American CuMo (TSXV:MLY, Forum) has seen rough times and good. Seldom out of the news, it’s one of those companies that, if it were a football player, would have been a high draft pick that had spent the last three years on the DL.
A resource explorer sitting on a large molybdenum deposit, the company has been through multiple boardroom revolts, endured several lawsuits, and has for a long time been saying ‘when the dust settles, this will be a big deal.’
The big deal is looming. And American CuMo is getting creative in financing it.
We spoke to CEO Shaun Dykes about ‘the bad old days’ last week, but today we’re giving him a chance to speak of the future of the company.
But first, the basics.. Like, what the hell is Molybdenum?
A: Molybdenum, or Moly for short, was discovered in the late 18th century and has come to be used in numerous industrial products. Molybdenum is tough, durable, and enhances steel in harsh environments where heat, pressure and corrosion are present. Due to its low toxicity, moly is also a catalyst in energy production.
Q: Is it an environmentally friendly metal?
A: Moly is an in-demand, safe and strong metal. It acts as a catalyst, so it reduces sulfur content in diesel and, when used as a natural fertilizer, it can boost crop yields by as much as 30%. Molybdenum concentrate, or sulfide, is usually roasted and converted to an oxide. The oxide, known as Technical Molybdic Oxide, is a corrosion-resistant, steel super-alloy that is used in desalination plants, pipelines, off-shore drilling, aerospace manufacturing, ship building and in other areas where strong corrosive resistant steels are required. The use of such Advanced High Strength Steel (AHSS) increases safety and efficiency in construction.
Q: American CuMo obviously had a lot of potential investors on the sidelines for a while, waiting for your team to demonstrate that you had things moving forward after previous management had imploded. Do you think the expanded resource you put out last week confirms that progress, and can we expect more good news in the short term?
A: The expanded resource is the first step for moving forward. The project has also been progressing on the permitting front, with the announcement of the positive draft decision on our exploration permit. As we move forward, we will continue increasing shareholder value by improving the resource and the dynamics of the project, while consulting with various engineering groups and all stakeholders in the project.
Q: In times of downturn, the market usually ditches developing world projects first and shrinks back to the more stable, cost effective regions like the US and Canada to look for opportunity. Tell me about Idaho as a place to mine – is the local community behind your project? Have local government been easy to deal with? Is the infrastructure already there to move forward quickly?
A: That’s exactly why we are located in Idaho - because it is an extremely stable and cost-effective region. Idaho has a strong mining history and operating costs are significantly less that other places in world.
The USA and Idaho have a need for strategic metals like molybdenum as the domestic supplies are limited and they don’t want to become dependent on foreign producers for these metals.
American CuMo has gone out of its way to engage the local community and its politicians in the development of the CuMo project and we continue to get strong support from the residents and politicians. The area around CuMo has been heavily mined and logged over the past 100 years and there is a lot of remnant contamination, so we plan to appropriately deal with this historic mining contamination while ensuring an environmentally-friendly and properly run exploration and development program.
Q: Community approval is an increasingly important part of getting a mine up, where is CuMo at on that front?
A: One of the reasons we have good strong local support is that American CuMo has demonstrated its willingness to cooperate with the community. We have established that the project will not harm the environment and in fact, will create in an improved overall environment of the area. Finally, the hiring of local people brings much needed jobs and money into the local economy.
A: Economies of Scale. The tremendous cost-saving benefits of economies of scale that have been applied to numerous large copper and gold mines have not yet been applied to a moly deposit or mine.CuMo is such a large deposit that it makes it possible to take advantage of economies of scale and create an extremely efficient, low-cost mine. In addition to its huge scale, the presence of significant quantities of copper, silver, tungsten and rhenium in the deposit help to further reduce the cost of producing the metals.
Q: Hence the silver streaming program.
A: Correct.
Q: So let’s talk about that. In a market where a lot of companies are not even trying to raise financing, you've emerged with a somewhat unique financing option in your decision to engage in silver streaming. For an investor who doesn't know what that is, can you explain the process?
A: Silver streaming is a process whereby an investor can purchase the right to buy silver from future production. In the case of our financing, an investor purchases silver debenture units for US$250,000 per unit. Each unit gives the right to purchase 375,000 ounces of silver for $5 per ounce. The debenture is exchanged for the right to purchase silver at the time the Company makes the decision to proceed into commercial production. The silver is delivered from 50% of the silver the CuMo Project produces in any one year.
While the investor waits for a production decision to be made, the Company pays 8.5% interest, paid semi-annually. Should the investor decide to accrue the interest, the accrued interest can be used to purchase additional units. The $250,000 for the right to purchase silver then becomes a cost for tax purposes, thus reducing taxes on the profits obtained from the silver stream.
For example, with silver prices currently around $15 per ounce, a US$250,000 investment of one unit could return approximately $3.75 million in profit. Every dollar increase in the price of silver translates into an additional $375,000 in profit per unit. No matter how high the price of silver goes, the unit holder will always pay only $5 per ounce, providing enormous upside profit potential.
The TSX Venture Exchange has approved this financing but has restricted insiders from participating as they consider this silver stream opportunity too lucrative. Overall, we feel this is an excellent opportunity for sophisticated investors and a creative way to finance our company in a tough market environment.
Q: Coming out of a down market, the first sign that things are on the way up is acquisition talk. Is your property one that is primed for a larger player to come in and throw around the cash, or is there still some work to do to move into the sights of a major?
CuMo is definitely primed for a large player to come in with a reasonable deal or offer that is beneficial to our shareholders. The new measured and indicated resource clearly establishes the size of CuMo. Any examination of costs and profitability will reveal CuMo’s enormous potential and long mine life. Finally, in project to project comparisons, CuMo demonstrates better economics than the majority of the world’s most successful mining projects. I think that once the larger players return to thinking long-term, rather than worrying about the week to week gyrations in the market, the CuMo Project will attract significant interest and meaningful offers.
Q: Many smallcap investors look out for companies like yours that have had a checkered past but, though they have moved through that phase, have yet to be recognized by the market as having done so. Do you see American Cumo as being in that sweet spot for a retail investor looking for a buy-low arbitrage opportunity?
A: Definitely, that’s why I have been purchasing a significant amount of our shares at current levels. I believe this is a huge opportunity given the size and value of the CuMo asset. This asset has already been discovered and is continually expanding and becoming more and more valuable. A simple examination of the numbers and economics of CuMo shows that even at today’s low metal prices, the deposit shows enormous value. An opportunity like this doesn’t come around very often, if ever. We hold a world-class, low-cost deposit, located in a politically stable area of the world where governments can’t take away your profitability, in a junior mining company with an extremely low and attractive share price.
Some naysayers like to put down the project, but these same naysayers are the ones coming with takeover offers that effectively steal the project from the current shareholders. Part of my job as President and CEO is to protect the shareholders and obtain reasonable deals for the project.
I know the value of this project. In addition to putting in the long days and nights, I am willing to put up my own funds to purchase stock. Personally, I’m not in this Company for cents per share gains – I’m in for dollars per share gains.
--Chris Parry
FULL DISCLOSURE: American CuMo Mining is a Stockhouse Publishing marketing client.