Idaho General aims high at Mount Hope (October 24, 2005)

Eureka, Nev. — Recently revived Idaho General Mines (IGMI-O) has laid out ambitious production plans for its advanced Mount Hope molybdenum project 23 miles northwest of here.

Exxon Minerals carried out extensive work on the project during the 1980s, including some 230,000 ft. worth of drilling in 165 holes — a remarkable amount of which remains on-site, explained Idaho General’s Vice-President of Operations Matthew Russell during a recent site visit by The Northern Miner.

Exxon retains a 3% net smelter return royalty.

Based largely on Exxon’s work, Mount Hope is home to resources totalling 900 million tonnes running 0.069% molybdenum, including a higher-grade core of 300 million tonnes averaging 0.098% moly.

The Mount Hope climax molybdenum deposit is associated with small, isolated Tertiary-age potassic high-silica porphyritic intrusive bodies. The deposit type is characterized by stockworks of molybdenite (molybdenum sulphide) and quartz associated with fluorite in granite porphyry.

The main molybdenum stockwork is in an aplitic quartz porphyry. Lower-grade mineralization is also found in a deeper and slightly younger, coarser-grained quartz porphyry. All of the molybdenum mineralization in the deposit occurs as molybdenite.

A recently completed feasibility study envisages an initial phase of open-pit mining focused on the higher-grade core at a rate of 40,000 tonnes per day. Molybdenum production during the first five years is pegged at 15,875 tonnes (or 35 million lbs.) at a cash cost of US$3.15 per lb.

“During the first five years, we pay the mine’s capital cost back because the high-grade is on top,” says Russell. “During that time, we’ll actually produce at a very high grade of about 0.12% molybdenum and a very low at cash cost of around US$3.12 per pound.”

The first phase of mining is slated to run for 20 years, with annual average production pegged at 12,927 tonnes (28.5 million lbs.) at US$3.40 per lb. In all, some 263,084 tonnes (580 million lbs.) of moly would be recovered. Plans call for mining with electric 50-cubic-metre shovels and 300-tonne haul trucks.

Russell says that after about 10-13 years of mining, a portion of the pit would remain unchanged, at which point he says the company will look at installing an in-pit crusher and conveyor system to help reduce costs later in the mine’s life.

In mid-August, Idaho General unveiled plans to double the proposed mine’s life to 63 years by deepening the phase-1 pit by around 280 metres to 1,410 metres. This would allow for the exploitation of a further 460 million tonnes of ore running 0.062% moly to produce 249,476 tonnes (576 million lbs.) of moly over a subsequent 33 years. Mining would continue at 40,000 tonnes per day with existing infrastructure.

Finally, the proposed operation would wrap up with a decade of processing some 134 million tonnes of low-grade stockpile material to produce around 57,606 tonnes (127 million lbs.) of molybdenum to bring total life-of-mine production to 580,598 tonnes, or around 1.28 billion lbs.

In all, the plan generates a net present value of US$707 million (at a 5% discount) and an internal rate of return of 19.1% at a molybdenum price of US$7 per lb. At a moly price of US$9 per lb., those figures climb to US$1.3 billion and 27.7%, respectively.

“We stack up as the third-largest molybdenum resource in the world,” says Russell. “When we begin producing, we’ll rank about fifth behind Phelps Dodge, which mostly produces moly as a byproduct.”

Mount Hope ore will be processed via conventional crush-grind-flotation concentrator followed by roasting to produce technical-grade molybdenum oxide (TMO) for shipping directly to stainless steel and specialty metal alloy markets.

The plan carries a price tag of US$400 million, including up to US$45 million for a sulphide roaster. The company is currently considering the early construction of the roaster with an eye toward generating some early cash flow. “It would make us one of the gatekeepers of the industry, as roasters are bottlenecked right now,” explains Russell.

The ongoing roaster study will look at the cost and scheduling estimates for accelerated permitting and construction along with an analysis of the economics of toll roasting molybdenum concentrates from other producers. The key focus of the study will be the siting of the plant.

Under a recently optimized plan of operation, Idaho General envisages a 17,500-tonne-per-year roaster, which would accommodate an average of 6,600 tonnes of annual toll roasting capacity.

Overall, the planned operation at Mount Hope delivers robust economics at a long-term molybdenum price forecast of US$7 per lb., compared with the current price, which recently hit an all-time high of about US$38 per lb.

Russell says the company’s long-term price assumption is based on a 30-year average with corrections for the depreciation of the dollar and an assumption of improved mine productivity. At US$7 per lb. of moly, the proposed operation generates a payback period of 4.1 years.

Russell says the last time prices peaked (at around US$32 per lb.) was in the late 1970s, with pipeline construction in Alaska increasing in response to oil embargoes. That spike lasted about three years.

“We don’t feel its going to be a short price spike for supplying the gas industry this time,” Russell says. “It’s going to be an ongoing thing associated with the growth of the petrochemical industry.

As an unhedged metal, Russell explains that molybdenum will react immediately to any shortage in supply.

“During the last five years, consumption (which has been steadily increasing) has outstripped supply such that stocks have essentially been used up,” he says.

Meanwhile, Russell says that the structure of the lease at Mount Hope means that if “the world gets really ugly” once the mine is up and running, Idaho General can hang on to the project for about US$500,000 per year.

Late last year, Idaho General inked a 1-year option deal to lease the property from Colorado-based Mount Hope Mines. Under the 30-year pre-negotiated lease, Idaho General must make annual payments of US$250,000 during the first four years, increasing to US$300,000 over the subsequent two years. Payment of 3% of the project’s estimated capital cost of US$400 million, or US$12 million, is due in equal instalments in years seven and eight. The lease can be extended.

Looking ahead, the company plans a round of condemnation drilling on its proposed tailings and waste disposal area adjacent to the mine later this year. The company has also started the permitting process, which is expected to take around two years. Scrubber technology included in the plans for the roaster is expected to help ease permitting. The operating plan, including all three phases of production, will be submitted to the U.S. Bureau of Land Management later this year.

Also on the books for the balance of the year is the completion of a supplemental feasibility study of the phase-2 mining plan and a National Instrument 43-101-compliant technical report.

Pending permitting, financing and two years of construction, the operation is expected to see its first production in early 2009.

Financing the project will be no small feat for the company, which reported cash and equivalents of just US$1.5 million at the end of June. The company plans to fund its short-term needs with a planned US$2 million private placement.

In the meantime, the company has retained Wachovia Securities to investigate all options available to maximize shareholder value, including a merger or outright sale of the company.

“We know we’ve got an elephant by the tail so it doesn’t stomp all over us. I think it made sense to go and look for a partner,” concludes Russell.