Formation could break ground on Idaho cobalt project in January

Vancouver – With a final rubber stamp from the United States Forest Service (USFS), Formation Metals (FCO-T) can now build its Idaho cobalt mine.

Formation says the USFS signed a project evaluation document that approves its mine plan of operations for the Idaho cobalt project, 45-km west of Salmon, Idaho.

Formation says that it plans to build the mine over three stages, each beginning in 2010. The first sees the company clearing timber from the project site between January and March, 2010.

In the second stage, starting during the second quarter of 2010, Formation will build onsite facilities and begin mine development.

The third stage has Formation undertaking mine development beneath the water table in the fourth quarter of 2010.

For the first phase of development Formation says surface reclamation bonds are in place.

To finance mine construction and upgrades to its Big Creek hydrometallurgical facility, also in Idaho, that would process ore from the mine, Formation announced in November a debt and equity offering.

On a best efforts basis Formation plans to raise US$115 million through issuance of secured notes and, separately, $45 million through a private placement. Jennings Capital leads the financing.

The structure of the secured notes would give Formation as much as seven years to repay its principal. At first Formation plans to issue an A-series of notes bearing interest at 10% that it could, after two years, refinance into a B-series of notes, bearing 7% interest, which would then mature after five years.

Formation CEO Mari-Ann Green says in a prepared statement the financing structure gives the company a way to raise what she calls “high-risk” funds “which will be used to advance our high purity cobalt project to production in early 2011. After the second year, the structure then provides the Company with refinancing flexibility once we are up and running and have removed the startup risks that affect every new mining project.”

Formation’s feasibility study of the Idaho cobalt project forecasts capital costs, including upgrades to the Big Creek hydrometallurgical plant, of about US$140 million.

With a ten-year mine life and based on cobalt price of US$22.52 per lb. the Idaho cobalt project returns a net present value of US$87.3 million and an internal rate of return of 22.3%.

Operating costs per lb. cobalt come in at US$7.73 per lb.

At last count Formation pegged the Idaho cobalt project’s proven and probable reserves at 2.6 million tonnes grading 0.559% cobalt, 0.596% copper and 0.4 gram gold per tonne.

Formation expects to produce about 1,500 tonnes of high-purity cobalt a year.