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General Moly Inc (NYSEMKT:GMO)

Wall Street Analyst Forum

March 27, 2008 1:20 pm ET

Executives

Bruce Hansen - CEO

Gerry Scott - President of the Wall Street Analyst Forum

Gerry Scott

Okay, good afternoon ladies and gentlemen, I'm going to attempt to adhere to the public schedule of publicly listed scheduled companies whenever I’d like to introduce the next company.

In the age of webcasting, we're constricted to not to want start late but we're also constricted to not start early because the vast majority of attendees attend through one of the three -- we don't just do one, we do three and you can't necessary tell per se, we have three new media channels in which investors attend without physically being here, webcasting is only one. So they can either, listen and view the webcast which is live and retrievable with both, the audio and the PowerPoint, nothing special there per se.

And the second is, the webcaster does a three-minute video of the meeting and they have that on AOL Finance, MSN Money, Investopedia, Wall Street Media, and I think it will be with one of the two large web search engines finance sites, neither of which I will name here, in the next few couple of months.

And then the third thing that happens is a firm in Israel listens to the webcast using the transcription software and they take the transcript of the presentation and Q&A session and it's web searchable on Yahoo! Finance six hours after it happens. So you can go to Yahoo! Finance and by Ticker or Symbol look up any Company in the conference, you'll see the transcript word for word, including the Q&A Session between the companies and the Analysts, that's why we ask the CEOs, in part, to repeat the question so, when the answer is given, both the webcast attendees and those accessing the transcript from anywhere in the world maybe a month from now via Yahoo! Finance, get the whole story, anyhow. So our virtual attendees probably number 95, 97 maybe 98% of our actual overall attendance comes through those channels, it's interesting.

Having said that, back to the world of Moly, it's been a big Moly day, this is the third company that either focuses on Moly or has Moly part of the mix. General Moly, Inc. on the American Stock Exchange, also listed on the Toronto Stock Exchange is a US based molybdenum mineral development exploration and mining company listed on the American Stock Exchange, Toronto Stock Exchange under the symbol of GMO. Their primary asset, their interest in the Mount Hope project located in Central Nevada, is considered one of the world's largest and highest grade molybdenum deposits combined with their second molybdenum project for the Hall-Tonopah, sounds Indian, project which is also located in Central Nevada. Their goal is to bring Mount Hope into production by late 2010 and to become the largest primary molybdenum producer by the middle of the next decade.

So without any further introduction, I would like to introduce Bruce Hansen, Chief Executive Officer. He is accompanied today by David Chaput, Chief Financial Officer and Seth Foreman, Director of Investor Relations.

Bruce Hansen

Great. It's truly a pleasure to be here, to talk to you about General Moly. Let me move forward, there is our forward-looking disclosure statement you can read that at your leisure on our website.

I joined this company a little more than a year ago. We were formally known as Idaho General Mines, we've changed the name of the company, we've relocated the company and quite frankly, we've had a tremendous year over the last year of 2007 and the beginning of 2008 and I feel that we are really the right moly players. We're here at the right time. We have a very ongoing strong market supply and demand fundamental story in regard to molybdenum. We have the right assets. We have two of the largest pure-play moly projects in the world, both of them located in the mining friendly state of Nevada. I believe that we're building the right team.

Before I joined this company, I was formally with Newmont Mining, where I was the Chief Financial Officer at Newmont for five years. Dave Chaput joined us in April of 2007, formerly the CFO of Doe Run Company. We've added people from [Phillip Scotch], from Queenstake, other people from Newmont and really building a high quality team. We believe we have the right partners. We have been sponsored and endorsed by two out of the three world's largest steel producers; ArcelorMittal owns 10% of the company on a fully diluted basis, and we have a joint venture with POSCO, the Korean steel company at Mount Hope Project. Arcelor is also -- we also have an off-take arrangement with Arcelor for production out of the Mount Hope project. We believe we're of the right stock. We're one of the few handfuls of truly viable pure publicly traded molybdenum companies out there. We believe we have the right capital structure and right value proposition.

The Mount Hope asset has an NPV of $1.4 billion. We have roughly $83 million shares out there on a fully diluted basis. We're listed on the American Stock Exchange, the Toronto Stock Exchange and included in a number of small cap indices.

Talking about the assets; again, we believe we have two large high grades, world-class moly deposits. But first, our real flagship is the Mount Hope project where we own 80%. The $1.4 billion NPV was generated in August of last year when we published our bankable feasibility study, calculated at 8% after tax. Internal rate of return on the project is approximately 37%. To our account, the reserve base is 1.1 billion pounds, contained in proven and probable, SEC reportable reserves. We are not just the one-trip pony, we have the second asset as well, Hall-Tonopah was previously mined by Anaconda and Cyprus, has a resource base of approximately 600 million pounds. Collectively we have the largest resource base of again any publicly traded Moly company out there.

As I mentioned before, we have these sponsorship and endorsement from two out of the three world’s largest steel companies. In November, we announced a $70 million private placement with ArcelorMittal; again they own 10% of the fully diluted stock of the company. We also have an off-take arrangement that provides them 6.5 pounds per year with a hard floor price that gives us the hedging capability to ultimately access the debt markets.

In December, we announced a joint venture with POSCO where they were acquiring 20% of the Mount Hope project for stage payments of a $170 million. That deal was fully documented and closed in February. We are right in the middle of considering other off-take arrangements; again from a standpoint of supporting the ultimate debt package and we would hope to conclude other off-take arrangements in that kind of range of 3 million to 4 million pounds per year in addition to the deal with ArcelorMittal.

We believe that we're a tremendous value player in all this way; it is also our growth story. We're covered by five analyst all of them Canadian at this point in time and the average target price on the stock is about $13.21 or about 68% higher than we are currently trading right now.

Our ultimate goal is to be the world largest pure play primary moly producer by the middle of the next decade. With Mount Hope ramping up to about 30 million pounds per year to our account and then ultimately Hall-Tonopah on top of that with 15 million pounds to 20 million pounds in addition to be at roughly a 50 million producer by the middle of the next decade.

A little bit more about structure again; Mount Hope we own 80%, and POSCO owns 20%. POSCO is contributing a $170 million essentially to the buy end to the joint venture. They'll contribute also 20% of the CapEx to develop the project and 20% of the operating expenditures as well and take 20% of the production for approximately 7.7 million pounds per year in time.

In the corporate level again, we have the off-take arrangement Arcelor at 6.5 million pound with a hard floor significantly higher than our operating cost and we're looking add other floor agreements, other hedge type off-take agreement for somewhere around 3 million pounds to 4 million pounds per year. The remaining 21 million pounds to our account will be sold roughly at the spot market. And again, we own a 100% of the Hall-Tonopah project, the second asset in the portfolio.

Talking about Mount Hope, this is an excellent deposit with superior logistics. It's located again in North Central Nevada right in the heart of the Nevada mine country. We completed the Bankable Feasibility Study in August of 2007 on a 100% basis, it is one of the world's largest undeveloped moly asset with proven and probable reserves of 1.3 billion pounds. The Bankable Feasibility Study and I'll show you the numbers from the feasibility study, generated very robust economics and extremely high margins. It's very long-lived asset, a 44 year life, 32 years of primary mining, 12 years of reclaiming lower grade stockpiles.

We are already moving down the road in terms of the development of this project, we put in long lead-time equipment orders, as we need it to meet our production schedule. We've ordered the crusher, a SAG mill, two ball mills, a SAG mill drive, the ball mill drive and recently ordered two larger 43 cubic yard electric shovels.

Permitting is moving along, it started September of 2006; we are in the process of finalizing the reports to the BL M that go ultimately into the draft EIS and we expect to have the full permits in the middle of 2007. We are looking at roughly an 18 month construction window and being in production at the later part of 2010.

The key driver in regard to Mount Hope when you kind of compare and contrast it versus other development projects out there, is really the high-grade core of the Mount Hope deposit and where it's located, which is higher up in the strata. Therefore, allowing us produce higher grades earlier in the mine sequence. The mine will be producing grades of about 0.1% moly or 2 pound of moly per short ton on average in the first five years. That drives the production profile, for we're going to producing 38 million pounds per year in the first five years. It also influences the cost profile as well. The direct operating cost before royalties were about $4.42 a pound, we have royalties on top of that with our price tag that we use in the bankable feasibility study that adds about $1.15 a pound. So a total cash cost of slightly less than $5.6 a pound. And you need to keep in mind that currently Moly is creating approximately $34 a pound, so there is a lot of margin there.

When we roll that into the economics and again the bankable feasibility study was done is August last year, so it's relatively fresh. You generate a net present value on a 100% basis of approximately $1.75 billion or approximately $1.4 billion to our account post the POSCO transaction. I think we've used relatively conservative price forecast and coming up with this valuation, we use the CPM Group out of New York here to do a supply demand outlook and the price tag that's been used is shown here on the slide, $13 a pound to $28 a pound in 2010, ultimately going down to about $13.5 a pound on a real dollar basis and that's reflecting the potential impact of additional supply coming in the market.

We'll talk a little bit later about why that may not be fully representative, because there may not be as much supply coming on for the market as they projected. And the demand growth rate for consumption may also be higher than what they projected. If you look at the sensitivities on just the flat Moly price basis and you consider today that we're trading again at about $34 a pound, you're looking at an asset here on a 100% basis that has an NPV in excess of $5 billion.

Talk a little bit about our share price and how it has evolved. When I came on, beginning of last year or shortly thereafter, the share price was at a 52 week low of $2.58. Current share price is around $8 a share, but I'd like to point out that two very sophisticated players here that both did due diligence essentially paid in excess of the current share price. The Arcelor deal private placement was done in November at $8.50 a share. If you take the $170 million of POSCO pay for the 20% of Mount Hope, we gross that up to a 100%.

You add the cash that we have on the balance sheet plus the cash that we'll bring in from warrant, it is roughly a $1 billion and translates to, in excess of $12 a share. Our 52 week high hit $12.58 a share. The five analysts that are covering us are targeting our share price at $13.21, and if you look at the NPV per fully diluted share of just the Mount Hope project, again I think using conservative Moly prices, you come up to almost $19 share and that includes nothing for the value of the whole tone of our asset. So I think clearly both, relatively and fundamentally, we provide an excellent value opportunity.

In terms of financing, everybody is concerned about the overarching credit markets and the ability to finance. I think quite frankly we've got ahead of the curve and really base loaded the equity portion of the balance sheet with the deals that we've done with the steel companies. We essentially have equity in hand or will have in hand over time, approximately $270 million. We look at the anticipated financing need, our hard CapEx here is approximately $852 million, probably working over with working capital bonding requirements, we're probably in that $900 to a $1 billion range. POSCO is going to pay 20% of that, so we're looking at somewhere around $720 to $800 million, it's ultimately raised.

Again we have $270 million in hand; the remainder will be predominantly focused on accessing these debt markets. We're right in the process of having preliminary discussions with the number of financial institution and getting very good feedback in terms of being able to access predominantly the project, commercial bank project finance market.

We are in a much better position than our competitors out there. We have raised again $270 million and we secured approximately 36% of the required CapEx. Our competitors Moly Mines out of Australia and Madnick out of Canada have secured approximately 10% to 3% respectively. We need to raise approximately 75% of our fully diluted market cap. Our competitors need to raise somewhere around 4.6 to 8.3 times their fully diluted market cap. We have time on our side. We don’t need to have this structured until sometime in the second quarter of next year. Both of these other competitors have already announced that their projects are delayed pending financing. This also has an impact again on the supply end of the market.

So, if we are able to execute and deliver, some of these other guys are not able to execute and deliver, obviously it's going to be positive for the overall market, the Moly market.

Again we are not just a one-trip pony, we have another, second high quality asset, this asset has been previously mined by Anaconda in the early 80s and then was sold to Cyprus Minerals, it was mined by Cyprus from 1988 to 1991. We’ve been adding to the geological database. We’ve drilled approximately 30 to 40 holes into the deposit, to confirm, plan, expand the mineralization. We’ve been able to grow the contained Moly in this deposit from approximately 300 million pounds to double that at approximately 600 million pounds, and that’s where it currently stands. We are right in the process of completing a pre-feasibility study. That will come out at the end of April, and again the Street really has not focused on this asset and has not really attributed any significant value to Hall-Tonopah, frankly because we haven’t given them any numbers.

It's located on private land, there is probably about $50 million worth of replacement value pre-existing infrastructure on site. It gets us a start on the CapEx at the asset as well, and we control it a 100%. Some of the drilling that’s been done there shows very long continuous intercepts high grade moly greater 1%. And actually down below the Cypress, Anaconda pit, you see an intercept there at 365 feet of 0.23%. Quite frankly down the road back to be underground minable type ridge.

What do we look at in terms of cost trends in the industry and vis-à-vis some of our competitors and what is that really telling us? I think first of all, we are seeing the cost for the 90% pile of production in the Moly space rise from where it was around $4 a pound in 2000 to where it is projected to be approximately $11 a pound in 2011. Again, this comes from the CPM Group. This is effective, obviously an escalation, but it is also the effect of primary production having to come into the market because by-products production cannot meet demand.

And I think what that tells you is over the long-term; I think the floor on the prices is going to be set by the marginal cost of primary production. That cost has gone up, which gives us a lot of comfort as a relatively low cost producer. Again our cash cost will be about $5.60 a pound in the first five years, our CapEx will be about $2.36 a pound. So, we're looking at total cost or the amount of Moly price to get our money back at about $8 a pound.

What does it take to induce additional production into the market? Well, moly mines acquires a price in excess of $11 a pound to come into production and Adanac, the Canadian deposit requires prices in excess of $14 a pound, So it tells you, kind of where we stand among the development companies, but it also tells you something about the cost structure in the industry and the impact it will have ultimately on the moly price at least the floor on the moly price.

In terms of the competitors out there, we also believe that on more of a qualitative basis, we bring a lot to the table compared to our competitors. We have better grades of product, where we have a US dollar cost structure. We don’t have the exposure to foreign exchange that some of the other players out there have. We are the only ones that given our economy of scale and our size, is going to be building a fully integrated plant with a roaster. So we will not be holding to the contract roasting, toll roasting market.

We have a very low effective tax rate here in the US because molybdenum qualifies for a 22% depletion allowance our effective tax rate will be in the 20% to 25% range lower than the effective tax rates in either Australia or in Canada. We have great logistics. We have easy access to power. We are going to access power 22 mile south of the property at Mount Hope, very easy access to trucking and rail. We are on a two-lane highway, highway 278 in Nevada that runs approximately 16 miles north to Carlin, where it connects into the interstate 80 and the Union Pacific main line. We don’t have fly-in fly-out camp type condition and varied temperate weather conditions as well.

From a capital structure standpoint, we have an undiluted market cap of somewhere right now of about $550 million, fully diluted market cap in access of $650 million. We have available cash on our balance sheet at the end of the year prior to the per contribution from POSCO, our $78 million will have another $170 million coming from POSCO. Fully diluted shares again are approximately $83 million and we'll generate cash on exercise of warrants of approximately $68 million overtime.

Had a very good run, obviously we've been pulled down over the last couple of months as we've seen some sector rotation out of commodities. We've seen some risk aversion movement from development projects properties into more major mining company. And so we think that again we offer very compelling valuation here today.

I'll spend a little bit of time talking about the Moly market for those that are not as first. Moly we believe is really a modern metal used for sophisticated applications; about 70% to 80% of all Moly is used in the outlining of steels or other metals. It enhances metal strength and increases corrosion resistance and it reduces thermal creep or expansion-contraction in adverse temperature environments. I think the other thing that's very much a demand driver right now is approximately 40% of all Moly is what I would call energy related.

About 10% of the market in aggregate is used as a catalyst to take sulfur out of liquid fuels, about 15% to 20% of Moly goes into oil and gas pipeline steel, the remainder goes in to drill steel, nuclear power plants, chemical petroleum, refining facilities, all energy related. So the energy complex is a real driver in terms of Moly demand. And quite frankly over the long-term, the best kind of price correlation from Moly is really looking at Moly versus oil price. We see ongoing very robust demand growth, really driven by steel over the last four years. On average demand growth for Moly has been in excess of 7% and some estimates out there are range between 6.5% and 8% going forward.

Continue to see supply deficits, here in the short-term until new significant supply comes on board and we've seen since 2001 above ground stocks or inventories drop from approximately 6 months to approximately one month above ground stocks which has really had an impact on driving price, which I think is going to remain robust going forward. Little bit about the history of Moly prices, in the 80s, in the early 90s, really going up until about 2002, 2003; Moly was dominated by byproduct production. All the copper mines, primarily in South America were Moly producers and built these kind of inventories that even before 2001 it had gotten up to about 8 or 9 months of inventory.

And, the copper market was supplying the world's molybdenum need. With the ramp-up and drive and steel demand from the emerging market countries like China and India, we saw a significant increase in demand and quite frankly, it's outstripped what byproduct production can bring to bare. Ultimately, spike up to in excess of $40 a pound, a number of copper producers. We design their mind plans to target higher grade moly zones. They were able to do that for a little while turn, drove the price back to $20 a pound and we've kind of climb back there up to where we are somewhere around $35 a pound.

This is the CPM Groups kind of supply and demand forecast. Two key elements, what do you believe in terms of demand growth rate? I think they've used the relatively conservative demand growth rate in their forecast of about 5.1% compounded annually. We've added a line here at 6.5% and what do you believe about new supply entry into the market. This includes the climax, re-started include, us and includes Moly mines, those all that as sequence. I think that the numbers that we're using includes Moly Mines. Does all that supply come into the market as sequence? I think that the numbers that we're using in terms of supply and demand from CPM are relatively conservative and therefore driving a relatively conservative price tag but we're still have very robust economics using that price tag.

So again, I think we're the right Moly player. We believe we are here at the right time. We have the right assets. We're building the right team. We've joined up with the right partners or the right stocks and we're building the right capital structure.

So with that, I appreciate your attention and may I address any questions that you may have.

Questions-and-Answer Session

Bruce Hansen

Yes, Patrick.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

That’s the one that used 5.1% growth rate, and what you see there is, you see us going from a growing supply deficit into a surplus and some inventory build going forward.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

Yeah, it is a supply deficit on a cumulative basis, okay.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

Yeah. So, when you see that negative number going lower that means you are building some inventory.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

The question is, on the deal with the Arcelor, both the deals with Arcelor and POSCO; have they guaranteed to take a certain amount of production?

In essence yes. But there is two different structures. First of all POSCO is a straight normal joint venture arrangement. So, they have contributed $170 million to buy into the project and then they will pay their share of 20% of the capital cost and their 20% share of the operating cost and take their 20% of the production in kind, which over the first five year averages about 7.7 million pounds. They came to us and they were looking for long-term secure supply. And they did an evaluation of all the other moly assets in the world and we ultimately did a deal with them.

In terms of Arcelor, it's a different transaction. They bought stock in the company. They own 10% of the fully diluted shares, and with that we did an off-take arrangement with them, which once we start production we will be selling them 6.5 million pounds per year plus or minus 10%. And the structure of the deal is, it has a hard floor that’s we told people, we cant tell you exactly what it is because it’s a competitive environment, we're trying to other deals, but it's in the $10 to $15 a pound range, which I think is significantly above our $5.60 operating cost. And we give them discounts at higher prices above that for. For example, if we had $20 stock price, they would pay somewhere between $18.50 to $19 a pound. So, they get some offset at higher prices.

So, different structure, but yes they are both looking for supply and we're currently working on, we're talking to a number of potential additional customers and we're a confident of sourcing another 3 million to 4 million pounds per year of off-take arrangements with similar type of structure probably not as attractive to the buyer as the Arcelor deal because Arcelor was the first mover. They were very supportive early on, but we think we can put in another 3 million to 4 million pounds What that does is that, really helps base load our capacity to access the debt market because it gives the venders, who are taking lot of the downside price risk out of the equation.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

Yeah, I kind of skipped over -- well the question was you have very large high-grade deposits, why hasn't it been developed so far? A little bit of the history here. The family that has the underlying claim block has owned that or staked those claims going back to 1968, a combinational patented claims and unpatented claims. There is this Cornish corn type zinc of deposit kind off to the side and they were focused on the zinc initially.

And then in the mid 70s they did a lease and did a deal with Exxon Minerals and Exxon drilled from the late 70s into the early 80s about 230,000 feet of core drilling into the deposit, in the dollars of day they spent probably in excess of $30 million in terms of the drilling program, the environmental studies, the meteorological test work, but in the late 70s, early 80s there was run-up the moly price coinciding with one of the oil prices and then it just came straight back down and Exxon essentially dropped the project. They got out of the minerals business. They dropped the project that is out there.

Various companies have combined an option that Cannacord had an option for a while. Thompson Creek had an option for while. Moly price stays relative depressed. This company acquired and did a lease, an option t lease least in 2004 converted into full lease in 2005, right when the price was starting to take off, so timing is everything and we're very thankful that we're able to put that deal together. Yes, Larry.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

Right

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

Well I think I mean the question is should we look at potential trading companies, other people that could add more value in regard to supporting the equity portion that again supports the debt component.

Right now we have discussions with both primary steel producers along with trading companies as well and those discussions take various forms. What we're seeing with the steel companies is they want a secure stable supply and need a certain amount, what we're seeing with the trading companies is they are willing to offer us some component of like floor price protected deal, but they also want access to the market for significantly higher volumes, with some kind of agency fee or discount associated with it. So we are going to work all those angles in terms of providing the best value to the shareholders and the best comfort that we can provide to the debt providers. Yes.

Unidentified Audience Member

(Question Inaudible)

Bruce Hansen

Yes, there is a royalty obligation associated with Mount Hope. It is 4.5% below $12 per pound. It is 5.5% between 12 and 15 and 6% in SR above $15 Moly and it is broken in -- 1 percentage point of that royalty is an overwrite that Exxon got when they dropped out of the property, the rest goes through the underlying land holders, a family that is based in near Los Angeles. And the Hall-Tonopah has no royalty. It is entirely on private land. We own both the underlying claims and the historic royalty on the property. We bought the royalty out there.

Okay well thank you very much. It has been a pleasure and we will move on to the break out session.

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