Formation Metals’ Idaho Cobalt Project has been in a frenzy of activity this year. Over the summer the Formation team completed the earthworks, and in the fall they sunk their teeth into all of the critical items needed to progress into the underground development stage.

 

Construction work at Idaho

The minesite now lies dormant under a blanket of snow, but Rick Honsinger, Formation’s VP Corporate Communications, says the company is well satisfied with what’s been achieved so far.

“We were able to get done what we had hoped to get done before getting snowed out”, he says.

All of the critical tasks to allow for underground development have now been completed. The only major hurdle that the company still has to clear is project financing. And, while the heavy machinery will remain silent over the winter, management at Formation will continue working away with the potential financiers to finish up due-diligence and get a deal signed.

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 annually 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 North America.

But there’s more to it than that, as Rick explains. “Not all cobalt is created equal”, he says. “The type of cobalt that we can produce is known as HPC and it is a very specific type that is required for critical applications in the super alloy sector.”

The superalloys in question are primarily used by the commercial and military aviation industries which are concentrated in the United States.

The US is keen to keep supplies of such a crucial material as close to hand as possible, and that gives rise to a certain confidence that the due-diligence being conducted by potential mine financers should come up with a favourable result in due course.

What’s more, the company’s precious metals division is ramping up third party concentrate processing in what could become a very profitable business that will alongside the flagship cobalt project. All told, Formation looks to be in pretty good shape.

So why the delay then?

Originally, Formation expected to fund construction through a letter of credit which was agreed back in March 2012.  However, Rick explains that the bank involved subsequently decided it would prefer “additional assurances in the form of bringing in other parties to help out”.

It was a setback, but not a fatal one. “We’re moving forward with additional groups with the banks still a part of the picture”, says Rick. The company now plans to secure a credit facility for issued tax exempt industrial bonds, alongside either secure a high yield debt facility or an off-take arrangement with an end user, or both. Strategic partners could also be brought in.

There’s also been a positive development at Formation Metals which has changed the outlook of the company significantly enough to require additional due-diligence from the interested parties.

Back in May, Formation announced that it was going ahead with another major business opportunity, the Sunshine refinery in Silver Valley, Idaho. The autoclaves at the Sunshine refinery 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 that keeping the existing set-up in place and adding a separate circuit when cobalt production begins has considerable economic advantages.

So the Sunshine Refinery has been in operation, accepting concentrate from third parties, since May and is currently ramping up towards a point where it is expected to provide significant cash flow for Formation.

While operational cash flow from a separate undertaking is a good thing, any proposed change to the processing route for the Idaho ore also has a corresponding effect on the due diligence. “You change something and it changes everything as far as due-diligence”, says Rick.

“It’s taking a little bit more time but we’re doing what we can to try and demonstrate to these guys that the engineering optimization will improve the bottom line and basically what we’re doing is mitigating the risk for them. It certainly opens up additional revenue streams but nothing comes for free so the cost here is more delays.”

On the Idaho minesite, though the delays have been minimal. In the last two months Formation has undertaken access road upgrades, portal bench construction, and the preparation of the tailings waste storage facility to accept waste rock from underground development.

Rick says, that accounts for all of the major work needed to get underground and, “the remaining stuff… is just a bunch of little stuff left that we have got snowed out on, so we’ll pick that up as soon as we can next year when it starts to thaw. By that time we certainly hope to have this thing financed.”

The completion of a couple of small tasks carried over from the fall will mark the end of Phase II development at the Idaho cobalt project. If financing can be arranged as hoped, Phase III of development will begin in the first half of 2013 and 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.

“When we get the money in the door the rest will fall into line pretty quickly”, says Rick. “We realize [our shareholders] have been very patient and we appreciate that. One of the reasons we haven’t closed the financing is because we’re working hard for the shareholders to make sure that we’re getting the best deal possible and that takes time in these markets.”