Centerra’s prefeasibility for Thompson Creek shows moly asset to be ‘marginal’

Centerra Gold (TSX: CG; NYSE: CGAU) has completed a prefeasibility study  for the restart of the Thompson Creek molybdenum mine 48 km southwest of Challis, Idaho. The pit and concentrator were put on care and maintenance in 2014, when ore from phase seven mining was depleted.

The study forecast preproduction capital costs for Thompson Creek at US$350 million to US$400 million. It gives a restarted project – along with the Langeloth tolling facility near Pittsburgh, Penn. – a combined US$373 million after-tax net present value at a 5% discount and a 16% internal rate of return (IRR) using a US$20 per lb. molybdenum price. At US$17.50 per lb., the project’s IRR would sink to 10%.

In a note to clients, Canaccord Genuity mining analyst Dalton Baretto said the study on Thomson Creek showed the asset to be ‘marginal.’

“Even at relatively elevated molybdenum pricing assumptions, (Centerra) presented IRRs that are unlikely to meet anyone’s hurdle rates, especially after factoring in any acquisition costs,” the analyst wrote. “As such, we view a sale of the entire business as unlikely, particularly at the NPVs (Centerra) has derived. We view a potential strategic investment by a U.S. steelmaker as a more likely outcome, but we don’t believe that market will reward (Centerra) for maintaining a molybdenum business as a significant part of the portfolio.”

Canaccord notes the long-term average price of moly is US$15 per lb. The current price of the metal is around US$26.65 per lb.

Centerra’s producing assets include the Mount Milligan copper-gold mine in British Columbia and the Oskut gold mine in Turkey.

Prefeasibility details

The study calls for increasing capacity utilization at Langeloth (one of the largest molybdenum conversion plants in North America). The extra capacity will allow Centerra to blend high grade Thompson Creek ore with lower-quality third-party concentrates. That will increase the volume of high margin final molybdenum products.

The mining plan for Thompson Creek has a life of 11 years, producing a total of 134 million lb. of molybdenum. The average mill head grade would be 0.07% moly. The all-in sustaining cost per lb. of moly would range from US$15 to US$18 in years two and three, to US$12 to US$15 in years four to eight, and US$8 to US$11 in years nine through 11, according to the study.

Centerra has begun a feasibility study at Thompson Creek which is expected to be complete in mid-2024. The company then plans to authorize a limited notice to proceed with US$100 million to US$200 million of pre-stripping and long-lead times equipment purchases.

The Thompson Creek project has measured and indicated resources of 117.1 million tonnes grading 0.07% moly and containing 177 million lb. of metal. The inferred resource is 806,000 tonnes grading 0.04% moly and containing 1 million lb. of molybdenum.

Centerra shares ended the day down 4.5% at $7.56 apiece, giving it a market cap of $1.6 billion. The company’s shares have traded in a 12-month range of $5.18 and $10.28.