Seeking Alpha
Long only, value
Profile| Send Message|
( followers)  

The U.S. Forest Service has determined in a letter that the Mt. Emmons Molybdenum Mine Plan of Operations is sufficient to enter the NEPA Process. The Mt. Emmons Molybdenum Mine is 100% owned by U.S. Energy (NASDAQ:USEG). The letter also states, "U.S. Energy has met the requirements of the Reality Check provision granting conditional water rights for the Mt. Emmons Molybdenum Project by filing the Plan for the Mt. Emmons Mine with the Forest Service. No other special use permits or rights-of-way for the water facilities are required because they are addressed in the Plan." Obtaining water rights is a major milestone in the permitting process for the Mt. Emmons Mine. The U.S. Forest Service will be in charge of the NEPA Process, which is part of the National Environmental Protection Act.

Molybdenum requires the fifth-highest temperature of all known elements to reach a melting point. Molybdenum is a key ingredient in high-grade steel. It helps steel maintain its integrity in very high or very low temperatures. It strengthens steel and reduces brittleness and stress cracking. It acts as an anti-corrosive in steel and it improves weldability. Steel made with molybdenum is a key part of the modern industrial economy and is used in jet engines and deep water oil and gas wells. Recently molybdenum has been trading for $11 per pound.

The Mount Emmons deposit is believed to be one of the highest grade primary molybdenum deposits in the world. It contains an estimated 800 million pounds of molybdenum. The molybdenum has an overall concentration per ton greater than .2%. As a point of comparison, the Mt. Hope Molybdenum Mine under construction by General Moly (NYSEMKT:GMO) has an overall concentration of molybdenum of less than .1% per ton. This means the Mt. Emmons mine is much more profitable per ton of rocks processed by the mine, because on average each ton contains more than double the amount of molybdenum.

While Mt. Emmons is carried on U.S. Energy's balance sheet for only $20 million, over $180 million has been spent on the Mt Emmons mine for prospecting, permitting, roads, tunnels, power, conditional water rights, and a water treatment plant. Now that the Forest Service has given Mt. Emmons the go ahead to enter the NEPA Process, U.S. Energy plans to market Mt. Emmons to either a joint-venture partner or an outright buyer. Thompson Creek (NYSE:TC) had been a previous joint-venture partner in Mt. Emmons, but had to pull out of the project due to capital constraints. Freeport McMoran Copper and Gold (NYSE:FCX) operates the Mt. Henderson Molybdenum Mine in Colorado, and could have a potential interest in the Mt. Emmons Molybdenum Mine now that the Forest Service has agreed to start the NEPA Process.

A previous article, General Moly: A Valuation Of Mt. Hope, compared the valuation of Mt. Hope and Mt. Emmons. General Moly's main asset is its 80% owned fully permitted Mt. Hope Molybdenum Mine that is starting the construction phase. Even though mining stocks are out of favor, General Moly still has a market cap of $165 million primarily reflecting the value of Mt. Hope.

U.S. Energy has transitioned into an oil and gas exploration company and the Mt. Emmons mine is a legacy asset. U.S. Energy has $10 million drawn on its line of credit backed by its oil and gas assets. However, U.S. Energy has not pledged its mine as collateral and if it entered into a joint-venture with an experienced mining operator it would be in a position to leverage Mt. Emmons as collateral to pay for its part or all of its share of the construction costs. In an ideal scenario, U.S. Energy would receive an outright offer to buy the mine representing a significant windfall for investors. The NEPA Process usually takes two years. Assuming a successful conclusion of the NEPA Process and final and full permitting of the mine, then U.S. Energy investors should eventually see a similar valuation for its Mt. Emmons Mine as that given to General Moly's Mt. Hope Mine.

Source: U.S. Forest Service Bumps Up The Value Of The Mt. Emmons Molybdenum Mine