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RI: Dr. Derek Fisher is the CEO and Managing Director of Moly Mines. Derek, we’re Live at the PDAC, what are you telling investors about your Spinifex Ridge project?
DF: We have an iron ore deposit on our molybdenum mining lease at Spinifex Ridge in Australia. We discovered this in mid-2008. In April of last year we made the decision to bring it into production and since then we’ve not only built the mine but we have actually shipped two shipments of iron ore to China and we are about to ship our third. It is a very profitable operation—small, but highly profitable.
In terms of the financing of the molybdenum project, we’ve been working with a Chinese group called Hanlong who are our major shareholders and own 56 percent of Moly Mines. Part of the deal that we did with Hanlong when they invested was that they had to organize up to $500 million in debt financing to build the molybdenum project.
We are building the molybdenum project with a throughput of 10 million tonnes per annum and ultimately it will be expanded to 20 to 25 million tonnes per annum. They have until the end of this year to organize that financing and if they haven’t organized it, part of the $200 million that they put in was a $65 million shareholder loan and $45 million of that shareholder loan gets forgiven.
RI: So they have a huge incentive to move this ahead and you are confident that is going to happen.
DF: We are very confident that it’s going to happen. One of the things that we’ve learned about the Chinese is that they do deliver. One of the problems has been in the time frame that they deliver. We’re dealing with two banks. One is China Development Bank and we have a credit committee approval from them for half and we have a commitment letter so they are on board for half of the debt. China EXIM Bank are a different style of bank and they have taken longer we are working with them still and have been told that they should have all of their approvals in place by the end of March. If they’re not in place China Development Bank (CDB) have said that they will look at taking the whole $500 million and we are quite confident that they will.
RI: This is a huge mine with huge production. Let’s talk about the iron. You’re in production there and you’re net $80 million a year for the next five years.
DF: Yes. Assuming iron ore prices stay the same. At today’s price that is what we’re netting.
RI: It’s an amazing project in the sense that you did it so fast and for just $18 million.
DF: It’s a fascinating project that is a wonderful example of what you can do with a small iron ore deposit if you’re close to a port and you have port access.
RI: Your net is $80 million a year at today’s prices, what is the plan with that kind of net cash flow?
DF: Part of it will be used to fund the development of Spinifex Ridge. The $500 million doesn’t get us there completely and there is about another $110 million required.
RI: Looking at my information, if you could move everything from inferred into those other categories that are essential, it looks like 840 million lbs of molybdenum, over 1 billion lbs of copper and almost 40 million ounces of silver. It’s a huge mine. How long could the mine life be for this based on what you know?
DF: You mention inferred resources and 100 percent of the inferred that we have drilled in the past has come into the resource. We actually confidently talk about 1 billion tonnes in the resource of which we’ve got 450 million tonnes in reserves. The ore body has a high grade core and grade decreases in every direction as you move away from that core so the area around the outside is the inferred and that is what we haven’t drilled in detail. At 10 million lbs per annum, it would be a 100 year mine life. It won’t be. It demands scale and so it will be a 50 year mine life I believe and that is what we’re looking at.
RI: When do you expect the financing to be completed?
DF: We aim to be in a position to draw down from the debt by the end of June. We expect to have commitment letters for the full $500 million by the end of March or early April.
RI: When do you expect to start production?
DF: Mid 2013.
RI: That’s amazing. You’ve got some of the infrastructure in place already?
DF: Having the iron ore mine there gives us a racing start. We’ve got a water supply and brought in a 30 km pipeline . We’ve got communications there and we’ve got a camp and we’ve got roads. There’s a lot of things that are complimentary to what we’re doing. We also have the long lead equipment so we don’t have to wait for that. It’s sitting in Perth waiting to be transported to site.
RI: Your share price is right at $1.00 right now. I find that remarkable for a company that is generating $80 million a year right now. What do you think is going on?
DF: We’ve got a group of shareholders who don’t have a lot of confidence in our Chinese partner. It has been brought on by the slowness in terms of getting the the financing in place. That has taken us longer than expected. We’re getting to the end of that process now and some of our shareholders have been impatient. All I can say to them is to have patience. At the moment you could say that the company is valued on the iron ore alone and they are getting the moly for free.
RI: When that press release comes out finalizing the details of that there is going to be a lot of excitement?
DF: Exactly. Think in terms of the iron ore as well, if we put a second shift, we will be shipping 2 million tonnes a year . We have to go through permitting for that and we are doing that at the moment and once we achieve that we are going to spend probably $5 million to expand our production to double where we are at the moment just by putting a night shift on and expanding the camp. That will deplete our resource quicker than we thought but because we’ve got the mill and we have port access we have control over other resources in the region. There are a lot of stranded deposits around. I believe we will be mining iron ore there for at least 10 years and that will drive our stock price as well.
RI: What are the next steps?
DF: First of all, another shipment of iron ore leaves in about 2 weeks. By the end of March or early April we believe that we will have the second bank on board. We will then finalize all banking documentation and by the end of June we will have the ability to draw down on that debt. We will start construction in the third quarter of this year and after that it will be expansion of the iron ore. By mid 2013 we will be producing significant moly and significant copper with a silver stream as well.