Moly Mines in negotiations to acquire additional mining projects
by Andrew McCrea
proactiveinvestors.com
Moly Mines Ltd (ASX:MOL) has completed an advanced engineering study (“Study”) on a smaller, start-up Spinifex Ridge Molybdenum Project in the last quarter. This has demonstrated a significantly reduced capital hurdle whilst maintaining attractive financial fundamentals. The highlights of the Study include:
- 10 million tonnes/annum (expansion potential to 11.3mt/a);
- 24 year mine life;
- 0.07% Mo head grade for first 10 years;
- A$528 million capital cost;
- US$7.80/lb Mo operating cost; and
- A$461 million NPV ($17.50/lb long term Mo price)
The development of a smaller case Spinifex Ridge start-up project arose from the significant deterioration in the global capital markets and from the accompanying rapid decline in the molybdenum metal price during the last 5 months as the world’s steel production slumped.
The Study has demonstrated a technically viable development opportunity that benefits from the detailed engineering and design work completed for the larger 20mt/a definitive feasibility study with an operating cost structure well below the medium to long term molybdenum price. The 10 year average molybdenum price to March 31, 2009 (including the dramatic slump of October 2008 to March 2009) is US$15.00/lb.
Spinifex Ridge Iron Ore
The resource definition drilling programme was completed on the three iron ore occurrences with an initial resource calculation currently underway. Permitting has commenced for mining these resources as has detailed mine planning and engineering.
New Project Acquisition
A large number of potential acquisition projects have been assessed by the Company with negotiations now underway on a number of those that have been shortlisted.
Spinifex Ridge Start-up Project Study
The Spinifex Ridge deposit will be mined utilising conventional large scale open pit mining methods. The 10 million tonne per annum case retains the equipment specification used for the larger 20 million tonne per annum case, but utilises a proportionally lower amount of equipment. An updated Mineral / Ore Reserves calculation has not been carried out.
Permits and Approvals
Environmental approval, native title approval and other mining approvals that were received for the 20 million tonne per annum project are available for the 10 million tonne per annum project with minimal change required.
Capital and Operating Cost Estimates
Capital cost estimate for the 10 million tonne per annum case, including contingency is A$604 million or A$528 million when capital already spent is credited.
For the purposes of the Study, it was assumed that the power station would be separately financed and therefore power station construction costs are included in the operating cost estimate. The 10 million tonne per annum project will source water entirely from the De Grey borefield. The Canning Basin, located some 60km from site and required under the 20 million tonne per annum project, will not be required reducing capital costs associated with pipeline construction from the borefield to site.
The DFS estimate from September 2007 was used as the basis for the estimates for the 10 million tonne per annum case. The estimate has been compiled from a combination of DFS and EPCM factored costs. Detailed engineering, with material take off’s for estimating, has not been conducted as part of this current capital estimate but its integrity is based on the significant amount of engineering and tendering completed in the EPCM phase.
Operating costs have been determined using existing contractual positions where appropriate, third party sourced estimates, processing plant factoring from the 20 million tonne per annum DFS adjusted for the 10 million tonne plant configuration and where applicable forward curves or consensus views. Over the first 24 years of operation, average annual operating cost is US$7.80/lb Mo, including roasting but before royalties.
Iron Ore Activities
Sufficient drilling programs have now been completed to allow the completion of a maiden resource for the iron ore mineralization at Spinifex Ridge, though final assay results from the most recent campaign are outstanding.
Five drill programs have been completed at the 3 iron ore mineralized zones - Dalek, Auton and Gallifrey which are contained within the granted mining leases at Spinifex Ridge. The drilling has successfully identified high grade Direct Ship Ore (“DSO”) with low alumina (Al203) and phosphorus contaminants.
Highlights of the drilling to date include the following results:
Significant results from Dalek
• 72m @ 60.7% Fe from surface, including 42 metres at 66.2% Fe
• 47m @ 65.8% Fe from 18m
Significant Results from Auton
• 19m @ 61.6% Fe from 3m
• 55m @ 64.3% Fe from surface
• 29m @ 58.3% Fe from surface, including 11m at 61.2% Fe
• 29m @ 64% Fe from 23m
• 56m @ 64% Fe from 1m including 32m @ 67% Fe from 2m
• 33m @ 64% Fe from 21m
• 63m @ 60% Fe from surface including 44m @ 62% from15m
• 78m @ 59% Fe from surface including 17m @ 61% Fe and 39m @ 62% Fe from 6 and 39m respectively
Significant results from Auton NE
• 36m @ 62% Fe from 14m including 23m @ 64% from 26m
• 18m @ 58.3% Fe from surface, including 8m at 61.4% Fe
Significant drill results from Gallifrey
• 20m @ 64% Fe from surface
• 31m @ 64% Fe from surface
• 17m @ 61% Fe from 5m
• 42m @ 60% Fe from 18m
• 15m @ 62% Fe from 28m
• 20m @ 61% Fe from 3m
• 30m @ 61% Fe from 3m, including 13m @ 63% Fe from 20m
• 79m @ 66% Fe from 1m, including 24m @ 67% Fe from 48m
• 36m @ 63% Fe from surface, including 6m @ 65% Fe from 27m
• 33m @ 63% Fe from surface
• 56m @ 62% Fe from 1m, including 17m @ 66% Fe from 24m
A total of 155 RC and diamond drill holes for a total of 10,126 metres (including campaign 5 for which assays are awaited) have been completed since May 2008 at Auton, Dalek and Gallifrey.
The initial drill programs utilised wide spaced drill patterns in the order of 100 x 50m. The RC holes were drilled vertically to around 50 metres or deeper if encouraging mineralisation was encountered down hole. The initial drill programs confirmed and expanded the known high grade iron mineralisation previously mapped and indicated by earlier rock chip samples at each prospect.
A further 3 rounds of drilling and infill drilling have been completed. Drill density has now been reduced to around 20 x 20m or 20 x 40m in areas of strong iron mineralisation drilled using a combination of vertical and angled drill holes.
Mineralisation at Dalek extends 100m x 40m while iron mineralisation at Auton and Auton NE is 250 x 100m and 100 x 100m respectively. At Gallifrey mapping and drilling indicates iron mineralisation extending over an area 300m x 100m wide.
Campaign 5 final assays for the 27 hole, 2,209 metre infill drilling campaign at Auton and Gallifrey are outstanding. This drilling targeted the Auton NE area to expand and close off the mineralisation with some minor infill completed into Auton and Gallifrey.
The full results are currently being reviewed and wire-framed to assist in a maiden iron ore resource estimate.
Concurrently, the Company is assessing a number of expressions-of-interest for the development of the iron ore deposit, including joint venture participation and ore sales, plus direct owner-sponsored development.
Project Financing
In September 2008, the Company completed a US$150 million debt financing facility (“Interim Financing Facility”) with the Trust Company of the West (“TCW”) that was designed to bridge the Company’s development expenditure for the Spinifex Ridge Molybdenum Project to be either paid out via the full project funding of Spinifex Ridge or rolled into a full funding package. The Interim Financing Facility, including interest, is due for repayment by 31st October 2009.
In the near term, the current price of molybdenum (US$8.00/lb) does not support a full project funding from the debt and equity capital markets for either the 20 million tonne per annum or 10 million tonne per annum Spinifex Ridge development scenarios. It is likely a sustained recovery in molybdenum prices would be required to support any new debt financing.
Despite the depressed state of the molybdenum market, the characteristics of the metal and a constrained supply side support a strong medium term price outlook. As the economy-boosting, infrastructure development programmes of the major countries commence, demand for the metal could return quickly leading to a sustained increase in price.
The Spinifex Ridge Molybdenum Project, either in its 10 million tonne per annum or 20 million tonne per annum form, remains a viable opportunity for strategic investors seeking a long term stable supply of molybdenum.
In recognition of these circumstances, the Company has undertaken a number of activities, including review of potential projects for acquisition utilizing the Company’s excess funds. TCW’s approval, as credit provider, will be required prior to any such acquisition.
At March 31 2009, the Company had US$67 million cash on hand (A$98 million) with limited net cash spend anticipated during the period to October 31, 2009. The Company is seeking to apply this cash balance to new acquisition opportunities whereby the targets existing or near-term cash-flow could assist in the restructure of the Company’s financial obligations that become due and payable on October 31, 2009.
The Company’s technical team and its advisors have identified and assessed a large number of attractive projects located throughout the world. From these a shortlist is now being subjected to detailed review.
Markets
In the first half of November 2008, the world molybdenum oxide price fell dramatically to approximately US$10.00/lb and has since traded down to US$8.00/lb.
The world’s largest consumers of ferro-alloy metals cancelled orders 4th quarter 2008 across a suite of raw materials including molybdenum. At the same time, or as a result, various metal traders are understood to have encountered credit constraints that caused the immediate liquidation of inventories leading to this collapse in world molybdenum prices.
The world’s largest primary and by-product molybdenum producers have reacted quickly to the combined effects of the sudden fall in molybdenum prices, the weakness in copper prices and the tightness of capital markets by instigating immediate production cuts and the indefinite deferral of expansions and new project development. |
