Vancouver's ROCA MINES is in the enviable position of having a profitable mine less than two years after deciding to proceed with development. The company owns the MAX underground molybdenum mine near Revelstoke, B.C., built with equity financing, not debt. It has high grades, low cash costs, a premium product and is already expanding.
This is the second part in a two-part article about the MAX project; part one was published in CMJ's Headline News on Oct. 25, 2007.
Roca has arranged to sell its concentrate to DEREK RAPHAEL & CO. of London, U.K., through 2017, the anticipated life of the project. Moreover, Roca can charge a premium for its 50% Mo product because it contains next to no copper or other deleterious elements.
"This is a terrific metal to be producing; it is easy to mine, easy to concentrate and we get paid approximately ninety per cent of the contained moly value at our mine gate," said Roca president Scott Broughton. "Roca doesn't have to pay for transportation, processing, roasting or any other costs associated with preparing the molybdenum concentrate for the end user, and demand is very robust."
Historically, the molybdenum oxide price has been about US$5/lb, but in the last three years it has been over US$20/lb, with current trading in the US$30 neighbourhood. The profit margin is wide, even should cash costs go up a couple dollars a pound. Multiply the profit by at least 1.5 million lb of molybdenum produced annually, and the economics of the project look like a sure thing. Roca has opportunities to produce more by expanding its already over-built capacity and increasing its permitted production rate soon.
So what is Roca going to do with all the cash it makes?
"Our capital costs are anticipated to be paid back during the first quarter of operation," Broughton added, "then we'll decide what to do with the cash."
He does have a few ideas in mind.
EXPANSION - One goal is to expand the mine and mill to 5.0 million lb of moly annually in concentrate. With the potential mill capacity in place and an underground operation, this could be achieved with very little extra surface work or disturbance.
EXPLORATION - Three exploration possibilities present themselves. One, work could be done to expand the deposit. The potential is there to outline the limits of an ultimately much larger deposit. Second, the tungsten occurrences on the property should be investigated. During the Second World War the tungsten outcropping at the top of the mountain was mined, and there is an untested tungsten horizon underground near the end of the original adit. Third, investigation of the Foremore property adjacent to the Galore Creek development might reveal the possibility of a long life polymetallic development. This was Roca's listing property when it started trading in late 2002, and one that management has very high hopes for.
ACQUISITIONS - There may be other projects that Roca could buy or joint venture and successfully fast-track to production. The MAX team is keen to repeat what they do so well.
REDISTRIBUTION OF PROFITS - Shareholder value could be increased with a share buyback, and perhaps investors would appreciate some dividends.
As the market for molybdenum grows, the MAX mine and mill can only grow as well. The traditional use of moly has been in steel alloys, but its use in the chemical industry is growing twice as fast, at 8% annually. In these applications molybdenum has become important to the desulphurization of petroleum products, in coal gasification and the desalination of sea water.
As demand increases, primary moly producers will shine. Roca is already at the forefront.