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New Molybdenum Mine Hopes to Open in 2009
by Peter Meisen02-08-2007 |
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Article:
The high price of molybdenum may finally take the Ruby Creek molybdenum
deposit the final steps on its way to becoming a mine. By then, it will have
been about 40 years since it was first discovered, and another 30 years since it
was nearly ready to become a mine.
But, it may be more than the high price of molybdenum which could officially
make Ruby Creek one of Canada's newest molybdenum mines. Perseverance by Larry
Reaugh, executive chairman of the Adanac Molybdenum Corporation (PINKS: AUAYF;
TSX: AUA.V), who with a bit of luck and 44 years in the mining experience - not
to mention of few mines he's brought home, all add up to what it takes, these
days, in pushing a project through to completion.
We talked to Larry Reaugh over three telephone interviews to find out how he
got this far and what steps he needs to take to bring the Yukon's Ruby Creek to
her final destination: a moly mine producing some 14 million pounds of
molybdenum every year.
Project Summary
The Ruby Creek Molybdenum Deposit is a low-grade bulk type of molybdenum
deposit located, at the headwaters of Ruby Creek in the floor of an alpine
cirque. It is located about 22 kilometers northeast of Atlin, British Columbia;
124 kilometers southeast of Whitehorse, Yukon Territory in the extreme north
western corner of British, Columbia, Canada.
StockInterview: What's the background on the Ruby Creek property?
Larry Reaugh: Kerr Addison, a subsidiary of the Noranda Corporation, took the
property on so they could earn a 60-percent interest for bringing it into
production. They had to contend with the 3.5-percent NSR, but they were also
trying to do this when molybdenum was selling at $1.80/pound. Eventually, they
dropped the property. Placer had a base metals business as well as gold mining.
They took this to a stage two feasibility whereby they were in the permit stage.
Molybdenum slipped back to $6/pound. Placer put it on the shelf and eventually
went out of the base metals business. We restaked the property and expanded the
ground.
StockInterview: Is it realistic that you can raise C$450 million and bring
the Ruby Creek molybdenum project into production?
Larry Reaugh: The bankable feasibility is saying it should go into
production. The payback would be three years, based upon a sliding scale of
molybdenum from US$22 dropping to $15 over the first five years. We feel that's
conservative. We have a much stronger outlook on molybdenum, and this outlook
has been really reinforced in recent years. A 20-percent increase in reserves
and grades would reflect in the payoff period, bringing it down to twenty
months.
StockInterview: Let's set the record straight now. How big is the Ruby Creek
deposit, how much is it worth and does your deposit pass muster with the U.S.
Securities and Exchange (SEC) definition of reserves?
Larry Reaugh: The bankable feasibility gives us reserves. It is a reserve.
It's passed muster. I can actually tell you it's worth US$4.2 billion and, with
a possible 20-percent increase in grade, it could be worth over US$5 billion.
With this increase in grade, costs could drop to US$4.70/pound. There are 167
million pounds, of which at least 100 million more are under measured and
indicated.
StockInterview: Tell us about your recent drilling and why you are excited
about this.
Larry Reaugh: Recent drilling is telling us there actually another deposit
west. First off, we needed the sample to get a molybdenum concentrate to go to
other companies that are off-taking our material. They have to know the specs,
and we had to produce a concentrate. We had to drill for it, send down a ton of
core and run it through the laboratory, G&T Metallurgical Services (Kamloops,
British Columbia). We got a 92.5 percent recovery doing that, which is 3.5
percent greater than the bankable feasibility at 89 percent. This is a huge plus
for us - greater recovery and a coarser grind.
StockInterview: What else did you discover during the angle drilling?
Larry Reaugh: Going at an angle into the ground, drilling is not only cutting
the flat line veins, it's cutting the vertical. What we found now was that we
got stock works - something like a spider web. It gives you greater continuity
in the project. The greater the continuity, the greater the confidence in your
ore body. Out of the 283 holes drilled in this project, 270 of them have been
vertical. We weren't getting a good picture of what the vertical veins looked
like. From these 13 angle holes that we drilled, the results were a staggering
75 percent higher at 0.139 percent. Previously, we got 0.079 percent from the
high grade pit area. We are looking somewhere between ten and twenty percent
increase in the total reserve volume. It would mean the cost per pound of moly
(being mined) dropping from $5.87 to $4.60/pound.
StockInterview: But critics point to your lack of infrastructure,
specifically the lack of power lines. Will you be using diesel?
Larry Reaugh: It is expensive and probably adds somewhere close to $1.50 to
$2/pound to our cost. That hurts, but in order to make this project happen.
There's actually power within 90 kilometers of this property, We discussed
bringing it down, but power companies in Canada and especially in the Yukon have
been bit before. They bring in power lines, and then the project doesn't go
ahead. The territory is stuck with the cost. So, they want to see concrete in
the ground. They want to see you turning the mill over. And then, they would
seriously consider bringing the power down. We will be running with diesel for
three or four years. Hopefully, we will be able to get the power lines permitted
and have the provinces in the territory bring it down to the site. There is
actually a hydroelectric dam, within a few kilometers from our site, the native
group is putting in. That would allow them to expand from two megawatts to ten.
They could tie it into a grid and sell it to us.
StockInterview: What is the status of your permit?
Larry Reaugh: We are about 60 percent of the way through our permits. We are
still shooting for the end of this quarter to have them. We want to be in
construction in June of this year. We put together the operating team. There
will be more announcements on who we've hired: well-known mining specialists in
the industry, operators, builders and so on. We are preparing this company to
hit the ground running this summer. During the peak of construction, we'll have
up to 1000 people working for us. We will have to pull from all over the
province.
StockInterview: You have this much confidence in this project?
Larry Reaugh: This is a project that's never been glamorous. It's a work
horse that you can use to build a company, or it can be the start of a company
builder. I think the cash flow will always be predictable. You would be able to
predict recoveries, to predict your grade. It's not erratic to put it simply. It
will employ about 225 people full time. It's a project that's needed in an area
in which the population is dwindling.
StockInterview: Run us step by step through the construction process. What
are you first constructing?
Larry Reaugh: The concentrator itself - that's the major thing - get the
foundations for the concentrator. We'd start pre-stripping although that
wouldn't be something that has to be done immediately. Clearing the site,
building out the site, drilling and blasting the foundations and then setting up
the cladding of the building so that we can work on this year around. Of course,
setting up camp, moving into the camp, setting up the sewer and water systems
and all those little things that you never think about that costs a lot of money
and have to be done.
StockInterview: When do you actually getting around t o building out the
mining operation?
Larry Reaugh: Well, we construct all winter. Then we would begin the
build-out on the tailings pond, and we would start pre-stripping. We've got
about 10 million tons to pre-strip. By the way, on our five-year plan, once
that's done, there would be no strip ratio. There would just be ore to haul so
our costs would be down considerably on that. The pre-strip would cost $15 to
$18 million. All of this comes with a 20,000-ton concentrator.
StockInterview: When will Ruby Creek commence production?
Larry Reaugh: We will be in production with the commissioning, which is sort
of production. It will be low grade material at that time in order to get your
recoveries up, your grind rate and everything like that. There are always a few
things that have to be worked out that you don't want to do with the better
grade material. We'd be in full production in the beginning of the first quarter
2009, probably commissioning through the last quarter of 2008.
StockInterview: Won't you need more than one company involved in writing
Adanac a check for C$450 million?
Larry Reaugh: We are talking to refineries and steel companies. I am sure
there is going to be sort of mix of some steel companies that will be involved
in the strategic partnership on this. It will be two or more because their needs
are individual. They don't need a full-fledged operation. Some also have
long-term contracts.
Second Opinions
We solicited comments from two industry experts about the Adanac Molybdenum
Corporation: Otto Spork and David Michaud. One of Canada's top investment funds
in 2006, Otto Spork's Strategic Opportunities Hedge Fund was an earlier investor
in Adanac. David Michaud is our consulting metallurgical engineer. He neither
holds an equity position in Adanac nor was he paid to render his technical
opinion on the metallurgy of this deposit.
According to metallurgist, David Michaud, "Adanac Molybdenum Corp has a rare
case of Text Book Molybdenum Metallurgy 101. It has a super coarse Endako
Mines-like primary grind, flash rougher flotation and relatively strong regrind
requirements. This makes for a nice clean Moly concentrate. An asset like this,
once licensed in Canada, could attract attention from several mid-tier mining
companies looking for metal reserves in politically safe countries."
In a brief telephone interview with Sextant Capital Management's Otto Spork,
he said, "We are still very bullish on moly because demand is far exceeding
supply and industry is finding more uses for the metal. We believe the price is
going to slowly creep up. We like and are very bullish about Adanac. Larry
Reaugh is very astute and has put properties into production. He's been in
mining for nearly 40 years. We consider Adanac very undervalued. It has recently
gone off the radar screen because of Blue Pearl Mining. Adanac's properties can
be very profitable and are well on their way to getting permits to go into
production."
COPYRIGHT © 2007 by StockInterview.com, Inc. ALL RIGHTS RESERVED
James Finch contributes to StockInterview.com and other publications. His
primary focus on the uranium mining and nuclear fuel sector resulted in the
widely popular "Investing in the Great Uranium Bull Market," which is now
available on
http://www.stockinterview.com and on
http://www.amazon.com
Contact Person:
James Finch
Company: StockInterview.com
Email: jfinch@stockinterview.com
URL:http://www.stockinterview.com
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