Formation Gains On USFS Rejection Of Xstrata Appeal

VANCOUVER — An arduous environmental- permitting odyssey is over for Formation Capital (FCO-T, FCACF-O).

The United States Forest Service (USFS) has denied appeals which called for it to review its approval of Formation’s Idaho cobalt project (ICP).

On news of the decision, Formation’s shares gained 5.5¢ to close at 35.5¢.

The more controversial of two appeals submitted to the USFS came from Xstrata (XSRAF-O, XTA-L).

In its appeal, the Swiss-based major argued Formation’s environmental impact statement as approved by the USFS did not sufficiently address potential downstream effects of ICP to the adjacent Blackbird mine site, where Xstrata and Rio Tinto (RTP-N, RIO-L) have conducted remedial work.

But Formation has dismissed Xstrata’s opposition as a bluff, suggesting that Xstrata, an important producer of cobalt, is using environmental concerns to delay development of ICP and block a potential competitor from entering the cobalt market.

Now, however, that debate falls by the wayside as the USFS decision releases Formation from the clutches of the permitting hydra and allows it to focus on mine development.

In a release, Formation president Bill Scales said: “This is the last significant permitting hurdle we needed to cross to move forward with the development of the project.”

In the same release, Formation quoted Bill Wood, the USFS Forest Supervisor who approved the company’s environmental impact statement in January, as saying that “the final pathway for the company to follow has been established.”

As outlined in Formation’s feasibility study, ICP, 45 km west of Salmon, Idaho, would operate as an underground mine for 10 years.

With proven and probable reserves of 2.6 million tonnes grading 0.559% cobalt, 0.596% copper and 0.4 gram gold per tonne, Formation plans on producing 1,525 tonnes of high-purity cobalt a year.

Formation has estimated capital costs at ICP at US$139 million and projects a net present value of US$87.3 million and an internal rate of return of 22.3% based on a cobalt price of US$22.52 per lb. and discounted at 7.5%.

Formation forecasts operating costs at US$7.73 per lb. cobalt.

Recently, the price of high-purity cobalt has hovered around US$18 per lb.

As for finances, Formation closed an oversubscribed $8.6- million non-brokered private placement and as of Nov. 30, 2008, it had $2.6 million in cash and equivalents.

Formation has 206.9 million shares outstanding.