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Formation Metals Enters Binding Letter Agreement to Sell Refinery for US$9.0 Million Cash

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Formation Metals Inc. (TSX:FCO) announced today that it has entered into a binding Letter Agreement to sell, for US$9.0 million in cash, 100% of its Sunshine Precious Metals refinery, copper refinery and certain lands at the Big Creek Hydrometallurgical Complex in Shoshone County, Idaho, to certain entities that are associated or affiliated with Waterton Global Resource Management, Inc. The sale of the Complex is not expected to have a significant impact on the future development of the Idaho Cobalt Project.
 

“This was a strategic decision that will provide significant additional cash to the Company’s treasury,” stated Mari-Ann Green, Chairman and CEO of Formation Metals Inc. She continued, “Apart from helping to ensure the financial health of the Company by relieving it of all debt, the sale of this non-core asset also provides us with additional funds to seek opportunities to enhance shareholder value.”
 

Internal studies conducted last year concluded that a standalone facility would be better suited to process concentrate from the ICP rather than a retro-fit of the existing Complex. The standalone facility can be relocated within the general vicinity where the Company holds an additional 16 acres of industrial zoned private land. In connection with the sale, the Company will retain all cobalt related data, engineering drawings and plans and intellectual property, along with the cobalt electrowinning cells, which will be moved to the new location.
 

Over the past several months the Company has been concentrating on building a sound business plan for the Complex by obtaining expressions of interest letters, contracts, and by testing various materials from customers and potential customers. The Company has determined that the successful development of that business will require substantial capital expenditures, sufficient working capital, a hedging program and the ability to provide provisional payments. Current unprecedented market turmoil has made it unlikely that Formation will obtain these capital requirements in the near future.
 

The Letter Agreement provides for payment to Formation of a one third share of the profits in the event Waterton sells its interest in the Complex within 18 months and provides for the Company to re-pay its existing US$5.0 million senior secured convertible promissory note.
 

The sale is subject to, among other things, confirmatory due diligence, the execution of a definitive acquisition agreement by June 20, 2013, unless mutually extended, and any required regulatory approvals. In addition, the Letter Agreement includes an exclusivity provision in respect of the Company until its termination and calls for the Company to pay Waterton a break fee of US$1.0 million and a portion of its costs in certain circumstances. The transaction is expected to close June 20th, 2013.
 

Cormark Securities Inc. has been engaged to provide a fairness opinion on the transaction. Waterton’s financial advisor is BMO Capital Markets.
 

About Formation

 

Formation is a well-established mineral exploration, development and refining company who owns 100% of a fully permitted primary cobalt deposit located in Idaho which has been prepared for the commencement of underground development, pending additional mine financing. Formation has additional interests in base, precious metal and uranium projects in Canada, the United States and Mexico. Formation is dedicated to the principles of environmentally sound mining and refining practices, and believes that environmental stewardship and mining can co-exist. The Company trades on the Toronto Stock Exchange under the symbol FCO.
 

About Waterton
 

Waterton Global Resource Management invests in producing and late-stage development assets in politically stable geographies, through joint ventures, partnerships and acquisitions. Waterton Global has assembled a multi-disciplinary technical team with extensive expertise evaluating, developing and operating precious metals mining projects throughout the world.

Posted June 7, 2013

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