Growth in molybdenum

Thompson Creek Metals of Toronto, Ont., is a young molybdenum miner that is already on solid financial ground and expects to fund its aggressive growth plans from internal cash flow.

In January 2005,Patent Enforcement and Royalties Ltd. (“PEARL”) was a patent-financing company attempting to reorganize as a resource company with a taste for moly. By April 2005, the company had changed its name to Blue Pearl Mining Ltd., and acquired 100% interest in the YORKE-HARDY MOLYBDENUM PROPERTY in central British Columbia, since renamed DAVIDSON.

In early 2006,Blue Pearl started to talk with a U. S.-based private company, Thompson Creek Metals, that had 75% interest in the Endako moly mine, concentrator and roaster, 200 km by road to the southeast. The idea would be to ship high grade ore from the Davidson mine to Endako for concentrating. Blue Pearl must have liked what it saw, because it offered to purchase the whole company in September 2006. The US$575-million acquisition gave it not only Endako but also another operating moly mine in Idaho, and a refinery in Pennsylvania.

Blue Pearl funded the acquisition and related transaction costs through a US$204-million public equity offering in September, a US$35-million equity sale to one of the vendors of Thompson Creek, and US$402 in loans. Blue Pearl adopted the name “Thompson Creek Metals” in May 2007.

The new Thompson Creek Metals sold 31 million lb of molybdenum (including its own and third party) at an average realized price of US$28.77/lb in 2007. It posted revenue last year of US$914.4 million and net income of US$157.3 million or US$1.24/share. By the end of 2007 the company had already paid down $165.8 million of its debt.

While the year-end returns were solid, there had been problems at both of Thompson Creek’s mines. A rockslide at Endako (owned 25% by Sojitz Corp.) and lower-grade stockpile ore processed at the Thompson Creek mine set back molybdenum production by more than 2 million lb. Those problems now appear to be over.

The company expects demand for molybdenum to grow. Inventories of the metal are low, and China, one of the world’s main suppliers of moly, is reducing its exports. With reserve increases at both its operations, the miner expects production to rapidly rise over the next two years, from 16.3 million lb Mo in 2007 to 23-24.5 million lb Mo this year, climbing to more than 34 million lb Mo in 2009.

Endako expansion

A positive feasibility study on a proposed mill expansion at Endako, conducted by Hatch Ltd., was announced in November 2007. The plan sees the operation expanding from its current capacity of 28,000 tonnes (t) of ore per day to 50,000 t/d by 2010. (The $280-million expansion plan was conditionally approved by Thompson Creek in mid-March, and subsequently approved by Sojitz.)

The plan involves joining three pits into one large super-pit. Reserves will be mined out in about 16 years instead of the 26 or 27 currently forecast. The expansion will include a modernization of the mill, which has been in operation since 1965,with the installation of a new grinding circuit consisting of semi-autogenous grinding and ball mills, a new flotation circuit and an upgraded roaster circuit. Production at the open pit mine, mill and roasting facility will increase to about 17 million lb initially, declining to about 16 million lb/y within a couple of years.

Assuming molybdenum prices of US$27/lb in 2009, US$23 in 2010, US$17.50 in 2011 and US$14 thereafter, the investment will yield an internal rate of return (IRR) of more than 20% over the mine’s life. The expansion will also lower production costs, from Cdn$10.39/lb (without the investment) to Cdn$7.93/lb.

Plans for Davidson deposit

The company is also developing the Davidson molybdenum underground deposit within Hudson Bay Mountain, 9 km northwest of Smithers, B. C., where a positive feasibility study was announced in early April 2008.

The study considered mining only a limited, high-grade portion of the deposit–7.3 million t of proven and probable mineral reserves grading 0.265% Mo and containing 43 million lb of moly, plus 0.5 million t of sub-grade material. Mining this reserve “would not inhibit the ability of the company to mine the remainder of the mineral resources” at Davidson, according to an April 2 news release. The measured and indicated resources at Davidson, calculated by Giroux Consultants Ltd., contain 288 million lb of moly.

Davidson would provide 2,000 t/d of ore to be shipped to the Endako mill for processing, to produce an additional 40.3 million lb of molybdenum over a 10-year period of full production (4 million lb/y).

A capital expense of Cdn$109 million would include McIntosh Engineering’s projection of $65.7 million for underground development and equipment. Underground development would include constructing a 3- km adit at 10% grade for haulage from the base of the mountain upward toward the deposit, and enlarging an existing 2-km adit for air-intake ventilation and secondary access. Excellent ground conditions will allow for selective bulk underground mining methods, with stopes of more than 30-m dimension.

Hatch Ltd.’s estimate of $43.3 million for surface infrastructure would include a water treatment plant, access roads, on-site buildings, and ore-handling facilities at Endako.

Permits are assumed to be issued in November 2008. First production would be in August 2009, with full production beginning in April 2010. The cash costs are predicted at US$9.46/lb Mo; the study assumed a molybdenum price of US$16.13/lb over the life of the project, about half the current price. The pretax IRR is 20% and the payback period 3.4 years from the start of full production.

Alisha Hiyate is copy editor/staff writer at The Northern Miner and can be reached at ahiyate@northernminer.com.

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