TTM Resources Inc

By Charles Wyatt

Canadian listed TTM Resources has kicked 2008 off in great style. First it announced some additional high grade molybdenum intersections from its Chu project in British Columbia. It then followed these with an initial resource estimate.
The latest intersections drilled with a view to determining grade and width of the quartz-molybdenum stockwork zone between the high grading west and east zones of the Chu property, and also to test the near surface molybdenum mineralization of the east zone. This is the sort of information required when thoughts are turning to the possibility of production. The company won’t have been discouraged from that kind of thinking by the results that came in: intersections such as 50.9 metres grading 0.101% molybdenum over 50.9 meters starting at a depth of 199.1 metres; and that within a longer interval of 265.9 meters grading 0.063% molybdenum from a depth of 13.3 metres. There’s further encouragement too, for the potential for production, as the overall drill results demonstrated consistent mineralization, with grade tending to increase at depth.

It is interesting also to remember that chief executive Crichy Clarke knows his investor audience and managed to come up with some good intersections in the run-up to PDAC last year. So good, in fact, that even on a bad week for the market the shares rose by 60 per cent to C$0.53. Given that the current price is C$1.13, this is not a bad overall performance. Apart from Crichy’s marketing skills, it must also owe something to the growing appreciation among investors of the attractions of molybdenum. Put at its simplest, molybdenum is a vital component for steel manufacture, and the rising price of iron ore tells the world that demand, especially from China, is still on the up. Molybdenum is a refractory metallic element used principally as an alloying agent in steel, cast iron, and the superalloys used in the aerospace industry. Its function is to enhance strength, toughness, and wear and corrosion resistance.

The versatility of molybdenum in enhancing this variety of alloy properties has ensured it a significant role in contemporary industrial technology, with its growing requirement for materials that are serviceable under high stress, expanded temperature ranges, and highly corrosive environments. Oil pipelines and nuclear waste vessels are just a couple among countless such applications. Moreover, molybdenum is also widely used in numerous chemical applications, such as catalysts, lubricants, and pigments. There are few acceptable substitutions, and little pressure on price as its actual content in any product is very small. In fact the price rose from US$25 per lb to US$35 per lb last year, and is still near the top end of this scale. Typical molybdenum grades may look on the low side to those more used to looking at the grades of precious and some more common base metals, but 0.1% molybdenum equates to 224 lbs of the metal in one tonne of ore. A quick bit of maths puts a value of nearly US$8,000 on each tonne of ore in the ground. Discount this as much as you like: it still has plenty going for it.

The crux of the TTM story is that Chu is only 75 kilometres southeast of the Endako open pit molybdenum mine, 75 per cent owned by Thompson Creek Metals, formerly Blue Pearl Mining. Endako also boasts a mill and roasting facility, but has run in to difficulties lately following a rockslide in the pit at the end of last year which curtailed production to the tune of nearly one million lbs molybdenum. Since then, the Endako mill has continued to operate and produce molybdenum, using ore sourced from the Denak West pit and the Endako stockpile. However, due to the higher moisture content of the ore from both these sources, the mill has not been able to run at full capacity and that, along with the lower average grade of the ore being processed, has reduced production. Up at Chu, meanwhile the infrastructure in terms of power, paved highway and rail and water is excellent. All of which means Crichy Clarke has some serious thinking to do. He could either do a deal with Thompson Creek to treat the Chu ore, since the shortfalls at Endako must be beginning to bite, he could negotiate a joint venture, or he could sell out.

There was no news about moisture content of the ore at Chu in the initial resource estimate from Giroux Consultants, but it is worth noting that the ore grade at the Endako mill averaged 0.06% molybdenum in the first 10 months of 2007 and the average grade in the Denak West pit is 0.65% molybdenum. Obviously the grade in the stockpile is a lot lower, so Chu, which shows an indicated resource of 235.3 million tonnes at 0.067 per cent molybdenum and an inferred resource of 221.5 million tonnes at 0.063 per cent, will certainly look attractive to Thompson Creek. And there is clearly plenty more to come at Chu as drilling was limited to 500 metres and the mineralisation is open at depth and in several directions. A full 43-101 compliant report is on the way and the company will use this data as the basis for a preliminary assessment of the property.

In the meantime Crichy Clarke reckons he has been handed a strong bargaining tool when he gets into negotiations with Thompson Creek. Thompson Creek itself will have to decide when it can get back into its open pit, but first it has to have discussions with the insurance people as well as the mines inspector. One option for Thompson Creek might be to fast-track the Davidson molybdenum mine at Smithers, but even that will take time. The bare facts are that the 43-101 report will tell everyone exactly what TTM Resources has got, Thompson Creek is in takeover mode since listing in New York, and it could come in for some criticism if someone else acquired TTM and/or the Chu project under its nose. Eric Sprott will certainly want to be consulted as his Moly Fund holds shares in both companies, and he may well play a crucial role in the outcome.