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JULY 2006

 

Minnesota issues $2.5 million loan to Franconia Minerals

Spokane, WA— Franconia Minerals Corporation (Franconia) announced that the State of Minnesota will provide a loan of up to $2.5 million to help develop Franconia’s copper-nickel-PGM resource project at Birch Lake in northeastern Minnesota.

At its recent quarterly board meeting, the Iron Range Resources Board unanimously approved its half of the state loan.

Under the terms of the loan, Franconia agrees to contribute matching funds - based on a one-to-three ratio - up to a maximum of approximately $7.5 million (at the possible maximum loan limit of $2.5 million). The $10 million total would be used for a two-phase technical development program aimed at advancing Birch Lake towards becoming a producing mine. The formal agreement is expected to be completed by early July.

Under the terms of the loan agreement, the State, through its economic development entities, Iron Range Resources and the Department of Employment and Economic Development, will lend Franconia approximately $0.2 million for work to be completed in 2006. Franconia will contribute an additional $0.6 million for the same period.

Further State funding of approximately $2.3 million will be matched against $6.9 million from Franconia for work to be completed late in 2007 or the first quarter of 2008.

As consideration, Franconia proposed to issue the lender warrants to purchase one share of common stock of Franconia for each dollar advanced by the lender under the terms of the loan, at an exercise price equal to 120% of the weighted average price of the stock during the last full calendar month immediately preceding the effective date of the loan agreement. The warrants will have a term of three years.

Execution of the final agreement is subject to approval by the TSX-V, Franconia’s board of directors and the Governor of Minnesota.

The majority of these funds would be earmarked for in-fill drilling to further define the Birch Lake resource as well as to provide metallurgical samples for improving nickel recoveries to concentrate and conducting feasibility level metallurgical testing of both concentrate production and hydrometallurgical treatment of concentrates to produce saleable nickel-cobalt and PGM intermediates for refining and SX-EW cathode copper on site.

A small part of the funds would be utilized for related environmental review and permitting along with conceptual mine design for the Birch Lake project. Franconia currently expects to apply for mining and related permits and to undertake a bankable feasibility study in 2008.


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