Lower metal prices force Moly Mines to halt project development

Lower prices and a higher Australian dollar have combined to force Moly Mines (MOL-T) to put its Spinifex Ridge molybdenum-copper project on hold.

The company had signed a financing deal with the China Development Bank (CDB) for US$494 million back in June of this year. The money was to be used to put the project into development but the company had withheld on a construction decision as it waited for underlying economic factors, such as moly prices and exchange rates, to turn its favor.

Molybdenum oxide was trading for US$13.61 per lb. on Dec. 23. It had been trading in the US$17.00 range for much of the earlier part of the year, but never approached its pre-2008 levels, when it was trading for over US$30 per lb.

As for the Australian dollar, the currency surged from the 85¢ per US dollar range in May of 2010, all the way to above $1.05 per US dollar in the summer of this year. Currently, one US dollar buys 99¢ worth of Australian currency.

On a more positive note, Moly Mines announced that it signed an agreement with the China Development Bank (CDB) that should ensure that it continues to have access to capital – albeit at a reduced sum – despite Spinifex being put on hold. The deal was signed with the aim of re-structuring loans it has with the Chinese bank so that it can finance new mining projects.

“The strategic alliance further cements the excellent rapport we have built with CDB and supports a platform for future growth of the company,” Moly Mines chief executive Derek Fisher said in a statement.

The new deal will see China Development Bank provide financial support for projects other than Spinifex Ridge under similar terms to an existing US$454-million loan.

The catch is that CDB wants Moly Mines drawdown US$210 million and company repay the amount within one week. The net result is that Moly Mines will have only US$244 million in funding available to it, but it also means it is able to retain the favorable terms of the earlier agreement connected with the Spinifex financing.

Moly Mines still has the Spinifex Ridge Iron ore mine in production in Western Australia. The mine has indicated resource of 6.1 million tonnes grading 58.9% iron and inferred resources of 1.16 million tonnes grading 57.2% iron.

The Spinifex Ridge Molybdenum and Copper project measured and indicated resources of 652 million tonnes grading 0.05% molybdenum and 0.08% copper. The company had originally planed to build a 20 million tone per year open pit mine, but after the fall in molybdenum prices in late 2008, it scaled back its plans to a 10 million tonne per year mine.

In Toronto on Dec. 28 the company’s shares were off 4% or 1.5¢ to 32¢ pm 556,000 shares traded.