North American money and Chinese engineering are helping West Perth company Moly Mines progress a $620 million mining project in the Pilbara.
Most Australians have never heard of molybdenum, and are certainly not familiar with it, which has created some real challenges for aspiring mining company Moly Mines.
While Moly has battled to get the attention of Australian investors, it has been given a much warmer reception in North America, where it has raised nearly $40 million over the past two years.
Moly listed on the Toronto Stock Exchange last year, joining nearly a dozen Western Australian mining companies that have tapped the much larger and more sophisticated investor market in North America.
A flurry of buying activity in the past fortnight, mostly from North America, has led to Moly’s share price almost doubling to more than $3.
It is using the proceeds from its latest capital raising to complete a bankable feasibility study on its $620 million Spinifex Ridge molybdenum project in the Pilbara.
Molybdenum is used to strengthen stainless steel and specialty steels and is commonly used in oil and gas pipelines.
Its price has risen dramatically over the past three years to more than $US25 per pound, as output from existing producers in South America has fallen while demand has been rising.
China has traditionally been an exporter but has imposed export tariffs and is likely to become a net importer.
The current molybdenum price is double the price used in Moly’s pre-feasibility study and well above its estimated cash operating cost of $3.30 per pound.
These numbers make Moly managing director Derek Fisher extremely confident its Spinifex Ridge project will be the next major molybdenum mine to reach production.
A measure of Moly’s confidence was its decision last year to proceed with all aspects of its project – marketing, financing, plant design, mine planning, infrastructure and regulatory approvals – in parallel with its bankable feasibility study, which is due for completion in June 2007.
Moly is currently in discussions with potential customers, and is hoping one of its major customers will become a cornerstone investor and sign an off-take agreement.
It is also pursuing project finance opportunities, with funding likely to come from outside Australia.
Two recent appointments to Moly’s board signal its fundraising plans.
Peter Thomas is a senior executive with Fortescue Metals Group who jointly led negotiations over that company’s landmark $3 billion funding deal last year for its Pilbara ion ore project.
Mr Thomas’ appointment as a non-executive director followed the resignation of Moly’s inaugural chairman Andrew Forrest, who is focusing on his role as FMG chief executive.
A second board appointee, David Constable, is based in Toronto and specialises in providing investor relations services to listed mining companies.
One of the major challenges for the project team is to identify cost savings to bring the capital cost below the initial estimate of $622 million.
The company has identified potential savings of 20 per cent, including changes to the process plant and the preferred water and power supplies, though these savings could well be offset by general increases in labour and material costs.
Mining contractor Henry Walker Eltin joined the project team early this year after being appointed in a consulting role to provide advice on mine planning.
If all goes to plan, mining will commence in late 2008.
Worley's China team designs Moly project
China’s pivotal role in Australia’s resources boom has been taken to a new level, with the engineering work for Moly Mines’ $620 million molybdenum project being undertaken in Beijing.
This highlights the increasingly global nature of the engineering industry, not to mention Australia’s increasing links to China.
Chinese industry is a major consumer of Australian minerals and is becoming a big investor in Australian projects, with Chinese manufacturers increasingly supplying the steel and the process plant used by Australian miners.
Now, university-trained Chinese engineers are designing the process plant for Australian mining projects.
Moly’s Spinifex Ridge project is being designed by engineers at MaisonWorleyParsons, a joint venture between Chinese company Maison Engineers & Constructor, and Australian company WorleyParsons.
WorleyParsons was appointed last year to manage the bankable feasibility study for Moly’s $620 million Spinifex Ridge project.
It has about 2,300 staff in Western Australia and like most engineering firms it is flat out trying to keep up with the huge volume of work currently available.
WorleyParsons believes its international network, which encompasses 20,000 people in 30 countries, is one of its main assets, giving a high degree of flexibility in terms of work scheduling and delivery.
High-speed communication links between offices means that staff in Asia can undertake drafting and design work for a project managed in Perth.
That is exactly what is happening on Moly’s Spinifex Ridge project, with WorleyParsons’ project manager based at Moly’s West Perth office but nearly all of the engineering work undertaken in Beijing, where the joint venture has 750 staff.
MaisonWorleyParsons has completed the first of nine parcels of engineering work on the Spinifex Ridge project.
The review process involves Moly Mines and WorleyParsons staff traveling to Beijing to review the work undertaken there.
MaisonWorleyParsons describes itself as the largest international engineering contractor in China.
It has grown rapidly in recent years, with staff numbers increasing from 350 in 2004 to 900 presently.
