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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (21106)	6/9/2008 10:18:22 PM
From: LoneClone	Read Replies (1) \| Respond to of 193988

Ruby Creek A Step Closer To Reality For Adanac Molybdenum By Our Canadian Correspondent minesite.com[tt_news]=46058&tx_ttnews[backPid]=762&cHash=3ecea07da9 Even with molybdenum prices remaining at a rather lofty US$32/lb, players in this space are not getting any respect from retail investors. This fact has not been lost on David Stone and his team at Adanac Molybdenum, which is moving forward with what would be British Columbia’s first sizable new mine since the early 1990s. Adanac’s Ruby Creek project lies 22 kilometers northeast of Atlin in the extreme north western corner of British Columbia and hosts a large, low grade molybdenum deposit that has a long history of almost being developed. In the 1970s and early 1980s Placer Development completed feasibility level work on Ruby Creek and even went as far as submitting the required reports for the proposed development of a 14 000 tonnes per day operation. Falling molybdenum prices put the project on the back burning and eventually the claims lapse. In 2001 Adanac went to work tying up ground covering the deposit and has since moved it back towards production. With the price of moly rising, Adanac made good progress with a production schedule now calling for 16 years of mining and 21 years of processing treating an open pit mineral reserve of 157.7 million tonnes grading 0.058% molybdenum. On the permitting front, Adanac secured the environmental assessment certificate for a 20,000 tonne per day operation and established a good relationship with the local First Nations. In other words, all was progressing well for the up start molybdenum developer. Then along came the so-called “Credit Crisis” and in 2007 Adanac hit a wall of worry in regards to the projected US$640 million needed in capital cost. By early 2008 the company made a decision to slow down construction activities due to its struggle to raise debt finance to build the mine. Prior to the this lack of credit confidence, Adanac shares were fetching well north of C$2 a piece, while news of the curtailing of construction had the shares getting a modest C$0.51 each. Then in late May, Adanac managed to secure a C$80 million bridge loan to continue development. The much needed funds, which enable the company to take possession of the processing equipment on order for the Ruby Creek project as well as cover detailed engineering, construction planning, and administration, does come at a cost to shareholders. Adanac will grant warrants equal to 21.4 per cent of the fully-diluted outstanding shares of its stock. This news has caused shares of Adanac to bounce off their lows but the company still only gets a market value of around C$80 million, with the bridge loan warrants included the value would rise to just shy of C$100 million. This looks cheap given the base case scenario for the project gives Ruby Creek a net present value of C$222 million at an 8 per cent discount rate and an internal rate of return of 24.42 per cent. But as we mentioned at the start, investors are not yet willing to bet that molybdenum prices will stay anywhere near the current US$32 /lb during the course of operations set to begin in earnest early in 2010. With production costs expected to come in at US$7.39/lb, Adanac does appear to have adequate wiggle room for a lower molybdenum price. In fact, the payback based upon a sliding scale of molybdenum from US$22 per pound dropping to US$15 over the first five years, would be three years. So with the bridge financing secured, permitting near complete and a bankable feasibility on the table, Adanac appears to offer considerable value as long as the price of molybdenum does not come right off the rails. That said, building a new mine is never easy and David is banking that the fundamentals for molybdenum demand will remain strong so that Ruby Creek will finally complete its long and windy road to production. Given the out look for molybdenum, the prospects look reasonable that some 30 years after Placer almost made Ruby Creek a mine, Adanac will complete the process. But first additional financing needs to be secured to meet the capital requirements, no easy feat in this current environment.