For the last two years, Adanac Molybdenum (TSXV: AUA; US-OTC: AUAYF) has tried to find a buyer for all or part of the companyl, and its Ruby Creek molybdenum project in B.C.
The company has notified the market that if a suitable third-party investor does not materialize in the near-term, management will liquidate Adanac’s assets and return the proceeds to shareholders.
A liquidation of this sort would require two-thirds majority approval by the company’s shareholders, but it’s unlikely that would be an obstacle, president and CEO Leonard Sojka says, explaining in an interview that five shareholders hold 90% of the company’s shares and are “motivated” sellers.
The Adanac shareholders were all Adanac creditors who received shares in the company after it filed for bankruptcy.
“These shareholders have given it nearly three years from the Feb. 28, 2011, emergence from the Canadian bankruptcy process,” Sojka says. “They do not want to wait for the next up moly cycle. Ruby Creek belongs in the hands of a competent mining company.”
Ruby Creek, 24 km northeast of Atlin, is Adanac’s sole asset, and the company believes the project’s value “exceeds the liquidation value.”
The 100%-owned project is fully permitted for construction and almost permitted for operation, with no carried interests, royalties or off-take arrangements, Sojka says. An updated resource estimate in May 2009 defined a measured and indicated resource of 275.4 million tonnes grading 0.067% moly for 407.9 million lb. of the metal.
While the company has signed several non-disclosure agreements for Ruby Creek, none of the interested parties have made an offer.
Adanac has written off $40 million in costs related to drilling, assays, environmental studies and permitting, Sojka says, “so there is a lot of information value inherent in the project, which is reflected in the several resource updates and feasibility studies.”
When the feasibility study was done in 2007, moly prices were in the low US$30s per lb. By first-half 2009 they had fallen to US$8 per lb., Sojka says, and at press time they were at US$9.75 per lb.
“It’s not clear when prices for moly would be high enough to justify building Ruby Creek,” he continues, “but there is tremendous optionality for anyone owning the project for the day when prices improve. It’s one of just a small handful of permitted mines in B.C. — we could start construction tomorrow.”
Sojka says if an interested buyer believes that moly prices are going to rebound strongly in five years or so, they could buy the project now and move it toward development, “instead of rushing to catch a moly window.”
He says that “they could develop it methodically and economically much faster than trying to get another project permitted and built from the ground up . . . a savvy mining company could build Ruby Creek efficiently, and perhaps at a significantly lower cost when moly prices recover.”
The company contends that while Ruby Creek was designed as an open-pit operation, its geology and several high-grade drill holes suggest there is potential for underground development beneath and adjacent to the pit.
Mineralization occurs in a blanket of coarse-grained quartz monzonite and mafic quartz monzonite porphyry that dips away from the porphyry dome to the southwest and southeast, and the company says there is potential for higher-grade mineralization at depth.
Further exploration could extend the 20-year mine life outlined in the feasibility study, Adanac says. The deposit’s North zone is open to depth, and higher grade has been found at depth outside the west end of the pit design, with highlighted intercepts of 183 metres grading 0.097% moly, including 15 metres of 0.715% moly from 346 to 361 metres.
Metallurgical test work in 2005 and 2006 indicated 92% recoveries, and the company believes that a higher throughput of 30,000 to 40,000 tonnes per day (well above the 23,000-tonne-per-day operation used in the feasibility study) could improve project’s economics, as could substituting liquefied natural gas for diesel to power the mill, which would reduce annual energy costs.
The project is accessible year-round by dirt road, and is a two-hour drive from Whitehorse.
“Adanac belongs in the hands of a mining company that wants to buy an asset cheaply and build and operate a mine,” he says.
The junior was trading at 17¢ per share at press time, within a 52-week range of 12.5¢ to 28¢ per share.
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