Dr. John Faessel
ON THE MARKET
Commentary and Insights
Faessel Publishing LLC
Finding 200 million more pounds of molybdenum? At what cost? Who will be the low cost producers?
“CuMo contains one of the world's largest, strategic, stores of mineral wealth and we expect to develop the project significantly further during 2011-2012." said Mosquito President Brian McClay. 6/14/2011
An immensely compelling risk / reward dynamic
Mosquito Consolidated Gold Mines Limited
(OTC:MQCMF) on the US OTCQX (TSX Venture: MSQ)
Part 2: An overview of North American molybdenum resources
Mosquito’s CuMo molybdenum project in comparison to other North American resources:
First some necessary backdrop
World production of crude steel in March 2011 rose by 7% to 129.3 million tons, the highest monthly total ever. All regions showed an increase in crude steel production in both March and the year to date except for Africa. WORLD STEEL REVIEW, May 2011
High strength steel alloys on average contain about 8% molybdenum. Today, world molybdenum production is about 480 million lbs; by 2016 it is thought to approach 600 million lbs and by 2021, near 700 million lbs. So we’ll need another 200 million pounds of “moly” per annum in ten years.
North America was the largest molybdenum producing region in 2010 with 173.2 million lbs. In Q3 production rose to 47.8 million lbs up from 42.8 million lbs.
Big picture, molybdenum production is concentrated in relatively few countries, with China, the USA and Chile accounting for about 80% of the world production. Eleven companies account for about two thirds of world molybdenum production and a further nine or ten companies plus numerous small producers in China produce the rest.
In late April (4/27/2011) Mosquito issued a press release re a new and updated NI 43-101 Resource Estimate mine calculation by Snowden* that increases the value of CuMo appreciably, “The results confirm that CuMo is the largest unmined open pit molybdenum deposit in the world, and also one of the world’s largest silver deposits, ranking just behind the gigantic silver deposits such as Navidad and the Pitarrilla.” Again: CuMo is the one of the world’s largest silver deposit.
According to the Canadian National Instrument 43-101 standard of disclosure technical report prepared by Snowden, CuMo “holds” 6 billion tons of molybdenum bearing rock above the $2.50 cutoff. (That point where it becomes profitable to mine.) That’s an astonishing 4.5 billion pounds of moly or [4,500,000,000] pounds. More importantly, above the $5 cutoff, it contains 4.8 billion tons of moly, and above the $20 cutoff it contains 1.6 billion tons of moly.
Regarding CuMo’s cost to mine per ton; examination of existing mines and recent feasibility studies indicate that for production rates of less than 100,000 tons per day, a $7.50 Gross Recoverable Value cutoff is reasonable, while for production rates greater than 100,000 tons per day, a $5 Gross Recoverable Value cutoff is reasonable. Consider these key numbers when we compare CuMo to the other North American moly producers.
Imagine the colossal size and worth of the metal in CuMo; in the Indicated Resource category 2.12 billion pounds of 'moly' (molybdenum oxide), 3.15 billion pounds of copper, 133.8 million ounces of silver and 153.7 million pounds of tungsten, with an additional, in the Inferred Resource category, 2.28 billion pounds of 'moly' (molybdenum oxide), 3.97 billion pounds of copper, 178.4 million ounces of silver and 84.1 million pounds of tungsten.
New published core assays have extended the parameters of CuMo and concentrations of the minerals have been increased dramatically as the Snowden report details. Accordingly, $100 billion in the ground is entirely feasible using the 43-101 numbers that the 2009 Ausenco** study used. And “if” you use current market prices of the above mentioned minerals plus the Tungsten (NYSE:W), Rhenium (Re) and Gallium (Ga) the numbers go way, way beyond $100 billion as $12 Silver in the computation is now $35.00 Silver etc... CuMo is more than the proverbial “gold mine”; it's indeed a national treasure.
Of particular note; on 5/17/2011 Mosquito won a U.S. Forest Service ruling that rejected the appeal of the Environmental Assessment for the CuMo Exploration Project. This “final” decision provides authorization for Mosquito to embark on its expanded exploratory drilling program in early June 2011; it’s another important milestone on the way to breaking ground.
Recently world molybdenum production has been growing at 6% fed by huge Chinese consumption where, interestingly, last October China: 1) classified molybdenum as a strategic material and 2) indicated that the country would restrict the mining and export of the metal starting in 2011.
Considerable new demand for steel was caused by Japan’s epic March 11 magnitude-9 earthquakes and subsequent massive tsunami that decimated the northeastern costal region of the country. Thus, significant increases in steel production will be needed to rebuild infrastructure, retrofit compromised infrastructure, and replace the 320,000 cars lost to the unrelenting waters. Adding to this steel and consequently molybdenum demand are several new uses for molybdenum, like breakthrough technologies that employ the metal in state of the art solar panels that are thin and flexible, and have the ability to dramatically lower costs of electrical generation. In reality they are revolutionizing the solar industry.
Additionally, moly’s use in desalination plants pipes and metal constructions make the infrastructure last much longer and its use is skyrocketing as desalination plant investments look to double by 2016.
Hydrogen production from electrolysis that traditionally uses platinum electrodes for its creation is increasing at 10% a year but new research has discovered that the use of molybdenum, immensely cheaper than platinum at $16 per lb vs. $22,800 per lb, can perform equally as well using even dirty water or sea water.
So global use of moly is in increasing and new uses continue to be developed. In 10-years we will need an additional 200 million lbs and moly mines take a long while to get up and running and cost billions of dollars, and by the way; molybdenum is not recyclable.
Think about it; if the market needs and additional 200 million lbs of molybdenum in the next 10-years - that would equate to 10 Thompson Creek mines (the fourth-largest primary molybdenum mine in the world just 60 miles from CuMo) and by the way Thompson Creeks will be nearly played out in 10 years and will likely be shut down.
Now let’s look at some of the leading North American molybdenum resources with reference to size, value, grade, and cost per pound of production.
Last month in my ON THE MARKET report I compared Mosquito’s CuMo to its Idaho neighbor the Thompson Creek Mine as they have about the same “grade” and “cutoff” of ore with a resource calculation of .062% Mo, but because of Thompson Creek’s “playing out issue” it is mining as low as 0.01% Mo, given that now the focus of mining there is on the residual resource that was put aside over the years. Thompson Creek accounts for about 5% of world moly production. (Cost per ton to mine is $13.94)
Now let’s jump to the other major North American sources.
Freeport Mac Moran's, (NYSEARCA:FM) nyse Henderson Mine is North America’s largest producer of primary molybdenum. 2007 production was 40 million pounds of molybdenum, with a value of $1.1 billion. They have 182 million tons left that are only accessible by underground methods by way of a 19 mile long access tunnel. The Henderson Mine has produced 770 million pounds of molybdenum since it opened in 1976. (Cost per ton to mine is $28.62)
Freeport's Climax Mine, located in Colorado was once a major molybdenum mine. In its heyday, Climax was the largest molybdenum mine in the world, and for many years it supplied three-fourths of the world's moly supply. Climax has 151 million tons left that are accessible by open pit and that means the remainder is underground and thus are orders of magnitude more costly to mine. The mine is currently (2010) inactive, but may reopen (at large cost) when the economy recovers. Freeport Mac Moran accounts for about 16% of the world’s moly production.
Rio Tinto's (RTP) nyse Bingham Canyon Mine is just outside Salt Lake City, Utah, and is the most important copper-moly mine in the US, if not the world. It has produced more copper than any mine in the world over its lifetime. In 2009 the mine produced 24.9 million pounds of molybdenum. Rio Tinto accounts for about 5% of world moly production. (Cost per ton $8.47)
Another North American molybdenum resource is the yet unmined Pebble Mine in Alaska, 50% owned by the Northern Dynasty Partnership and 50% by a wholly owned U.S.-based subsidiary of London-based Anglo American. The mine is 60% deep underground and operating costs in that harsh environment will be 3 to 4 times higher than CuMo. In addition, it would have to be accessed by shafts leading to limited production and much higher costs. In the recent Preliminary Economic Assessment only a portion of the molybdenum resource was found to be extractable. [2.8 billion lbs versus 5.6 billion lbs in the resource] (Cost per ton to mine is $11.35)
General Moly’s (NYSEMKT:GMO) nyse owns two molybdenum resources in Nevada; Mount Hope, a large undeveloped project scheduled for production 2013 and Liberty, currently not being mined however production is set for the end of 2015 or early 2016.
Mt. Hope is highly leveraged to the front end, i.e. mining at a much higher grade in the first five years that will result in a lower grade mine after year five. Mt. Hope has 1.3 billion lbs of molybdenum and will produce up to 40 million lbs per year. Cost per ton to mine is $8.58.
Liberty has 550 million lbs of molybdenum and will produce up to 19 million lbs per year. Liberty has a negative Net Present Value at $10 lb Mo or less ($7 per lb MoO3), so it’s a marginal operation that makes it susceptible to low moly prices. Cost per ton to mine is $9.32.
Considering CuMo’s mammoth size, huge intrinsic value, a “go ahead” from the US Forest Service over environmental concerns, the low cost to mine per ton, its open pit characteristics that will allow enormous daily production and its location in mining friendly Idaho, USA, the current low price of Mosquito shares and staggering low market-cap of only $60 million gives investors a compelling opportunity to participate in what is rapidly becoming one of the best and what could be the most profitable mineral deposit in the world, of any kind. Rarely, have I ever seen a more optimal or compelling risk / reward dynamic than the shares of Mosquito Consolidated Gold Mines Limited.
Consider again the quote from Mosquito President Brian McClay; “CuMo contains one of the world's largest, strategic, stores of mineral wealth...
I believe that it’s only a matter of a “short time” before the tremendous intrinsic value of the CuMo project is reflected in the market.
In my next ON THE MARKET report on Mosquito I will examine and compare CuMo to the other leading global molybdenum resources for size, value, grade, and cost per pound of production.
* Snowden Engineering Mining Industry Consultants is a premium provider of consulting services, technology solutions and technical training to the Mining and related sectors. Snowden is Vancouver BC based and has offices in Australia, Africa, Europe, and the Americas.
** The Ausenco Group (ASX: AAX) headquartered in Brisbane, Australia, is a leading provider of engineering, project management, and operation solutions for the global resources and energy sectors and employs around 2,200 people across 13 countries around the world.
Part 3 - set for release in July will cover the other global reserves.
To receive Part 1 - send request to: Dr.Faessel@onthemar.com
Disclaimer: I have bought shares of Mosquito in the open market.
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