mill facilities. Between June 2011 and December 2012, the company completed two phases (US$65.3 million) of ICP construction. Earthworks at the mine site are 90% complete.
Based on the positive results of the final metallurgical report on bench test production, Formation has developed initial specification sheets for cobalt sulfate heptahydrate crystals for use in the rechargeable battery sector and a scalped copper concentrate suitable for established smelters to process. With the development of the modified flow sheets complete, the company is now ready to initiate a Final Feasibility Study on the ICP and to further advance the project toward production.
“Having the spec sheets and flow sheets defined facilitates our moving forward with pursuing offtake and other potential means to assist in the future development of the ICP,” commented Paul Farquharson, Formation’s President and CEO. “These developments coincide with an improved outlook for the cobalt markets with deficits expected this year and increasing significantly into 2018—previous deficit situations in the cobalt market resulted in significant rises in the commodity price.”
In early June 2016, the company announced the completion of a $4.4 million private placement. The proceeds will be used to fund technical studies for the DFS at ICP. “The closing of this financing is a major advancement in moving our Idaho Cobalt Project towards production,” stated Farquharson. “These funds are expected to allow us to produce a bankable feasibility study that will assist the company in moving forward on project capex financing.”
Paul Farquharson, President & CEO
Paul Farquharson has been President and CEO of Formation Metals since January 2014, and prior to such he was the Chief Financial Officer. Over the past 23 years he has been integral in the success of numerous financings and strategic acquisitions of the company, making significant contributions to the company’s corporate development. In addition to his experience with Formation Metals, Farquharson has over 30 years of experience in financial management and regulatory compliance with numerous private and public resource companies across Canada.
Marc Tran, CFO & Corporate Secretary
Prior to being appointed to CFO, Marc Tran was the Controller for Formation Metals since October 2011. He has over 12 years of experience in corporate finance, financial management, and regulatory compliance with public companies. He has previously served as Director and CFO for other public companies with projects in mineral exploration, development, and production in Canada, USA, Mexico, Central and South America.
E.R. (Rick) Honsinger, Vice President
Rick Honsinger’s geological and technical background brings over 25 years of project management, exploration and Q.P. related experience to the company. He is Vice President responsible for Technical & Corporate Development, Communications and related compliance. He has managed and contributed to the success of numerous field and special projects during his past 20 years with Formation Metals Inc.
Robert J. Quinn, Director & Chairman
A founding partner of the Houston mining transactional law firm Quinn & Brooks LLP, Robert Quinn has over 33 years of legal and management experience, including as Vice President and General Counsel for Battle Mountain Gold Company. He has extensive experience in M&A transactions, corporate governance, public disclosure, governmental affairs, environmental law and land management. Quinn has a Bachelor of Science degree in Economics from the University of Denver and a Juris Doctor degree from the University of Denver College of Law.
Robert Metka, Director
Robert Metka has over 23 years of mineral production and engineering experience as V.P. of Projects for Noranda Minerals and V.P. and General Manager of CEZinc. He is presently a Principal of Hatch, the world’s largest international mining engineering company.
James B. Engdahl, Director
James Engdahl has over 30 years of experience in corporate finance, management, accounting and administration with major financial institutions such as Barclays Bank of Canada and the Bank of Montreal.
David Stone, Director
David Stone has provided engineering and financial consulting experience to underground and surface metal mines worldwide for over 30 years. He has managed and led multidisciplinary project teams through pre-feasibility and feasibility level evaluations of development-stage projects and has contributed to the engineering, design and construction of several mines. His expertise includes scoping and feasibility studies for open pit and underground projects, and an extensive international knowledge of current mining best practices, environmental permitting, mine planning and production scheduling.
Gregory Hahn, Director
Appointed to the Board in May 2013, Gregory Hahn has over 35 years of mining industry experience and is currently the Interim CEO, President and COO of Canamex Resources Corp. He has served on the board of numerous companies including Marathon PGM Corp. and Metalline Mining where he was Director and Interim President & CEO. Hahn was also former District and Senior Geologist and Chief Mine Geologist with Noranda (now Xstrata) on the Blackbird Project, located adjacent to the Company’s 100-percent owned ICP.
Scott Hean, Director
Appointed to the Board in March 2014, Scott Hean has over 35 years of experience in banking and finance. He is currently the CFO of Quaterra Resources and is a member of the Audit and Chair of the Compensation Committee of Sabina Gold & Silver Corp. Hean served as Senior VP and Managing Director with BMO, responsible for natural resources sector financing in North America. He also served with J.P. Morgan of New York, primarily financing junior oil and gas companies.
David Christie, Director
Appointed to the Board in March 2014, David Christie has 29 years of experience in the resource sector. In April 2015, Christie was appointed President and CEO of Eagle Hill Exploration Corp. He also continues in his roles as Vice President with Goodman & Company, Investment Counsel and Dundee Resources Limited, wholly owned subsidiaries of Dundee Corporation. He is a Director of Eagle Hill Exploration Corp, True North Nickel (a private company) and Condor Precious Metals Inc. (a private company). Prior to joining Goodman and Company, Christie was a highly ranked gold and precious minerals equity research analyst at two bank-owned dealers. He also has extensive experience in the North American mining industry working as a professional geologist exploring for gold, base metals, uranium and platinum group metals including underground experience. Since joining the Dundee organization in 2011, Christie has taken on a merchant banking and investment management role. Christie is a member of the PDAC convention planning committee. He received a Bachelor of Science in Geology from McMaster University in 1986, is a Professional Geoscientist with APGO and NAPEG, and a fellow of the Geological Association of Canada.
Cecil D. Andrus, Advisor
Emeritus Governor Cecil Andrus serves as advisor to the company’s Board of Directors after retiring his seat on the Board in January 2013. He is a previous four-term Idaho Governor, former U.S. Secretary of the Interior and former counsel to Gallatin Public Affairs, a northwest based public affairs firm. He is chairman of the Andrus Center for Public Policy at Boise State University. Governor Andrus is known for his strong environmental stance on mining and believes the Idaho Cobalt Project to be an environmentally conscious mining operation.