Mining projects to advance despite weakening prices

Bruce Hansen, chief executive officer of General Moly, says there's finally light at the end of the tunnel for the company headquartered at Lakewood, Colo. that's slowly been advancing plans for a massive molybdenum mine in Eureka County.

It's a similar story across the industry as mining companies move ahead with projects in Nevada even as they keep a wary eye on weakening prices for many minerals.

General Moly expects to begin construction in 2013 at its flagship Mt. Hope project, which has been in the planning stages since 2006. It's been a long road that's seen the price of molybdenum tumble from $25 or even $35 a pound in 2008 to around $11 at the end of 2012 because to sagging demand for high-tech specialty steel alloys that use molybdenum.

Molybdenum isn't the only commodity that's suffered from weakened demand. Copper prices for much of 2012 hovered between $3.30 and $3.90 a pound, and even gold dipped from its high of more than $1,800 an ounce to under $1,550 an ounce in May. Silver has fluctuated as well from the high $20s to high $30s per ounce; however, it's still at a price that's still attractive to the state's silver miners, and demand is expected to increase in 2013.

Despite molybdenum prices plunging nearly 70 percent, mining at the Mt. Hope site still is economically feasible for General Moly, Hansen says.

The company's economic modeling targets production costs at $6 to $6.50 a pound, and it's got contracts in place for the first five years of mining at Mt. Hope at floor prices of $14 to $15 a pound, Hansen says.

"We still will generate a positive net value and decent rate of return," he says. "We know we can make money at today's prices, and we can make a lot of money at more normalized prices."

General Moly expects to begin clearing shrubbery and excavating/grading topsoil in late spring to make way for the foundations of pre-fabricated warehousing and equipment facilities. Its got a 20- to 24-month construction window, Hansen says.

Investment demand for silver as a hedge against economic volatility is expected to remain around 30 percent of the 1 billion ounces produced industry-wide, says Mitch Krebs, president and chief executive officer of Coeur d'Alene Mines Corp. Coeur operates the Rochester silver mine about 15 miles outside of Lovelock.

Industrial demand, which accounts for about half of all global silver production, is projected to increase by 8 percent by 2015, Krebs says. That's a key engine to stabilizing the price of silver, which is used in electronic circuitry, solar panels and medical devices.

"What is great about silver is that a little bit is used in a lot of different end uses, and that hits all spectrums of the global population. When we have emerging middle classes, like in China, that are demanding more good and resources, it requires more infra. All of that is good for silver industrial demand," he says.

Coeur's Rochester mine was expected to produce between 2.9 and 3 million ounces of silver and 30,000 to 35,000 ounces of gold for 2012. The company expects similarly strong production performance at the site through 2013 and also plans on expanding the mine to once again make it the company's flagship property.

"We are looking at ways of further expanding Rochester," Krebs says. "Rochester has been in production for 26 years, and for most of those years it was our largest mine. 2013 will be a year of significant cash flow out of Rochester and we are working and planning to grow Rochester back into a cornerstone asset for the company."

Mining companies also face pressure from rising costs for energy, fuel and critical supplies such as tires, as well as increased costs for labor and employee benefits.

Lou Schack, director of communications for Barrick Gold of North America, says large mining companies such as Barrick have been forced to place a renewed focus on controlling costs and increase discipline in their allocation of capital in the wake of rising expenses.

"Project development and construction costs have risen dramatically, with project capital costs now measured in the billions of dollars," Schack says. "Barrick is focused on 'quality production' rather than production for its own sake. All new projects are subject to rigorous review and only those projects that provide robust returns will be developed."

Schack also says that after a decade of increasing prices and continued weakness in other investments, analysts believe gold prices will remain strong in the short and medium terms.

"We are careful to use conservative gold price ranges in our long-term planning," he says.

SIDEBAR

What to watch in 2013

Rising costs for power, supplies and labor. Commodities prices will be affected by global demand for steel, copper and molybdenum. Mining companies are drawing back on wide-scale exploration efforts and instead have begun focusing on more targeted sites with higher profit potential.