General Moly gets Chinese backing

A flurry of news from General Moly (GMO-T, GMO-N) had the company playing market darling, in early March.

The Lakewood, Colorado-based company saw its shares climb 52% or $1.41 to $4.08 on March 5, after announcing a substantial Chinese investment in the company.

Sichuan Hanlong Group plans to take a 25% stake in General Moly and secure a US$665-million loan from what it calls a “Prime Chinese Bank.”

The loan is anticipated to come in at a rate of Libor plus 2-4%. The equity investment will bring US$80 million into General Moly’s coffers.

Hanlong is also providing a US$20-million bridge loan to help get General Moly’s Mt. Hope project restarted. That loan will be repaid with funds from the larger senior debt.

The market rallied around the news because it means that the company now has the funding to bring the Mt. Hope molybdenum project in central Nevada into production.

Mt Hope has 1.3 billion lbs. of proven and probable molybdenum reserves.

It is slated to turn out 40 million lbs. of molybdenum per year for the first five years.

South Korea’s POSCO, the world’s fourth-biggest steelmaker, is a part owner of the project with a 20% stake.

As for Chinese interest in the project, the move comes as part of the country’s continued push to secure significant mining operations. While China is currently the world’s largest molybdenum producer, it has also become its largest consumer.

That has much to do with China’s large infrastructure program that was announced as an antidote to the financial crisis of 2008. Molybdenum is used as an additive to stainless steel to make the product more resilient.

On the financials side, General Moly had some good news to deliver to the market as it narrowed its losses in the fourth quarter to $2.2 million, or 3¢ a share, down from 4¢ for the same period the year previous.

The company has US$49 million in cash and short-term investments.

General Moly gave a molybdenum market update as part of its financial results. The company says that over the fourth quarter of 2009, spot molybdenum prices traded between US$10.60 and US$13.50 per lb. finishing the year at US$12 per lb., and then moving up to US$18 per lb. more recently.

“Price fluctuations continue to be primarily driven by changing Chinese demand patterns, but are also beginning to be driven by improving steel demand within the energy sector, particularly the oil country tubular goods market,” the company said in its release.

It also stated, prices well above last year’s low of US$8 per lb. will be supported by Chinese imports, increasing steel demand in developing nations, modestly improving demand in the United States and Europe, and an end to global inventory destocking, and molybdenum supply reductions.