It has been an interesting 12 months for molybdenum focused mining companies. Thompson Creek (NYSE:TC), one of the world’s largest primary molybdenum producers, is an excellent case in point. During the commodity boom, the company was trading near record levels as the spot price for molybdenum tested $30/lb. When the bubble began to burst in the second half of 2008, molybdenum prices were slow to react, with the more ‘liquid’ metals like copper, nickel and iron ore moving sharply lower first. Molybdenum prices did catch up however; by summer 2009 spot prices were hovering around $10/lb. The volatile prices were not surprisingly reflected in Thompson Creek’s share price.
However, 2010 has started on a much brighter note for molybdenum producers. Thompson Creek’s share price has recovered from a 52 week low of just $2.69 to a high of $15.64 earlier this month, buoyed by more bullish analyst forecasts for molybdenum. Just last month, JP Morgan analysts forecast that molybdenum would rise from around $15/lb currently to $21/lb by the end of the year, and could rise to $24/lb by the end of 2011. For producers, this is clearly good news. But has the more bullish outlook for molybdenum prices trickled down to junior explorers or would-be developers?
The answer, as always, is complicated. Some mining companies with more advanced projects have benefited from higher prices and have managed to raise money and secure partners, including Moly Mines (TSX/ASX: MOL). However, many other molybdenum focused juniors are still struggling to generate interest.
Strzelecki Metals (ASX: STZ) (“Strzelecki”) is one of those companies, but recent moves by the company suggest this could all be about to change. Strzelecki is an unusual mining junior. Listed in Australia, the company has a handful of early stage projects scattered all over Australia and one substantially more advanced project in Poland called Myszków.
Myszków is clearly the flagship asset in the company’s portfolio, but as an Australian company, explaining to the natives why they should be interested in a relatively unknown project in Eastern Europe, is understandably difficult. For this reason, Strzelecki hired Andrew Zemek as Director of European Operations, who has previous experience in London’s AIM mining sector and is also native Polish speaker. Zemek’s appointment was followed by a concept study prepared by Coffey Mining (released October 16, 2009) for Myszków.
Myszków is a substantial molybdenum-copper-tungsten deposit with an inferred resource of 726 million tonnes (using a cut off grade of 0.12% molybdenum equivalent). Within this huge resource lies a higher grade zone of 102 million tonnes @ 0.17% molybdenum equivalent.
Coffey Mining’s report considered either a 5 or 10 million tonnes per annum mechanized underground mining operation focusing on the higher grade ore over an initial mine life of 17 years. It is important to note that this mine plan would target the higher grade zone, and would therefore not necessarily become a project beyond the capabilities of a small company like Strzelecki.
The initial analysis from Coffee Mining threw up some favourable numbers too, calculating that a 5 million tonne per annum operation, including the processing plant, would require approximately $427 million to develop. Operating costs were estimated at $22/tonne with a base case NPV of $63 million and IRR of 9%. The NPV and IRR jump to $690 million and 23% on the optimistic case.
Zemek was clearly pleased to have some numbers to throw around: "For the first time an assessment has been made that Myszków can support a profitable mining operation, even in today's economic climate. Bearing in mind that the mine will not be constructed for some time, the fundamentals are likely to strengthen in the meantime.”
Recent presentations by Zemek in Europe have reiterated the potential of the project, and note (quite rightly) that the project is less than 600 miles (1,000km) from 60% of Europe’s steel mills, offering a unique opportunity to build a mine that will have customers at its doorstep.
So what next for Strzelecki? Financing is required to get the drill rigs underway this year, and the company is looking at its options. Considering the location of the project, it would not be a surprise to hear that a listing in London is on the horizon along with a fundraising. Meanwhile, back in Australia, the company has recently announced a joint venture agreement regarding its Australian assets under which the partner expend A$4 million in exploration. This would free up Strzelecki, both from a capital commitment and operational viewpoint, to focus more on advancing Myszków.
Considering Myszków already has an inferred resource and analysts are bullish on molybdenum prices, it is possible that the company may also snag a strategic partner to move the project forward. Either way, this junior mining company should appear on the map this year.
Disclosure: The author holds no positions in the company