June 05, 2013 - 10:58pm EST by
2013 2014
Price: 2.08 EPS $0.00 $0.00
Shares Out. (in M): 92 P/E 0.0x 0.0x
Market Cap (in $M): 190 P/FCF 0.0x 0.0x
Net Debt (in $M): 159 EBIT 0 0
TEV (in $M): 350 TEV/EBIT 0.0x 0.0x

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  • Molybdenum
  • Commodity exposure
  • Metal
  • Joint Venture
  • Refinancing
  • two posts in one day


General Moly is "the only significant, viable, publicly traded moly company in an advanced stage of development anywhere in the world."  The Company controls two world class high grade projects (Mt. Hope and Liberty) in the United States (Nevada) that include significant production off-take arrangements, floor price protection and upside optionality.
Mt. Hope is GMO's main project.  It has 1.3b lbs of proven and probable Moly and when built, could produce annual production of 40m lb/yr.  Cash costs are estimated at $5.29/lb.  GMO and its partners have spent $220m on permitting and long lead equipment.
Liberty is the "second" project for GMO.  I will omit it from this write up as it is not yet permitted and it almost doesn't matter to the value at these levels.
Molybdenum, or "Moly", is a strategic mineral used in a wide varierty of applications.  It is primarily used for its steel strengthening properties (pipelines, weapons, aircraft, cars, power plants) as it reinforces steel strength under very high or very low temperatures.  Moly helps make steel anti corrosive and is known to have few substitutes.
In the United States, about two-thirds of Moly is used to make stainless and alloy steel.  Moly can also be used as a smoke and flame retardant, a dry lubricant, and a chemical catalyst in certain applications in the petroleum industry.
Moly peaked in the 30s before heading back to earth during the financial crisis.  It currently trades for $10.89/lb.  General Moly states that >500M lbs of moly consumed annually and demand expected to grow nearly 30M lbs per year through 2015 to over 600M lbs when Mt. Hope is projected to commence production.  This is supported by global steel demand growth (~3.5% CAGR); Historically, moly demand exceeds crude steel demand by 1% to 2%.  Price forecasts are in the $11-$16/lb range through 2017 has some decent charts on Moly.   They were hard to copy and paste here.
(you can skip this if you don't want to get granular on Moly prices)  A recent Roskill study states:
"Global demand for molybdenum bounced back from the impact of the global economic downturn by growing by just over 11% in 2010 and a further 9% in 2011. China now accounts for around 31% of global molybdenum demand and its growth rates continue to outpace those in other countries. While global demand for molybdenum is forecast to grow at an average of 4.6%py to 2016, Chinese demand is forecast to increase by 7.5%py. The principal engines of growth will be increased use of stainless and other steels containing molybdenum in process, power and desalination plants, in oil and gas production and distribution and in motor vehicle components. The greater use of molybdenum steels, high performance alloys and catalysts, combined with robust growth in the economies of the ‘ BRIC’ countries and other countries in Asia and s outh America, will ensure growing future demand for molybdenum. Primary molybdenum mines were the first to respond to the recovery in demand in 2010, but in 2011 growth in output of by-product molybdenum from copper mines outpaced growth from primary mines. In 2012, mine capacity is sufficient to meet demand and supply is likely to show a surplus over the next three years. s ome sixty new projects and expansions could potentially produce molybdenum, yielding an additional 240ktpy Mo, indicating that long term mine supply is assured. In the past insufficient roasting capacity has resulted in a bottleneck, but additional capacity has been installed and further additions are under construction in Chile, China and the us A. The longer term price prospects for molybdenum appear uncertain with apparent adequate existing mine capacity, and 140ktpy of relatively low cost by-product molybdenum in new copper-molybdenum mining projects under review, plus some 100ktpy in molybdenum-driven projects. There are, however, positive features in that the global market for molybdenum is expected to grow by some 60ktpy Mo in the years to 2016, and that many projects are likely to be delayed in coming to fruition. Furthermore, production costs in excess of $12/lb in the large Chinese molybdenum-only mining industry, probably provide an effective floor for prices."

World Demand

- POSCO, the Korean steel producer (4th largets in the world) has a 20% JV with GMO on Mt Hope.  They contributed $200m, which valued the project at $780m.  Customers that signed offtakes include Aperam, SeAH and Sojitz, all well known international players.  Aeram bought GMO shares at $8.50 in 2007.  For Mt Hope, total sales are fully committed for the first five years of operations  and up to half of sales contain hard floor prices between $14-$15/lb with ~80% upside participation above floor.
General Moly made one huge mistep.  A large shareholder, Hanlong, run by Chinese tycoon Liu Han, was given too large of a role in securing the success of Mt. Hope.  Hanlong, a massive Chinese holding company with investments in telecom, industrials and chemical companies, became a passive shareholder of GMO common stock, but also took a leadership position in helping GMO secure Chinese financing for Mt. Hope's completion.  This financing amounts to $665m, and without it, Mt. Hope will not be 'built' and no Moly will ever be mined.  20-24 months from the financing, GMO estimates Mt. Hope would be complete.  Hanlong was involved on this level for a number of reasons, ostensibly Liu Han's connections in China would make this an easy loan to source.  As a common shareholder, Han could benefit from GMO's success.  And as a congolomerate trading company, commodities player, Hanlong would ultimiately become a large customer with an influential 'seat at the table'.
But then the Moly 'hit the fan'. 
On March 20th, 2013, GMO suspended work on the $665 million loan after reports that Liu Han been detained in China.  GMO sought clarification from Sichuan Hanlong Group about the reported detention of Liu Han and the stock fell 14 percent to $2.37.  GMO was not alone in the Hanlong Chairman's detention debacle.  General Moly joined Australia’s Sundance Resources Ltd., subject of a A$1.14 billion ($1.18 billion) takeover by Hanlong, in seeking information on Liu’s status. Liu and his ex-wife were detained after attending the National People’s Congress in Beijing.  It was later revealed that Liu Han was being detained for having harboured his brother, a murder suspect.
GMO languished and has been in the dumps ever since.  What else has happened since..
Other highlights from some key GMO announcements:

On Apr 3, 2013

CEO Hansen: “The Company has made substantial progress with regards to our preliminary construction activities at Mt. Hope including early well field development, clearing and grubbing of terrain and cultural clearance. Moreover, we maintain a strong liquidity position and anticipate reporting an unrestricted cash position ranging from $54 to $58 million at the end of the first quarter with an additional $36 million in restricted cash. We will continue to prudently manage our cash position going forward as we progress our efforts toward full financing.”

On May 3rd 2013, Earnings were Announced

Excluding restricted cash, the Company’s cash balance at March 31, 2013 was approximately $57 million compared to $68 million at December 31, 2012. During the first quarter, cash use of $16 million was the result of Mt. Hope Project development, engineering, and procurement costs as well as general and administrative expenses partially offset by the receipt of $5 million in contribution payments from POS-Minerals Corporation. In December, the Company and POS-Minerals, as members of Eureka Moly, LLC (“EMLLC”), agreed to hold $36 million of the approximately $100 million received from POS-Minerals’ December 2012 contributions in a reserve account to maintain additional liquidity until the Company arranges full project financing.

In a previous project financing update, the Company reported that on March 20, 2013, the Company was notified that China Development Bank had provided instructions to its legal counsel to suspend work on the $665 million Term Loan. This suspension relates to reports that Mr. Liu Han, Chairman of Sichuan Hanlong Group has been detained by Chinese authorities. The Company is continuing efforts with Hanlong (USA) Mining (“Hanlong”) to secure another strategic partner to help advance the full financing of the Mt. Hope Project.

Bruce D. Hansen, Chief Executive Officer of General Moly, said "The Company made substantial progress with regards to our preliminary construction activities at Mt. Hope during the first quarter including early well field development, clearing and grubbing of terrain and cultural clearance.”

Mr. Hansen added, “We are working with Hanlong to secure another Chinese strategic partner to help advance the full financing of the Mt. Hope Project and reinvigorate advanced stage loan negotiations with China Development Bank. Our efforts to secure such a strategic partner are enhanced, given that we are advancing a fully permitted, construction-ready, high grade / lower cost molybdenum deposit along with our EMLLC partner POS-Minerals.”

On May 14, 2013

General Moly and Hanlong (USA) Mining (“Hanlong”) mutually agreed to terminate a $125 million subordinated loan agreement intended to supplement a $665 million Chinese sourced term loan for the financing of the Mt. Hope Project. The subordinated loan agreement, which would have become available upon receipt of the Chinese sourced term loan, was terminated to provide General Moly with greater flexibility in securing an additional Chinese strategic partner. The termination of the subordinated loan agreement also cancels the arrangement fee of $6.25 million payable upon closing of a Chinese sourced term loan. Further, the warrant with a 2.5 year maturity to purchase ten million shares of General Moly common stock at a strike price of $4.23 per share was terminated. Bruce D. Hansen, Chief Executive Officer of General Moly, said, “Hanlong’s cooperation and assistance is appreciated as we move forward to secure another Chinese strategic partner capable of advancing the full financing of the Mt. Hope Project and reinvigorating advanced stage loan negotiations with China Development Bank.”

Mr. Hansen added, “Our efforts to secure such a strategic partner are incrementally enhanced by the elimination of these warrants which reduces the potential for future dilution. We are actively marketing the Mt. Hope Project as a fully permitted, construction-ready, high grade / lower cost molybdenum deposit supported by our joint venture partner POS-Minerals, and recently attracted a number of parties in China who are beginning to engage in due diligence.”

Mr. Hansen concluded, “We are also in discussions to negotiate an equipment lease agreement on the mobile mining fleet to replace all or part of the subordinated loan agreement component of our Mt. Hope Project finance plan.”

We have to believe that Liu Han's personal activities are separate from Hanlong, and that GMO is furiously working on getting financing.  If this project is as good as it looks given the numbers and outlook for Moly, shouldn't other banks be lining up to do this deal?  Liu Han has nothing to do with GMO's controls, financial statements or operations.  He was basically a passive holder and a banker.  Why should his arrest be a cause for concern?  This is a US domiciled fully permitted prjoect that will create hundreds of jobs in Nevada.  I think it gets financed.  Insiders seem to agree - although the purchases below are small, teh y are additions to some already sizeable Management stakes.
Apr 21st 2013: CEO Hansen buys 30,000 at $1.86 per share, bringing his holdings to 1.1m shares.  On May 20th, Board Member Scott Roswell bought 7,300 shares at $2.04.  Roswell now owns 60,500 shares.  Well thought of value shop Coghill owns 8.85%, Arcelor Mittal owns 9.0% and Hanlong owns 13%

Thompson Creek Metals Company Inc. (TSX:TCM) has an EV of $1.1b on reserves of 516m lbs of Moly, or $2.13 per lb.
Giving credit to only Mt. Hope and ignoring Liberty, $2.13 per lb of Moly would give GMO an EV of $2.77b  If I subtract the $665m loan, the $206m minority interest, and assume that net cash is burned through and is zero, I get $1.8b / 91m shares or $19.78 per share, an absurd number on the surface.  But think of it like this... At 40m lb of production per year at a cash cost of $6.00 and a depressed Moly price of only $12.00, GMO can make $240m per year in EBITDA.  At the high end estimate of $16/lb of Moly, GMO would earn $400m per year in EBITDA.  This gives the company an EV/EBITDA of 11.5x on the low Moly price and 6.9x on the higher Moly price.  Not unreasonable at all.
Keep this in mind.  We don't really care what GMO can earn in the end...
The play with GMO is the following... You have to believe that Mt. Hope is a real and viable project that the major players involved, including Posco, aren't just going to walk away from.  1.  They need the Moly and 2. They have already sunk a lot of time and capital into GMO to see their investment evaporate because of one rogue player.  The fact that the Company's burn rate is low, that insiders have bought, and that we have waited this long for a resolution, makes me think that it could be time to start building a position.

I think that the announcement of a secure and stable financial partner and/or a resolution to Hanlong, would cause GMO shares to double, at a minimum.  From a long term perspective, if construction were to commence, you would have to dig deeper, get more comfortable on the price/cost deck, and get yourself to an operating model.  For now, it is a catalyst play.  In the interim, burn is low, so we have time to wait for something to happen.

WSJ Article on Liu Han: In Nevada, a Chinese King of the Hill
I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.


 Resolution of financing issue by one or more of the folllowing:
- capital raise by outside bank
- resupmtion of talks with the Chinese
- cash infusion by well financed strategic parters
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