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October 11, 2012
Formation Metals Presses On With Development Work At The Idaho Cobalt Project, As Financing Talks Continue
By Ryan Jackson in Vancouver
Formation Metals made good use of the summer as it finished earthworks and made headway on the construction of infrastructure at its Idaho cobalt project. The project is expected to become the Western Hemisphere’s only source of high purity cobalt (HPC), a product which is essential making superalloys required by the turbine industry.
Construction work at Idaho
Formation has now all but completed phase II of the construction plan and, with the installation of a liner at the tailings facility and completion of construction of the portal bench, will have the entire necessary infrastructure in place to begin underground development.
The last remaining hurdle before getting underground is the much anticipated final project financing which, after potential lenders undertook extensive due diligence over the summer, now appears to be coming together.
The Idaho Cobalt Project, once in production, will be a vertically integrated mine and refinery which will draw from proven and probable reserves of 2.636 million tons grading 0.559% cobalt, 0.596% copper and 0.014 ounces per ton gold.
The plan is to produce 1,525 tons of super-alloy grade high purity cobalt metal annulally over a minimum ten year mine life. That will amount to a whopping 3.3 per cent of the entire global cobalt supply and should be able to meet just under 15 per cent of the current demand from cobalt-hungry North America.
“We’re essentially finishing off stage II right now in anticipation of getting financed and starting Phase III,” says Rick Honsinger, Formation’s VP Corporate Communications.
Phase III will consist of underground excavation to the ore face, and the building of the required facilities such as the mill, concentrator and water treatment plant. Initial production is expected to begin between nine and 14 months from the commencement of Stage III construction.
As far as capital is concerned, Formation originally expected to fund construction through a letter of credit which was initially anticipated in March 2012. However, the bank involved subsequently decided it required Rick calls “additional assurances in the form of bringing in other parties to help out”. The letter of credit never materialised, and Formation had to go back to the drawing board.
Since then, though, there has been progress. “We’re moving forward with additional groups with the banks still a part of the picture”, says Rick.
As part of its efforts to attract in new funds Formation has carried out significant optimization work at Idaho this year.
“The goal is to demonstrate that there’s a lot of upside with respect to revenue generation”, says Rick. The bankable feasibility study sets out a net present value of US$87.29 million and shows Idaho delivering an internal rate of return of 22.3%.
But while the company’s NI 43-101 proven and probable reserve defined 0.014 ounces per ton gold in the ore, there is no consideration of gold credits in the bankable feasibility study. And as far as optimization work goes, that’s easy pickings.
“We know the grade and we know the tonnage so we can add that up as an additional revenue stream”, explains Rick. Other minerals contained in the ore are a little trickier to put value on, but could also augment revenue.
There is also an opportunity to optimize the flow sheets at the refinery to improve recovery rates.
In addition, an investigation into neighbouring mine workings has enhanced the team’s understanding of the local ground conditions, a factor which has been a sticky wicket that the team at Formation have had to accept.
“Initially the ground conditions were considered harsh”, explains Rick. “The bankable feasibility study assumes the worst and if we can demonstrate that they may not be quite as bad, that’s cost per foot savings as far as mining goes.”
The precise impact of all the optimisation work isn’t yet clear, but it’s not the specifics that are the point, at least for now. Rather, it’s to show anyone considering coming in on the financing that not everything has yet been put on the table. “It’s just to demonstrate to these guys that there’s a lot more upside potential than what’s outlined in the bankable feasibility study”, says Rick.
There’s also exploration upside too. The feasibility study only takes into account a single deposit at Idaho, the Ram deposit. “We know that there are additional resources that have been drilled off on the Sunshine and East Sunshine deposits”, says Rick.
Those resources could potentially be in filled to extend the current mine life. Further exploration of a number of highly prospective targets could take the project even further.
“There’s a lot of other target areas - close to 20 of them - that have demonstrated good potential for further exploration”, explains Rick. So far four targets have been drilled on the property and all four have returned intercepts at ore grade.
But only the Ram Deposit has been the subject of feasibility, and even Ram could be extended at depth and to the north, according to results from mine plan optimization drilling which was announced in January of 2011.
Meanwhile, work is also continuing at Formation’s other major operation, the Sunshine precious metals refinery in Silver Valley, Idaho. The refinery’s autoclaves were originally designed to treat refractory ore for precious metals, and Formation’s initial plan was to retrofit them for cobalt production.
However, engineering studies subsequently demonstrated a clear economic case for keeping the existing set-up in place to process third party material. The plan now is to add a separate circuit when cobalt production begins.
While the company’s main focus remains on bringing Idaho into production, the precious metals and concentrate processing divisions are expected to provide welcome revenue and will likely beat the cobalt project out of the gates.
“That’s good news for the shareholders and good news for the potential financiers as well”, says Rick, “because they like to see independent cash flow from independent businesses”.
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