Moly Mines Ltd this week showed it was not unique in the resources sector despite its project being the first molybdenum mine to be developed in Australia.
Moly Mines Ltd this week showed it was not unique in the resources sector despite its project being the first molybdenum mine to be developed in Australia.
When confirming it would press ahead with its Spinifex Ridge project in the Pilbara, the aspiring miner revealed costs for the project had ballooned by 42 per cent to $1.07 billion.
It comes after cost blowouts and delays for several mining projects, including Rio Tinto’s Argyle diamond mine (up 56 per cent to $1.87 billion), BHP Billiton’s Ravensthorpe nickel project, which has more than doubled to $2.75 billion, and the North West Shelf Venture’s Train 5 expansion has seen its costs soar by 30 per cent.
But, the economics for the project remain sound according to Moly Mines, which appointed Azure Capital to commence financing negotiations involving institutional investors and possible joint venture partners.
Moly Mines said using a long-term molybdenum price forecast, which is about half the current price, the project would produce revenue of about $US4.94 billion within the first 10 years of its operation.
Moly Mines, which is also listed on the Toronto Stock Exchange, anticipates securing finance by March 31 to develop the Spinifex Ridge project.
Moly Mines said those financing arrangements could involve an equal split between debt and equity, and it was in discussions with global investment banks and other interested parties.
Moly Mines general manager, Collis Thorp, said the company was aiming to produce molybdenum from Spinifex Ridge by July 2009 after this week releasing the results of a definitive feasibility study conducted by WorleyParsons.
The study revealed that the project was economically viable, even when the estimated cost had risen from $622 million to $1.07 billion.
Mr Thorp said part of the cost increase was due to a decision made by the company last month to increase its annual production by 33 per cent from 15 million tonnes per annum to 20mtpa.
The increased production requires the company to install additional processing features.
He added that globally, mining companies had been experiencing escalating costs for mining projects and that demand for mining equipment and resources had placed upward pressure on prices.
Once completed, Mr Thorp said the project would produce about five per cent of the world’s molybdenum and would also be one of the world’s top five producers.
Mr Thorp was tight-lipped about naming potential investors to the project, many of whom have already had site visits to its operations in the Pilbara. He said the investors could potentially come from Europe or South East Asia and there had been “no shortage of people showing interest”.
Moly Mines’ definitive feasibility study was based on a molybdenum price of $US13.80, or about half of the current price.
Mr Thorp said the project had a net present value of $855 million, but based on today’s molybdenum prices its value soared to $3.5bn. Moly Mines anticipates generating earnings of about $264 million per year.
Chief executive, Derek Fisher, has headed to Toronto to brief investors but said in a statement the company was “delighted with the outcome of the DFS particularly given the challenging development environment within the resources industry”.
“World molybdenum market fundamentals look extremely strong, fuelled by consistently strong growth and limited new supply,” Mr Fisher said.
