Adanac rethinks Ruby Creek

Adanac Molybdenum (AUA-T) is considering a new plan for its Ruby Creek moly project in northwestern British Columbia after figures from an updated feasibility study weren’t as promising as the original version.

The pre-tax net present value has dropped to US$110 million from US$295 million and the interest return on investment has fallen to 12% from 18.9%.

On top of that, operating costs rose more than US$2 per lb. to US$9.75 per lb. moly from US$7.41

The update wasn’t all bad news. Capital costs grew only by US$7 million to US$647 million within 15% accuracy, and the company’s long-term moly price assumption rose to US$17.90 per lb. from US$16.50.

Adanac is looking into a solution that would more than make up for the shortfall predicted under the current scenario. It’s considering upping production to 30,000 tonnes per day in year three from the original plan to mine at 23,000 tonnes per day.

Under this scenario, Adanac’s pre-tax NPV would be even higher than the original study at US$387 million and the pre-tax IRR is estimated at 19.8%. The company would use a long-term moly price assumption of US$20.12 per lb. and cash costs would be close to the original estimate at US$7.63 per lb.

Capital costs would stay the same but sustaining capital would rise to US$128 million from US$83 million under the updated plan. As well, molybdenum recoveries would drop to 83.5% from 90% under a 30,000-tonne-per-day operation.

The company plans to further pursue the 30,000-tonne plan in further detail.

At the same time, Adanac says it plans to follow its original construction schedule provided it can raise enough money to do so. The company hopes to find financing before the end of 2008 to start construction in February 2009. Full production would start in January 2011. Adanac has already ordered C$159 million of long lead equipment, $48 million of which has been paid for.

Raising money has been difficult for the junior market amidst the volatile markets and Adanac did not mention an alternative plan should it not raise enough money in time. The company’s shares were trading at 14.5 today, up a penny from the day before, on a trading volume of 503,000 shares. The company has a 52-week high of $1.56 reached on Oct. 26, 2007 and a low of 10.5 reached on Oct. 10.

Adanac has plans to update its reserves and resources at Ruby Creek before the end of the year. The company has drilled 60 holes since the last estimate was done in 2007. The low grade open pit deposit has a measured and indicated resource of 212.9 million tonnes grading 0.063% molybdenum and proven and probable reserves of 157.7 million tones grading 0.058% moly. A cutoff grade of 0.04% moly was used.