Blue Pearl aims for top tier of world’s moly producers

Vancouver — A US$575-million takeover of privately held Thompson Creek Metals sets the stage for Blue Pearl Mining (BLE-T) to become the world’s largest publicly traded “stand-alone” molybdenum producer, as well as one of the world’s top five producers after including state-owned and private corporations that typically produce the metal as a by-product.

Blue Pearl is currently developing its Davidson moly project near Smithers, B.C., where a feasibility study and permitting are under way to exploit a high-grade portion of an underground deposit. Measured and indicated resources total 75.5 million tonnes grading 0.177% moly.

Thompson Creek Metals is an integrated moly producer with two operating mines and concentrators in British Columbia and Idaho, and a metallurgical facility in Pennsylvania. The company’s equity share of production this year is estimated to total about 26 million lbs. at an average cash cost of US$4.12 per lb. Net earnings for the first nine months (ended June 30, 2006) of fiscal 2006 were US$286 million, based on income from operations of US$407 million.

Along with the US$575 million purchase price, Blue Pearl will be required to make contingency payments of up to US$125 million if prices remain above US$15 per lb. during the next three years. The payments are waived if prices fall and remain below US$15 over this period. The corrosion-resistant metal currently sells for about US$28-US$30 per lb., up from below US$10 in early 2004, primarily because of a surging demand for its use in high-end steel alloys and oil-and-gas pipelines.

Once the deal is completed in early October, Blue Pearl will wholly own the Thompson Creek open-pit moly mine and 25,000-tonne-per-day capacity concentrator near Challis, Idaho, and a metallurgical refinery with an annual roasting capacity of 35 million lbs. in Pennsylvania. Another core asset will be a 75% interest in the Endako mine near Fraser Lake, B.C.

Chairman and Chief Executive Ian McDonald said the acquisition will transform Blue Pearl “from a single-project development company into an integrated North American producer at a time when molybdenum trades at historically high levels.” He said the company has already made site visits to the operations as part of its due diligence review, which resulted in a strong vote of confidence for existing management’s “expertise and commitment” across the slate of assets. “We do not plan to tamper with a winning management formula.”

McDonald also noted that both mines are in politically stable jurisdictions. “Endako in particular is a complement to our Davidson project near Smithers, as there can be many synergies between the two properties, including processing Davidson ore at Endako.”

Endako was placed into production by Placer Dome and recently celebrated its 40th year of production. The complex includes an open-pit mine, a concentrator with a capacity of 30,000 tonnes per day, and a roaster. The mine has an estimated seven-year mine life based on proven and probable reserves of 74 million tonnes grading 0.063% moly, and is expected to produce 66 million lbs. moly at an estimated average cash operating cost of US$5.11 per lb. over this period.

The Thompson Creek mine has at least another decade of production based on proven and probable reserves of 64.5 million tonnes grading 0.119% moly. The mine is expected to produce 148 million lbs. moly at an estimated average cash cost of US$3.68 per lb. over the 10-year mine-life, which could be extending by converting resources into reserves. Measured and indicated resources (including reserves) stand at 178.6 million tonnes at 0.094% moly, plus another 34.5 million tonnes at 0.066% moly in the inferred category.

Thompson Creek Metals produced about 5% of the world’s moly production in 2004, the last year in which global production figures are available. The top three producers are Chile’s state-owned Codelco at 19%, Phelps Dodge (PD-N) at 13%, and Grupo Mexico, at 8%. All three companies produce moly as a by-product, primarily from large copper or copper-gold mines.

McDonald said Blue Pearl intends to fund the acquisition through a combination of debt and equity, and pay off the debt as quickly as possible while prices are strong. “Debt repayment, reserve expansion and organic growth from projects such as Davidson will be the hallmarks of this company going forward.”

Blue Pearl has secured a commitment letter for a long-term loan of US$450 million, and intends to fund the balance through an equity issue. The company will also acquire Thompson Creek’s working capital of about US$150 million.

McDonald assured analysts that the proposed transaction should proceed as planned, as Sojitz Moly Resources — Thomson Creek’s partner at Endako — has waived a first right of refusal in favor of Blue Pearl. Sojitz is a subsidiary of Japanese trading house that will retain rights to market moly production from Endako.