Between moving towards production at its newly acquired Kitsault mine, actively looking for byproduct molybdenum streams from other miners and keeping an eye out for other acquisition targets, Denver-based Avanti Mining will likely have its hands full over the next few years.
And that is just fine with president and CEO Craig Nelsen, who sees the year-old company as a potential consolidator in the molybdenum space.
Nelsen, who resigned as exploration chief at gold major Gold Fields in May last year to head Avanti, believes there is potential to position the company as “an institutional grade, multimine moly stock”.
The price of molybdenum has risen from around $10/lb in 2004, to a peak of around $40/lb a year later, and is currently at about $33/lb.
The metal is used to strengthen steel, in steel pipes and drills, and other extreme high- or low-temperature applications, as well as to prevent corrosion.
While most of the world's molybdenum supply is still produced as a byproduct from primary copper mines, this percentage is shrinking, as many new copper mines and projects don't or won't produce molybdenum.
OUT OF THE STARTING BLOCKS
Avanti has been casting its eye over two early copper/gold exploration prospects in British Columbia since it began trading on the CNQ stock exchange in August last year, but it is the agreement to buy the past producing Kitsault mine, in British Columbia, that has catapulted it into the ranks of developers with real near-term production prospects.
The company published a NI 43-101-compliant resource estimate for the mine last week - at a 0,04% moly cut-off grade the project contains an indicated mineral resource of 158-million tons grading 0,10% molybdenum, containing 348-million pounds of molybdenum.
Inferred mineral resources are estimated at 133-million tons, grading 0,08% molybdenum, containing 235-million pounds of molybdenum.
Kitsault produced about 30-million pounds of molybdenum until it was closed in 1982, because of low moly prices.
The company expects the acquisition, from a subsidiary of Alcoa, to close by mid-October, and the next step will be to undertake a preliminary economic assessment and then determine an optimal permitting and feasibility path, says Nelsen.
If Avanti can complete an initial drill programme this season, a feasibility study could then be wrapped up by 2009.
“Permitting, post-feasibility study, could take up to two years, with construction taking about the same amount of time,” Nelsen estimates.
While the firm plans to focus its best efforts towards bringing Kitsault into production as soon as possible, other potential acquisitions will not pass unnoticed.
“We will be open to any other good opportunities in the moly sector that might come our way...in fact, we hope to be a consolidator in this sector.”
IN GOOD COMPANY
With more than one half of the world's molybdenum supply produced as a byproduct, Avanti is also hoping to replicate some of the success of fellow Canadian Silver Wheaton, which buys silver streams from miners at a fixed price and then sells it on at the current market price.
Although this may seem like a tall order for a new entrant, particularly as molybdenum is not traded like silver, the fact that Silver Wheaton's CEO Peter Barnes sits on the Avanti board, and that its strategic advisory team boasts dealmaking names like former Newmont Mining chief Pierre Lassonde and ex-Gold Fields chairperson Chris Thompson, is not likely to hurt matters.
David Cohen, who heads Gold Wheaton, the gold-stream firm which was launched a couple of months ago by some of the same people who were behind Silver Wheaton, is also a director of Avanti.
A “significant” amount of time has already been invested in pursuing a molybdenum offtake strategy from byproduct moly producers, says Nelsen.
“Although this strategy has not yielded any results to date, we have not abandoned this plan and will continue to look for opportunities in the offtake market when available.”
There are about fifteen large- to medium-sized companies that currently produce molybdenum as a byproduct, including the world's biggest source of the metal, US-based Freeport-McMoRan Copper & Gold.
'THE ENERGY METAL'
Besides the obvious steel-linked demand upside from countries like China, Russia and India, Nelsen also points to the prospects for surging molybdenum demand from the world's energy sector.
Deep-sea drilling for oil requires molybdenum-alloy steel for pipes, pumps, drill bits, and the construction of both the drilling and the permanent deep-sea platforms, and when this is taken together with the demand generated from new-build and retrofitting of power stations, which require molybdenum for high-temperature, high-strength and corrosion-resistant alloys for cooling systems, “moly is truly the energy metal,” Nelsen comments.
At the same time, global inventories are close to historic lows and new supply, while available, is only keeping pace with demand.
Chinese export quotas on molybdenum have also contributed to an already tight market.
“Producers are trying to bring on additional capacity, but planned projects continue to be delayed...we feel that it is going to be hard to get markets back into surplus on a sustained basis and that inventories will remain at very low levels for a long time.”