THE past seven years have been anything but smooth sailing for Derek Fisher and his team at Moly Mines, with attempts to become Australia’s only molybdenum producer foiled by the GFC and the commodity’s fluctuating price.
THE past seven years have been anything but smooth sailing for Derek Fisher and his team at Moly Mines, with attempts to become Australia’s only molybdenum producer foiled by the GFC and the commodity’s fluctuating price.
The financial backing of a Chinese shareholder and increased profits from its iron-ore mine have encouraged the company to make its second attempt at getting the world’s next major molybdenum project off the ground.
The Perth-based resources company was floated as Hibernia Gold in 2004, engaging predominantly in the exploration of its gold tenements in NSW.
Knowing that these tenements contained molybdenum prospects, Moly Mines managing director Derek Fisher kept a keen eye on the molybdenum price.
“I was probably the only person in Australia that was watching the moly price at the time; it had been dead flat for 25 years at about $US5 and I discounted these moly prospects because you couldn’t make money out of it,” Mr Fisher said.
Primarily used in iron and steel for its strength and anti-corrosion properties, molybdenum is also used in the automotive industry and in power generation.
With China producing about 40 per cent of the world’s steel, and consuming the same percentage of the world’s molybdenum, growth in the Asian powerhouse pushed world prices up to about $US17 in the same year it listed.
It was at this point that the company decided to buy Australia’s largest molybdenum prospect at Spinifex Ridge, 200 kilometres west of Port Hedland.
“The last spike in moly prices was in the late 1970s and I knew there was moly here in WA ... so we bought it and changed the company from being a gold company to a moly company,” Mr Fisher said.
As North America was the original home of the moly industry, Moly Mines listed on the Toronto Stock Exchange in 2006 to promote investor awareness.
“Here in Australia we don’t have a history of moly mining, but the US and Canada understood Moly,” he said.
“When we listed on the TSX it doubled our share price immediately because people knew what it was about; here, no-one pays us any attention.”
In 2005, the moly price rose to $US42 and then settled in the low $30s before falling to $US8 during the GFC.
In that period, Moly Mines had completed a full feasibility study and was ready to start construction in early 2008.
When the GFC hit in November 2008, Mr Fisher said ‘that was the end of it’.
“It’s a painful story; we got within weeks of financing this, we had every major bank in the world wanting to finance it and we missed out by about three weeks from getting that financing away.
“We were fully construction ready. It makes me cry when I think about how close we got, but anyway we didn’t get it away and we had to pull our head in and go into survival mode.”
To make matters worse, in early 2007, 18 months before the moly price dropped, the company ordered $120 million worth of equipment for the Spinifex project, which was delivered quicker than the company expected.
“In 2008 we got caught with out pants down, so we had to bridge finance to pay for that equipment, which resulted in us having to borrow money during the GFC,” Mr Fisher said.
Moly Mines borrowed $150 million from the Trust Company of the West in Texas, at an interest rate of 20 per cent.
“We decided it was either that or wind the company up, so we borrowed it and we lived to fight another day and it was the smartest thing we ever did,” Mr Fisher said.
Paying that money back was the next challenge for the company, but its luck began to change when Chinese conglomerate Hanlong approached it in late 2009 with a business proposal.
“The Chinese knocked on our door and said ‘we’re looking to create an international mining house would you be interested in us using your company to do that?’” Mr Fisher said.
“Where have you been I thought; they came to the rescue.”
Hanlong invested $200 million in Moly Mines – $140 million in equity and $60 million in debt – and is now the majority shareholder.
More recently, Hanlong made a commitment to procure a $US500 million loan facility for the development of the $600 million Spinifex Ridge molybdenum project.
While other moly explorers such as Zamia Resources, Dart Mining and Ivanhoe Australia have emerged in the eastern states, Mr Fisher said Spinifex would be the world’s first major molybdenum project in more than 25 years.
Meanwhile, Moly Mines profited from the Spinifex Ridge iron ore deposit on which it stumbled upon in 2007.
“It’s the simplest most profitable little mine I’ve ever seen,” Mr Fisher said.
“We started producing at the end of last year, spent 18 million (dollars) building it and got payback on the mine in three and a half months.”
Moly Mines’ share price hit around $6 prior to the GFC and has since fallen to around 88 cents.
However, with moly consumption increasing by 18 per cent during the past 12 months Mr Fisher said he was confident that the company could make a comeback.
“This will be a very different company in five years’ time; we will be heavily involved in iron ore and the moly project will be in production, and we will be a significant player in the world mining scene.”