Velocity Minerals Ltd.

Velocity Minerals Ltd.

October 03, 2011 10:21 ET

Velocity Minerals Ltd. To Joint Venture Arkansas Coal Project And Review Production Feasibility

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 3, 2011) - Velocity Minerals Ltd. (TSX:VLC) is pleased to announce an agreement with the holder (the "Lessee") of certain leases of an Arkansas coal project whereby Velocity can earn a 50% interest in the project in return for providing (i) an initial $25,000,000 (US) of capital to commence commercial production on the project from surface and (ii) an additional $25,000,000 (US), following production of the surface portion of the project, to produce the underground portion of the project. The Company will have a preferential right to receive 90% of cash flow until it receives repayment of the capital advanced and a cumulative 40% return. Thereafter, cash flow will be distributed equally to the Company and the Lessee.

It has been estimated by the Lessee that it will cost $24.6 million (USD) to put the surface portion into production at a rate of 35,000 tons per month. The Lessee has also estimated that a later capital injection of an additional $25.0 million will be required to put the underground operation into production. Management has reviewed historical data and feasibility studies but has not yet conducted an independent assessment of the deposit or confirmed the terms of the studies or the estimated costs.

The project is a historical metallurgical coal deposit with an exposed highwall from previous surface mining. The Lessee is proposing starting production with a mining operation that will focus on the highwall and then go underground. Highwall mining occurs when the overburden prevents further strip mining. The exposed coal seam is known as the "highwall". Relatively new, specialized mining equipment allows mining 800 to 1,200 feet into the "highwall".

There is a non NI 43-101 compliant in-place resource and mineable reserve calculation that delineates approximately 1,386,000 tons and 975,333 tons respectively of metallurgical coal in the highwall portion of the project, prepared in 2008 by Greg Lewicki and Associates, PLLC. The sampling and analytical methods used are unknown and unverified by a NI 43-101 Qualified Person and should be viewed with caution. Similarly, Lewicki's usage of the terms "resource" and "reserve" does not conform to current usage of the term. Additional data suggests the potential for additional tons of metallurgical coal bringing the total that can be mined from surface to approximately 2,000,000 tons.

In addition to the portion of the deposit accessible from surface, historical data suggests a further deposit of approximately 21,000,000 tons of metallurgical coal available for underground extraction. Again the sampling and analytical methods used are unknown and unverified by a NI 43-101 Qualified Person and should be viewed with caution.

Mr. Marvin Mitchell, P.Geo., a qualified person as defined by National Instrument 43‐101, has reviewed the technical aspects of this news release.

The project will be held and operated by a newly incorporated Arkansas limited liability company (the "LLC") owned equally by the Company and the Lessee. Velocity will be the manager of the LLC. Velocity's obligation to provide the funds mentioned above is subject to Velocity receiving confirmation of title, tonnage, grade and feasibility from its advisers and receiving project permitting from the appropriate authorities. The Lessee has granted Velocity a 12 month due diligence period to obtain the confirmations referred to above and Velocity will have complete access to the coal project to conduct such exploration and assessment activities, including surface sampling, geo-physical surveys and drilling, as its advisers deem necessary.

In consideration of the Lessee granting the due diligence period, Velocity has agreed to provide to the LLC, as a contribution of capital, $1.5 million (USD) to pay continuing lease maintenance fees ($500,000 US,); quarterly unsecured advances on future distributions to the Lessee during the due diligence period ($125,000US per quarter/total $500,000US) and project permitting costs ($500,000US). For Velocity to fund these payments and assess the feasibility of the project, it will have to complete a financing of not less than $2.5 million. Should the financing fail to be completed by November 15, 2011, the Lessee may terminate the agreement. In addition, within 15 days after completing the financing, Velocity is required to issue 300,000 shares to the sole shareholder of the Lessee.

If Velocity determines that one or more of the confirmations or permits referred to above cannot be obtained in a timely manner and at a reasonable cost, Velocity may elect to discontinue its ownership in the LLC without further obligation of either party and whatever portion of the said $1.5 million then remaining unexpended will be returned to Velocity.

Velocity Minerals Ltd. is a public company dedicated to the acquisition, exploration and development of mineral resources. In addition to the Company's two Cassiar, B.C. area molybdenum properties, and its Idaho gold prospects, several other opportunities in the mining industry in North America and elsewhere are actively being pursued.

On behalf of the Board of Directors,

Kenneth R. Holmes, Chairman

Velocity Minerals Ltd.

Forward-Looking Information

This release includes certain statements that may be deemed "forward-looking statements". All statements in this release, other than statements of historical facts, that address events or developments that the Company expects to occur, are forward-looking statements. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential" and similar expressions, or by words indicating that events or conditions "will", "would", "may", "could" or "should" occur. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results may differ materially from those in the forward-looking statements. Forward-looking statements are based on the beliefs, estimates and opinions of the Company's management on the date the statements are made. Except as required by applicable securities laws, the Company undertakes no obligation to update these forward-looking statements in the event that management's beliefs, estimates or opinions, or other factors, should change.

The TSX has neither approved nor disapproved of the information contained herein.

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