China's Hanlong Mining Investment Offers $700 Million in Funds for Moly Mines Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--Hanlong Mining Investment, a subsidiary of Sichuan Hanlong Group (Sichuan, China), has offered $200 million in equity and debt funding to Moly Mines Limited (ASX:MOL) (West Perth, Australia) for the latter's Spinifex Ridge mining venture. The funding offer will be implemented by means of a subscription agreement, which entitles Hanlong to 207.1 million shares in Moly Mines valued at US 69.28 cents per share, totaling about $140 million. The balance funds of $60 million will be released through a 10-year, interest-bearing loan.

Apart from the funding offer of $200 million, Hanlong will arrange for additional debt financing of about $500 million by the first half of 2010. In turn, the firm will receive unlisted three-year investment options totaling 35.5 million, with a realization value of US 95.16 cents per share.

Moly Mines had earlier raised about $25 million by means of equity funding. The additional funds from Hanlong will serve primarily to pay off other debts incurred by Moly Mines, including repayment of an earlier $150 million interim finance loan secured from The TCW Group Incorporated (Los Angeles, California). Apart from the equities offered to TCW, the outstanding amount is expected to be about $134 million. The TCW financial settlement has been slated for February 2010, by which time Moly Mines is expected seal all funding agreements for the venture.

Moly's Spinifex Ridge venture comprises development of two mines, one for iron ore and the other for molybdenum and copper, with iron ore deposits being concentrated in four specific locations within the territorial block acquired for the Spinifex Ridge molybdenum project: Auton, Auton North East, Dalek and Gallifrey. The iron ore deposits are about 500 meters from the molybdenum-copper reserves.

With mining leases, operating agreements and environmental clearances for the block already in place, Moly Mines is looking to commence pre-strip activities at the iron ore block by the end of March 2010, while actual production has been scheduled for July 2010. The reserves are estimated to contain 7.3 million tons of ore with 59% iron.

Development activities at the Spinifex Ridge molybdenum-copper reserves are expected to start by mid-2010, with long-term funding for the venture now being secured. These resources in the Pilbara region of Western Australia are expected to be developed in a phased manner, with the target output capacity of the first phase set at 8 million to 10 million tons per year. The two subsequent phases will have production targets of 20 million and 33 million tons per year, respectively. A detailed feasibility study for the venture has been completed, and the proposed phased development plan is under review. Scoping operations for the first phase also have been initiated.

Moly Mines has three other molybdenum mining ventures in the cards, at Mt. Pleasant, Glen Eden and Mt. Tennyson. These projects are at the initial exploration stage. Mt. Pleasant is about 300 kilometers from Sydney and is well connected by all modes of transport. Glen Eden, in the New England Plateau, was used for selective quartz mining during the 1920s, while Mt. Tennyson, close to Bathurst, was earlier harnessed for garnets. Mt. Tennyson's mineral-rich multilayer deposits were found to contain molybdenum and traces of rhenium.

Molybdenum is a crucial alloy component and has a high melting point. It is used primarily in the manufacture of stainless steel and other lower-steel alloy variants. The metal infuses into steel alloys several characteristics such as corrosion resistance; increased tensile strength at high temperatures; and malleability and flexibility at low temperatures, which otherwise render steel brittle.

The minor metal finds use in the petrochemical industry as corrosion resistant steel alloys, as well as a catalyst to de-sulfurize hydrocarbons. The metal is also used in the manufacture of condenser tubes for nuclear reactors.

China is the indirect demand driver for molybdenum, with most of the country's construction, nuclear and vehicle manufacturing facilities requiring loads of high-quality steel. China's population is anticipated to increase by 300 million by 2025, creating the need for mass infrastructure development to cater to the requirements of city dwellers.

While China has sufficient molybdenum resources, accounting for 30% of the global deposits, the current market price of the metal does not render mining ventures profitable. With Chinese demand growing at 27%, the country has started to rely on imported metal until a favorable price trend emerges. Even after the economic recovery, China will continue to drive the demand for molybdenum, as domestic molybdenum resources alone are not likely to be sufficient to cater to the country's requirements.

Molybdenum, which was trading at a low of $8 per pound, has moved up to about $12 per pound. However, metal producers predict prices in the range of $18 to $19 per pound, although it may take a while for molybdenum to reach the pre-recession price levels of $25 to $35 per pound.

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