EXPLORATION ’95 — Higher prices makes moly projects

Molybdenum generated little interest in past years because of poor market conditions and depressed prices. But all that appears to have changed.

Today, moly oxide prices are at the US$15.50-16.50-per-lb. level, a substantial increase over the US$2.68-2.80 of a year ago. Prices crept up to the US$3.50 level by September of last year, and then surged to the present level.

Metal analysts attribute the dramatic rise to supply and demand fundamentals. The largest end-user of molybdenum is the stainless and alloy steel market. Sustained consumption of steel products over the past two years by North American consumers, accompanied by recent recoveries in the Japanese and European economies and the emergence of markets in Southeast Asia, has led to a severe depletion in inventories. Consequently, demand is exceeding supply. (Moly is also used as an ingredient in catalysts that remove sulfur from petroleum products.)

A drop in exports from China also contributed to the shortage. According to metals analyst Jack Dupuis, moly sales by China are down because of supply disruptions, as well as the Chinese government’s decision to remove subsidies while imposing taxes within the industry. An increase in internal consumption is believed to be a contributing factor.

A study by minerals analyst Roskill of London states that a renewed demand for moly in 1993 outstripped supply, thereby reducing the mineral inventory and enabling prices to recover in 1994. Dupuis believes that the high prices will be sustained through 1995, provided the economy remains strong. In 1993, copper mines accounted for 67% of the Western world’s moly supply in the form of a byproduct, while primary producers held an approximate 24% share. In a newsletter published monthly by Jack Dupuis & Associates, Dupuis states that although increased copper production should add to moly availability over the next few years, only the primary producers, situated mainly in the U.S., are able to increase production substantially and quickly enough to take advantage of the price hikes.

Cyprus Climax Metals, the world’s largest producer of moly and a wholly owned subsidiary of Cyprus Amax Minerals (NYSE), produced 57 million lb. of the metal in 1994 and, in a direct response to the upswing in the market, expects to produce 75-80 million lb. in 1995.

The company is also considering re-opening its Climax mine near Leadville, Colo. The mine is on standby status and could be re-opened in as little as two months’ time. Operations consist of underground and open-pit mines, as well as an 18,000-ton-per-day concentrator with a capacity to produce 10 million lb. of moly per year. Proven and probable reserves stand at 135.9 million tons grading 0.22% moly.

A decision could be imminent for the possibility of re-opening Molycorp’s Questa mine in New Mexico. The company, a wholly owned subsidiary of Unocal (NYSE), is currently dewatering its underground moly mine. David Shoemaker, mine manager, says that while a decision has yet to be made, the mine could be back in operation by the middle of 1996, running at 14,000 tons per day. Mining was suspended at Questa at the end of 1991 when the spot price for moly was at US$2.10-2.15. Reserves are estimated at 122.5 million tons grading 0.288% moly. Shoemaker reports that a block of ore averaging 0.4% moly will be developed when mining resumes.

Although Gibraltar Mines (TSE) resumed operations at its McLeese Lake open-pit copper mine in central British Columbia last fall, it has not recovered molybdenum as a byproduct since December, 1992, owing to a combination of low head grades and poor prices. Proven and probable reserves calculated for the 1993 year-end stand at 187.4 million tons grading 0.301% copper and 0.0095% moly. In order for the company to resume its moly circuit, it needs the ore to be averaging 0.013% moly or better. Gibraltar expects to be in a position by the latter part of this year to be mining such a grade. In southwestern New Brunswick, the Mount Pleasant Tungsten mine was shut down in July, 1985, as a result of low metal prices. Billiton Metals operated the mine in the early 1980s, extracting tungsten and molybdenum. The mine has since been acquired by privately owned Piskahegan Resources and it was recently announced that Adex Mining (TSE) will fund a $525,000 exploration and metallurgical program in return for a secured note that can be converted into a 10% interest of Piskahegan. Adex also holds an option to acquire a total interest of 50.1%. Of nine separate deposits outlined at Mount Pleasant, the Fire Tower zone hosts proven reserves of 9.3 million tons averaging 0.41% tungsten and 0.2% moly. The existing mill on site has a capacity of 2,000 tons per day.

Tintina Mines (TSE) holds a 100% interest in the Red Mountain property, 50 miles northeast of Whitehorse, Y.T. Drill-indicated possible reserves stand at 200 million tons grading 0.167% moly at a cutoff of 0.1%. The deposit, which has not been worked since 1982, remains open at depth and to the north, with potential to the east.

Cominco (TSE) reports no immediate plans for its Quartz Hill property near Ketchikan, Alaska. The property hosts probable reserves of 230 million tons grading 0.22% moly and possible reserves of 1.1 billion tons grading 0.12% moly.

Regional Resources (TSE) acquired a full interest in the Logjam property in 1986.

Situated along the British Columbia-Yukon border, the property contains mineralized reserves of 330 million tons grading 0.09% tungsten and 0.45% moly. The property has remained idle since being acquired.

A planned merger between two Vancouver-listed companies, Bell Molybdenum Mines and Adanac Mining and Exploration, is awaiting shareholder and regulatory approval. Adanac’s main asset is the Ruby Creek moly deposit, 23 miles northeast of Atlin, B.C. Potentially open-pit reserves are estimated at 220 million tons averaging 0.098% moly at a stripping ratio of 1.56-to-1. Bell Molybdenum receives a yearly fee of US$1,000 until 1998 with respect to the Clary Creek moly deposit of Amax (NYSE). Situated near Alice Arm, B.C., the deposit hosts 106 million tons averaging 0.09% moly.

The recent acquisition of the Malmbjerg deposit in Greenland by Platinova A/S (TSE) was spurred by the recent price increases in the moly market. Diamond drilling, along with preliminary underground development, has established a resource of 165 million tons grading 0.23% moly based on a cutoff of 0.16%. The company is seeking a partner to develop the project further. The improved moly market has also led Cactus West Exploration (VSE) to reacquire the CUMO property (previously known as the Bank of Idaho project) in south-central Idaho. Previous exploration (1968-1982) identified geologic reserves of 444 million tons grading 0.135% moly based on a cutoff of 0.1%. A larger resource is estimated at 1.4 billion tons grading 0.093% moly, using a cutoff of 0.05%.

Alberta-listed Cochise Resources and Windy Mountain Explorations are partners in the MacLeod Lake property in the James Bay territory of Quebec. To date, exploration expenditures totalling $4.5 million have outlined a preliminary reserve at 37 million tons averaging 0.44% copper and 0.05% moly. A $300,000 work program is planned for the summer.

Morgain Minerals (VSE) is planning an infill drill program for its Cuatro Hermanos property, which will get under way once financing is secured. Situated in Sonora state, Mexico, the property contains open-pit reserves estimated at 250 million tons grading 0.43% copper and 0.022% moly. The company believes the potential to increase reserves is significant. Other projects in which moly can play an important role in improving economics include Pacific Sentinel Gold’s (VSE) Casino deposit in south-central Yukon. The deposit is estimated to contain 584 million tons grading 0.26% copper, 0.025% moly and 0.008 oz. gold per ton. The Hushamu deposit of Jordex Resources (TSE), on northern Vancouver Island, is estimated to host 191 million tons averaging 0.27% copper, 0.009% moly and 0.01 oz. gold. New Canamin Resources’ (VSE) H
uckleberry deposit in northern British Columbia contains diluted minable reserves of 100 million tons grading 0.517% copper and 0.014% moly, as well as 0.002 oz. gold and 0.081 oz. silver per ton. The Bronson Slope deposit of International Skyline Gold (TSE), in the Iskut River district of that province, is estimated to contain 110 million tons averaging 0.007% moly and 0.15% copper, plus 0.021 oz. gold and 0.119 oz. silver.