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Fortune Minerals - North America’s Next Vertically Integrated Cobalt Chemicals Supplier

Fortune Minerals – North America’s Next Vertically Integrated Cobalt Chemicals Supplier

Overview

Fortune Minerals Limited (TSX: FT; OTCQX: FTMDF) is building a Canadian vertically integrated project for the production of cobalt chemicals for the rapidly expanding lithium-ion rechargeable battery industry with gold and bismuth co-products.

Fortune owns the shovel-ready NICO cobalt-gold-bismuth-copper deposit in the Northwest Territories, which has received its principal permits to mine ores and produce a bulk concentrate for shipment to the Company’s planned Saskatchewan Metals Processing Plant (SMPP) for value-added processing to metals and chemicals.

“We have commenced the fourth phase of the transformational evolution of the rechargeable battery industry and Fortune is one of the leading companies participating in the energy metals space with our cobalt chemicals project,” explained Robin Goad, Fortune’s President and CEO. “Cobalt is one of the key metals used in the manufacture of lithium-ion rechargeable batteries where it is used in the cathodes to deliver greater energy density (charge life), power and performance over batteries that do not contain cobalt. Battery demand for cobalt over the last two decades has grown from 1 percent of a much smaller market to 49 percent of the current 100,000 tonne market and battery consumption of cobalt is expected to grow at double digit rates next year dovetailing with the proliferation of electric vehicles and new markets in electric grid power storage.”

Tesla’s lithium-ion battery Gigafactory in Nevada is expected to start production in 2017 to support projected vehicle sales of approximately 500,000 electric cars in 2018, up from 51,000 in 2015.

Presently, 60 to 65 percent of cobalt mine production is from the politically unstable Democratic Republic of Congo (DRC or Congo) and 52 percent of cobalt refinery production comes from China. Cobalt Investing News recently covered a Washington Post expose on the inability of battery companies to successfully monitor their supply chains for human rights abuses such as child labor from Artisanal cobalt production in the DRC. Conflict minerals mined in the eastern DRC are also a major concern for the global electronics industry.

The unique polymetallic composition of the NICO deposit has mineral reserves containing more than one million ounces of gold as well as 12 percent of the world’s bismuth reserves. Bismuth is an environmentally friendly metal used in the automotive sector and in medicines such as Pepto-Bismol, which leverage unique properties such as non-toxicity, anti-bacterial properties and its expansion characteristics with cooling. In addition to cobalt chemicals, other products that will be produced at the refinery include gold, bismuth metals and chemicals, and minor copper as a by-product.

“The North American address of the NICO mine and Saskatchewan refinery positions Fortune Minerals as a reliable vertically integrated supplier of cobalt and bismuth with supply chain transparency and custody control of metal from ore right through to the production of value-add products. We will be an ethically-sourced supplier of battery-grade cobalt chemicals,” said Goad. “NICO is essentially shovel-ready with expenditures incurred to date totaling more than $116 million and all of the key mine permits and environmental assessments already in place. Our project is also a primary cobalt development that is not tied to nickel or copper mining like most other cobalt projects, which makes us very unique amongst our peers.” Construction of the NICO project is awaiting completion of rezoning at the SMPP as well as the Company securing key off-take agreements and project financing.

Fortune Minerals is led by a strong management team and board with experience in advancing large projects to production including prominent roles building mines in the Northwest Territories where the NICO deposit is also located.

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Investment Highlights

  • Building a reliable vertically integrated North American project to produce cobalt chemicals for the rapidly expanding lithium-ion battery industry
  • More than 1 million ounces of gold and 12% of global bismuth reserves as co-products and minor copper as a by-product
  • One of only two advanced stage cobalt projects in North America
  • Primary cobalt production that is independent of nickel and copper markets
  • Positive Feasibility Studies, test mining, pilot plants, Front-End Engineering and Design, and environmental assessments have already been completed
  • A high concentration ratio of valuable metals using simple flotation at the mine site to recover metals in a bulk concentrate for transport and cost effective processing at the proposed SMPP
  • Strong relationship with the local people and ; the Federal, Northwest Territories and Tlicho (First Nations) governments, who participated in the approvals for the NICO mine and access road
  • Pursuing off-take agreements with globally recognized firms
  • Plan to deliver the project financing for construction
  • Value added processing at the refinery near Saskatoon
  • Potential for additional business at the SMPP from toll processing concentrates from other mines and diversification into the metals recycling business
  • Largest shareholders are China Mining Resources Group (~6 percent) and Procon Resources Inc. (~14 percent)

Key Project: NICO Cobalt-Gold-Bismuth-Copper Project, Northwest Territories and Saskatchewan

One of only two advanced stage cobalt projects in North America, with the added value of a more than one million-ounces of gold in the mineral reserves.

The NICO cobalt-gold-bismuth-copper project is situated on 5,140 hectares of mining leases located 160 kilometers northwest of the city of Yellowknife in Canada’s Northwest Territories. The proposed mine is 85 kilometers north of the highway to Edmonton, Alberta, 50 km from the community of Whati and the terminus of a planned Government highway and 25 km from the Snare Hydro Complex and the electrical grid. The NICO project is essentially shovel-ready with the key permits already in place, including environmental assessment approvals, land use permits and a Class A Water License approval. Most importantly, the mine and mill have already received these approvals supported by the federal, Northwest Territories, and Tlicho (First Nations) governments.

Excellent infrastructure in place and under development

Infrastructure includes proximity to grid power, for which a supply agreement is being negotiated, water from nearby lakes, and a current winter ice roads for access. The Company has regulatory approvals to build a 50 km access spur road to the community of Whati and the $32 million cost of this road has been factored into the capital costs of the Company’s 2014 feasibility study. The road will connect to a 94-kilometer all-season public highway that is in the final stages of permitting and will be built by the Northwest Territories and Tlicho governments. A CN operated railway terminates at Hay River on the south shore of Great Slave Lake, 450 road kilometers south of the NICO project, which provides a rail link for hauling concentrate.

Fortune Minerals - North America’s Next Vertically Integrated Cobalt Chemicals Supplier

Fortune Minerals plans to truck concentrate from the mine site to the railhead at Hay River for transport to the proposed processing plant in Saskatchewan.

“Our company has been working with the Northwest Territories and Tlicho governments for many years to advance construction of a public highway to the community of Whati near the NICO development,” said Goad. “With construction of this road, Whati will have reliable all-season access for community re-supply, while lowering the cost of living, improving the quality of life and promoting economic development and diversification. The Whati highway will be a vital link to the NICO mine for its transportation needs as well as provide commutable employment to the nearby communities.”

Large, well-defined polymetallic deposit

NICO is an IOCG (iron oxide copper gold) deposit which hosts open pit and underground Proven and Probable Minerals Reserves totaling 33 million tonnes containing 1.1 million ounces of gold, 82 million pounds of cobalt, 102 million pounds of bismuth, and 27 million pounds of copper. The reserve estimate is based on a robust database that includes 327 drill holes and surface trenches and was validated by underground test mining. The company believes significant exploration potential remains for extending the orebody through additional drilling and the identification of additional nearby deposits. The Company already owns the nearby 9 million tonne Sue-Dianne Copper-Silver-Gold deposit and there is attractive geology and geophysical anomalies to identify additional satellite deposits.
Fortune Minerals - North America’s Next Vertically Integrated Cobalt Chemicals Supplier
Highly de-risked project with positive bankable feasibility study

Fortune Minerals has spent more than $116 million advancing the NICO development and de-risking the project. Work has included exploration and delineation drilling, front-end engineering and design and feasibility studies, underground test mining, and several pilot plant tests to verify the process methods, plant recoveries and produce samples of the products the Company will produce. Approximately $20 million was spent conducting underground test mining and this pre-production development work, including 2 kilometers of underground workings, is already in place to support underground operations during the first two years of the mine life. Most of the deposit will be exploited using open pit mining methods.

Previous metallurgical test work and subsequent pilot plants proves that NICO ore has a high concentration ratio, meaning that a concentrate containing the recoverable metals (cobalt, gold, bismuth and copper) can be produced using a simple flotation process. This is comprised of a two-stage crushing/grinding process followed by bulk flotation at the mine site, which reduces 4,650 tonnes per day of ore to only 180 tonnes per day of concentrate containing the valuable metals. Reducing the mined material in this way significantly reduces the cost of transporting the concentrate to the refinery site in Saskatchewan and downstream processing to value-add products.

FeasibilityStudy Highlights

Mine Type

Open Pitwith Underground in 2ndyear

Strip Ratio

Waste to Ore 3.0 : 1

Processing Rate (tonnes/day)

4,650 tpdMill; 180 tpdRefinery

Mine Life

21years (potential for additional 3.2)

Economics

Base case

6-Yrtrailing cycle

Levered Pre-Tax NPV (7%)

C$ 254million

C$ 543 million

Levered Post-Tax NPV (7%)

C$ 224 million

C$ 505 million

LeveredPre-Tax IRR

15.6%

23.6%

LeveredPost-Tax IRR

15.1%

23.2%

Capital Costs

C$ 589million + Working Capital

LOM Average Base case Revenue/yr

C$ 196 million

LOM Average OperatingCost/yr

C$ 98 million

Cobalt Operating Cost (net of credits)

NegativeUS$ 5.03/lbatBase Case

*The 2014 Feasibility Study reflected in the Micon Technical Report uses Base Case Price assumptions are US$1,350/troy ounce (“oz”) for gold, US$16/pound (“lb”) for cobalt (US$19.04/lb in sulphate), US$10.50/lb for bismuth (US$12.64/lb bismuth in average production of ingot, needles and oxide), and US$2.38/lb for copper at an exchange rate of C$1=US$0.88;  Cycle price sensitivity analysis uses US$1200 to US$1900/oz gold, US$ 12-30/lb cobalt, US$ 7-19/lb bismuth & US$3-4.50/lb copper

“The high concentration ratio of valuable metals using flotation is a well-proven and inexpensive process that allows us to recover these valuable metals in a concentrate that is less than 4 percent of its original weight and is an important economic attribute to the NICO project” said Goad. “We can then transport this concentrate at a much reduced cost to our plant site in Saskatoon and our process costs are also much lower.”

Products validated through third-party testing

Third-party verification of metal recoveries from the pilot plant tests are:

  • Gold Recovery Ranges from 56 to 85 percent, with an average ~73.7 percent
  • Cobalt Recovery ~84 percent
  • Bismuth Recovery ~72 percent
  • Copper Recovery ~41 percent

Early in 2016 Fortune Minerals announced that SGS Canada Inc. had produced a premium battery-grade high purity cobalt sulphate heptahydrate sample from material produced in its earlier pilot plant. The sample exceeded the chemical specifications received from several large manufacturers of lithium-ion batteries, and samples were provided to a potential offtake customer for testing.

Proposed Saskatchewan Metals Processing Plant, Saskatoon

Well-positioned to become a reliable North American source of critical metals.

The NICO project includes the Saskatchewan Metals Processing Plant located on 482 acres of lands already owned by Fortune Minerals near the community of Langham, 26 kilometers northwest of Saskatoon. The province of Saskatchewan offers lower cost electricity and attractive tax legislation related to the processing of raw materials sourced from outside the province. Lower power costs from relocating the processing plant to Saskatchewan will save the company approximately $7 million per year in direct operating costs, plus significant capital to build the plant.

The plant site is close to important existing infrastructure – about 4 kilometers from the Yellowhead Highway, and the Company’s lands straddle the CN main rail line between Saskatoon and Edmonton, Alberta. Other critical infrastructure in the area includes proximity to natural gas, lime and other reagent sources for processing, and a skilled labor pool of engineers and refinery workers.

Premium higher value products

The hydrometallurgy refinery will process material from the NICO mine and mill to produce cobalt chemicals for the lithium-ion battery industry and other high value products. Life of mine average annual production is projected to be:

  • 1,615 tonnes of cobalt in Cobalt Sulphate Heptahydrate (grading >20.9 percent cobalt).
  • 41,360 ounces of gold contained in doré
  • 1,750 tonnes of bismuth contained in ingots and needles (>99.995 percent bismuth) and bismuth oxide (89.7 percent bismuth).
  • 265 tonnes of copper metal (~90 percent copper).

Beyond the 20-year mine life span of the NICO deposit, Fortune believes future revenue-generating operations at the refinery could also include custom processing of material sourced from other mines as well as battery and metals recycling.

Permits granted and completion of rezoning process underway

The processing plant has already received its environmental assessment approval. Fortune Minerals now needs to complete the rezoning of the land where the proposed plant will be located from agricultural to industrial use. The expected capital cost of the build including equipment, construction, and services installation is more than $200 million.

NICO Project Construction

Fortune is working to secure off-take agreements and project financing to start construction of the mine and refinery. Construction is anticipated to take approximately 2 years to complete.

Management

Robin E. Goad, M.Sc., P.Geo.—President and CEO

Robin Goad is a professional geologist with more than 30 years of experience in the mining and exploration industries in Canada and internationally. Prior to founding Fortune in 1988, Goad worked for large companies including Noranda and Teck, and as a consultant to the resource industry. He is a director of the NWT & Nunavut Chamber of Mines and has served as President and director of other TSX listed mineral exploration and development companies.

David Massola, B.Sc. (Acc.), Vice President Finance and CFO

Dave Massola is an executive with three decades of international mining experience in a broad range of financial and business aspects, including strategic planning, mergers and acquisitions, capital raising, taxation, treasury and risk management. This includes 20 years with BHP-Billiton at the Escondida Copper Mine in Chile, the Island Copper Mine in British Columbia and the Ekati Diamond Mine in the NWT. As Vice President and CFO of De Beers Canada, he contributed to the development of two diamond mines in northern Canada. Subsequently as Senior Vice President of Finance and CFO of GlobeStar Mining, he was a key employee in the financing, construction and operations of GlobeStar’s Cerro de Maimón Mine in the Dominican Republic and negotiated its subsequent sale. He was also the President and CEO of Continental Nickel Ltd., while it was developing a mine in Tanzania, and led negotiations for its subsequent takeover.

Glen Koropchuk , B.Sc., M.Sc., Calgary, Alberta , Director

Glen is a mining engineer with ~30 years of global, multiple commodity, operations, project development and corporate social investment experience predominantly with Anglo American… & De Beers. Prior to his retirement from De Beers Canada in 2016, Mr. Koropchuk was COO and responsible for delivering safe, operational excellence from the Snap Lake and Victor diamond mines in Canada’s north. Notably, he also led the permitting, Aboriginal engagement, and project management for the Gahcho Kue diamond mine in the Northwest Territories that was finished on budget, on time, and was recognized as the world’s largest new diamond mine at its opening ceremony in 2016.

David A. Knight , B.A., LL.B., Oakville, Ontario. , Corporate Secretary

David is a partner with Norton Rose Fulbright Canada LLP, part of the Norton Rose Group, a leading international legal practice with extensive expertise in the resource sector. David specializes in securities law, including public and private financings, mergers and acquisitions, stock exchange listings and regulatory compliance and acts for investment dealers and issuers. David is a member of the Law Society of Upper Canada.

Richard Schryer, Ph.D., Director of Regulatory and Environmental Affairs

Rick Schryer is an aquatic scientist with more than 23 years of experience in mine permitting, environmental assessments, environmental studies and monitoring. Prior to Fortune, he worked with Golder Associates and was involved with the permitting and environmental assessments for the Diavik and Snap Lake diamond mines in the Northwest Territores as well as projects in southern Canada

Dustin Reinders , B.Sc., P.Eng. —Projects Engineer

Dustin Reinders is a mining engineer with more than 7 years of experience in the mining industry and earthworks construction performing engineering and management roles. He has previously worked for Northgate Minerals at the Kemess South mine and with North American Construction Group at various mine sites in Fort McMurray. Reindeers is a graduate of the University of Alberta with a Bachelor of Science degree in 2010 in Mining Engineering.

David Ramsay , B.A., Yellowknife, Northwest Territories , Director

David Ramsay has extensive elected public office experience in the Northwest Territories, which has included prominent cabinet positions in the Legislative Assembly. Prior to Novem…ber 2015, he was Minister of Industry, Tourism and Investment that includes the preeminent mining portfolio. Mr. Ramsay has also served as Minister of Justice, Attorney General, Minister of Transportation and the Minister Responsible for the Public Utilities Board for the Government of the Northwest Territories. In addition to serving in Cabinet, David was Vice President of the Pacific Northwest Economic Region (PNWER) from 2011 to 2014, ‎and President between 2014 and 2015. The PNWER is a statutory public / private partnership of Alaska, Idaho, Oregon, Montana, Washington, British Columbia, Alberta, Saskatchewan, Yukon and the Northwest Territories whose mandate is to increase the economic well-being and quality of life for all citizens of the region. As a long-term resident of the Northwest Territories, David has been involved with numerous businesses. He was first elected to public office in 1997 and served five years as a Yellowknife City Councillor before his election to the Legislative Assembly.

Shou Wu (Grant) Chen , M.B.A., M.Sc., —Director

Grant Chen was formerly Deputy Chairman and CEO of China Mining Resources Group Limited, a Hong Kong based company that mines and processes molybdenum, copper, zinc and other metal products in China and invests in Canadian mining companies. Chen previously worked as a geologist in the precious metals sector in China and then as an analyst and merchant banker, and subsequently, Senior Vice President in the Mining and Metals Division for Standard Bank.

Edward Yurkowski, Director

Ed Yurkowski served as CEO of Procon which, in addition to the resource company, is a full mining provider through Procon Mining & Tunnelling Ltd until he retired from that position in 2014. He currently serves as a director and consultant for Procon. Yurkowski has been involved in the mining and civil contracting industries since 1966, including ownership and management of two large mining construction contracting companies. He received his Bachelor of Science in Civil Engineering in 1971 from the University of Saskatchewan and currently serves as a director of a number of other TSX and TSX Venture Exchange listed companies, including Imperial Metals Corp., Golden Band Resources Inc., BC Moly Ltd. and Copper Lake Resources Ltd.

Carl L. Clouter , Gander, Newfoundland—Director

Carl Clouter is a commercial pilot and former owner of a charter airline in the Northwest Territories. He has been active in mineral exploration in conjunction with more than 35 years of flying in Canada. He previously served as a Sentencing Justice of the Peace and on the board for the mineral development assistance program for the Government of the Northwest Territories.

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