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The moly market saw some positive activity last week. US-based General Moly announced a “significant investment” and security purchase agreement with AMER International Group, a private multinational company based in China.
The molybdenum market has been a little downtrodden lately. The general consensus seems to be that the metal will likely face headwinds in the short term, though the longer-term picture is more promising.
Those involved in the space are also currently contending with uncertainty regarding Chinese export restrictions. The World Trade Organization (WTO) ruled last year that China’s export restrictions on rare earths, moly and tungsten are inconsistent with its obligations as a WTO member, and ordered it to remove quotas and export taxes on those commodities. Originally that was supposed to happen by January 1, 2015, but the time was then pushed back to May 1, 2015.
That date is now fast approaching, but according to Platts, China still hasn’t said how it will respond to those requirements. The news outlet states that some believe Chinese authorities plan to raise domestic taxes on moly mining at the same time export taxes and quotas are eliminated, thereby “continuing to curb exports while complying with the WTO guidelines.”
However, amid all that confusion and lackluster market activity, the moly space saw some positive activity last week when US-based General Moly (TSX:GMO,NYSEMKT:GMO) announced a “significant investment” and security purchase agreement with AMER International Group, a private multinational company based in China.
According to General Moly’s Friday press release, the deal with AMER will help it secure full project financing for its Nevada-based Mount Hope project, which is a joint venture with South Korean steel company POSCO. It’s fully permitted and contains about 1.3 billion pounds of proven and probable moly reserves.
Looking at the specifics of the deal, General Moly notes that AMER has entered into a private placement for 40 million common shares of General Moly priced at $0.50 each. Furthermore, AMER will help General Moly “procure and support a senior secured term loan” of about $700 million from “a major Chinese bank or banks.” When the drawdown of that loan becomes available, 80 million warrants to purchase common shares of General Moly will become exercisable.
Furthermore, the companies have “agreed on substantial terms of a definitive agreement that would provide a one-time option exercisable simultaneously with Bank Loan execution to purchase the balance of General Moly’s share of Mt. Hope molybdenum production” for the first five years that the mine is in production. After that the amount will drop to 70 percent of General Moly’s annual share.
Speaking positively about the deal, Bruce Hansen, CEO of General Moly, commented, “[t]his transaction is a major catalyst for General Moly as it provides a sizable component of our expected equity requirement and greatly strengthens our potential to access global financial institutions, particularly Chinese banks, to finance a significant portion of the remaining capital necessary for the development of the Mt. Hope Project. Overall, we regard this alliance as a substantial step forward for General Moly’s goal to being fully financed and constructed at Mt. Hope.”
In terms of what’s in it for AMER, Chairman Wang Wenyin noted, “[w]e regard the Mt. Hope and Liberty projects as two of the most promising molybdenum assets worldwide, and highly complementary to our copper and tungsten operations, as well as our production of fine machining and advanced cable products. This transaction is critical for advancing our goal of securing a long-term supply of high-grade, low cost molybdenum in a stable jurisdiction to help drive AMER’s operational performance and sustainable long lasting growth.”
It will be interesting to see how work at Mount Hope proceeds, especially in light of the current moly market and the uncertainty surrounding China’s export restrictions. Thus far market participants have reacted well — at close of day Friday, General Moly’s share price was up 42.86 percent on the TSX, at $1, and up 24.53 percent on the NYSE MKT, at $0.721.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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