Sino Vanadium Inc.
TSX VENTURE : SVX

Sino Vanadium Inc.

December 21, 2009 08:55 ET

Sino Vanadium Inc. Announces Positive Results of Daquan Vanadium Project Preliminary Economic Assessment

TORONTO, ONTARIO--(Marketwire - Dec. 21, 2009) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

Sino Vanadium Inc. (the "Corporation") (TSX VENTURE:SVX) announced today the results of the Preliminary Economic Assessment (the "Study") on its 100% owned Daquan vanadium property (the "Project") which was prepared by Wardrop Engineering Inc., a Tetra Tech Company ("Wardrop") which is an international engineering firm that is registered in Winnipeg, Manitoba, Canada. Wardrop prepared the original National Instrument 43-101 ("NI 43-101") compliant technical report regarding the Project's mineral resources dated April 8, 2009 and the subsequent updated NI 43-101 compliant technical report dated September 30, 2009, both of which are available on SEDAR. The Study does not provide any additional update regarding the Project's mineral resources since the September 30, 2009 update. The Study is anticipated to be filed in January, 2010.

The positive economic analysis of the Study demonstrates that the merits of the Project warrant that the Corporation proceed to conducting a prefeasibility study as the next step to determine if commercial production of vanadium from the Project is viable. Modeling of the resource and modeling of numerous mining options has resulted in the development of two mining proposals: an open pit mining option ("Option 1"); and an open pit mining plus underground mining option ("Option 2").

Highlights of the Study:

- As announced on September 30, 2009, the deposit is estimated to contain Indicated resources of about 15.8 million tonnes (Mt) with an average grade of 0.95% V2O5 and Inferred resources of about 18.4 Mt with an average grade of 0.92% V2O5.

- Estimated pre-tax net present value of the Project of over US$631 million for Option 1 and over US$878 million for Option 2 (based on a 10% discount rate)

- Estimate pre-tax internal rate of return of the Project of 45.3% for Option 1 and 52.3% for Option 2.

- Estimated mine life of approximately 10 years for Option 1 and 20 years for Option 2 at an assumed mining rate of 8,000 t/d.

- The next recommended phase is to move towards preparing a Pre-Feasibility Study which first requires significant data capture and more investigation into all aspects of the Project; such exploratory investigation is anticipated to require an exploration budget of approximately US$1,200,000, however, at this stage no clear scope regarding that exploration program has been defined.

- Two options for processing have been considered, referred to as the pyrometallurgical process and the hydrometallurgical process with the hydro-metallurgical process being ultimately proposed for the Project.

Ma Zhaoyang, Chairman of the Corporation, stated: "This study demonstrates that the positive exploration results we have seen with respect to the Project have the potential to lead to commercial viability and supports the Corporation continuing to work towards transitioning into becoming a producing mining company. The Corporation plans to complete further exploration in order to better define the entire Project and proceed towards conducting a pre-feasibility study based on those results."

The Preliminary Economic Assessment Study

General Information

The Project is situated in the Shangnan County, of the southeast Shaanxi Province, China, about 200 kilometres southeast of Xi'an, the provincial capital, and about 40 km south of the county capital of Shangnan. The Project contains a sedimentary rock unit that is enriched in vanadium at levels of concentration that are of potential economic significance.

The Project is comprised of Mining Licence 6100000810203 that is 1.5196 square kilometres in area. Through its subsidiaries, the Corporation holds a 100% interest in the Project.

Exploration of the Property carried out during the period 2005 to 2007 consisted of trenching at 100 metre intervals along strike, and drifting at 200 m intervals along strike. Forty trenches with an aggregate length of about 800 m, and six adits were excavated. About 1,000 m of sampling was done and 555 samples collected. In 2009, the Corporation drilled a further 12 core holes with an aggregate length of about 3,623 m to test the mineralized zone down-dip of the adits.

Proposed Mining Options

Two mining options have been proposed by Wardrop for the Project in order to maximize the efficiency and realize the value of the Project: solely open pit mining at 8,000 t/d; or a combination of open pit mining at 4,000 t/d (8,000 t/d for the first two years) and underground mining, also at 4,000 t/d respectively.



SUMMARY OF OPEN PIT ESTIMATES - OPTION 1

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Type Description
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Deposit (Kilotonne (kt)) 22,859
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Waste (kt) 388,853
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Total (kt) 411,709
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V2O5 Grade (%) 0.94
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Mine Life 9.2 Years
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Mining Rate (t/d) 8,000
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Process Rate (t/d) 8,000
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The proposed open pit mining methodology is the same for both options. It is envisaged that conventional drill and blast techniques will be used, using large rotary drills capable of drilling the blast holes in a single pass. Due to the expected friable characteristics of the material, it is anticipated that the material will not require blasting, but will be loaded directly to the primary crusher or stockpile area. A high mining recovery is anticipated, but a dilution factor of 5% has been planned. Loading and hauling will use large hydraulic face shovels and 136 t rigid frame dump trucks. As the topography of the region is very hilly, it is planned to keep the waste dumps as small as possible by mining in a uni-directional method, and then backfilling the pit with waste as the mining face advances.

A fleet of support equipment has been included for dump and loading area maintenance, as well as considerable emphasis placed on the good construction and maintenance of the mine haul roads to ensure high productivity and equipment availability.



SUMMARY OF OPEN PIT AND UNDERGROUND ESTIMATES - OPTION 2

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OPEN PIT MINING
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Type Description
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Deposit (kt) 14,748
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Waste (kt) 148,701
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Total (kt) 163,449
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V2O5 Grade (%) 0.96
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Open Pit Mine Life 9.9 Years
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Mining Rate (t/d) 8,000 for Years 1 and 2, then 4,000
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Process Rate (t/d) 8,000
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UNDERGROUND MINING
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Type Description
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Deposit Type Metalliferous shales (Vanadium)
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Underground Mine Life 16.5 Years (to commence 4 years after open
pit mining)
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Mineral Resource 34 Mt @ 0.93%V2 05 (0.25% Cut-off threshold)
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Process Rate(t/d) 8,000
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Potential Mineable Resource 14.7 Mt by open pit
18.7 Mt by underground methods @ 0.5%
Economic Cut-off
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Mining Rate (t/d) 4,000 open pit & 4,000 underground
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In-situ Rock Density (t/m3) 2.05
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The Project potential underground mineable resource is 22.4721 Mt fully diluted at an average grade of 0.916% V2O5. The underground economic mine cut-off grade used for the conceptual minable resource calculation was approximately 0.5% V2O5. The projected mine life is 20 years at the proposed production rate of 4,000 t/d, with 24 months of pre-production underground mine development with the open pit mining commencing first and the underground mining anticipated to commence 4 years later for an aggregate of 20 years of mine life.

Annual Metal Production n Concentrate

A V2O5 recovery of 75% was used to calculate the estimated annual concentrate and metal production detailed below:



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Annual Concentrate and Metal Production
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Year 1 2 3 4 5
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Production (kt) 2,482 2,482 1,241 1,241 1,241
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V2O5 Headgrade (%) 0.96 0.96 0.96 0.96 0.96
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Contained V2O5 (t) 23,827 23,827 11,914 11,914 11,914
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V2O5 Produced (t) 17,870 17,870 8,935 8,935 8,935
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V2O5 Concentrate (dry metric ton) 18,235 18,235 9,118 9,118 9,118
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Annual Concentrate and Metal Production
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Year 6 7 8 9 10 Total
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Production (kt) 1,241 1,241 1,241 1,241 1,097 14,748
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V2O5 Headgrade (%) 0.96 0.96 0.96 0.96 0.96
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Contained V2O5 (t) 11,914 11,914 11,914 11,914 10,527 141,577
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V2O5 Produced (t) 8,935 8,935 8,935 8,935 7,896 106,183
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V2O5 Concentrate (dry metric
ton) 9,118 9,118 9,118 9,118 8,057 108,350
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Financial Analysis of the Study

An economic evaluation of the Project was prepared by Wardrop based on a pre-tax financial model, the key economic indicators are presented as follows:



KEY PROJECT INDICATORS

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Option 1 Option 2
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Open Pit and
Open Pit Underground
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Life of Mine Years 10 20
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Tonnes Milled kt 22,856 37,709
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Average Head Grade to Mill % V2O5 0.94 0.82
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Mill Recovery % 75 75
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Payable Metal (V2O5) klbs 321,224 506,837
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V2O5 Sale price $/lbs 8.83 8.83
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V2O5 Sale Price less Total Operating Cost $/lbs 5.34 5.36
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Working Capital $'000 32,177 26,462
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Total Sustaining Capital $'000 43,182 62,627
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Total Life of Mine Capital Cost $'000 345,826 450,492
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Initial Capital cost $'000 273,263 263,280
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Initial Capital $/lbs V2O5 $/lbs 0.85 0.52
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Contingency % 12.31 13.15
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Net Present Value (10% discount rate) $'000 631,788 878,318
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Internal Rate of Return % 45.3 52.3
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Payback Period Years 2.79 2.38
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Total Operating Cost (milled) $/t 49.09 46.92
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Total Operating Cost (lbs V2O5 Sold) $/lbs 3.49 3.47
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At full production it is anticipated the mine will produce 8,000 t/d and the proposed mill will treat approximately 47,600 t per week operating seven days a week with an availability of 85%. The proposed production statistics have been incorporated into the pre-tax financial model to develop annual recovered metal production from the relationships of tonnage milled, head grade and recovery. A four year average market price of $8.83/lb for vanadium pentoxide 99% purity sold at the mine gate has been used to derive the revenue. Unit operating costs for mining, processing and general and administration including all anticipated offsite costs were applied to annual milled tonnages to determine the overall mine site operating cost.

Initial and sustaining capital costs have been incorporated on a year-by-year basis over the mine life and deducted from the Net Revenue to determine the Net Cash Flow before taxes. Initial capital expenditure include costs accumulated prior to the first period of production; sustaining capital includes expenditures for mining and milling additions, replacement of equipment, and tailing embankment construction.

Working capital has been calculated on the basis of three months mine site operating costs and applied to the first year of expenditure. It will be recovered at the end of the mine life and aggregated with the salvage value contribution and applied towards reclamation during closure.

Sensitivity analyses were carried out on the following parameters: vanadium pentoxide price, initial capital expenditure and site operating costs. The Project Net Present Value (10% discount) in Option 1 and Option 2 is most sensitive to the vanadium pentoxide price, then to operating costs and then to capital costs. See Figures 1 and 2 below.

To view Figure 1 and Figure 2, please click on the following link: http://media3.marketwire.com/docs/svx1221a.pdf

Vanadium Pricing and Royalties

The 4 year average V2O5 price of US$ 8.83 has been used which was derived from the historical pricing as shown in Figure 3 below.



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Vanadium Pentoxide
Month-Year ----------------------------------------
US$/t US$/lb
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Low 3,086.5 1.4
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High 56,217.8 25.5
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Average 18,214.9 8.3
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3-yr Average 19,293.8 8.7
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4-yr Average 19,482.0 8.83
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To view Figure 3, please click on the following link: http://media3.marketwire.com/docs/svx1221b.pdf

Royalty payments are based on an estimate of 2% of gross revenue. The Option 1 royalty payment is projected to be US$56.7 M and the Option 2 royalty payment is projected to be US$93.6 M, paid during the life of the mine.

Geological Recommendations of the Study

The Study recommends that additional core drilling be done to test the possible continuity of higher-grade mineralization in the area between the two key trenches with drill holes designed to intersect the mineralized zone at an elevation of about 100 metres above sea level in order for any results to be integrated with the existing Indicated resources. The total recommended program would be comprised of six holes with an aggregate length of about 1,200 m. Additional exploration is recommended beyond this 1,200 m program in order to provide sufficient data to complete a pre-feasibility study.

Mining Recommendations of the Study

Further work is also recommended by the Study in the following mining related areas:

- Detailed study of the mining schedule in Option 2 to ensure that the open pit faces are sufficiently advanced to be clear of the underground mine as the cave develops through into the bottom of the pit.

- Detailed design of the base of the open pit in Option 2, at the interface with the underground mine to ensure that, as much as possible, any surface water is diverted away from the underground operation. Emphasis needs to be placed on deposition and final landscaping of the waste rock that is backfilled in to the open pit to minimize any seepage through to the underground mine. Time and equipment for compaction and good surface drainage control must be factored into the mining schedule.

- A study is recommended to evaluate whether it is more cost effective to plan for a separate loading equipment fleet of loader and dump trucks rather than campaigning the material and waste loading as suggested in the current study. The proposed method allows for 70% of the deposit material to be loaded to a stockpile situated near the crusher, and then reloaded to the crusher when the loading fleet is on a waste rock campaign. The trade-off would evaluate the cost difference between rehandling costs and additional earthmoving equipment.

- Delineation drilling from the underground drive and from the base of the open pit to gain further data and a better understanding of the cave material. This drilling will also allow extensometers and transponders to be installed which will allow cave monitoring and tonnage reconciliation to be more accurately estimated throughout the life of each cave.

- In both Option 1 and Option 2, the life of the open pit is planned for 9 to 10 years. If further vanadium deposits are located within the area, and then proven to be economically viable, the life of the processing operation could either be extended, as in the case of Option 1, or maintained at the 8,000 t/d processing rate in Option 2.

- Option 2 is indicated to offer marginally superior returns as compared to Option 1. The deposit appears to be open at depth; there is the possibility that additional resources will be accessible from the underground operation. Additional infill drilling at depth should be undertaken to determine if the underground mine life can be extended.

Metallurgical Recommendations of the Study

- The proposed hydrometallurgical process will require pilot test work to confirm recoveries, process selection, process parameters, reagent consumption rates and material variability characteristics.

Quality Assurance

The complete Study is required to be posted on www.sedar.com within 45 days and it is anticipated the Study will be filed in January, 2010. The Study was prepared under the direction of the following employees of Wardrop, all of whom are independent Qualified Persons in the context of NI 43-101: Greg Z. Mosher, Senior Geologist with 35 years of exploration for and evaluation of base metal mineralization and deposits - Mineral Resources and Project Overview, Patrick Donlon, Senior Metallurgist with 23 years of plant technical support, plant management, process design and plant commissioning activities in precious, base and industrial metals categories - Project Economic Assessment and Jon Gliddon, Senior Mining Engineer with over 35 years of operational, technical and consulting experience in a wide range of commodities and international locations - Study Review. Wardrop has reviewed and verified the scientific and technical mining disclosure contained in this news release on behalf of the Corporation.

Samples from the Project were sent to the laboratory of the Northwest Institute of Non-ferrous Metals in Xi'an for analysis. The remaining portion of the vanadium unit and the balance of the core from the hanging wall and footwall strata have been stored in core boxes in a secure storage building in the village of Xianghe. Twenty duplicate samples (quarter core) were sent to SGS-CSTC Standards Technical Services in Tianjin, China, as a test of the precision of the Northwest Institute results Non-ferrous Metals. Both laboratories have international and domestic certifications. The Northwest Institute of Non-ferrous Metals assayed samples from the Project in the following manner: After crushing and three-acid digestion, samples were analyzed by emission spectrometry for V, Ag, W, Sb, Cu, Pb, Zn, Mo and Ba. Vanadium and Ba were also analyzed by atomic absorption. No specific security measures were taken. SGS-CSTC Standards Technical Services assayed the check samples in the following manner: Digestion of the samples was carried out by use of sodium hydroxide; the samples were then acidified to drive the vanadium into solution and then reduced in order to precipitate the vanadium. Permanganate was used to oxidize the sample and ensure all vanadium was present as V2O5. Titration was then carried out using ferrous ammonium sulphate. Wardrop considers both the sampling approach and methodology, and the sample preparation and analyses to be consistent with industry practice and to be appropriate as an assessment of the vanadium mineralization contained within the Project.

Preliminary Nature of the Study and Mineral Resources

The Study is preliminary in nature and includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the assessment set out in the Study will be realized. The Study was prepared on the basis of assay data obtained from the trenches and adits on the Project which were used to form the mineral resource estimates as set out in the NI 43-101 compliant technical report dated April 8, 2009 and the subsequent updated NI 43-101 compliant technical report dated September 30, 2009, both of which are available on SEDAR. In addition Wardrop has relied upon others for information in the Study and used this on the assumption that this information is accurate.

Mineral resources that are not mineral reserves, such as those referenced in the Study with respect to the Project, do not have demonstrated economic viability.

Qualifications

Qualifications of Consultant

Wardrop personnel who contributed to the study are the following engineers:



Ron Hall............. Vice President and Project Sponsor, B.Sc.(Hons)
Greg Mosher.......... GM of Wardrop Beijing and Senior Geologist, P.Geo.
Patrick Donlon....... Senior Metallurgist and Project Manager, NHD Ext Met,
FSAIMM, MIOMMM
John Sampson......... Manager Mining, Openpit study, B.Sc.(Hons)
Owain Morton......... Mining Engineer, Underground study, M.Sc., MCSM
Ian Dunsmuir......... Engineering Manager, Layouts
Andrew Carter........ Manager Metallurgy, Peer Review, (Eur.Ing.) C.Eng.,
MIMMM, MSAIMM, SME
Jon Gliddon.......... GM of Wardrop UK, Mining Peer Review, ACSM, C.Eng.


Site visit was conducted by Wardrop representatives Ron Hall, Greg Mosher, Mickey Trader and Byron Stuart.

Basis of Report

Wardrop has prepared this report exclusively for the Corporation. The information presented, opinions and conclusions stated, and estimates made are based on the following information:

- Information available at the time of the preparation of the report as provided by the Corporation.

- Assumptions, conditions, and qualifications as set forth in the Study.

- Data collated from site visit, in house research and other vanadium and similar projects.

Wardrop has not independently conducted any title or other searches, but has relied upon the Corporation for information on the status of the claims, property title, agreements, and other pertinent conditions. Wardrop has not independently conducted any permitting, environmental or marketing studies.

Information regarding Vanadium

Vanadium is present as V2O5, or V2O5.3H2O that is adsorbed onto clay minerals in the shale, and to a lesser extent, incorporated into chert.

The principal use of vanadium is in alloys, especially with strengthening structural steel and titanium. Vanadium additive in the steel making process makes steel stronger and lighter. Approximately 85% of the vanadium that is produced is used as a steel and titanium additive. In tool and spring steels it is a powerful alloying agent as a small amount (less than 1%) adds strength, toughness, and heat resistance. It is usually added in the form of ferrovanadium, a vanadium-iron alloy. Vanadium compounds, especially the pentoxide form, are used in the ceramics, glass, and dye industries, and are important as catalysts in the chemical industry. Vanadium is used in nuclear applications, for producing rust-resistant spring and high-speed tool steels, and as a carbide stabilizer in making steels. Vanadium foil is used as a bonding agent for cladding steel with titanium. Vanadium pentoxide is used as a catalyst, as a mordant for dyeing and printing fabrics, in the manufacture of aniline black, and in the ceramics industry. Vanadium-gallium tape is used to produce superconducting magnets.

Demand for vanadium is directly related to steel and titanium consumption. As urbanization continues in developing countries, and demand for lighter, stronger, and safer structures and vehicular modes of transport, increases, so too the demand for vanadium increases.

About Sino Vanadium

The Corporation owns 100% of the Daquan property in Shaanxi province, China. The property contains a world class vanadium deposit that management first recognized in 2007. The Corporation is working towards commissioning a pre-feasibility study on the Property. In the near-term the Corporation is reviewing potential acquisitions of additional vanadium exploration and development properties. The Corporation's objective is to create shareholder value through the consolidation of vanadium development and production in China and internationally. For further information, please visit www.sinovanadium.com.

Forward-Looking Statements

This document may contain "forward-looking statements" within the meaning of Canadian securities legislation and the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements are made as of the date of this document and the Corporation does not intend, and does not assume any obligation, to update these forward-looking statements.

Forward-looking statements relate to future events or future performance and reflect management of the Corporation's expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral resources, the realization of estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in resources, grade or recovery rates; accidents, labour disputes and other risks of the mining and exploration industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Corporation's interim and annual financial statements and management's discussion and analysis of those statements, all of which are filed and available for review on SEDAR at www.sedar.com. Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

Accordingly, readers should not place undue reliance on forward looking statements.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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