Adanac Moly Making Strides at Ruby Creek

Vancouver — Adanac Molybdenum (AUA-V, AUAYF-O) is gearing up for a mid-year construction start at its Ruby Creek project near Atlin in northwestern British Columbia.

The prospective molybdenum miner recently signed an agreement with AMEC Americas for engineering and procurement services at the large moly deposit. Completion of detailed engineering and design of workings is expected to take about 13 months.

In early 2006, Adanac tabled a preproduction capital cost estimate of about $450 million for Ruby Creek. The company has set a timeline projecting commercial production by early 2009.

The deposit hosts proven and probable reserves of 143.7 million tonnes grading 0.059% molybdenum, about 187 million contained pounds molybdenum.

The feasibility study reviews a projected 21-year mine-life from an open-pit operation. A milling rate of 20,000 tonnes per day is expected to yield average recoveries of 89% and produce 167.4 million lbs. molybdenum. Open-pit development will enjoy a low modelled strip ratio of 0.95:1.

Average operating costs over the first five years are estimated at $11.61 per tonne milled (about US$5.87 per lb of molybdenum), falling to $8.05 per tonne milled after that.

Although current molybdenum prices are around US$25.25 per lb., longer-term industry projections expect it to slide to the US$8-per-lb. range. Therefore, to benefit from near-term higher prices, Adanac plans to develop an initial “payback pit” to maximize production of the metal over the first five years. Expected molybdenum output is anticipated at about 12 million lbs. annually during Ruby Creek’s “payback” phase.

Internal rate of return (IRR) scenarios project a 24.4% IRR in a base case, with a net present value (NPV) of $222 million and a 3.1-year payback period. Sensitivity to the metal price is demonstrated with a 10.5% IRR when the molybdenum price drops by 10%, delivering a $19.7-million NPV and payback over 4.4 years.

Power needs for the operation will initially be met with on-site diesel generators, but the company expects to be able to tap into the Yukon electrical grid by about 2012.

In late 2006, a number of drill holes collared in the planned phase 1 pit area encountered higher-grade molybdenum zones. Adanac launched the drill program for metallurgical testing and to increase definition plus understanding of controls on grade distribution, especially that which is likely to be encountered in initial mining.

With 63.5 million shares outstanding, Adanac posts a $73-million market capitalization based on its share price of $1.15 apiece. The stock has a 52-week range of 55-$2.90.

Two other molybdenum projects are also advancing towards production in B.C. Roca Mines (ROK-V, ROCAF-O) is in the final construction and development stage on its Max molybdenum project near Revelstoke. Underground operations are expected to begin over the next couple of months and will focus on a high-grade zone of 280,000 measured and indicated tonnes averaging 1.95% MoS2.

Blue Pearl Mining’s (BLE-T, BLEFF-O) Davidson project near Smithers is in the feasibility and permitting phase. The project contains a measured and indicated resource of 83 million tonnes grading 0.295% MoS2. The company plans to mine high-grade portions of the deposit by underground means and ship ore for processing at its recently acquired (75% interest) Endako open-pit molybdenum mine.

Molybdenum’s price strength is attributed to ongoing supply shortages coupled with strong Asian demand. Chinese output is now largely consumed domestically with the metal primarily used in the steel industry as a hardening alloy.