Cashed-Up Moly Mines Looks For Another Party To Go To While The Molybdenum Price Remains Down In the Dumps
By Our Man in Oz
What do you do when you’re all dressed-up and ready to party, only to discover that the party has been cancelled? The Australian answer is not to waste a shower and a shave, but simply to find another party. That is pretty much what the emerging molybdenum producer, Moly Mines is doing. Whacked over the head by a collapse in the molybdenum price, Moly is on the hunt for something profitable to do with the A$127 million it had in the bank as of 31st December. Rather than push ahead with full-scale development on its Spinifex Ridge molybdenum-and-copper deposit in Western Australia, Moly Mines is instead looking at a scaled down version of the project, to be supplemented by possible investments in other mine development projects, in particular one or more of the new mines which are near the end of the construction phase, but which have been hit by the credit and capital markets freeze. “We’re effectively in a holding pattern”, says how Moly chief executive Derek Fisher, when Minesite’s Man in Oz pops in to his Perth office for a chat. “We can see how to proceed with a start-up plant at Spinifex Ridge, which would be half the original, and then grow later. The design is modular, and drawing a line down the middle is easy. It is also possible to start mining the high-grade core of the orebody to maximise output of molybdenum and copper. But, even with changes like that it will be hard to raise finance with the molybdenum price around US$10 a pound.”
No-one believes that the price of the metal will stay low for long. Its major use is in making special steels, such as those expected to be in high demand as government-funded infrastructure projects pop up around the world. However, it would be a brave man who predicts a rapid return to the US$33 per pound average price that was enjoyed by molybdenum miners over the first nine months of 2008. Even rapid and widespread production cuts by major moly producers will take time to filter through to the price. It’s this realistic outlook which has Fisher - with the backing of the major financiers of Moly Mines - on the hunt for other assets.
“You only have to look around the industry today to see that there are bargain investments on offer,” Fisher says. “We’ve got a list of a number of mine developments around the world, some of them 90 per cent complete, which have run out of money.” Fisher, diplomatically, declines to name names. But Minesite’s Man in Oz, coming from a school of journalism which abandoned manners some time ago, immediately tosses a few names at him, starting with Windimurra Vanadium, which is negotiating a fresh capital injection to complete construction at its Windimurra mine, and then moving on to Lynas Corporation, which is seeking funds to finalise its Mt Weld rare earths mine. Those two names draw a lightning fast “of course not,” from Fisher - so fast, in fact, that even Fisher has to laugh.
“Let’s say we are looking closely at about six”, he says referring to a hypothetical list of “incomplete” mines. “They are located around the world, but we’re trying to do something in Australia. Windimurra might be a good example. It has some debt which might be available at the right price. If you look at Fortescue Metals, it has debt trading at around US50 cents in the dollar. Now, you’ve got to believe that Windimurra’s debt is worth less than that. Lynas is another possibility for a potentially opportune investment, if we can renegotiate the debt.”
Fisher makes it clear that hunting for an alternative investment is opportunity-driven, while Moly waits for the main event – the hoped for improvement in the molybdenum market which will clear the way for the company to proceed with Spinifex Ridge. Work on the project is at a very advanced stage, whether as a full-scale US$1 billion project, or in two halves. At its full size, ore production would total 20 million tonnes per year, for the recovery of 24 million pounds of molybdenum and 27.3 million pounds of copper. Half-size is, well, half those numbers.
“We’re well advanced on designing a plant processing between eight and 10 million tonnes of ore a year, with a future expansion to the full size of 20 million tonnes a year”, says Fisher. “Advantages in the smaller start-up include an enhanced grade profile” - by which he means mining the high grade core early - “a lower strip ratio, relaxation of concentrate specifications, and a much lower capital requirement, which makes financing easier. However, having said that, it’s hard to finance any mine developments in this market.”
The good news in regard to molybdenum, such as it is, is to be found in the speed at which producers slashed production as soon as the downturn hit. “Worldwide molybdenum production cutbacks are as high as 30 per cent”, Fisher says. “Once cut, it’s hard to turn production back on quickly, which means any increase in demand will flow quickly into the price. When economic recovery kicks in, especially with the promised infrastructure programme, you could see a solid rebound. Moly is a metal used in a variety of construction steels, similar to manganese and vanadium.”
On the stock market, there are early signs of revived interest in Moly Mines. After an astonishing run, up to a mid 2007 peak of A$7.06, the company sank to a low of just A17 cents in late November of 2008. Since touching that bottom, Moly has re-arranged its project development profile and arranged a line of credit to keep its business ticking over. By early January, the share price had risen as high as A45 cents, before settling back to around A30 cents, a price which is either close to double where it was in November, or a fraction of where it was in mid-2007. Glass half-full, or glass half-empty? The answer to that conundrum depends on what happens next.
LYC Price at posting:
11.6¢ Sentiment: LT Buy Disclosure: Held
(20min delay)