Higher Molybdenum Prices Support Mine Life-Extension Project in Colorado

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Firming prices for molybdenum have brightened the outlook for Climax Molybdenum, a subsidiary of Freeport-McMoRan Incorporated (NYSE:FCX) (Phoenix, Arizona). Still, current spot prices of about $12.25 per pound are a far cry from the $30 per pound that the metal fetched in 2008, before the start of the Great Recession.

Molybdenum prices fell to as low as $4 per pound in 2015, which caused Climax Molybdenum to consider closing one of the two molybdenum mines it operates in Colorado, said Stuart Teuscher, general manager of the company's Henderson operation, to about 350 attendees at the Colorado Mining Association's 120th National Western Mining conference earlier this month.

The company operates two molybdenum mines--Henderson and Climax--in Colorado. On a combined basis, those two mines can produce up to 30 million pounds per year. Freeport McMoRan is the world's largest producer of molybdenum.

Roughly 80% of the world's molybdenum production is used in the steel industry, but Climax Molybdenum's output is targeted to the other 20% of the market, represented by companies that use molybdenum to make lubricants, catalysts, pigments, water treatment and smoke suppressants, Teuscher said.

A resurgence in molybdenum prices around 2010 convinced the company to proceed with a hefty investment to reopen its Climax mine, which had been closed since 1995. The company invested about $1 billion to reopen and upgrade an open-pit mine and concentrator, as well as build a water-treatment facility. The Climax mine reopened in 2012.

Last year, buoyed by firming prices, the company began an expansion project at its Henderson mine. That project, scheduled to be complete in the fourth quarter of 2018, has a total investment value (TIV) of about $15 million, according to Industrial Info's Global Market Intelligence platform.

That project will extend the life of the Henderson mine to 2040; Climax has a mine life of 2036, according to the company's 2017 10-K filing with the U.S. Securities and Exchange Commission (SEC) (Washington, D.C.).

Freeport McMoRan, Climax Molybdenum's corporate parent, told investors in late February that its overall global production totaled about 95 million pounds in 2017. Production is expected to fall to approximately 91 million pounds in 2018 and 2019, before rising to an estimated annual average of roughly 94 million pounds in 2020 and 2021.

In reporting its full-year 2017 results to investors in late January 2018, Freeport-McMoRan said a $1 per pound increase or decrease in molybdenum prices will have an $80 million impact on earnings before interest, taxes, depreciation and amortization (EBITDA) and a $70 million impact on operating cash flow. Since those estimates were released, prices have climbed nearly $3 per pound from the company's average realized price of $9.33 per pound for 2017.

But the mines face challenges beyond global supply, demand and prices for molybdenum. A Colorado state public-health agency is concerned about the potential health risks of molybdenum mining--specifically, discharges into the state's waterways. Earlier this year, the company asked for, and received, an extension of its state water-pollution permit to continue its study of acceptable molybdenum levels in water.

A separate agency, Denver's water utility, said it could cost hundreds of millions of dollars to completely remove molybdenum pollution from the drinking water it supplies to 1.4 million residents in and around Denver.

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