Moly Mines Limited Places Molybdenum Project On Hold Indefinitely

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Researched by Industrial Info Resources (Perth, Australia)--Australian iron-ore producer Moly Mines Limited (ASX:MOL) (Perth, Australia) has announced today that it has suspended development of its flagship Spinifex Ridge molybdenum project, citing the "weakness of global molybdenum prices and the strength of the Australian dollar" as the overriding factors in the decision. Moly Mines has been developing the project since early 2005, when they were still operating under the name Hibernia Gold Limited and were only a few months away from beginning construction, having finalized financing through China Development Bank Corporation earlier this year.

In May, Moly Mines signed a fixed-price engineering, procurement and construction (EPC) contract with Chinese engineering company CACS Corporation (Beijing, China), which had subcontracted GR Engineering Services Limited (ASX:GNG) (Perth) to handle the design and construction of the project in Western Australia. Moly Mines also ordered much of the long-lead equipment, including ball mills. The $674 million project was designed to produce 10 million tonnes per year of molybdenum oxide, which was then to be processed into about 11 million pounds per year of molybdenite, along with copper concentrate; but with molybdenum prices having never substantially recovered after the global financial crisis in 2008, the economics of the project no longer add up.

In mid-2008, molybdenum prices were hovering around the $34 per pound point, but dropped dramatically during the global financial crisis to under $10 per pound. During the past three years, the prices have increased slightly but are still sitting at less than half of their 2008 values, at about $14 per pound. The value of the Australian dollar also has increased dramatically against the U.S. dollar over the past three years, from about 65 cents in late 2008 to parity or above for the majority of 2011. The financing arrangements with China Development Bank Corporation are due to expire in May 2012; because of these current economic conditions, Moly Mines does not believe that a final investment decision could be made within this timeframe.

Moly Mines will now focus on seeking new projects and on its Spinifex Ridge hematite iron-ore mine, which is adjacent to the molybdenum resource, which has been operating for more than 12 months. The company announced last week that it has shipped 1 million tonnes of iron ore from the mine--950,000 tonnes over the 2011 calendar year--and is expecting this to increase up to 1.2 million tonnes for the 2012 calendar year.

While the company may be celebrating the production from its iron-ore project, 2011 has not been a good year for Moly Mines, with their share price having dropped from more than $1.50 at the beginning of the year to about 32 cents at present. After exhausting considerable funds on the development of the Spinifex Ridge Molybdenum project, the company and its Chinese backers hope that the company's fortunes can turn around in 2012 and that a new project can be discovered that will help it return to its once strong financial position.

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