General Moly left searching for funding

Despite the disappointment of suspended negotiations on a $665 million loan that would have financed much of the $1.2 billion development cost of its Mount Hope molybdenum mine near Eureka, executives at General Moly aren’t biting their nails with anxiety.

General Moly learned March 20 that term-loan negotiations with China Development Bank and mining/investment conglomerate Sichuan Hanlong Group had been suspended following the arrest of Hanlong’s chairman, Liu Han, in Beijing for harboring his brother, a fugitive in a murder case.

Nearly $400 million of the loan was to be guaranteed through China Development Bank, and the balance from Hanlong, says Zach Spencer, external communications director for General Moly. The company headquartered at Lakewood, Colo. expected to complete loan negotiations with China Development Bank in the second quarter of 2013.

General Moly has been working on the Mount Hope project 23 miles northwest of Eureka since 2006. Spencer says company executives are no strangers to troubled times — General Moly successful rode out a crippling global recession and tumbling molybdenum prices, Spencer notes, and it will overcome its recent financing setback as well with minimal hand-wringing.

The news of suspended loan negotiations had an adverse effect on General Moly’s stock, causing a roughly 15 percent drop on March 20. The stock last week was trading just north of $2 on the New York and Toronto exchanges. The company still had between $54 and $58 million in unrestricted cash on its books at the end of the first quarter, Chief Executive Officer Bruce Hansen says. General Moly also is working with Hanlong to find other strategic Chinese partners to help finance Mount Hope.

“We feel this path provides the most promise in the near term given China’s strategic long-term view towards moly sourcing and our current exclusivity agreement with Hanlong,” Hansen says.

Though the arrest of Hanlong’s top executive clouds General Moly’s near-term plans at Mount Hope — as well as the future of several large-scale mining deals that were in the works with Hanlong — General Moly continues to move forward at Mount Hope and also seeks to re-establish loan negotiations with China Development Bank, Spencer says. Alternatively, he says, General Moly will seek other avenues of financing for the Mount Hope mine.

“We are still waiting to get an update from China Development Bank,” he says. “This is a very experienced management team. They were able to keep the company and project together during the global financial crisis of 2008 and 2009 and continued to move forward with the project. That speaks very well to the economic viability of the project. We know how to manage our cash and our company through challenging times.”

The Mount Hope mine is expected to be far and away the largest employer in Eureka County and is expected provide a financial boon to the remote county, the 20th least-densely populated county in the nation.

After several years of delays due to the recession and weak molybdenum prices as global demand for steel cratered, initial pre-construction work began Mount Hope in late 2012 when General Moly received its record of decision from the Bureau of Land Management in November. The company began clearing and grubbing land, cultural clearance, and installation of a pipeline from nearby Kobeh Valley that will provide water for construction and mining activities.

“2012 was a great year for General Moly,” Spencer says. “We received several Nevada state permits and the Record of Decision, and we received an infusion of cash from one of our investment partners. It was definitely a very big year for us and a very productive year.”

POSCO, one of world’s largest steel producers and an investor in the project since 2008, provided $64 million in financing to General Moly for early-stage development costs at Mount Hope. POSCO owns 20 percent of the project, while General Moly is the majority stakeholder at 80 percent. Other investors include SeAH Besteel Corp. of Korea and ArcelorMittal of Luxemborg.

General Moly did not plan on jumping into full construction activities until it had secured the loan from China Development Bank, Spencer says, so executives now plan to kick-start negotiations with either the bank or Hanlong.

Construction of mine-site facilities is expected to take between 18 and 22 months, and once complete, General Moly can begin production of molybdenum. Moly’s two main uses are in stainless steel and high-strength specialty steels, the International Molybdenum Association says.

“The project remains very sound — it is a world-class molybdenum deposit,” Spencer says. “First and foremost we are trying to get negotiations started again with our existing partners and investors, and then we will consider and evaluate other options and work through those options. We have those already assessed if we need to go down that path.”