In pursuit of financing, Adanac retools Ruby Creek

Adanac Molybdenum (AUA-T, AUAYF-o) is looking into a new plan for its Ruby Creek moly project near Atlin, B. C., after figures from an updated feasibility study weren’t as promising as the originals.

Adanac chairman and CEO Peter Jones says that as an end-of-year deadline to finance the C$647-million project quickly approaches, the company needs to show investors that Ruby Creek is worth their money.

“We are trying to make it as attractive as possible for investors,” Jones says. “The project is ready to go; it’s probably the most advanced you can get without having full financing in place.”

The reason: under the updated feasibility study, the pretax net present value (NPV) has dropped to US$110 million from US$295 million (using an 8% discount rate) and the internal rate of return (IRR) has fallen to 12% from 18.9%. In addition, operating costs rose more than US$2 per lb. to US$9.75 per lb. moly from US$7.41. The company is using a moly selling price of US$17.90 per lb., based on CPM Group’s July 2008 update, which forecasts a long-term price of US$16.50 per lb.

But a plan to up production to 30,000 tonnes per day from 23,000 after year three would make up for the shortfall on many levels.

Under this scenario, Adanac’s pretax NPV would be even higher than the original study at US$387 million and the pretax 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 at US$647 million 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.

Jones says that both the pit and the plant can handle the higher throughput, and though the mine life will be reduced to 15 years from 19, it’s worth it.

“The reality is that this project is going to need 30,000-tonne-per-day throughput,” Jones says. “It’s very doable, practical and realistic.”

Jones says that Adanac is serious about the new plan, and although it won’t be studied at the feasibility level, the company would have to check various things like whether it would need to amend the mining permit. Jones pointed out that the production increase wouldn’t occur until five years from now and says the company has yet to confirm the plan with “various parties.”

In the meantime, Adanac 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$149 million of long-lead equipment, C$48 million of which has been paid for. (Adanac is using a U. S. exchange rate of US85 for the 20-month construction period and US80 thereafter).

Jones says Adanac is open to offtake agreements and strategic partnerships to help finance the project, and although determined, he was not optimistic.

“Are we going to get financing in this market? I don’t know,” Jones says. “We are pushing like crazy to get that financing; if there’s any possibility out there, we’ll get it.”

Volatility has made raising money difficult for juniors, but putting the project on hold until the markets improve is not a solution for Adanac. With an US$80-million bridge loan coming due soon and commitment to pay for long-lead equipment, the company needs to raise some money.

“Delaying would be a last resort,” Jones says.

The company’s shares were trading at 14.5 on the news, up a penny on a trading volume of 503,000 shares. The company has a 52-week high of $1.56 reached in October 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 low-grade open-pit deposit already has a measured and indicated resource of 212.9 million tonnes grading 0.063% molybdenum with proven and probable reserves of 157.7 million tonnes grading 0.058% moly. A cutoff grade of 0.04% moly was used.

The company has drilled 60 holes since the last estimate was done in 2007. Highlights from the most recent results include 219 metres grading 0.09% moly and 277 metres grading 0.094% moly.

“We are confident we will extend reserves at the site and that will no doubt extend the life of the project,” Jones says.