www.molymines.com
Moly Mines Audio Interview Transcript with Derek Fisher, CEO
Harry Norman: Hello. This is Harry Norman for Proactive Investors, and welcome to another Proactive audio interview. Today is the 6th of July 2011, and I’m talking with Derek Fisher, CEO and Managing Director of Moly Mines, listed on the TSX, Basic Materials, Metals and Mining sector. Stock ticker MOL, share price 76 cents Canadian, market cap 292.52 million dollars Canadian. Web address: www.molymines.com. Moly Mines is also listed on the Australian stock exchange and the Frankfurt stock exchange. Derek, thank you very much for joining us for this interview.
Derek Fisher: My pleasure.
Moly Mines announced at the end of June that it is borrowing 494 million dollars US from the China Development Bank, and six million dollars US from Hanlong Mining Investment, for the construction of Spinifex Ridge Molybdenum Copper Mine. What are terms of these loans, and when will you be able to draw down on them?
Yes, there are two loans. One is for 454 million. It has an interest rate of 4.2 per cent at the moment. It is variable, and it has a 12-year term. Interestingly the debt repayments on that are backend-loaded, and that is to correlate with the time at which we get into the high-grade portion in the centre of the deposit. It’s an open pit and it takes us probably five years to get into the higher grade.
The second piece of debt is a working capital facility. It’s a one-year piece, which will probably become a revolving debt piece. And it’s at six month libor, plus 290 points, which is about 3.3 per cent; very low cost piece of debt.
The six million dollars is really just a bridge that Hanlong have to put in place to bring it up to 500 million; that’ll be in the form of the shareholder loan.
What do China Development Bank and Hanlong Mining Investment see in the Spinifex Ridge Molybdenum Copper Mine project, Derek?
They see the world’s next major moly mine. The world needs new moly mines. We’re seeing expanding consumption of moly; we haven’t had a new moly mine in approximately 25 years of any size, and this is the most advanced project in the world today. It’s fully permitted, fully engineered, construction-ready. And following the GFC we’ve got new growth developing in molybdenum consumption.
Please would you briefly talk us through the state of reserves and resources at the Spinifex Ridge Molybdenum Copper Mine project?
Yes. The resource is large; just over a billion tonnes. Reserves stand at about 450 million tonnes. The 450 million tonnes is sufficient for 45 years of production at our current planned development rate and processing rate. That’s 10 million tonnes a year. The intent would be to expand it into a bigger operation in the future because the resource is so large.
When do you plan to start construction at the Spinifex Ridge Molybdenum Copper Mine, what is the timetable to completion, and how confident are you that the mine will be delivered on time, and within budget?
We haven’t made the final investment decision as yet. There is a funding gap which we’re in negotiations with respect to filling. This relates mainly to the power station and gas pipeline etc. The debt facility from CDB is available for drawdown up until mid-May next year, so we’ve got about 12 months. We’d like to think we’ll begin construction soon and have all those things finalised. In terms of confidence in on time, on budget, we have a fixed price engineering contract signed, so prices we don’t see as a problem, and we’re confident we can deliver within the timeframe.
I understand that you’ve reached a steady state of production at the Spinifex Ridge Iron Ore Mine. Would you talk us through what this means in practical and financial terms, Derek?
Yes. It gives us a very steady and strong cash-flow. We’re mining at a rate at the moment of a million tonnes per annum, and we have a monthly shipment of iron ore going out. And it’s operating on budget, on schedule, and in fact ahead of schedule; we only began production in December last year and we’re already up to our planned production rate. We’re netting about 60 to 70 dollars a tonne of ore shipped, and we’re shipping about 80,000 tonnes a month at the moment.
What strengths are there on increasing iron ore production at Spinifex Ridge?
Iron ore production at Spinifex Ridge – the miners are operating only on a day shift. That’s a 12-hour day shift. By putting a night shift on we can double production. Our big bottleneck at the moment is the port. Our agreement with the port will only allow us to ship 800,000 tonnes per annum. We’re in negotiations with respect to another 200,000 tonnes per annum on top of that. Infrastructure in Australia is a bottleneck. But the mine’s resource will never be much more than maybe 10 million tonnes. So it’s never going to be a big mine.
Please would you talk us through the state of reserves and resources at the Spinifex Ridge Iron Ore Mine, Derek?
Yes. The resource at the moment stands just under eight million tonnes. The reserve portion of that is about four and a half million tonnes. I’m confident we’ll end up mining most of that eight million tonnes, and we’ve got some exploration going on, which will bring some more tonnes in. Ultimately I’m anticipating the resource will max out somewhere around the 10 million tonne level.
Given that Moly Mines is borrowing 500 million dollars US, and has revenue from its iron ore mine, what is the company’s financial situation going forward?
The company’s financial situation is strong. Our cash-flow this year will be about 125 million dollars. That’s revenue before sales costs. And we’re netting, pre-tax, as I said, 60-70 dollars a tonne; approximately 50-60 million dollars pre-tax. So we’re in a strong position with respect to cash-flow. Obviously once we make the investment decision to develop the moly deposit, life will change. We’ll have a much bigger debt facility which we’ll draw down on, and we’ll be in a construction phase. So that’s a different style of financial circumstances.
What is your thinking about how the fluctuating value of the US dollar and Australian dollar could affect the financial performance of Moly Mines?
Yes, the US dollar depreciation against the Australian dollar has had a significant impact on the moly project. Molybdenum as a metal is denominated in US dollars; it’s marketed in US dollars. So in our terms the value of the metal has depreciated significantly, and that has impacted on the finances for the mine. It hasn’t impacted on China Development Bank’s attitude to the mine, which is quite comforting. And we’re anticipating the Australian dollar to come back, and I think most analysts are calling for that in the mid-term, which will be positive for us.
In February, you said that it’s going to be a good year for Moly Mines. What are your thoughts on the next 12 to 18 months, Derek?
Oh, it’s going to be a very good time for us. Hanlong, when they came in and became our major shareholder, said they wanted to use Moly Mines to create an international mining house. Now if you look at the activities of Hanlong in the last 12 months, they’ve come into Moly Mines; they’ve come into another company in the US. They’ve become a 19.5 per cent share holder in Australian-African iron ore company Sundance, and they’ll probably get greater interest in that company. And Moly Mines; they’ve said publicly that it’ll be the vehicle for their Australian expansion. So it’ll be good times for us and for our shareholders.
