Interesting article about how a junior could obtain funding for the development of a mine.
http://www.resourceinvestor.com/pebb...
An excerpt follows:
"So, how does a very smart end user of molybdenum, ThyssenKrupp Metallurgie [LSE:THK], who are still capable of modernizing not only their mills but their thinking, make a long-term deal to ensure its supply of ferromolybdenum so that it can keep making high strength, low corrosion, low creep steel for oil field tubular goods, cooling systems for coal, oil, gas and nuclear fired power plants, vehicle exhaust manifolds and Panzerwagens?
Moly Mines [TSX:MOL; ASX:MOL] announced on Wednesday a 10-year offtake agreement with German company ThyssenKrupp Metallurgie for all molybdenum production from the Spinifex Ridge project. Construction is under way at Spinifex Ridge, located in Western Australia’s Pilbara region, scheduled for completion in the second half of 2009. The mine could have a life of up to 30 years.
Investors and purchasing agent’s take note: This transaction was nothing less than the creation of a 21st century hedge against non-availability of future supply and to insure the end user that it will obtain the material at less than market at the time of delivery and in exactly the form it needs for direct use.
I perhaps should have called this article “How molybdenum has been hedged,” because I want to elaborate for you the straightforward financial and product management techniques by which an end-user of molybdenum set up a hedge with a junior about-to-be-if-it-is-funded producer of molybdenum so that the end-user could guarantee his supply of molybdenum in the future as well as lock in a price that will always be below market. This transaction should be a model for all end-users and all junior molybdenum miners on how to finance the development of a mine.
The first 21st century virtual hedge contract for molybdenum, the outline of which has been publicly disclosed, is as follows:
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ThyssenKrupp will take delivery of and purchase 100% of the molybdenum product from Moly Mines’ Spinifex Ridge as oxide and ferro-molybdenum, after it has been processed by Moly’s strategic partner, the Chilean metallurgical group Molymet;
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Pricing will be determined according to market prices and conditions at the time of sale, currently at $33.50/lb;
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Moly Mines’ Spinifex Ridge project is in Western Australia’s Pilbara region and construction is scheduled for completion in the second half of 2009;
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ThyssenKrupp has also agreed to participate in the equity financing component for the Spinifex Ridge project, subject to final board approvals.
So, in summary, an off-take agreement has been concluded that allows the end-user to obtain at a time certain for a market determined price a specific form of a metal in consideration of the end-user either collateralizing loans from a third party financing institution to be converted into purchased equity in the producer or to purchase such equity directly and, in either case, finance the development of the mine."
