“Happy accident” proves a saviour

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 17 Jan 2013   Posted by admin


WITH its Spinifex Ridge molybdenum-copper project yet to get off the ground, dual-listed resources company Moly Mines has turned its focus to the adjacent Spinifex Ridge iron ore project.
The discovery of iron ore just 500m from the company’s molybdenum deposit in WA’s Pilbara region was described by Moly’s former managing director Derek Fisher as a “happy accident”: one that has allowed the company to maintain a strong financial position in challenging times for the resources sector.
Molybdenum-copper project In 2008, Moly was on the verge of developing its Spinifex Ridge molybdenum-copper project, 50km northeast of Marble Bar. The company planned to construct and operate a 20 million tonne per annum open pit mine and processing plant, but later scaled down plans to a smaller 10mtpa start-up operation.
The reduced operation was expected to produce an average of 11 million pounds of molybdenum in concentrate and 13.5 million pounds of copper in concentrate per annum during its first 10 years.
In preparation for construction Moly ordered about $120 million worth of long-lead plant items, and JP Morgan and Morgan Stanley were jointly contracted to raise the capital needed to see the project through to production.
Awaiting final approvals, the molybdenum miner was primed to begin construction when the Global Financial Crisis struck and low molybdenum prices forced Moly to delay the project until economic conditions improved.
In October 2009, China’s Hanlong Mining Investment paid US$140 million for a 56 per cent controlling interest in Moly, effectively saving the company.
In early 2011, Hanlong secured US$500 million: the majority of funds needed to construct the mine. By the end of June that year, Hanlong had entered into project debt agreements with China Development Bank Corporation totalling US$494 million for development of Moly’s molybdenum-copper project.
The funds were not enough to cover total capital and owner’s costs, which in May 2011 were estimated at US$720 million, and Moly soon advised that the final investment decision on the project would be delayed until global molybdenum prices improved.
According to an annual information form released by Moly in March 2012, the project will remain suspended indefinitely until funding can be obtained.
“In December 2011, the board of Moly Mines formed the view that the continued weakness of global molybdenum prices and the strength of the Australian dollar rendered the moly-copper project sub-economic,”
the form stated.
“Consequently a final investment decision would be unlikely to be made within that time frame and the development has been put on hold for the foreseeable future.”
Iron ore
Despite a continued delay in development of its molybdenum-copper project, Moly managed to emerge from the September quarter of 2012 with $54.5 million cash in hand courtesy of production at its Spinifex Ridge iron ore project.
Following the discovery of iron ore adjacent to its molybdenum deposit in the Pilbara in mid 2008, Moly started drilling at the site towards the end of the same year.
BGC Contracting began on-site operations in October 2010, with a focus on ore body pre-stripping plus the construction of access roads, aramp and mine infrastructure.
A crushing and processing plant with primary, secondary and tertiary crushers, along with screens, conveyor belts and a radial stacker, were installed in November 2010.
During the following month, Moly shipped its first batch of iron ore from the open-pit mine, which has an estimated total mineral resource of 5.5 million tonnes grading 58 per cent iron.
With an average yearly output of 1mt, the mine is expected to have a minimum mine life of five years.
In August 2012, a sudden fall in the iron ore price caused Moly
to reassess its operations and the company announced it would cut back on mining to reduce costs.
The dramatic drop to less than $US90 per tonne pushed Moly to defer its planned September shipment until October and put its pre-strip mining activities on hold until 2013.
Moly plans to maintain its shipping schedule through to March 2013 by drawing down its ore stockpiles, and has revised its 2012 sales target to 970,000t. Despite the amount of ore mined (287,735 wet ore tonnes) during the September quarter being up 30.3 per cent from the previous quarter, the amount of product sold was down 32.7 per cent to 182,225 wet ore tonnes. Gross sales revenue also decreased: the September quarter profit of $14.8 million was a 48.1 per cent drop from the June quarter figure.
With cash in hand up $1.9 million from the June quarter, Moly’s cost-cutting measures helped the company maintain a comfortable financial position in the short term.
However, according to the company’s quarterly activities report, the volatility in the iron ore price had caused it to consider the potential for divesting the Spinifex Ridge mine while also reviewing its merger and acquisition strategy.
Further exploration
According to a June 2012 ASX announcement, Moly is “reviewing a wide variety of near-term producer opportunities”.
The announcement stated the company would focus on those opportunities that could be financed through the Chinese commercial banking process with the help of major shareholder Hanlong, and through the strategic alliance between Moly and China Development Bank. Moly has also undertaken limited exploration activity at three other potential molybdenum deposits in NSW: Glen Eden, Mt Pleasant and Mt Tennyson.
Despite little current exploration activity, the three tenements remain in good standing.
The company has reported plans for further sampling and drilling of the Mt Tennyson deposit to assess its mining potential.


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