PART I
ITEMS 1. & 2.BUSINESS AND PROPERTIES
The Company
References made in this Annual Report on Form 10-K to “we,” “our,” “us,” and the “Company” refer to General Moly, Inc. and its consolidated Mt. Hope Project joint-venture subsidiary Eureka Moly, LLC, referred to as the “LLC.”
We are in the business of the exploration, development and mining of properties primarily containing molybdenum. Our main asset is an 80% interest in the Mt. Hope Project (“Mt. Hope Project”), a primary molybdenum property, located in Eureka County, Nevada. In 2006, we acquired a second significant molybdenum and copper project, the Liberty Project (“Liberty Project”), located in Nye County, Nevada, which we wholly own. The Liberty Project is anticipated to become our second molybdenum and copper operation, after commencement of commercial production at the Mt. Hope Project, with initial production dependent on market conditions.
Corporate Information
The Company was initially incorporated in Idaho under the name “General Mines Corporation” in 1925. We have gone through several name changes and on October 5, 2007, we reincorporated the Company in the State of Delaware (“Reincorporation”) through a merger of Idaho General Mines, Inc. with and into General Moly, Inc., a Delaware corporation that was a wholly-owned subsidiary of Idaho General Mines, Inc. with General Moly, Inc. being the surviving entity. In connection with the Reincorporation, all of the outstanding securities of Idaho General Mines, Inc. were converted into securities of General Moly, Inc. on a one-for-one basis. For purposes of the Company’s reporting status with the U.S. Securities and Exchange Commission (“SEC”), General Moly, Inc. is deemed a successor to Idaho General Mines, Inc. Our common stock is traded on the NYSE American market under the symbol “GMO” and, in February 2008, the Company began trading on the Toronto Stock Exchange (“TSX”) under the same symbol. Our registered and principal executive office is located at 1726 Cole Blvd., Suite 115, Lakewood, Colorado 80401 and the phone number for that office is (303) 928-8599.
We maintain a website at www.generalmoly.com, on which we post free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, Extensible Business Reporting Language (“XBRL”) documents, and any amendments to these reports under the heading “Investors” as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We also routinely post important information about the Company on our website under the heading “Investors.” We do not incorporate the information on our website into this document and you should not consider any information on, or that can be accessed through, our website as part of this document. The SEC also maintains a website that contains our reports and other information at www.sec.gov.
Corporate Strategy and Objective
Our corporate strategy has been to acquire and develop highly profitable advanced stage mineral deposits. Our corporate objective is to profitably develop and operate the Mt. Hope Project and to complete our evaluation and commence development of the Liberty Project. Presently, we are focused on obtaining financing required to maintain the continuing operations of the Company and to work toward financing to jointly develop the Mt. Hope Project with our LLC joint-venture partner, while at the same time conserving our cash resources until such financing is received.
We believe we have the following business strengths that will enable us to achieve our objectives:
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We have retained a strong, proven management team with experience in mine development, project financing, and operations.
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The Mt. Hope Project is anticipated to be one of the largest and lowest cost primary molybdenum projects in the world, driven, in part, by high ore grades that will be processed early in the mine life.
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Our Liberty Project has the potential to become a second, significant, molybdenum and copper operation and is wholly-owned by the Company and royalty-free.
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The Mt. Hope Project and the Liberty Project are located in Nevada, which has a long and ongoing history of large-scale, open pit mining operations.
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Both the Mt. Hope Project and the Liberty Project have near-by infrastructure for labor, power, access roads, and water and have an environmentally sound design.
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We have strong international support from the steel industry as evidenced by the strategic partnerships and off-take agreements we have in place with several of the world’s largest steel companies.
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We are observing tightening molybdenum supply and anticipate improving long-term market fundamentals for molybdenum based on anticipated renewed global industrial growth and steel demand upon the subsidence of the ongoing global health crisis, and we believe that the molybdenum price will then resume appreciation.
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Products
We do not currently produce any products. When the Mt. Hope Project is developed, the LLC expects production of 40 million pounds of molybdenum (“Mo”) per year over the first five years on average, and approximately 1.2 billion pounds of molybdenum over the expected 41-year life of the project (based on a $12/lb Mo reserve). Using the $8/lb Mo reserve referenced later in this report, life of mine production declines to approximately 0.5 billion pounds of molybdenum. The Mt. Hope Project will primarily focus on producing Technical Grade Molybdenum Oxide (“TMO”), which is widely utilized by the steel industry. In the future, we may also consider producing ferromolybdenum (“FeMo”), which is also used by the steel industry and would make the Company an integrated supplier to the steel industry and have left space in the process plant design for the Mt. Hope Project to accommodate this process.
Molybdenum is a refractory metal with unique properties. Approximately 70% to 80% of molybdenum applications are in steel making. Molybdenum, when added to plain carbon and low alloy steels, increases strength, corrosion resistance and high temperature properties of the alloy. The major applications of molybdenum containing plain and low alloy steels are automotive body panels, construction steel and oil and gas pipelines. When added to stainless steels, molybdenum imparts specialized corrosion resistance in severe corrosive environments while improving strength. The major applications of stainless steels are in industrial chemical process plants, desalinization plants, nuclear reactor cooling systems and environmental pollution abatement. When added to super alloy steels, such as those used in jet turbine blades and other advanced aerospace engine components, molybdenum dramatically improves high temperature strength, thermal expansion and contraction resistance and resistance to oxidation. The effects of molybdenum additions to steels are not readily duplicated by other elements and as such are not significantly impacted by substitution of other materials.
Other significant molybdenum applications include lubrication, catalytic sulfur reduction in petrochemicals, lighting, LCD activation screens, x-ray generation, high temperature heat dissipation and high temperature conductivity. These areas represent the highest technical and value-added applications of molybdenum.
Competitive Conditions
Molybdenum exploration, development and production is a competitive business. We anticipate competing worldwide with numerous molybdenum suppliers once the Mt. Hope Project achieves production.
The supply of molybdenum comes from both primary molybdenum mines, such as our proposed Mt. Hope Project, and as a byproduct of porphyry copper production. Annual molybdenum supply is estimated by the CPM Group to be approximately 600 million pounds. Although many companies produce molybdenum, some of which also mine other minerals, approximately two-thirds of global production is concentrated among the leading ten companies, and the largest producing country, China, accounting for over 40% of total production.
When and if we develop either or both our Mt. Hope Project and/or Liberty Project and commence production, our competitive position will be based on the quality and grade of our ore bodies and our ability to manage costs compared with other producers.
Employees
The Company had a total of 12 employees, including 10 exempt and 2 hourly employees, as of December 31, 2019.
Description of the Mt. Hope Project
Overview
The discussion in this section is based on the entire Mt. Hope Project, of which we own an 80% interest. The LLC is responsible for the development of the Mt. Hope Project. The Mt. Hope Project will include the development of an open pit mine, construction of a concentrator and a roaster, and construction of all related infrastructure to produce TMO, the most widely used molybdenum product.
From November 2004 through August 2007 we conducted numerous exploration, drilling and evaluation studies, culminating in the completion of a Bankable Feasibility Study (“BFS”) for the Mt. Hope Project. The BFS provides data on the viability, expected economics, and production and cost estimates of the project. Since publication of the BFS, we have revised several estimates, based primarily on engineering progress, which remains approximately 65% complete at December 31, 2019. Our current estimates for the Mt. Hope Project capital cost requirements are referred to as the “Project Capital Estimate” and our current estimates for the Mt. Hope Project operating costs are referred to as the “Project Operating Cost Estimate”.
In 2005, we initiated the baseline studies necessary for development of an Environmental Impact Statement (“EIS”). We completed an initial Plan of Operations (“PoO”), which the BLM accepted in September 2006. In December 2006, the BLM selected an environmental firm to complete the EIS for the Mt. Hope Project. The Company worked diligently with the environmental firm to complete the EIS, which culminated in the issuance of a Record of Decision (“ROD”) in November 2012, approving the EIS. The original ROD was challenged in the federal courts and vacated by the Ninth Circuit in 2016. A supplement to the EIS (“SEIS”) was published on September 27, 2019 and announced that the BLM had re-issued the ROD, marking completion of the NEPA process, approval of the SEIS, and reauthorization of the PoO. The ROD was challenged a second time on October 31, 2019, as discussed below.
On January 16, 2014, we filed an updated technical report (the “January 2014 Technical Report”) prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects of the Canadian Securities Administration (“NI 43-101”) for the Mt. Hope Project, estimating molybdenum reserves and resources, production, capital and operating cost parameters and project economics. The NI 43-101 is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges within Canada. The completed report estimates molybdenum reserves and resources, production, capital and operating cost parameters, along with project economics.
The January 2014 Technical Report stated a proven and probable mineral reserve containing 984.6 million tons averaging 0.070% sulfide molybdenum, resulting in 1.4 billion pounds (1.1 billion pounds owned by us), of which 1.2 billion pounds (1.0 billion pounds owned by us) are estimated to be recoverable (molybdenum pounds contained in Technical Grade Molybdenum Oxide (“TMO”). The proven and probable mineral reserves (eight-phase base plan) stated in the January 2014 Technical Report were developed at a price of $12.00/lb of molybdenum (“Mo”). Since the filing of the January 2014 Technical Report the molybdenum price has declined and the proven and probable mineral reserve has been updated and is shown in the section “Reserves and Mineralized Material” found later in this filing.
The Mt. Hope Project — the Mt. Hope Lease
The Mt. Hope molybdenum project is owned/leased and, when developed, will be operated by the LLC under the LLC Agreement, described below under “—Mt. Hope Project Ownership”. The LLC currently has a lease (“Mt. Hope Lease”) with Mount Hope Mines, Inc. (“MHMI”) for the Mt. Hope Project for a period of 30 years from October 19, 2005 and for so long thereafter as operations are being conducted on the property. The lease may be terminated earlier at the election of the LLC, or upon a material breach of the lease and failure to cure such breach. If the LLC terminates the lease, termination is effective 30 days after receipt by MHMI of written notice to terminate the Mt. Hope Lease and no further payments would be due to MHMI. If MHMI terminates the lease, termination is effective
upon receipt of a notice of termination of a material breach, representation, warranty, covenant or term contained in the Mt. Hope Lease and followed by failure to cure such breach within 90 days of receipt of a notice of default. MHMI may also elect to terminate the Mt. Hope Lease if the LLC has not cured the non-payment of obligations under the lease within 10 days of receipt of a notice of default.
Located in Eureka County, Nevada, the Mt. Hope Project consists of 13 patented lode claims and one millsite claim, which are owned by MHMI and leased to the LLC, and 1,521 unpatented lode claims, including 109 unpatented lode claims owned by MHMI and leased to the LLC and 1,412 unpatented lode claims owned by the LLC. Patented claims are owned real property and unpatented claims are held subject to the paramount title of the United States of America (“U.S.”) and remain valid for as long as the claim contains a discovery of valuable minerals as defined by law and the holder pays the applicable fees.
The Mt. Hope Lease is subject to the payment of certain royalties. See “—Royalties, Agreements and Encumbrances” below. In addition to the royalty payments, the LLC is obligated to maintain the property and the Mt. Hope Project’s associated water rights, including the payment of all property taxes and claim maintenance fees. The LLC must also indemnify MHMI against any and all losses incurred as a result of any breach or failure to satisfy any of the terms of the Mt. Hope Lease or any activities or operations on the Mt. Hope property.
The LLC is not permitted to assign or otherwise convey its obligations under the Mt. Hope Lease to a third party without the prior written consent of MHMI, which consent may be withheld at its sole discretion. If, however, the assignment takes the form of a pledge of our interest in the Mt. Hope Project for the purpose of obtaining project financing, MHMI’s consent may not be unreasonably withheld. The Mt. Hope Lease further requires the LLC to keep the property free and clear of all liens, encumbrances, claims, charges and burdens on production except as allowed for project financing.
The Mt. Hope Lease requires that the terms of any project financing must provide that: (i) any principal amount of debt can only be repaid after payment of the periodic payments as set out in the Mt. Hope Lease; (ii) the lenders may not prohibit or interfere with any advance royalty payments due to MHMI under the Mt. Hope Lease; and (iii) no cash sweeps or payments of excess cash flow may be made to the lenders in priority of such advance royalty payments, as discussed in “ — Royalties, Agreements and Encumbrances” below.
The Mt. Hope Lease also contains an after acquired property clause, which requires that any property acquired by the LLC within two miles of the boundary of the Mt. Hope Project be conveyed to MHMI if requested within a certain time period following notification of such acquisition. MHMI has requested that we maintain ownership of all new claims filed by the LLC, which now includes 1,412 unpatented lode claims.
Property Description and Location
The Mt. Hope molybdenum project is located on the eastern flank of Mt. Hope approximately 21 miles north of Eureka, Nevada. The Mt. Hope Project is located at the southern end of the northwest-trending Battle Mountain-Eureka
mineral belt. Mt. Hope is approximately 2.6 miles due west of Nevada State Route 278 (“Route 278”), and the Mt. Hope Project centers in sections 1 and 12, T22N-R51E and sections 12 and 13, T22N-R51½E.
Royalties, Agreements and Encumbrances
Advance Royalty
For the production of molybdenum, the Mt. Hope Lease requires a royalty advance (“Construction Royalty Advance”) of 3% of certain construction capital costs, as defined in the Mt. Hope Lease. The LLC is obligated to pay a portion of the Construction Royalty Advance each time capital is raised for the Mt. Hope Project based on 3% of the expected capital to be used for those certain construction capital costs defined in the Mt. Hope Lease. Through December 31, 2019, we have paid $26.1 million of the total Construction Royalty Advance. Based on our Mt. Hope Project capital budget we estimate that a final reconciliation payment on the Capital Construction Cost Estimate (the “Estimate”) will be due following the commencement of commercial production, after as-built costs are definitively determined. The Company estimates that, based on the revised capital estimate discussed above and the current timeline for the commencement of commercial production, an additional $5.4 million will be due approximately 24 months after the commencement of construction. This amount was accrued as of December 31, 2019. The capital estimates will be subject to escalation as the Company experiences continued delays associated with current market conditions, the permitting process and its ability to seek and obtain full financing for the Mt. Hope Project.
The LLC is also obligated to make a minimum annual advance royalty payment (“Annual Advance Royalty”) of $0.5 million each year for any year wherein commercial production has not been achieved or the MHMI Production Royalty (as hereinafter defined) is less than $0.5 million. As commercial production is not anticipated to commence before late-2022, the Company has also accrued $1.5 million in Annual Advance Royalty payments which will be due in three $0.5 million installments in October 2020, 2021 and 2022, respectively. The 2019 payment was made on October 19, 2019. The Estimate and the Annual Advance Royalty are collectively referred to as the “Advance Royalties.” All Advance Royalties are credited against the MHMI Production Royalties once the molybdenum mine has achieved commercial production. After the mine begins production, the LLC estimates that the MHMI Production Royalties will be in excess of the Annual Advance Royalties for the life of the Mt. Hope Project. Until the advance royalties are fully credited, the LLC will pay one half of the calculated Production Royalty annually. Assuming a $12 molybdenum price, the Annual Advance Royalties will be consumed within the first five years of commercial production.
On February 28, 2018, EMLLC and MHMI entered into an amendment to the Mt. Hope Lease. The amendment
primarily concerns non-molybdenum royalty arrangements that are applicable to the copper-silver target and zinc mineralization, discussed below. The amendment provides for net returns production royalties of 4% for all non-molybdenum minerals. With respect to zinc production only, there is the potential to increase the 4% royalty to 5% dependent on increasing zinc prices. These royalties are consistent with other royalty mining practices in Nevada.
Production Royalty
Following commencement of commercial production, the LLC will be required to pay a molybdenum production royalty to MHMI and Exxon Corporation (“Exxon”) as follows:
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MHMI Production Royalty
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After commencement of commercial production at the Mt. Hope Project, the LLC will be required to pay to MHMI a production royalty equal to the greater of: (i) $0.25 per pound of molybdenum metal (or the equivalent of some other product) sold or deemed to be sold from the Mt. Hope Project; or (ii) 3.5% of net returns (“Base Percentage”), if the average gross value of products sold is equal or lower than $12.00 per pound, or the Base Percentage plus 1% of net returns if the average gross value of products sold is higher than $12.00 per pound but equal or lower than $15.00 per pound, or the Base Percentage plus 1.5% of net returns if the average gross value of products sold is higher than $15.00 per pound (“MHMI Production Royalties”). As used in this paragraph, the term “products” refers to ores, concentrates, minerals or other material removed and sold (or deemed to be sold) from the Mt. Hope Project; the term “gross value” refers generally to proceeds received by us or our affiliates for the products sold (or deemed to be sold); and the term “net returns” refers to the gross value of all products, less certain direct out of pocket costs, charges and expenses actually paid or incurred by us in producing the products.
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Exxon Production Royalty
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Exxon will receive a perpetual 1% royalty interest in and to all ores, metals, minerals and metallic substances mineable or recoverable from the Mt. Hope Project in kind at the mine or may elect to receive cash payment equal to 1% of the total amount of gross payments received from the purchaser of ores mined/removed/sold from property net of certain deductions.
Mt. Hope Project Ownership
From October 2005 to January 2008, we owned the rights to 100% of the Mt. Hope Project. Effective as of January 1, 2008, we contributed all of our interest in the assets related to the Mt. Hope Project, the Mt. Hope Lease, discussed above, into the LLC, and in February 2008 entered into a joint venture agreement (“LLC Agreement”) for the development and operation of the Mt. Hope Project with POS-Minerals Corporation (“POS-Minerals”). Under the LLC Agreement, POS-Minerals owns a 20% interest in the LLC and General Moly, through Nevada Moly, LLC (“Nevada Moly”), a wholly-owned subsidiary, owns an 80% interest. The ownership interests and/or required capital contributions under the LLC Agreement can change as discussed below.
Under the terms of the LLC Agreement, since commercial production at the Mt. Hope Project was not achieved by December 31, 2011, the LLC will be required to return to POS-Minerals $36.0 million, since reduced to $33.6 million as discussed below, of its capital contributions (“Return of Contributions”), with no corresponding reduction in POS-Minerals’ ownership percentage. Effective January 1, 2015, as part of a comprehensive agreement concerning the release of the reserve account described below, Nevada Moly and POS-Minerals agreed that the Return of Contributions will be payable to POS-Minerals on December 31, 2020; provided that, at any time on or before November 30, 2020, Nevada Moly and POS-Minerals may agree in writing to extend the due date to December 31, 2021; and if the due date has been so extended, at any time on or before November 30, 2021, Nevada Moly and POS-Minerals may agree in writing to extend the due date to December 31, 2022. If the repayment date is extended, the unpaid amount will bear interest at a rate per annum of LIBOR plus 5%, which interest shall compound quarterly, commencing on December 31, 2020 through the date of payment in full. Payments of accrued but unpaid interest, if any, shall be made on the repayment date. Nevada Moly may elect, on behalf of the Company, to cause the Company to prepay, in whole or in part, the Return of Contributions at any time, without premium or penalty, along with accrued and unpaid interest, if any.
The original Return of Contributions amount due to POS-Minerals is reduced, dollar for dollar, by the amount of capital contributions for equipment payments required from POS-Minerals under approved budgets of the LLC, as discussed further below. As of December 31, 2019, this amount has been reduced by $2.4 million, consisting of POS-Minerals 20% share of equipment purchases, such that the remaining amount due to POS-Minerals is $33.6 million. If Nevada Moly does not fund its additional capital contribution in order for the LLC to make the required Return of Contributions to POS-Minerals set forth above, POS-Minerals has an election to either make a secured loan to the LLC to fund the Return of Contributions or receive an additional interest in the LLC estimated to be 5%. In the latter case, Nevada Moly’s interest in the LLC is subject to dilution by a percentage equal to the ratio of 1.5 times the amount of the unpaid Return of Contributions over the aggregate amount of deemed capital contributions (as determined under the LLC Agreement) of both parties to the LLC (“Dilution Formula”). At December 31, 2019, the aggregate amount of deemed capital contributions of both parties was $1,090.8 million.
Furthermore, the LLC Agreement permits POS-Minerals to put/sell its interest in the LLC to Nevada Moly after a change of control of Nevada Moly or the Company, as defined in the LLC Agreement, followed by a failure by us or our successor company to use standard mining industry practice in connection with the development and operation of the Mt. Hope Project as contemplated by the parties for a period of twelve (12) consecutive months. If these circumstances should occur, POS-Minerals may exercise its option to put or sell its interest, and thereafter, Nevada Moly or its transferee or surviving entity would be required to purchase the interest for 120% of POS-Minerals’ total contributions to the LLC, which, if not paid timely, would be subject to 10% interest per annum.
The LLC Agreement requires the Company and POS-Minerals to make monthly pro rata capital contributions to the LLC to fund costs incurred. The interest of a party in the LLC that does not make its monthly pro rata capital contributions to fund costs incurred is subject to dilution based on the Dilution Formula. All required monthly contributions have been made by both parties in accordance with the terms of the agreements between the parties.
The Reserve Account
Effective January 1, 2015, Nevada Moly and POS-Minerals signed an amendment to the LLC Agreement under which a separate $36.0 million belonging to Nevada Moly, held by the LLC in a reserve account established in December 2012, is being released for the mutual benefit of both members related to annual jointly approved Mt. Hope Project expenses into 2021. In January 2015, the reserve account funded a reimbursement of contributions made by the members during the fourth quarter of 2014, inclusive of $0.7 million to POS-Minerals and $2.7 million to Nevada Moly. The remaining reserve account funds are now being used to pay ongoing jointly approved expenses of the LLC until the Company obtains full financing for its portion of the Mt. Hope Project construction cost, or until the reserve account is exhausted. Any remaining funds after financing is obtained will be returned to the Company. The balance of the reserve account was $3.4 million and $6.2 million at December 31, 2019 and December 31, 2018, respectively.
Agreement with AMER International Group
Private Placement
As announced in April 2015, the Company and AMER International Group Co., Ltd (“AMER”) entered into a private placement for 40.0 million shares of the Company’s common stock and warrants to purchase 80.0 million shares of the Company’s common stock, priced using the trailing 90-day volume weighted average price (“VWAP”) of $0.50 on April 17, 2015, the date the Investment and Securities Purchase Agreement (“AMER Investment Agreement”) was signed. General Moly received stockholder approval of the transaction at its 2015 Annual Meeting, and of material amendments to the transaction at a special meeting held in December 2017.
On November 2, 2015, the Company and AMER entered into an amendment to the AMER Investment Agreement, utilizing a three-tranche investment. The first tranche of the amended AMER Investment Agreement closed on November 24, 2015 for a $4.0 million private placement representing 13.3 million shares, priced at $0.30 per share, and warrants (“the AMER Warrants”) to purchase 80.0 million shares of common stock at $0.50 per share, which would become exercisable upon availability of an approximately $700.0 million senior secured loan (“Bank Loan”). The funds received from the $4.0 million first tranche private placement were divided evenly between general corporate purposes and an expense reimbursement account available to both AMER and the Company to cover anticipated Mt. Hope financing costs and other jointly sourced business development opportunities. In addition, AMER and General Moly entered into a Stockholder Agreement allowing AMER to nominate a director to the General Moly Board of Directors
and additional directors following the close of the third tranche, discussed below, and drawdown of the Bank Loan. The Stockholder Agreement also governed amer’s acquisition and transfer of General Moly shares. Prior to closing the first tranche the parties agreed to eliminate certain conditions to closing. Following the closing, AMER nominated Tong Zhang to serve as a director of the Company, and he was appointed by the Board of Directors on December 3, 2015. Mr. Zhang was nominated by the Board of Directors to stand for election at the 2018 General Meeting of Stockholders and was elected by the stockholders to serve as a Class II director for a three (3) year term expiring in 2021, subject to re-election. On July 29, 2019, Mr. Zhang resigned from the Board of Directors.
On October 16, 2017, the Company and AMER announced the closure of the second tranche of the parties’ three-tranche financing agreement. At the close of the second tranche, General Moly issued 14.6 million shares to AMER, priced at the volume weighted average price (“VWAP”) for the 30-day period ending August 7, 2017 (the date of the parties’ Amendment No. 2 to the AMER Investment Agreement) of $0.41 per share for a private placement of $6.0 million by AMER. $5.5 million of the equity sale proceeds were available for general corporate purposes, while $0.5 million was held in the expense reimbursement account established at the close of the first tranche to cover costs related to the Mt. Hope Project financing and other jointly sourced business development opportunities.
The third tranche of the amended Amer Investment Agreement was to include a $10.0 million private placement representing 20.0 million shares, priced at $0.50 per share (“Tranche 3”). Closing of Tranche 3 was conditioned upon the earlier of the reissuance of water permits for the Mt. Hope Project or completion of a joint business opportunity involving use of 10.0 million shares of General Moly stock.
The issuance of shares in connection with Tranche 3 was approved by General Moly stockholders in December 2017 at a Special Meeting of Stockholders.
The Company and AMER have jointly evaluated other potential opportunities, ranging from outright acquisitions and privatizations, or significant minority interest investments with a focus on base metal and ferro-alloy prospects, where the Company would benefit from management fees, minority equity interests, or the acquisition of both core and non-core assets. The Company and AMER have considered but not completed any such transactions to date and we are not currently evaluating potential opportunities with AMER. From commencement of the AMER Investment Agreement in 2015 to December 31, 2019, the Company and AMER spent approximately $2.5 million from the expense reimbursement account described above in connection with such evaluations.
Amer Disputes Obligation to Close Tranche 3 Private Placement Obligation
The last closing conditions for Tranche 3 under the AMER Investment Agreement included issuance of water permits for the Mt. Hope Project. The water permits were issued by the Nevada State Engineer on July 24, 2019. On July 26, 2019, the Company provided formal notice to AMER that the conditions to closing of Tranche 3 had been satisfied, and that AMER had two business days (until the close of business on Tuesday, July 30, 2019) to close the transaction. On July 31, 2019, the Company sent a Notice of Default to AMER, as AMER failed to fund and close Tranche 3 by the July 30, 2019 deadline.
On August 1, 2019, the Company received a letter from AMER dated July 30, 2019, purporting to terminate the AMER Investment Agreement, referencing its earlier letter received by the Company on July 18, 2019, in which AMER alleged uncured material adverse effects and alleged breaches of the AMER Investment Agreement by the Company (which include concerns related to US/China relations, concerns regarding the delay in obtaining environmental permits and solvency concerns). The Company believed that such assertions were inaccurate and wholly without merit under the terms of the AMER Investment Agreement. Additionally, as AMER disputed its obligation to fund the close of Tranche 3, the Company believed that AMER’s attempted termination of the AMER Investment Agreement was ineffective. With AMER’s failure to fund Tranche 3, the Company had inadequate cash to continue operations and was forced to evaluate its options, including pursuing asset sales, short-term financing options and, if such efforts were unsuccessful in obtaining sufficient financing, the possibility of seeking bankruptcy protection.
On August 28, 2019, the Company engaged King & Spalding, an international arbitration and litigation firm, to represent the Company in its Tranche 3 dispute with AMER. The Company also formally notified AMER that a Dispute, as defined by the AMER Investment Agreement, existed between the parties as a result of AMER’s failure to close Tranche 3. The notification required that one representative of each of the executive management of the parties be designated and authorized to attempt to settle the Dispute and the representatives were to meet in good faith to resolve
the Dispute. If the designated representatives did not resolve the Dispute within 10 business days after delivery of the Notice, the Dispute was subject to resolution by binding arbitration, pursuant to the AMER Investment Agreement in Hong Kong SAR under the rules of the International Chamber of Commerce.
On October 14, 2019, the Company announced that it had entered into an agreement with AMER to extend the dispute negotiation period (“Extension Agreement”). Under the terms of the Extension Agreement, the Company received $300,000 from AMER in exchange for an extension of the negotiation period to November 15, 2019, on which date the Company’s CEO Bruce Hansen and AMER Chairman Wang Wen Yin met to discuss settlement options. With the payment, AMER had the right, at its option, to apply the Extension Fee among the following: (1) credit against a final negotiated settlement; (2) credit against any AMER payment obligation to the Company, pursuant to an arbitration award; or (3) as consideration for the purchase of the Company’s common stock, priced at the 30-day volume weighted average price, as of the date immediately prior to the date that AMER demands delivery of such shares.
On December 9, 2019, the Company and an affiliate of AMER announced the closure of a $4.0 million private placement at a price of $0.40 per common share of General Moly common stock under a new Securities Purchase Agreement (“SPA”) and amended and restated warrant agreement (“New AMER Warrant”), resolving the Dispute. Additionally, the parties agreed to a mutual release, terminating the previous AMER Investment Agreement, the prior Warrant, and the Dispute Negotiation Extension Agreement (“Extension Agreement”). The parties’ previous Stockholder Agreement expired by its terms on November 24, 2019. In addition to the 10.0 million shares issued by General Moly to AMER in the private placement, AMER also received 1.1 million General Moly common shares priced at $0.27/share, the 30-day volume weighted average price of the Company’s shares on December 6, 2019 utilizing the previously $300,000 extension fee, pursuant to the terms of the Extension Agreement.
Additionally, AMER nominated Mr. Siong Tek (“Terry”) Lee to serve the remaining term of AMER’s previous director nominee (Tong Zhang) expiring at the Company’s annual meeting in 2021. AMER may nominate a second director to the Board so long as its shareholding exceeds 20% of the Company’s shares outstanding.
Bank Loan
Under the new SPA, AMER has agreed to use its reasonable best efforts to assist the Company in obtaining a loan from one or more prime Chinese banks (“Bank Loan”), for the Company’s share of construction and development costs at the Mt. Hope Project. As discussed above, for every $100 million of sourced Chinese bank lending that AMER has assisted in contributing to a completed $700 million project debt financing, AMER may exercise 12 million warrants issued under the New AMER Warrant at an exercise price of $0.50 per share, up to 80 million warrants.
Supply Agreement
Furthermore, upon closing of a minimum of $100 million from AMER’s efforts toward the completion of a Chinese bank $700 million project financing, AMER has the option to enter into a moly supply agreement with General Moly to purchase Mt. Hope Project sourced moly at a small discount to spot pricing when the Mt. Hope Project achieves full commercial production. The saleable amount of moly to AMER escalates from an aggregate 3 million pounds per year to 20 million pounds per year over the first five years of mine production based on the level of project financing assisted by AMER towards the $700 million project financing.
Permitting
Permitting Process Overview
The development, operation, closure and reclamation of mining projects in the U.S. require numerous notifications, permits, authorizations, and public agency decisions. This section does not attempt to exhaustively identify all of the permits and authorizations that need to be granted, but instead focuses on those that are considered to be critical for Mt. Hope Project and/or Liberty Project start-up.
Environmental Evaluations
There are certain environmental evaluations that routinely must be completed in order to provide the information against which project impacts are measured. Both the BLM and Nevada Department of Environmental
Protection (“NDEP”) have requirements to profile existing conditions and to evaluate what effects will result from developing the Mt. Hope Project.
Reports summarizing background information on geology, air quality, soils, biology, water resources, wildlife, vegetation, noise, visual resources, social and economic conditions, and cultural resources have been assembled and have been submitted to the appropriate regulatory agencies. These reports have been approved during the permitting process.
Mt. Hope Permitting Requirements
The Mt. Hope Project requires both federal and state of Nevada permits before construction and operations can commence. Major permits required for the Mt. Hope Project include the ROD, a BLM issued permit, water appropriation permits from the Nevada Division of Water Resources, the Water Pollution Control (“WPC”) permit and Reclamation Permit from the NDEP—BMRR, received in November 2012, and an Air Quality Permit (“AQP”) from the NDEP—Bureau of Air Pollution Control (“BAPC”), received in May 2012. We continue to comply with the conditions of these permits and update or renew them as appropriate.
History of Record of Decision (ROD)
On November 16, 2012, the BLM issued its initial ROD authorizing development of the Mt. Hope Project. The ROD was subsequently vacated by the U.S. Court of Appeals for the Ninth Circuit in December 2016, discussed below. Also, on April 23, 2015, the BLM issued a Finding of No Significant Impact (“FONSI”) supporting their Decision to approve an amendment to the PoO. The initial ROD and FONSI/Decision approved the PoO and amended PoO, respectively, for construction and operation of the mining and processing facilities and also granted the Right-of-Way, and amended Right-of-Way, respectively, for a 230kV power transmission line, discussed below. Monitoring and mitigation measures identified in the initial ROD and FONSI, developed in collaboration with the regulatory agencies involved throughout the permitting process, will avoid, minimize, and mitigate environmental impacts, and reflect the Company’s commitment to be good stewards of the environment. Ongoing changes to permits and the PoO during the life of mining operations are typical as design evolves and operations are optimized.
On February 15, 2013, Great Basin Resource Watch and the Western Shoshone Defense Project (“Plaintiffs”) filed a Complaint against the U.S. Department of the Interior and the BLM (“Defendants”) in the U.S. District Court, District of Nevada (“District Court”), seeking relief under the National Environmental Policy Act (“NEPA”) and other federal laws, challenging the BLM’s issuance of the initial ROD for the Mt. Hope Project, and on February 20, 2013 filed a Motion for Preliminary Injunction. The District Court allowed the LLC to intervene in the matter.
On August 22, 2013, the District Court denied, without prejudice, Plaintiffs’ Motion for Preliminary Injunction based on a Joint Stipulation to Continue Preliminary Injunction Oral Argument, which advised the District Court that as a result of economic conditions, including the Company’s ongoing financing efforts, all major ground disturbing activities had ceased at the Mt. Hope Project.
On July 23, 2014, the District Court denied Plaintiffs’ motion for summary judgment in its entirety and on August 1, 2014 the Court entered judgment in favor of the Defendants and the LLC, and against Plaintiffs regarding all claims raised in the Complaint.
Thereafter, on September 22, 2014, the Plaintiffs filed their notice of appeal to the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) of the District Court’s dismissal. Oral argument of the parties before the Ninth Circuit was completed on October 18, 2016. On December 28, 2016, the Ninth Circuit issued its Opinion rejecting many of the arguments raised by the Plaintiffs, but issued a narrow reversal of the BLM's findings related to air quality analysis and information related to potential public water resources. Because of this technical deficiency, the Court vacated the initial ROD.
Re-Issuance of Record of Decision Approving Supplemental Environmental Impact Statement (“SEIS”)
On remand from the Ninth Circuit to the BLM, the agency conducted additional evaluation of air quality impacts and resulting cumulative impact analysis under NEPA in preparation of a Supplemental Environmental Impact Statement (“SEIS”). The SEIS disclosed additional information to the public related to the selection of appropriate background concentrations to use for dispersion modeling of air pollutants and information related to potential public
water reserves. Because the SEIS must be prepared in accordance with NEPA guidelines, the SEIS process included three publications in the Federal Register: the first was the Notice of Intent (“NOI”) which was published on July 19, 2017; the second, the Notice of Availability (“NOA”) of the Draft SEIS (“DSEIS”) was published on March 6, 2019, and on September 27, 2019; the third, an NOA of the Final SEIS, was published announcing that the BLM had re-issued the ROD marking completion of the NEPA process, approval of the SEIS, and reauthorization of the PoO. On October 31, 2019, a Complaint was filed against the U.S. Department of Interior and the BLM in the U.S. District Court in Nevada, challenging the re-issuance of the ROD.
On March 11, 2020, the LLC filed its unopposed Motion to Intervene in the U.S. District Court on behalf of the Mt. Hope Project. The District Court approved the LLC’s intervention on March 19, 2020 and the LLC’s Answer to the Complaint was filed on March 20, 2020. The LLC will work closely with the BLM and DOI to defend the claims filed by Great Basin Resource Watch and Western Shoshone Defense Project.
Reclamation Considerations
Environmental regulations related to reclamation require that the cost for a third party contractor to perform reclamation activities on the minesite be estimated. In October 2015, we submitted a request to the BLM to reduce our reclamation liability to current surface disturbance. Simultaneously, we submitted an application to NDEP-BMRR to modify the Reclamation Permit to reflect this reduced reclamation liability. On October 26, 2015, NDEP-BMRR approved the proposed permit modification, including the reduced reclamation liability amount. On December 21, 2015, BLM approved the updated reclamation liability estimate, reducing the reclamation liability to approximately $2.8 million. In early 2019, the Company submitted, and BLM approved a required 3-year update to the reclamation liability estimate, resulting in an increased liability of approximately $3.1 million. We worked with the LLC’s reclamation surety underwriters to satisfy the $2.8 million financial guarantee requirements under the approved amended PoO for the Mt. Hope Project and funded the $0.3 million increase in cash directly with the BLM in April 2019. As of December 31, 2019, the surety bond program was funded with a cash collateral payment of $0.3 million.
Utilities Environmental Protection Permit
On January 2, 2013, the Public Utilities Commission of Nevada (“PUCN”) issued the LLC a permit to construct a 230kV power line that will interconnect with Nevada Energy’s transmission system at the existing Machacek Substation located near the town of Eureka, Nevada and extend it approximately 25 miles to the planned Mt. Hope Substation. This permit was obtained pursuant to the Utilities Environmental Protection Act, intended to balance the potential environmental impact of a proposed utility with the public interest served by such facility. The PUCN permit allows the LLC to build the transmission infrastructure in a timely manner and provide the necessary capacity to power construction activities and Mt. Hope Project operations. Construction of the transmission line will also include upgrades to the existing Machacek Substation near Eureka that will improve the reliability of electrical power to the community. At full production, the Mt. Hope Project will have a total electrical demand load of approximately 75 megawatts. Transmission capacity will be secured using a network services agreement and the LLC will negotiate for generating capacity prior to the Mt. Hope Project commissioning activities, which will be available once the power line is constructed and energized.
Water Pollution Control Permit—Nevada Division of Environmental Protection—Bureau of Mining Regulation and Reclamation
The BMRR administers the program for the WPC Permit, which is required for the Mt. Hope Project. The WPC Permit program specifies design criteria for containment of process fluids and mandates development of monitoring, operational, and closure plans. The WPC Permit requires renewal every five years. We received the WPC Permit in November 2012, and have recently received approval for the renewed WPC permit.
Reclamation Permit —Nevada Division of Environmental Protection—Bureau of Mining Regulation and Reclamation and Bureau of Land Management
The BMRR administers the program for the Reclamation Permit, which is required for the Mt. Hope Project. The Reclamation Permit approves the proposed reclamation methods, specifies reclamation objectives, and requires bonding based on the reclamation cost estimate. Environmental regulations require that the reclamation cost estimate be based on the cost for a third-party contractor to perform the approved reclamation activities. We received the
Reclamation Permit in November 2012. Regulations also require that the reclamation cost estimate be updated every three years. BMRR and BLM are jointly responsible for review and approval of the reclamation cost estimate.
Air Quality Permit—Nevada Division of Environmental Protection—Bureau of Air Pollution Control
The Nevada BAPC regulations categorize permit types as Class 1 or Class 2, based on the estimated emissions amounts. The Mt. Hope Project is subject to a Class 2 permit (smaller emissions) based on emissions estimates. The permit application included an emissions inventory and dispersion modeling to demonstrate that emissions from the project will not exceed established air quality standards. Emissions are primarily associated with the crush/grind circuit (particulate matter) and the roaster (sulfur oxides). Roaster emissions will be controlled with a 99.7% estimated removal efficiency for sulfur oxides. We received the Air Quality Permit (“AQP”) in May 2012.
Minor process changes identified through continued engineering and the preliminary phase of construction, were compiled into an application to amend the AQP, and submitted to Nevada BAPC on December 23, 2013. A revised AQP was issued on July 30, 2014. The air permit requires renewal every five years. A renewal application was timely submitted to BAPC, and is being processed.
Water Rights Considerations
History of Mt. Hope Water Permits
In July 2011, the Nevada State Engineer (“State Engineer”) initially approved our applications for new appropriation of water for mining and milling use, and applications to change existing water from agricultural use to mining and milling use for the Mt. Hope Project. Subsequently, the State Engineer granted water permits associated with the approved applications and approved a Monitoring, Management and Mitigation Plan (“3M Plan”) for the Mt. Hope Project. Eureka County, Nevada and two other parties comprised of water rights holders in Diamond Valley and Kobeh Valley appealed the State Engineer’s decision approving the applications and granting the water permits to the Nevada State District Court (“District Court”) and then filed a further appeal to the Nevada Supreme Court challenging the District Court’s decision affirming the State Engineer’s decision to approve the applications and grant the water permits. In June 2013, the appeal was consolidated by the Nevada Supreme Court with an appeal of the State Engineer’s approval of the 3M Plan filed by two water rights holders. The District Court previously upheld the State Engineer’s approval of the 3M Plan and the two parties subsequently appealed the District Court’s decision to the Nevada Supreme Court.
On September 18, 2015, the Nevada Supreme Court issued an Order that reversed and remanded the cases to the District Court for further proceedings consistent with the Order. On October 29, 2015, the Nevada Supreme Court issued the Order as a published Opinion. The Nevada Supreme Court ruled that the State Engineer did not have sufficient evidence in the record at the time he approved the applications and granted the water permits to demonstrate that successful mitigation may be undertaken so as to dispel the threat to existing water rights holders.
On September 27, 2017, the Nevada Supreme Court affirmed a March 4, 2016 District Court Order vacating the 3M Plan, denying the water applications and vacating the permits issued by the State Engineer in July 2011 and June 2012. This decision of the Nevada Supreme Court was final, and not subject to further appeal.
New Change Applications for Water Use at Mt. Hope Project
After the Company received the September 2017 decision from the Nevada Supreme Court, it proceeded with new applications to change existing agricultural irrigation and mining/milling water rights owned by the Company to use at the Mt. Hope Project. These new change applications had been filed with the State Engineer in 2015 and 2016 while the above described appeals were pending before the Nevada Supreme Court. Originally, these applications and other new appropriation applications were to be addressed at a pre-hearing conference scheduled on August 25, 2016 before the State Engineer. These applications were the subject of a Writ of Prohibition or Mandamus (“Writ”) filed by Eureka County on August 23, 2016 to the Nevada Supreme Court seeking the Supreme Court’s intervention to stop further action by the State Engineer while the appeals discussed above were pending. On December 22, 2017 the Nevada Supreme Court denied Eureka County’s Writ Petition. As a result, the State Engineer allowed a pre-hearing conference held on January 24, 2018. At the pre-hearing conference the State Engineer and his hearing officer scheduled review of the new change applications for a September 11, 2018 hearing in Carson City, Nevada.
On January 2, 2018, Eureka County, and later joined by the other two protestants representing a rancher in Kobeh Valley and a ranching group in Diamond Valley, filed a motion to dismiss with the State Engineer asserting that our applications were precluded from review and approval asserting that they were repetitive of the applications denied previously by the Nevada Supreme Court in its September 2017 decision. On March 26, 2018, the State Engineer issued a non-final order denying the motion to dismiss finding that the applications to be reviewed at the upcoming hearing were not identical issues and that further consideration of the motion could be taken at the hearing. On May 14, 2018, Eureka County, joined by the other protestants filed a Writ to the Nevada Supreme Court and later a Motion to Stay the September hearing date, asserting that the denial of the Motion to Dismiss was erroneous and that the Nevada Supreme Court should order that the applications be denied and/or the September 2018 hearing should be delayed until the Nevada Supreme Court can consider the Writ and underlying motion to dismiss. The Company filed its objection on June 27, 2018, and on August 30, 2018, the Nevada Supreme Court denied the Writ, permitting the September 2018 hearing before the Nevada State Engineer to proceed.
On the second day of the September hearing, all protest issues raised by Eureka County and the Diamond Natural Resources Protections & Conservation Association (“DNR”) concerning the Mt. Hope water rights applications were resolved through a Stipulation, Settlement Agreement and Withdrawal of Protest (“Settlement”). After Eureka County and DNR were excused, the hearing continued with evidence addressing concerns raised by another protestant representing a Kobeh Valley ranching family and cattle company that refused to participate in the Settlement. At the public hearing, the Company presented expert testimony in support of its augmentation and monitoring plan to the Nevada State Engineer, which will protect senior water rights in the Kobeh Valley basin when the Company commences construction and operation of its proposed Mt. Hope molybdenum project near the town of Eureka, Nevada. The hearing concluded on September 21, 2018.
Effective April 30, 2019, the Company, through its wholly owned subsidiary Kobeh Valley Ranch LLC (“KVR”) entered into a settlement agreement with a Kobeh Valley, Nevada ranching family (“Ranchers”), resolving the last set of protests pending before the Nevada State Engineer pertaining to the Mt. Hope Project’s water rights applications.
On June 6, 2019, the Nevada State Engineer issued Ruling 6464 granting the Company’s water rights applications for mining purposes. The water right permits for the Mt. Hope Project were issued on July 24, 2019. With receipt of and in compliance with the terms of the water permits, the water is available for consumptive use at the Mt. Hope Project. Neither the issuance of Ruling 6464 nor the issuance of the water permits were challenged, and the deadline for filing any appeal has expired.
Key Terms of Settlements
Eureka County and the DNR
Under the terms of the Settlement with Eureka County and the DNR, the Company and the LLC agreed to convey all related water rights for Mt. Hope Project at the future cessation of all mining activity to assist Eureka County and the DNR’s efforts to mitigate the pre-existing effects of agricultural groundwater pumping in Diamond Valley. Furthermore, upon construction of certain power infrastructure and grants of right of way by the LLC at the Mt. Hope Project, the Company and the LLC will work cooperatively with Eureka County to allow use of and access to such infrastructure to lessen the pre-existing effects of Diamond Valley groundwater pumping. Eureka County, and the Company and the LLC, also agreed to work cooperatively to seek opportunities to improve and implement groundwater monitoring efforts.
In addition, the Company withdrew its protests to Eureka County’s pending applications with the Nevada State Engineer to appropriate water from the Kobeh Valley basin, and at the request of DNR, the Company also agreed to publicly support the proposed Diamond Valley Ground Water Management Plan currently pending before the Nevada State Engineer.
With receipt of the water permits, the LLC increased its financial contributions to the existing Agricultural Sustainability Trust Agreement, discussed above, with the Eureka Producers’ Cooperative (“EPC”) in Diamond Valley with an additional $50,000 to EPC. Initially, upon execution of the Settlement, the LLC made a payment of $50,000.
The LLC will make additional contributions of $750,000 each after the commencement of molybdenum production at the Mt. Hope Project and on the one-year anniversary of production, for a total contribution obligation to the Sustainability Trust of $5.6 million, an increase of $1.6 million related to the terms of the Settlement. The amount has been accrued under mining properties, land, and water rights in the Company’s financial statements in addition to the previously accrued $4.0 million resulting in a total accrual of $5.6 million. The LLC has contributed $0.1 million into the Trust as of December 31, 2019.
The Sustainability Trust is tasked with developing and implementing programs that will serve to slow groundwater drawdown and thereby improve the sustainability of the agricultural economy in the Diamond Valley Hydrographic Basin.
Kobeh Valley Ranching Family
At the execution of the settlement agreement, the LLC funded an initial payment of $1 million into a trust account; distribution to the Ranchers occurred when the water permits were issued on July 24, 2019. Upon receipt of the initial $1,000,000 into the trust account, the Ranchers withdrew their protests and forfeited any judicial review of Ruling 6464 and the water applications and issuance of the water permits issued on July 24, 2019 by the Nevada State Engineer.
When conditions exist for the LLC to secure project financing, additional consideration of $14,000,000 will be payable to the Ranchers. If the LLC has not secured Mt. Hope Project financing within 12 months of the executed settlement agreement or April 2020, the LLC will begin to make monthly payments of $10,000 to the Ranchers until financing is achieved and the remaining consideration will be paid to the Ranchers.
Pursuant to an April 29, 2019 Consent Agreement, the members of the LLC agreed that funding for the $1 million was advanced to the LLC by the Company, to preserve the joint venture’s existing reserve account. General Moly sourced $500,000 from its available cash, and received the remaining $500,000 from closing a sale of Series A Convertible Preferred Shares in a private placement with Mount Hope Mines Inc. (“MHMI”), the Mt. Hope Project’s claim/land lessor, discussed in Items 1 and 2 above and later in Note 7 to the consolidated financial statements contained elsewhere in this report.
In exchange for General Moly advancing the $1,000,000 initial settlement funding, the LLC members have agreed to repay the $1 million advance from the proceeds of ongoing sales of non-critical LLC assets and lands. On September 27, 2019, the Company and POS-Minerals entered into a further Consent Agreement for a reimbursement schedule concerning the approximately $700,000 owed to the Company by the LLC in return for the Company’s advance of funding to settle protests related to the water right applications for the Mt. Hope Project. Under the September Consent Agreement, $200,000 was reimbursed from the Reserve Account to the Company on September 30, 2019 and an additional $200,000 was reimbursed in early November. The remaining approximately $300,000 was reimbursed in March 2020 upon the sale by the LLC of more than $400,000 in non-critical Mt. Hope Project related equipment.
Equipment and Supply Procurement
Through December 31, 2019, the LLC has made deposits and/or final payments of $88.0 million on equipment orders and has spent approximately $208.9 million for the development of the Mt. Hope Project, for a total Mt. Hope Project inception-to-date spend of $298.7 million.
In 2012, the LLC issued a firm purchase order for eighteen haul trucks. The order provides for delivery of those haul trucks required to perform initial mine development, which will begin several months prior to commercial production. Non-refundable down-payments of $1.2 million were made in 2012, with pricing subject to escalation as the trucks were not delivered prior to December 31, 2013. Since that time, the LLC has renegotiated the timelines for truck delivery and delayed deliveries into December 2020. The contract is cancellable with no further liability to the LLC.
Also in 2012, the LLC issued a firm purchase order for four mine production drills with a non-refundable down-payment of $0.4 million, and pricing was subject to escalation if the drills were not delivered by the end of 2013. Since that time, the LLC accepted a change order which delayed delivery into December 2020. The contract remains cancellable with no further liability to the LLC.
On June 30, 2012, the LLC’s contract to purchase two electric shovels expired. On July 11, 2012, we signed a letter of intent with the same vendor providing for the opportunity to purchase the electric shovels at prices consistent with the expired contract, less a special discount in the amount of $3.4 million to provide credit to the LLC for amounts paid as deposits under the expired contract. The letter of intent provides that equipment pricing will remain subject to inflation indexes and guarantees production slots to ensure that the equipment is available when required by the LLC. Since that time, the parties agreed to extend the letter of intent through December 31, 2020.
Accessibility, Climate, Local Resources, Infrastructure, and Physiography
Access
The Mt. Hope Project has year-round access from Route 278. The land package includes the land between the project site and Route 278 making the project accessible from existing roads.
Climate
Climate in the area is moderate, with average highs in July of about 85 degrees Fahrenheit and lows in January of about 17 degrees Fahrenheit. Precipitation in the area is relatively low with annual precipitation averages of about 12 inches. Operations at the site are planned to continue year-round.
Local Resources and Infrastructure
The town of Eureka, Nevada is approximately 21 miles to the south of the Mt. Hope Project, via Route 278. The infrastructure requirements to support the mine and mill concentrator consist of bringing power and water to the property, commensurate with the operational requirements, including developing a water wellfield within the Kobeh Valley water basin, constructing site access roads, constructing maintenance shops for the mine and plant administrative offices, constructing a potable water supply system, constructing septic drain field systems, installing emergency power generators and propane gas tanks, and installing facilities for project communications. A 230kV power line is expected to be developed from the Machacek substation near Eureka to the mine site.
Water Rights and Surface Rights
Planned water wells, located approximately 6 miles to the southwest of the planned operating facilities, are anticipated to supply approximately 7,000 gallons per minute to the Mt. Hope Project. Exploration for water is sufficiently advanced to identify the source of water that will be used for all project water needs, with final fresh water development to occur during the construction of the project. (See “—Permitting — Mt. Hope Permitting Requirements — Water Appropriation Permits—Nevada Division of Water Resources” above for a discussion of the current status of our applications for water rights for use in the Mt. Hope Project).
Surface rights on the Mt. Hope Project include BLM open range grazing rights; water rights are located in the vicinity of the Project. Two power line easements cross within the property boundaries. An existing easement for a 345kV transmission line runs north-south on the western edge of the property and the other existing easement is a medium-voltage power line that runs east along the existing main access road that connects to Route 278 to the eastern property boundary. The LLC also has a right-of-way from the BLM for a microwave relay that provides network communications and voice radio capability for the mine site and will provide improved cellular service to the surrounding community.
Physiography
The Mt. Hope area lies within an area of north-south trending mountains separated by alluvial valleys. The primary mountain ranges in the Mt. Hope area include the Roberts Mountains, Sulphur Spring Range, Diamond Mountains, Simpson Park Range, and the Cortez Mountains. Elevations of the mountains range from approximately 6,800 feet for the crests of the Sulphur Spring range to over 10,000 feet for the Roberts Mountains.
The major valleys in the Mt. Hope region are Diamond Valley to the east, Pine Valley to the north, and Kobeh Valley to the west and southwest of the Mt. Hope Project. Diamond and Pine Valleys are elongated in a north-south direction.
Valleys are typically underlain by up to several thousand feet of unconsolidated to poorly consolidated alluvium. Mountains are characterized by extensive bedrock exposures. Soils are typically thin and poorly developed.
Generally, groundwater in the mountains is hosted in fracture-controlled aquifers, while groundwater in the valleys is in porosity-controlled aquifers.
The upper portions of the valleys are similar in nature and are characterized by slightly incised stream channels with no significant associated floodplain. The uplands and mountains have slopes ranging from moderate to steep (over 30 percent) with shallow to deep, moderately alkaline to medium acidic soils. Bedrock is often within 0.5 meters of the surface, particularly on the steep upland slopes.
Lake sediments make up the largest areas in the valleys. The slopes range from smooth to rolling (0 to 15 percent) and the soils vary from shallow to deep and mildly to strongly alkaline. The surface textures range from silty clay loams to gravelly sandy loams and local sand. The permeability of these soils ranges from slow to rapid.
The natural vegetation of the region consists of pinion juniper and sagebrush with grass. The pinion juniper occupies the higher elevations of the mountain slopes, with the lower areas in the valley covered predominantly with sagebrush, shrubs, and perennial bunchgrasses.
Mt. Hope, located in the lower foothills of the southeast flank of the Roberts Mountains, stands approximately 8,400 feet in elevation. Areas to the east and southeast of the Mt. Hope Project slope gently to elevations from 6,400 to 7,900 feet. Diamond Valley, situated to the south and east, is approximately 6,000 feet in elevation.
These physiographic attributes are typical of other major mines in Nevada.
History
Mt. Hope Prior Ownership and Results of Exploration Work
Lead-zinc ores were discovered at Mt. Hope in 1870, and small-scale mining was carried out sporadically until the 1970s. Zinc and adjacent copper mineralization were the focus of drilling activities by Phillips Petroleum in the early 1970s and by ASARCO and Gulf (“ASARCO”) in the mid-1970s, which outlined further zinc mineralization. The last drill hole of this series encountered significant molybdenum mineralization at depth west of the zinc deposits. The significance of this mineralization was first recognized by ASARCO in 1976, but ASARCO did not reach an agreement with MHMI to test this potential.
Exxon recognized molybdenum potential at Mt. Hope in 1978 and acquired an option on the property from MHMI. By 1982, Exxon had completed 69 drill holes, which partially defined a major molybdenum deposit underlying the east flank of the Mt. Hope property. Exxon conducted a +/-25% feasibility study of the Mt. Hope project in 1982. A draft EIS was completed on the project and public hearings were held in early 1985. Exxon drilled an additional 60 holes on the property between 1983 and 1988 but did not update their deposit block model with data from the post-1982 holes. Cyprus drilled four holes on the property in 1989-90 under an agreement with Exxon but did not pursue the project. Exxon retains a perpetual 1% royalty interest, as discussed above in “—Description of the Mt. Hope Project—Royalties, Agreements and Encumbrances—Production Royalty.”
We established an agreement with MHMI in 2004 pursuant to which we obtained access to the work completed by previous companies that had evaluated the property, including drill core and drill data. We used this data as the basis for developing an evaluation of the Mt. Hope deposit. The evaluation provided the basic engineering, plant design and other aspects of analysis of the Mt. Hope Project and outlined a positive operating process, waste disposal, mine design and plan, preliminary Environmental Assessment (“EA”), permitting plan, operating and capital cost estimates, and the corresponding estimates of mineralized material.
Geology
Mt. Hope is located in north-central Nevada on the eastern edge of a mineral belt linking ore deposits of diverse ages. The Battle Mountain-Eureka mineral belt, a northwest-southeast trending corridor about 250 miles long, has localized major deposits of gold, silver, copper, and molybdenum.
The Mt. Hope molybdenum ore deposit occurs in an area of about two square miles of elevated igneous rocks. The mineralized complex includes a variety of igneous rocks derived from a common volcanic source. Quartz porphyry, the primary molybdenum host rock, is commonly veined with molybdenite. Subordinate molybdenum mineralization also occurs in hornfels. The known orebody occurs in two zones of the quartz porphyry stock and hornfels wallrocks.
The ore deposit is a molybdenum porphyry, which is classified as a “Climax-type” deposit. This type of deposit has well zoned molybdenum mineralization. The molybdenum mineral content, termed grade zoning, surrounds the central area of the deposit and forms geometries that are circular in plan and arch shaped in section. Mt. Hope has two of these mineralized systems adjacent to each other. The mineral zones or “shells” consist of quartz porphyry and hornfels cross-cut by quartz stockwork veining containing molybdenite.
Mineralization
The main form of molybdenum mineralization that occurs within the orebody is molybdenite (MoS2 - molybdenum disulfide). Much of the known molybdenite is distributed around two lobes and offshoots of the main quartz porphyry stock and within two separate mineralized zones. A concentration of higher-grade mineralization is present between the eastern and western mineral zones. This overlap mineralization lies beneath the Mt. Hope Fault, and the upper, eastern edge is truncated by the fault surface. The overlap zone is interpreted as a rock volume that was mineralized by both mineral systems in sequence, contributing to a greater intensity of stock work veining and additive molybdenum grades. Referred to as the Mt. Hope Fault Zone, this area is approximately 1,300 feet in diameter and varies from 325 to 985 feet deep. This zone will be the target of open pit mining in the first 7 years of the project.
Exploration
The majority of the exploration activities were completed prior to our leasing the property from MHMI. However, since acquiring access to the Mt. Hope Project, we have completed additional exploration drilling for molybdenum for the purposes of supporting our BFS and subsequent January 2014 Technical Report and obtaining engineering information for items such as geotechnical design, hydrology, and condemnation for waste dumps and tailing ponds as well as infill drilling for ore calculation purposes.
All core and assay results from the extensive drilling campaigns are available to the Company. Accordingly, this data has been incorporated into a high quality database and has been used to analyze and quantify the mineral resource. The drilling at the Mt. Hope Project has been predominately performed by utilizing diamond core methods, and some reverse circulation (“RC”) in areas of condemnation and water well drilling. The drill hole database used in the current mineral resource estimate includes 267 holes drilled for a total of 324,634 feet of drilling; 247,893 feet of which are core and RC collar/core finish, the remaining 76,741 feet are RC.
Ore to Be Mined
The table below summarizes the ore grades we would expect to mill under an $8.00/lb Mo open pit design:
Mill Feed Ore Statistics
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Average
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Grade
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Mo
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Category
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Ktons
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Sulfide Mo%
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Recovery %
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Ore in Years 1-5
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120,736
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0.094
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89.8
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Ore in Years 1-10
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242,441
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0.086
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89.5
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Ore Life of Mine
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367,385
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0.079
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89.3
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Based on these estimates, from the inception of production through year 16, the mill will process 367 million tons of ore at an average ore grade of 0.079% sulfide molybdenum (“sulfide Mo”). Waste material totaling 818 million tons will also be mined and stockpiled on site.
If the molybdenum price is above $12.00/lb, the Mt. Hope Project will operate under a $12.00/lb Mo open pit design. Based on this design, from the inception of production through year 34, the mill would process 820 million tons of ore at an average ore grade of 0.076% sulfide Mo. During the active mining period, low-grade ore totaling 165 million tons with an average ore grade of 0.039% sulfide Mo will be stockpiled for later feed into the mill from years 34 through 41. Waste material totaling 1.7 billion tons will also be mined and stored on site.
During the first thirteen years of production, there would be no meaningful change in ore tonnage and grades between the $8.00 and $12.00 designs. The divergence would come in later years resulting in the economic processing of lower grade ores at higher molybdenum prices.
Mining
The Mt. Hope Project is planned for production by conventional large-scale, hardrock, open-pit mining methods. The mine plan provides for primary loading with a fleet of two electric cable shovels, one hydraulic shovel, and one front-end loader. The mine fleet is expected to include 24 240-ton trucks by the end of the first full year of production. Once construction commences, the LLC anticipates engaging a contractor to perform approximately 10 months of pre-production stripping concurrent with the initial phases of construction of the Mt. Hope Project.
Ore will be hauled directly to the crusher at the southeast side of the pit. Waste will be delivered to one of four waste sites located around the mine. One low grade stockpile will be located to the east of the pit. The low-grade material will be re-handled and processed through the plant following the initial mining of higher grade ore.
Process Overview
The process circuit will include:
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Primary Crusher & Coarse Ore Stockpile—The primary crusher will be located adjacent to the pit and crushed ore will be fed to a 70,000 ton live capacity stockpile.
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|
·
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|
Semi-Autogenous Grinding (“SAG”) & Ball Mill Circuit—Ore will be reclaimed from the stockpile from up to four feeders and fed by conveyor to the SAG mill. The design will allow for the addition of a pebble crusher. Following the SAG mill, the ore will be ground to 80% passing 150 micrometers in the two ball mills at an average daily processing rate of 66,688 tons.
|
|
·
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|
Flotation Circuit—Following the grinding circuit, the ore will be processed in a conventional flotation plant. The molybdenum ore will be treated through two banks of rougher/scavenger flotation, one stage of first cleaners followed by regrind, and six additional stages of cleaner flotation. Some molybdenum concentrates with higher levels of included metals will be treated through a concentrate leach facility to produce the cleaned, final molybdenum concentrate. Metallurgical results have indicated that an estimated mill recovery of approximately 89% is achievable across grades ranging from 0.04% through 0.10% molybdenum (“Mo”) with final concentrate grades of approximately 54% to 56% Mo.
|
|
·
|
|
Roaster Circuit—Molybdenum concentrate will be further processed in two multi-hearth roasters to produce technical grade molybdenum trioxide product. The roasting facility will provide a fully integrated process.
|
Tailing Facility
The proposed mining and processing operation is expected to produce approximately 24 million tons of tailing (including gypsum generated by the scrubber) per year. The tailing storage facility layout provides for the construction of one tailing impoundment that could contain approximately 30 years of operations. The tailing impoundment will be constructed with plastic liners to provide for groundwater protection.
Reserves and Mineralized Material
Based on the $8.00/lb Mo pit design, the current statement of proven reserves totals 177.5 million tons of ore at an average grade of 0.094% molybdenum and probable reserves totaling 189.8 million tons of ore at an average grade of 0.066% molybdenum, as summarized below:
Statement of Reserves and Mineralized Material
Units = Short Tons
Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cutoff Grade
|
|
Proven Reserves
|
|
Probable Reserves
|
|
Proven+Probable Reserves
|
|
|
|
|
|
Grade
|
|
|
|
Grade
|
|
|
|
Grade
|
|
Sulfide Mo
|
|
Ktons
|
|
Sulfide Mo
|
|
Ktons
|
|
Sulfide Mo
|
|
Ktons
|
|
Sulfide Mo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.039
|
%
|
177,537
|
|
0.094
|
%
|
189,848
|
|
0.066
|
%
|
367,385
|
|
0.080
|
%
|
Additional Mineralized Material
|
|
|
|
|
|
Cutoff Grade
|
|
Mineralized Material
|
|
|
|
|
|
Grade
|
|
Sulfide Mo
|
|
Ktons
|
|
Sulfide Mo
|
|
|
|
|
|
|
|
0.025
|
|
682,460
|
|
0.061
|
%
|
Footnotes to Statements of Reserves and Mineralized Material
The Company tabulated reserves at a cutoff grade of 0.039% sulfide Mo and a pit design based on a price of $8.00/lb of contained molybdenum as saleable molybdenum tri-oxide (“TMO”). As of December 31, 2019, the 4 year backward average price (2016-2019) for molybdenum was $9.80/lb, as reported by Platts. As of March 25, 2020, the spot price was $8.48/lb. The 4 year forward looking nominal average price (2020-2023) forecast by the CPM Group (a leading commodities research and consulting firm) is $12.67/lb. The average of the past 4 years and the future 4 years yields $11.24/lb. At this average price, the estimated mineral sales from the $8.00/lb molybdenum pit mine plan generates a positive non-discounted, forward-looking cash flow. Consequently, the $8.00/lb reserve pit design is very conservative and is maintained for this reporting period.
The reserve at the Mt. Hope Project is based on a revised, non-optimized mine plan and production schedule, which was supervised by John M. Marek, P.E., President, Independent Mining Consultants, as a Qualified Person. Mr. Marek also served as the Qualified Person for the January 2014 Technical Report entitled “Mount Hope Project, Form 43-101F1 Technical Report Feasibility Study, January 15, 2014” and, among other, was specifically responsible for Chapter 14 Mineral Resource Estimates and Chapter 15 Mineral Reserves.
The reserve at the Mt. Hope Project is based on a block model that utilized the statistical process of Indicator and Ordinary Linear Kriging constrained by appropriate rock type and grade boundaries. Floating cone pit design algorithms were used to establish the guidelines to design the reserve pit. Mine planning utilized conventional mine equipment to prepare mine cost estimates.
Mineralized material is tabulated within the $12.00/lb pit outline that defined the previous reserves in January of 2014. The additional mineralized material is proven and probable category above a 0.025% Sulfide Mo cutoff that is inside of the historic $12.00/lb Mo pit but does not include the reserve material contained in the $8.00/lb Mo pit.
The metallurgical recovery applied to the financial models used in the determination of reserves was variable by grade, with 89.8% for the first five years of mining, 89.5% for the first ten years, and 89.3% for the life of mine. The molybdenum roaster recovery was held constant at 99.2%.
Capital & Operating Cost Estimates
Presently, the development of the Mt. Hope Project has a Project Capital Estimate of $1,312 million, which includes development costs of approximately $1,245 million and $67 million in cash financial guaranty/bonding requirements, advance royalty payments, and power pre-payment estimates. These capital costs were updated in the third quarter of 2012 and were then escalated by approximately 3% in the third quarter of 2013, for those items not yet procured or committed to by contract. The Mt. Hope Project has not materially changed in scope and remains currently designed at approximately 65% engineering completion, with solid scope definition. The pricing associated with this estimate remains subject to escalation associated with equipment, construction labor and commodity price increases, and project delays, which will continue to be reviewed periodically. The Project Capital Estimate does not include financing costs or amounts necessary to fund operating working capital and potential capital overruns, is subject to additional holding costs as financing activities for construction of the Mt. Hope Project are delayed and may be subject to other escalation and de-escalation as contracts and purchase arrangements are finalized at then current pricing. From October 2007 through the year ended December 31, 2019, the LLC spent approximately $298.7 million of the estimated $1,312 million on development of the Mt. Hope Project.
The LLC’s Project Operating Cost Estimate (for the $8.00/lb mineral reserve) forecasts molybdenum production of 41 million pounds per year for the first five years of operations at estimated average direct operating costs of $6.16 per pound based on $90 per barrel oil equivalent energy prices. The Costs Applicable to Sales (“CAS”) per pound, including anticipated royalties calculated at a market price of $15 per pound molybdenum, are anticipated to average $6.84 per pound for the first 5 years. For a reconciliation of direct operating costs, a non-GAAP measure, to CAS, see “—Production and Operating Cost Estimates” below. These cost estimates are based on 2013 constant dollars and are subject to cost inflation or deflation.
The anticipated capital requirements of the Mt. Hope Project are divided into cost categories in the following table:
|
|
|
|
|
|
|
|
|
|
Millions $US
|
|
|
|
|
|
|
2013
|
|
|
|
2012
|
|
Revised
|
|
Category
|
|
Estimate
|
|
Estimate
|
|
Mining equipment
|
|
$
|
150
|
|
$
|
149
|
|
Construction, materials & plant facilities
|
|
|
583
|
|
|
595
|
|
Owners cost, pre-stripping, camp
|
|
|
245
|
|
|
265
|
|
Taxes, freight, commissioning, spares
|
|
|
73
|
|
|
74
|
|
Equipment suspension costs
|
|
|
11
|
|
|
11
|
|
Engineering, Procurement, & Construction Mgmt
|
|
|
70
|
|
|
70
|
|
Contingency
|
|
|
70
|
|
|
59
|
|
Escalation
|
|
|
—
|
|
|
22
|
|
Total Capital
|
|
$
|
1,202
|
|
|
1,245
|
|
Bonding and pre-paid items
|
|
|
67
|
|
|
67
|
|
Total Capital Requirement
|
|
$
|
1,269
|
|
|
1,312
|
|
Furthermore, ongoing replacement and sustaining mine equipment and process plant capital over a $12.00/lb Mo pit 41-year operating life is currently estimated to be approximately $786 million (in 2013 dollars). For a shorter mine life of 16 years ($8.00 pit), the sustaining capital would be $222 million. These amounts exclude financing costs, amounts necessary to fund operating working capital, or reclamation. We expect that these cost estimates will increase once we complete an engineered re-estimate of capital costs.
Pricing
In the first half of 2019, molybdenum prices were range bound between $10.70 and $12.70, averaging $11.98/lb compared with $11.88/lb at the end of 2018 and $10.25/lb at the end of 2017, according to Platts’ data. Molybdenum prices remained range bound until late October 2019 when the prices weakened into the single digits to the 52-week low of $8.28/lb in early November 2019 and ended 2019 at $9.20/lb.
Beginning in the new year 2020 through mid-February, molybdenum prices were resilient and rose to $10+/lb outperforming the vast majority of metal and energy commodities against the face of the coronavirus (“COVID-19”)
outbreak in China. Thereafter, molybdenum prices have declined as demand has been impacted by the global economic retreat due to the COVID-19 pandemic.
Further details are described in “Molybdenum Market Update” below.
In its March 2020 Molybdenum Quarterly publication, CPM forecasts average nominal prices (base of 2019) for molybdenum to increase from $9.53/lb in 2020 to $15.00/lb in 2023.
Production and Operating Cost Estimates
Production over the life of the Mt. Hope Project is estimated to be 517 million pounds of saleable molybdenum on a 100% basis ($8.00/lb reserve). Average yearly production over the first full five years is estimated at 41 million pounds of molybdenum. Direct operating costs for the Mt. Hope Project over the first full five years of operation are anticipated to average $6.16 per pound, using $90 per barrel oil equivalent energy costs, and Costs Applicable to Sales (“CAS”) per pound over the first full five years of operation, including anticipated royalties calculated at $15 per pound molybdenum, are anticipated to average $6.84 per pound. Life of mine CAS are estimated to be approximately $7.61 per pound of molybdenum at $90 per barrel oil, inclusive of anticipated royalty payments calculated at $15 per pound molybdenum. These cost estimates are based on 2013 constant dollars and are subject to cost inflation or deflation. The Company will update the operating cost projections with new commodity pricing adjustments at the time of project construction restart.
Reconciliation between CAS, a measure based on accounting principles generally accepted in the United States of America (“GAAP”), and direct operating costs, a non-GAAP measure, is provided in the table below.
|
|
|
|
|
|
|
|
Description
|
|
First Five Years
|
|
Life of Mine
|
|
Direct operating costs
|
|
$
|
6.16
|
|
$
|
6.84
|
|
Royalty payments (1)
|
|
|
0.68
|
|
|
0.77
|
|
Total CAS
|
|
$
|
6.84
|
|
$
|
7.61
|
|
|
(1)
|
|
Royalty payments are a function of assumed molybdenum prices realized. The above calculation assumes a molybdenum price of $15.00 per pound.
|
Description of the Liberty Project
On March 17, 2006, we purchased the Liberty Project, an approximately ten square mile property in Nye County, Nevada, including water rights, mineral and surface rights, buildings and certain equipment from High Desert Winds LLC (“High Desert”). The property includes the former Hall molybdenum and copper deposit that was mined for molybdenum by open pit methods between 1982 and 1985 by Anaconda and between 1988 and 1991 by Cyprus. Equatorial Tonopah, Inc. mined copper from 1999 to 2000 on this property, although their operations were in a separate open pit also located on the property. Much of the molybdenum deposit was drilled but not developed or mined by these previous owners. At closing, we paid High Desert a cash payment of $4.5 million for a portion of the property, and in November 2006, made an additional payment of $1.0 million for the remainder of the property.
On January 30, 2007, we purchased Equatorial Mining North America, Inc. and its two subsidiaries, which owned a 12% net smelter returns royalty on the Liberty Project, from Equatorial Mining Pty. Limited, effectively eliminating all third-party royalties on the property. The consideration paid for the Equatorial acquisition was $4.8 million with an additional deferred payment of $6.0 million, which will be due upon commencement of commercial production at the property. In connection with the transaction, we acquired $1.2 million in cash accounts and assumed all environmental liabilities on the reclaimed site. We later purchased all outstanding mineral claims associated with this property that were not previously owned by us thus giving the Company 100% control over all mineral rights within the boundary of the property, as well as claims on BLM property adjacent to the patented grounds.
Since purchasing the Liberty Project, we completed two drilling programs that, combined with previous evaluation work performed by former owners, identified additional mineralization. In April 2008, we completed a pre-feasibility study on the Liberty Project that detailed initial capital and operating costs, anticipated mining and milling rates and permitting requirements. In 2011 the Company released an updated NI 43-101 compliant resource estimate and later the same year a pre-feasibility study detailing updated resource estimates and project economics was released.
Metallurgical and environmental work were advanced in 2013 with $0.2 million in external costs and use of dedicated internal resources. In 2014, the Company more closely examined the use of existing infrastructure and copper potential of the property. This work resulted in an updated NI 43-101 compliant pre-feasibility study released in July 2014 which developed a statement of mineral reserves under Canadian definitions. Those definitions are not consistent with U.S. definitions. Under Industry Guide 7, the Liberty deposit contains 309.2 million tons of mineralized material with a total molybdenum grade of 0.078% and a total copper grade of 0.098% using a $12.00/lb Mo pit. The Liberty Project is viewed by the Company as a follow-on project to the Mt. Hope Project that we intend to actively pursue following development of the Mt. Hope Project, dependent on market conditions.
The Liberty Project includes a previously mined open pit and a small heap leach facility, both developed by previous operators. The Company continues to perform maintenance and reclamation activities on these facilities under a permit administered by NDEP.
History
In 1955, Anaconda leased and optioned the Liberty molybdenum prospect and mine in order to evaluate extensive molybdenum and copper occurrences. From 1956 through 1966, Anaconda explored or delineated molybdenum mineralization over an approximate one square mile area. Drilling indicated extensive mineralization from the surface to a depth of approximately 2,000 feet. Drilling delineated approximately 200 million tons of mineralization grading 0.091 percent sulfide molybdenum, which was included in a long-term mining plan. (Historic references to tonnage and grade are based on available historic records. They may not reflect the current definitions of mineral reserves and mineral resources as defined by the SEC or by Canadian NI 43-101.) Mine construction began in 1979 with production from the Hall Mine starting in 1981. Anaconda ceased operations in 1985 due to low metal prices. Between 1982 and 1991, Anaconda and successor operator Cyprus mined a total of 50 million tons of ore grading 0.11 percent molybdenum. No further molybdenum mining took place after 1991, leaving an estimated 150 million tons of un-mined material at a grade of 0.09 percent molybdenum.
Between 1995 and 2002 a copper zone independent of the existing molybdenum pit was the subject of a copper leach operation by Equatorial. Approximately 10 million tons were mined before operations ceased in 2002.
The molybdenum mine open pit remains easily accessible for mining. Various facilities and improvements continue to exist on the property that may be of future use for molybdenum and/or copper operations including a power supply, water rights, water and well system, offices, truck and vehicle shops, thickening tanks, water and fuel tanks, roads and other structures. All of the mobile equipment was removed from the property. Much of the plant area was reclaimed after the 2002 closure with most of the crushing, conveying, grinding, concentrator equipment and other milling equipment being removed from the property.
Geology
The Liberty molybdenum deposit appears to conform to a class of deposit that is generally termed in ore deposit literature as a “Climax-Urad” type, where better-grade molybdenum mineralization in the form of molybdenite (MoS2) is concentrated in and along the margins of an irregularly-shaped “sleeve” or “shell” around a central lower-grade to nearly barren core of silicic-alkalic intrusive rocks. In some cases, an outer shell of copper-dominant mineralization surrounds the interior molybdenum-dominant shell(s).
The Hall stock (Cretaceous intrusive rocks) intruded the metasedimentary sequence of rocks in the Late Cretaceous Period. It hosts most of the molybdenum mineralization. The 2,500 ft-diameter stock complex consists of two spatially and temporally-distinct bodies — the earlier North stock and the younger South stock, which truncated the molybdenum mineralization hosted by the North stock.
Base metal mineralization in the Liberty deposit consists of molybdenite (MoS2), chalcopyrite (CuFeS2), chalcocite (Cu2S), galena (PbS), sphalerite (ZnS), tetrahedrite (Cu8Sb2S7), and pyrite (FeS2). Molybdenite occurs mainly in 0.1” to 1.2”-wide quartz veins and veinlets in amounts that range from 0.1% to more than 40% by volume, typically as a selvage on vein walls. Molybdenite is also found in wider (+1.2”) quartz veins, but these are much less common in occurrence. Chalcopyrite and pyrite also are common but lesser vein/veinlet constituents.
Although chalcopyrite can occur with molybdenite in minor amounts in veins and veinlets within the main body of molybdenum mineralization in the Hall stock, it is much more prevalent in quartz veins in the metasediments on the northeast and east sides of the stock. Here it occurs in the remnant of the copper-dominant shell that originally surrounded the Hall stock before it was tilted and disrupted by faulting. In addition to chalcopyrite, chalcocite occurs as disseminations and as secondary coatings on pyrite within a roughly horizontal blanket of secondary supergene copper enrichment just below the bottom of oxidation.
The Liberty deposit has been subjected to much folding and faulting. A major anticline located 3,000’ to the south of the Hall stock has an axis that trends N20˚W and plunges 50˚ to 70˚ to the northwest. Post-Cretaceous tilting of the northern San Antonio Mountains and other structural disruptions have resulted in the rotation of the Liberty deposit so that it now plunges to the east. This rotation has caused erosion of the deposit along its flank, exposing both the shallow and deep-emplaced portions of the mineralization. The Liberty deposit was segmented by faulting. The Basement Fault bounds the bottom of the deposit while the Liberty Fault truncates the deposit on the west side. In addition to these major structures, a number of N40˚E- to N30˚W-trending normal faults and several east-west-trending normal faults transect the Liberty deposit.
Liberty Project Permitting Requirements
The majority of the Liberty Project area is located on fee lands and patented claims owned by the Company. Unpatented claims administered by the BLM are on public ground and largely surround the open pit and waste stockpile areas. BLM approval will be required prior to commencement of operations, including construction, which would likely include an EIS under NEPA. A shorter EIS and state permitting process are anticipated for the Liberty Project as compared to the Mt. Hope Project, as the Liberty Project is located largely on privately held property with existing water rights, is located in a previously mined area in a mining friendly jurisdiction, and is sparsely vegetated due to the arid climate.
In addition to land ownership, two other factors distinguish the Liberty Project from the Mt. Hope Project with respect to environmental permitting. First, water consumption is not as significant an issue at Liberty. Unlike the Mt. Hope Project, the areas surrounding Liberty are not extensively irrigated. In addition, we own significant water rights at the Liberty site and have water wells in place. Second, the area has been mined previously which has resulted in significant surface disturbance. By conducting exploration drilling on pre-existing disturbance, to the extent possible, the amount of additional disturbance is greatly reduced, and permitting requirements to support further exploration is likewise reduced. Furthermore, there is extensive environmental information developed to support permitting of the previous mine operation. We anticipate that this information can be used to streamline the permitting process by reducing the amount of baseline studies and other technical information that must be developed by the Company.
The Nevada Division of Environmental Protection (“NDEP”) has identified environmental concerns with some Liberty Project facilities acquired with the property. NDEP’s concerns are related to aspects of previously approved closure plans required by Nevada regulation. We have proposed options to NDEP to address these concerns. In July, 2018, we addressed one of those concerns by successfully completing a program, as approved by NDEP, to neutralize the acidic Liberty pit lake by adding hydrated lime to raise the pH. Our 2019 costs are consistent with budgeted spend. Since October of 2018, we have been actively managing process solutions draining from the pre-existing leach pad to resolve the second concern. We will continue to work with NDEP to evaluate ongoing options to address any future concerns, and additional costs may be required beyond 2020 to meet NDEP’s closure requirements. However, a reasonable estimate cannot be determined at this time as it is not possible to reasonably predict the outcome of a resolution with NDEP.
Applicable Mining Laws
Mining in the State of Nevada is subject to federal and state law. Three types of laws are of particular importance to the Mt. Hope Project: those affecting land ownership and mining rights; those regulating mining operations; and those relating to the environment.
The Mt. Hope Project is situated on lands owned by the U.S. (“federal lands”). The LLC, as the owner or leaseholder of the unpatented mining claims, has the right to conduct mining operations on the lands subject to the required operating permits and approvals, compliance with the terms and conditions of the Mt. Hope Lease, and compliance with applicable federal, state, and local laws, regulations and ordinances. On federal lands, mining rights are
governed by the General Mining Law of 1872, as amended, 30 U.S.C. UU 21-161 (various sections), which allows for the location of mining claims on certain federal lands upon the discovery of a valuable mineral deposit and on proper compliance with claim location requirements.
The operation of mines is governed by both federal and state regulatory programs. The predominant non-environmental federal regulatory program that will affect future mining operations at the Mt. Hope Project is the mine safety regulations administered by the Mine Safety and Health Administration. Additional federal laws, such as those governing the purchase, transport, storage or usage of explosives, and those governing communications systems, labor and taxes also apply. State non-environmental regulatory programs affecting operations include the permitting programs for drinking water systems, sewage and septic systems, water rights appropriations, Department of Transportation, and dam safety (engineering design and monitoring).
Environmental regulations require various permits or approvals before any mining operations on the Mt. Hope Project can begin. Federal environmental regulations are administered primarily by the BLM. The Environmental Protection Agency (“EPA”) has delegated authority for the Clean Water Act and Clean Air Act to the State of Nevada. The NDEP, therefore, has primacy for these programs and is responsible for administering the associated permits for the Mt. Hope Project. The Bureau of Mining Regulations and Reclamation (“BMRR”) within NDEP administers the WPC and Reclamation permits. The Bureau of Air Pollution Control (“BAPC”) within NDEP administers the Air Quality Permit. The NDEP also administers the permit program for onsite landfills. The Nevada Division of Wildlife administers the artificial industrial pond permit program. Local laws and ordinances may also apply to such activities as waste disposal, road use and noise levels. Both our Mt. Hope Project and Liberty Project will be subject to these various environmental laws and regulations.
Other Mining Properties
We also have had other mining claims and land purchased prior to 2006 which consisted in part of (a) six patented mining claims known as the Chicago-London group, located near the town of Murray in Shoshone County, Idaho, (b) 34 unpatented mining claims in Marion County, Oregon, known as the Detroit property, and (c) 83 unpatented claims in Sanders and Madison County, Montana. Historically, our efforts at these properties were minimal and consumed no significant financial resources. The total book value of these properties was approximately $0.1 million and the Company has retained production royalties of 1.5% of all net smelter returns on future production from two undeveloped properties in Skamania County, Washington and Josephine County, Oregon, which were sold in 2012 and 2013, respectively. The Chicago-London property ((a) above) was sold in January 2020. As a result of ongoing cash conservation efforts, we allowed the annual claim payments for the 83 unpatented claims in Sanders and Madison County, Montana ((c) above) to lapse and no longer hold rights to these claims.
Other United States Regulatory Matters
The Resource Conservation and Recovery Act (“RCRA”) and related state laws regulate generation, transportation, treatment, storage, or disposal of hazardous or solid wastes associated with certain mining-related activities. RCRA also includes corrective action provisions and enforcement mechanisms, including inspections and fines for non-compliance.
Mining operations may produce air emissions, including dust and other air pollutants, from stationary equipment, such as crushers and storage facilities, and from mobile sources such as trucks and heavy construction equipment. All of these sources are subject to review, monitoring, permitting, and/or control requirements under the federal Clean Air Act and related state air quality laws. Air quality permitting rules may impose limitations on our production levels or create additional capital expenditures in order to comply with the permitting conditions.
Under the federal Clean Water Act and delegated state water-quality programs, point-source discharges into “Waters of the State” are regulated by the National Pollution Discharge Elimination System program, while Section 404 of the Clean Water Act regulates the discharge of dredge and fill material into “Waters of the United States,” including wetlands. Stormwater discharges also are regulated and permitted under that statute. All of those programs may impose permitting and other requirements on our operations.
The Endangered Species Act (“ESA”) is administered by the U.S. Department of Interior’s U.S. Fish and Wildlife Service (“USFWS”). The purpose of the ESA is to conserve and recover listed endangered and threatened
species and their habitat. Under the ESA, “endangered” means that a species is in danger of extinction throughout all or a significant portion of its range. “Threatened” means that a species is likely to become endangered within the foreseeable future. Under the ESA, it is unlawful to “take” a listed species, which can include harassing or harming members of such species or significantly modifying their habitat. We conduct wildlife and plant inventories required by regulatory agencies prior to initiating exploration or mining project permitting. We currently are unaware of any endangered species issues at any of our projects. A threatened species occurs in limited segments of two creeks approximately 10 miles to the north of the proposed wellfield for the Mt. Hope Project. Although hydrologic modeling predicts no impacts to these stream segments, consultation with the USFWS was required. Future identification of endangered species or habitat in our project areas may delay or adversely affect our operations.
We are committed to fulfilling or exceeding our obligations under applicable environmental laws and regulations. These laws and regulations are continually changing and, as a general matter, are becoming more restrictive. Our policy is to conduct our business in a manner that strives to safeguard public health and mitigates the environmental effects of our business activities. To comply with these laws and regulations, we have made, and in the future may be required to make, capital and operating expenditures.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below and elsewhere in this report, which could materially and adversely affect our business, results of operations or financial condition. If any of the following risks actually occurs, the market price of our common stock would likely decline. The risks and uncertainties we have described below include all of the material risks presently known to us, however, additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations.
Our investors may lose their entire investment in our securities
An investment in our securities is speculative and the price of our securities has been and will likely continue to be volatile. Only investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in our securities.
Substantial risk that COVID-19 is and will continue to effect financing efforts to improve liquidity
Beginning in early 2020, there has been an outbreak of coronavirus (COVID-19), initially in China and which has spread to other jurisdictions, including locations where the Company does business. The full extent of the outbreak, related business and travel restrictions and changes to behavior intended to reduce its spread are uncertain as of the date of the Report as this continues to evolve globally. COVID – 19 has had a direct impact on the Company’s financing efforts and potential solutions to its liquidity position. Currently, the Company believes that it will be able to sustain its corporate and Liberty Project operations only into the quarter ending September 30, 2020. Management continues to seek financing opportunities notwithstanding the impacts associated with the COVID-19 pandemic, however the Company anticipates that its financing efforts and liquidity may continue to be materially impacted by the coronavirus outbreak.
Substantial doubt exists as to our ability to continue as a going concern
Our consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $199.4 million at December 31, 2019. At December 31, 2019, we had approximately $4.6 million in unrestricted cash and $3.4 million in restricted cash on hand, held by the LLC. Based on the Company’s cash balances as of December 31, 2019, the Company believes that it will be able to sustain its corporate and Liberty Project operations only into the quarter ending September 30, 2020. The Mt. Hope Project remains funded into 2021 by the reserve account held by the LLC for the payment of ongoing jointly approved (by POS-Minerals and the Company) expenses until the Company obtains full financing for its portion of the Mt. Hope Project construction cost. However, the Company does not currently have liquidity and capital resources to finance its portion of Mt. Hope Project operations after the reserve account is depleted.
We have been funding our business principally through sales of our securities, most recently with the closure of the private placement with AMER for $4.3 million, the sale of Series A and Series B convertible preferred shares, the issuance of $1.3 million in supplemental notes, our at-the-market offering facility and our October 2018 underwritten
public offering. In conjunction with the public offering, the Company agreed to suspend the ATM facility for a period of 2 years. We expect to continue to fund our Corporate and Liberty Project costs through additional equity investments in the Company and are also attempting to sell some of our non-critical equipment to raise additional funds. These factors, among others, raise substantial doubt about our ability to continue as a going concern for the next 12 months. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We may choose to reduce our Corporate or Liberty Project operating expenses through reductions in our operating costs during fiscal year 2020 if we are not successful in our efforts to raise additional capital. We may not be able to increase our cash flow to a level which would support our Corporate or Liberty Project operations and provide sufficient funds to pay our obligations past the third quarter 2020 or thereafter, for the foreseeable future.
As discussed later in Item 7, the Company has retained financial advisors to assist the Company with strategic alternatives, including securing incremental financing and evaluating other strategic alternatives, including the potential addition of new Mt. Hope Project partners, additional corporate strategic investors, merger opportunities, and/or the possible sale or privatization of the Company. We may not be successful independently or with our financial advisors in securing strategic alternatives, and may not be able to raise additional capital or, if we are successful in our efforts to raise additional capital, the terms and conditions upon which any such capital would be extended. If we are unable to meet our obligations past third quarter 2020, we would be forced to cease all operations and pursue restructuring or liquidation alternatives, including the potential to seek a bankruptcy filing, in which event investors may lose their entire investment in our Company.
We may not be able to obtain, maintain or renew licenses, rights and permits required to develop or operate our mining projects, or we may encounter environmental conditions or requirements that would adversely affect our business
In the ordinary course of business, mining companies are required to seek governmental permits for expansion of existing operations or for the commencement of new operations. We may not be successful in defending legal challenges to the new ROD, which may affect our ability to maintain the permits.
In addition to requiring permits for the development of the Mt. Hope Project, we will need to obtain and modify various mining and environmental permits during the life of the project. Obtaining, modifying, and renewing the necessary governmental permits is a complex and time-consuming process involving numerous jurisdictions and often requiring public hearings and substantial expenditures. The duration and success of our efforts to obtain, modify or renew permits will be contingent upon many variables, some of which are not within our control. Increased costs or delays could occur, depending on the nature of the activity to be permitted and the interpretation of applicable requirements implemented by the permitting authority. All necessary permits may not be obtained and, if obtained, may not be maintained or renewed, or the costs involved in each case may exceed those that we previously estimated. It is possible that the costs and delays associated with compliance with such standards and regulations could become such that we would not proceed with the financing, development or operation of the Mt. Hope Project.
The development of the Mt. Hope Project may continue to be delayed, which could result in increased costs or an inability to complete its development
The LLC may experience continued delays in developing the Mt. Hope Project. These could increase its development costs, affect its economic viability, or prevent us from completing its development. The timing of development of the Mt. Hope Project depends on many factors, some of which are beyond our and the LLC’s control, including:
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Sustained low prices for molybdenum;
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Timely availability of project financing to construct the Mt. Hope Project;
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Timely availability of equipment;
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Inability to successfully defend appeals of the new ROD;
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Continued appeals or unfavorable orders concerning the defense of the new ROD, and other related state of Nevada and federal permits
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Completion of advanced engineering;
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Timely availability of labor and resources from construction contractors throughout construction of the project; and
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Volatility in foreign exchange and/or interest rates.
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Any delays caused by our inability to raise capital when needed may lead to the cancellation or extension of, or defaults under, agreements with equipment manufacturers or a need to sell equipment and other project related assets already purchased, any of which may adversely impact the Mt. Hope Project timeline. Additionally, delays to the Mt. Hope Project schedule have consequences with regard to our sales agreements, the LLC Agreement with POS-Minerals, including potential claims by POS-Minerals, which may serve to increase our capital obligations and further enhance these risks.
Our profitability depends largely on the success of the Mt. Hope Project, the failure of which would have a material adverse effect on our financial condition
We are focused primarily on the ability to develop the Mt. Hope Project and to seek and obtain construction financing upon reobtaining necessary permits, and sustained improvement in current molybdenum market conditions. Accordingly, our profitability depends largely upon the successful financing to continue the development and operation of this project. We are currently incurring losses and we expect to continue to incur losses until sometime after molybdenum production begins at the Mt. Hope Project. The LLC may never achieve production at the Mt. Hope Project and may never be profitable even if production is achieved. The failure to see improvements in the molybdenum market such that we may seek and obtain financing for the construction of the Mt. Hope Project would have a material adverse effect on our financial condition, results of operations and cash flows. Even if the LLC is successful in construction and eventually achieving production, an interruption in operations at the Mt. Hope Project that prevents the LLC from extracting ore from the Mt. Hope Project for any reason would have a material adverse impact on our business.
If certain conditions are not met under attempts to secure project financing, including AMER’s reasonable best efforts to assist the Company under the new SPA, our ability to begin construction of the Mt. Hope Project could be delayed further
Any proposed financing with a Chinese bank, as well as the current molybdenum supply agreements are subject to a number of conditions precedent, including negotiation of acceptable loan terms with a Chinese bank or other lending source. These conditions may not be met, in which case our ability to begin construction of the Mt. Hope Project could be delayed further.
Past strong demand for molybdenum in China and throughout the world could be affected by future developments in that country
The Company is highly exposed to the Chinese market. China’s demand for molybdenum could be substantially affected by an economic slowdown in China, financial or banking market conditions impacting investment (including tariffs and trade restrictions imposed by the U.S. and/or China and the status of trade negotiations between the two countries), or an accelerated shift from infrastructure-led to service-oriented growth. Increased federal regulatory oversight concerning our relationships with investors in China, as well as access of Chinese consumers to our products may become more burdensome. In addition, the current coronavirus (“COVID-19”) outbreak, or similar events in the future, could have an adverse impact on demand. Any or all of these may adversely affect the Company’s ability to obtain financing for construction of the Mt. Hope Project.
We require and may not be able to obtain substantial financing in order to fund the development and eventual operations of the Company and the LLC and if we are successful in raising additional capital, it may have dilutive and other adverse effects on our stockholders
If the actual costs to obtain financing and complete the development of the Mt. Hope Project are significantly higher than we expect, we may not have enough funds to cover these costs and we may not be able to obtain other
sources of financing. The failure to obtain all necessary financing would prevent the LLC from developing and eventually achieving production at the Mt. Hope Project and impede our ability to become profitable. Our financing plan assumes that POS-Minerals will continue to make their required on-going capital contributions after we obtain financing or exhaust the reserve account as outlined in the LLC Agreement. We may not be able to obtain financing necessary for developing and eventually achieving production at the Mt. Hope Project if these contributions are not made.
We continue to review the technical merits of the Liberty Project, which would also require significant additional capital to permit and/or commence mining activities. We may not be able to obtain the financing necessary to develop the Liberty Project should we decide to do so.
If additional financing is not available, or available only on terms that are not acceptable to us, we may be unable to fund the development and expansion of our business, attract and retain qualified personnel, take advantage of business opportunities or respond to competitive pressures. Any of these events may harm our business. Also, if we raise funds by issuing additional shares of our common stock, preferred stock, debt securities convertible into preferred or common stock, or a sale of additional minority interests in our assets, our existing stockholders will experience dilution, which may be significant, to their ownership interest in us or our assets. If we raise funds by issuing shares of a different class of stock other than our common stock or by issuing debt, the holders of such different classes of stock or debt securities may have rights senior to the rights of the holders of our common stock.
The LLC Agreement gives POS-Minerals the right to approve certain major decisions regarding the Mt. Hope Project which could impair our ability to quickly adapt to changing market conditions
The LLC Agreement requires unanimous approval of the members for certain major decisions regarding the Mt. Hope Project. This effectively provides either member with a veto right over the specified decisions. These decisions include:
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Approval of the operations to be conducted and objectives to be accomplished by the Mt. Hope Project (“Program and Budget”);
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Approval of the budget for costs to be incurred by the LLC and the schedule of cash capital contributions to be made to the LLC (“Budget”);
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Approval of cost overruns in excess of 10% until we obtain financing or exhaust the reserve account balance, and thereafter 15% of the approved Program and Budget;
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Approval of an expansion or contraction of the average tons per day (“tpd”) planned of 20% or more from the relevant tpd throughput schedule in the BFS;
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Approval of the LLC’s acquisition or disposition of significant real property, water rights or real estate assets;
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Approval of the incurrence of indebtedness by the LLC that requires (1) an asset of the LLC to be pledged as security, (2) the pledge of a membership interest in the LLC, or (3) a guaranty by either the Company or POS-Minerals, other than in each instance a purchase money security interest or other security interest in the LLC to finance the acquisition or lease of equipment;
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Approval of the conduct of business other than the development, construction, operations and financing of the Mt. Hope Project, including the potential Cu-Ag target and zinc mineralization, and
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Approval of the issuance by the LLC of an ownership interest to any person other than Nevada Moly or POS-Minerals,
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Approval of the termination of the Mt. Hope Project or the liquidation/dissolution of the Project.
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The requirement that certain decisions be approved by POS-Minerals may make it more difficult for our stockholders to benefit from certain decisions or transactions that we would otherwise cause the LLC to make if they are opposed by POS-Minerals.
Fluctuations in the market price of molybdenum could adversely affect the value of our Company and our securities
The profitability of our mining operations will be influenced by the market price of the metals we mine. The market prices of metals such as molybdenum fluctuate widely and are affected by numerous factors including several that are beyond the control of any mining company. These factors include fluctuations with respect to the rate of inflation, the exchange rates of the U.S. dollar and other currencies, interest rates, global or regional political and economic conditions and banking crises, global and regional demand, production costs in major molybdenum producing areas, and a number of other factors. Sustained periods of low molybdenum prices would adversely impact our ability to seek financing for the development of the Mt. Hope Project and the Liberty Project, and our ability to obtain revenues, profits, and cash flows. In particular, a sustained low molybdenum price could:
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Have a continued negative impact on the availability of financing to us;
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Cause a continued delay and suspension of our development activities and, ultimately, mining operations at our Mt. Hope Project, if such operations become uneconomic at the then-prevailing molybdenum price; and
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Prevent us from fulfilling our obligations under our agreements or licenses which could cause us to lose our interests in, or be forced to sell, our properties.
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Furthermore, the need to reassess the feasibility of any of our projects if molybdenum prices were to return to historical lows could cause substantial delays. Mineral reserve calculations and life-of-mine plans using lower molybdenum prices could result in reduced estimates of mineral reserves and in material write-downs of our investment in mining properties and increased amortization, reclamation and closure charges.
The volatility in metals prices is illustrated by the molybdenum price chart shown in the Molybdenum Market Update section and the historical monthly average prices ranging from a low price of $2.16/lb in January 2001 to a high of $33.84 in August 2008. Prices fell from approximately $33.50 per pound in October 2008 to $7.70 per pound in April 2009 as a result of the global financial crisis. Subsequent to April 2009, prices rose continuously through 2010 to finish at $16.40 per pound. Prices then decreased, falling to approximately $9.00 per pound by the third quarter of 2013, those rose sharply, reaching $15.00 by mid-2014. Beginning in September 2014, the molybdenum price experienced a sharp pullback reflecting softening demand and a strengthening U.S. dollar, amongst other factors, reaching a low of below $5.00 in October 2015. A slow price recovery saw the price increase at yearend 2016 to $6.75/lb and at yearend 2017 to $10.25/lb. Molybdenum prices reached a high of $13.00/lb in March 2018, a level last seen in 2014, and closed 2018 at $11.88/lb. During 2019, molybdenum prices were mostly range bound between $10.70 and $12.70, until the price declined to single digits in the fourth quarter, ending the year at $9.20/lb. (Prices quoted are sourced from Platts.) Although we estimate the Mt. Hope Project’s average cost of production over the first five years to be approximately $7.00 per pound, a sustained period of lower molybdenum prices would have material negative impacts on the Company’s profitability. Actual molybdenum prices when and if we commence commercial production cannot be estimated and are subject to numerous factors outside our control.
Our profitability is subject to demand for molybdenum, and any decrease in that demand, or increase in the world’s supply, could adversely affect our results of operations
Molybdenum is used primarily in the steel industry. The demand for molybdenum from the steel industry and other industries was extremely robust through the third quarter of 2008, primarily fueled by growth in Asia and other developing countries. Beginning in the fourth quarter of 2008, the global financial crisis forced steel companies to substantially reduce their production levels with a corresponding reduction in the consumption of molybdenum, which contributed to the decline in the price of molybdenum. Starting in September 2014, molybdenum prices began to decline and remained low through 2016, but improved throughout 2017 and 2018. In the latter half of the first quarter of 2020, molybdenum prices have declined as demand has been impacted by the global economic retreat due to the COVID-19 pandemic.
Continued low molybdenum prices could delay our ability to obtain other financing, and could cause a continued suspension of our development or, in the future, a suspension of our mining operations at our Mt. Hope Project.
A sustained significant increase in molybdenum supply could also adversely affect our results. In the event demand for molybdenum does not increase to consume the potential additional production, the price for molybdenum may be adversely affected.
We are exposed to counter party risk, which may adversely affect our results of operations
The off-take sales agreements the Company has completed contain provisions allowing for the sale of molybdenum at certain floor prices, or higher, over the life of the agreements. During the past 18 months there have been periods where the spot molybdenum prices fell below the inflation-adjusted floor prices in the contracts. During these time periods all off-take contracts would have provided for the Company to sell molybdenum at above-spot prices. In addition, presently, one of our off-take agreement counterparties currently has the option to cancel its agreement, and a second off-take agreement will expire on December 31, 2020 if production at specified minimum levels has not commenced by that date. We currently do not expect to commence commercial production before late 2022. In the event that our contract counterparties choose not to honor their contractual obligations, attempt to terminate these agreements as a result of the continuing delay in achieving production, or discontinue operations, our profitability may be adversely impacted. We may be unable to sell any product our contract parties fail to purchase in a timely manner, at comparable prices, or at all.
Our mineralization and reserve estimates are uncertain, and any material inaccuracies in those estimates could adversely affect the value of our mineral reserves
There are numerous uncertainties inherent in estimating mineralization and reserves, including many factors beyond our control. The estimation of mineralization and reserves is a subjective process and the accuracy of any such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, metallurgical testing, production, and the evaluation of mine plans subsequent to the date of any estimate may justify revision of such estimates. The volume and grade of mineralization and reserves recovered and rates of production may be less than anticipated. Assumptions about prices are subject to greater uncertainty and metals prices have fluctuated widely in the past. Further declines in the market price of molybdenum and copper may render mineralization and reserves containing relatively lower grades of ore uneconomic to exploit, which may materially and adversely impact our reserve and mineralization estimates at our projects. Changes in operating and capital costs and other factors including, but not limited to, short-term operating factors such as the need for sequential development of ore bodies and the processing of new or different ore grades, may also materially and adversely affect mineralization and reserves.
Any material inaccuracies in our production or cost estimates could adversely affect our results of operations
We have prepared estimates of future molybdenum production. We or the LLC may never achieve these production estimates or any production at all. Our production estimates depend on, among other things:
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The accuracy of our mineralization and reserves estimates;
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The accuracy of assumptions regarding ore grades and recovery rates;
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Ground conditions and physical characteristics of the mineralization, such as hardness and the presence or absence of particular metallurgical characteristics; and
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The accuracy of estimated rates and costs of mining and processing.
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Our actual production may vary from our estimates if any of our assumptions prove to be incorrect. With respect to the Mt. Hope Project, we do not have the benefit of actual mining and production experience in verifying our estimates, which increases the likelihood that actual production results or costs will vary from the estimates.
Mining has inherent dangers and is subject to conditions or events beyond our control, and any operating hazards could have a material adverse effect on our business
Mining at the Mt. Hope Project and Liberty Project will involve the potential for various types of risks and hazards, including: environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected rock formations, structure cave-in or slides, flooding, fires, and interruption due to inclement or hazardous weather conditions.
These risks could result in damage to, or destruction of, mineral properties, production facilities or other properties, personal injury or death, environmental damage, delays in mining, increased production costs, monetary losses, and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums and some types of insurance may be unavailable or too expensive to maintain. We may suffer a material adverse effect on our business and the value of our securities may decline if we incur losses related to any significant events that are not covered by our insurance policies.
Our operations make us susceptible to environmental liabilities that could have a material adverse effect on us
Mining is subject to potential risks and liabilities associated with the potential pollution of the environment and the necessary disposal of mining waste products occurring as a result of mineral exploration and production. Insurance against environmental risk (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) is not generally available to us or the LLC (or to other companies in the minerals industry) at a reasonable price. To the extent that we become subject to environmental liabilities, the satisfaction of any such liabilities would reduce funds otherwise available to us and could have a material adverse effect on us. Laws and regulations intended to ensure the protection of the environment are constantly changing, and are generally becoming more restrictive.
Legal title to the properties in which we have an interest may be challenged, which could result in the loss of our rights in those properties
The ownership and validity, or title, of unpatented mining claims are often uncertain and may be contested. A successful claim contesting our title or interest to a property or, in the case of the Mt. Hope Project, the landowner’s title or interest to such property could cause us and/or the LLC to lose the rights to mine that property. In addition, the success of such a claimant could result in our not being compensated for our prior expenditures relating to the property.
Climate change and climate change legislation or regulations may adversely impact General Moly’s planned future operations
Energy is anticipated to be a significant input in General Moly’s operations. A number of governmental bodies have introduced or are contemplating legislative and regulatory change in response to the possible impacts of climate change. U.S. Congress and several states have initiated legislation regarding climate change that could affect energy prices and demand. In December 2009, the EPA issued an endangerment finding under the federal Clean Air Act indicating that current and projected concentrations of certain mixed greenhouse gases in the atmosphere, including carbon dioxide, threaten the public health and welfare. It is possible that regulation may be promulgated in the U.S. to address the concerns raised by the endangerment finding.
Legislation and increased regulation regarding climate change could impose increased costs on us, our partners and our suppliers, including increased energy, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Until the timing, scope and extent of any future regulation becomes known, we cannot predict the effect on our financial condition, financial position, results of operations and ability to compare.
The possible physical impacts of climate change on the Company’s planned future operations are highly uncertain and would be particular to the geographic circumstances in the area in which we operate. These may include changes in rainfall, storm patterns and intensities, shortages of water or other natural resources, changing sea levels, and changing temperatures. These effects may adversely impact the cost, production and financial performance of the Company’s planned future operations.
Mineral exploration and mining activities require compliance with a broad range of laws and regulations, and compliance with or violation of these laws and regulations may be costly
Mining operations and exploration activities are subject to federal, state, and local laws and regulations governing prospecting, development, mining, production, exports, taxes, labor standards, occupational health and safety, waste disposal, toxic substances, land use, environmental protection, reclamation obligations, and mine safety. In order to comply with applicable laws and regulations, we may be required to make capital and operating expenditures or to close an operation until a particular problem is remedied. In addition, if our activities violate any such laws and regulations, we may be required to compensate those suffering loss or damage, and may be fined if convicted of an offense under such legislation. We may also incur additional expenses and our projects may be delayed as a result of changes and amendments to such laws and regulations, including changes in local, state, and federal taxation.
Land reclamation requirements for exploration properties may be burdensome, may divert funds from our exploration programs and could have an adverse effect on our financial condition
Although variable, depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies, as well as companies with mining operations, in order to minimize long term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and to reasonably re-establish pre-disturbance landforms and vegetation. In order to carry out reclamation obligations imposed on us in connection with our mineral exploration, we and the LLC must allocate financial resources that might otherwise be spent on further exploration programs. Such costs could also have an adverse effect on our financial condition.
Non-compliance with our Mt. Hope Mines Inc. Lease could result in loss of the LLC’s rights to develop the Mt. Hope Project and may adversely affect our business
The LLC leases the Mt. Hope Project from MHMI under the Mt. Hope Lease. Failure to comply with the terms of the Mt. Hope Lease (which principally require us to make prescribed payments on or before certain prescribed dates) could result in loss of the LLC’s rights to develop the Mt. Hope Project. Any loss of rights under the Mt. Hope Lease would have a material adverse effect on us and our ability to generate revenues.
Our ability to operate our Company effectively could be impaired if we lose key personnel or if we are not able to attract and retain the additional personnel we will need to develop any of our projects, including the Mt. Hope Project
We are a small company with a limited operating history and relatively few employees. The development of any of our proposed projects, including the Mt. Hope Project, will place substantial demands on us. We depend on the services of key executives and a small number of personnel, including our Chief Executive Officer/Chief Financial Officer, Chief Operating Officer, Chief Legal Officer, Principal Accounting Officer and Vice President of Environmental and Permitting.
We will be required to recruit additional personnel and to train, motivate and manage these new employees as our projects mature toward eventual construction and operation. The number of persons skilled in the development and operation of mining properties is limited and significant competition exists for these individuals. We implemented a reduction in force in November 2014 and another in October 2015, affecting more than 40% of our employees and contractors as a result of the delay in our ability to obtain project financing. In each of January 2015, 2016, 2017 and 2018, we implemented an annual retention program including equity stay incentives to our officer and all non-officer employees, though retention programs may not be successful in retaining our executives and key employees. As a result of our current cash restraints, we were unable to re-implement the annual retention program for 2019, though we reinstituted the retention program in January 2020. We may not be able to attract and retain qualified personnel in the future. We do not maintain “key person” life insurance to cover our executive officers. Due to the relatively small size of our company and the specific skill sets of our key employees, the loss of any of our key employees or our failure to attract and retain key personnel may delay or otherwise adversely affect the development of the Mt. Hope Project, which could have a material adverse effect on our business.
Our ability to have access to insurance programs for directors & officers; commercial general liability and automobile liability; workers compensation; property; surety bonding for reclamation liability and builders risk insurance could be impaired if our financial condition continues to be at risk for meeting our financial obligations
We experienced difficulty placing directors & officers’ insurance in October 2019 as result of a tightening insurance market and our financial condition. If we are unable to continue to place directors & officer insurance or in limits of coverage sufficient to satisfy our indemnification obligations to the Company’s directors and officers, the Company may lose its officers and directors and have limited ability to attract replacements.
We rely on independent contractors and experts and technical and operational service providers over whom we may have limited control
Because we are a small exploration and development stage company, we rely on independent contractors to assist us with technical assistance and services, contracting and procurement and other matters, including the services of geologists, attorneys, engineers and others. Our limited control over the activities and business practices of these service providers or any inability on our part to maintain satisfactory commercial relationships with them may adversely affect our business, results of operations, and financial condition.
Changes to the General Mining Law of 1872 and related federal legislation that impact unpatented mining claims could adversely impact the Mt. Hope Project
The Mt. Hope Project is located substantially on unpatented mining claims administered by the BLM. Mining on unpatented mining claims is conducted pursuant to the General Mining Law of 1872 and amendments thereto. Legislation for the amendment of the mining laws applicable to mining property has been considered by the U.S. Congress, which may include imposition of a governmental royalty and new permitting and environmental rules. Amendments to the mining laws could cause delays, increase the costs, and have an adverse effect on the returns anticipated from the Mt. Hope Project.
Increased costs could affect our ability to become profitable
Costs at any particular mining location frequently are subject to variation due to a number of factors, such as changing ore grade, changing metallurgy, and revisions to mine plans in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities, such as fuel, electricity, and labor. Commodity costs are at times subject to volatile price movements, including increases that could make production at our projects less profitable or uneconomic.
We anticipate significant capital expenditures in connection with the development of the Mt. Hope Project. In the past several years, costs associated with capital expenditures have escalated on an industry-wide basis as a result of major factors beyond our control. Increased costs for capital expenditures have an adverse effect on the returns anticipated from the Mt. Hope Project.
Shortages of critical parts, equipment and skilled labor may adversely affect our development projects
The industry has been impacted at times by increased worldwide demand for critical resources such as input commodities, drilling equipment, tires, and skilled labor. Shortages may cause unanticipated cost increases and delays in delivery times, potentially impacting operating costs, capital expenditures, and production schedules.
Cost estimates and timing of new projects are uncertain
The capital expenditures and time required to develop new mines or other projects are considerable and changes in costs or construction schedules can affect project economics. There are a number of factors that can affect costs and construction schedules, including, among others:
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Sustained lower molybdenum pricing;
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Availability of project financing;
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Availability of water, labor, power, transportation, commodities, and infrastructure;
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Increases in input commodity prices and labor costs;
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Fluctuations in exchange rates;
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Difficulty of estimating construction costs over a period of years; and
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Delays in maintaining environmental or other state of Nevada and federal government permits, including ongoing appeals related to the new ROD.
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Legislation, including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, may make it difficult for us to retain or attract officers and directors and increase the costs of doing business, which could adversely affect our financial position and results of operations
We may be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of the recent changes and currently proposed changes in the rules and regulations, which govern publicly-held companies. The Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The Dodd-Frank Wall Street Reform and Consumer Protection Act, adopted in July 2010, imposes significant additional obligations and disclosure requirements, as to which SEC rulemaking is ongoing. We are a small company with a limited operating history and no revenues or profits, which may influence the decisions of potential candidates we may recruit as directors or officers. The real and perceived increased personal risk associated with these requirements may deter qualified individuals from accepting these roles. In addition, costs of compliance with such legislation, including several provisions specifically applicable to companies engaged in mining operations, could have a significant impact on our financial position and results of operations.
Provisions of Delaware law and our charter and bylaws may delay or prevent transactions that would benefit stockholders
Our certificate of incorporation and bylaws and the Delaware General Corporation Law contain provisions that may have the effect of delaying, deferring or preventing a change of control of the Company. These provisions, among other things:
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Provide for staggering the terms of directors by dividing the total number of directors into three groups;
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Authorize our board of directors to set the terms of preferred stock;
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Restrict our ability to engage in transactions with stockholders with 15% or more of outstanding voting stock;
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Authorize the calling of special meetings of stockholders only by the board of directors, not by the stockholders;
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Limit the business transacted at any meeting of stockholders to those purposes specifically stated in the notice of the meeting; and
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Prohibit stockholder action by written consent without a meeting and provide that directors may be removed only at a meeting of stockholders.
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Because of these provisions, persons considering unsolicited tender offers or other unilateral takeover proposals may be more likely to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. As a result, these provisions may make it more difficult for our stockholders to benefit from transactions that are opposed by an incumbent board of directors.
Forward-Looking Statements
Certain statements in this document may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements of our Company, the Mt. Hope Project and our other projects, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. We use the words “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “future,” “plan,” “estimate,” “potential,” and other similar expressions to identify forward-looking statements. Forward-looking statements may include, but are not limited to, statements with respect to the following:
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Our ability to raise additional capital and to meet our financial obligations past third quarter 2020, which may force us to cease all operations and pursue restructuring or liquidation alternatives, including the potential to seek a bankruptcy filing, in which event investors may lose their entire investment in our Company;
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Our ability to work cooperatively with POS-Minerals to extend repayment of the Return of Contribution under the LLC Agreement, currently valued at $33.6 million;
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Our ability to obtain project financing for the development and construction of the Mt. Hope Project;
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The ability to obtain and maintain all permits, including the new ROD, water rights, and approvals for the Mt. Hope Project and the Liberty Project, and potential development of the copper-silver target and zinc mineralization;
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Our dependence on the success of the Mt. Hope Project;
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Our ability to access a $700 million bank loan with or without the reasonable best efforts of AMER or meet conditions under the molybdenum supply agreements;
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Issues related to the management of the Mt. Hope Project pursuant to the LLC Agreement;
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Risks related to the failure of POS-Minerals to make ongoing cash contributions pursuant to the LLC Agreement;
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Our ability to obtain approval from POS-Minerals to explore and develop the copper-silver target and zinc mineralization;
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Fluctuations in the market price of, demand for, and supply of molybdenum and other metals;
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The estimation and realization of mineral reserves and production estimates, if any;
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The timing of exploration, development and production activities and estimated future production, if any;
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Estimates related to costs of production, capital, operating and exploration expenditures;
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Requirements for additional capital and our ability to obtain additional capital in a timely manner and on acceptable terms;
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Our ability to renegotiate, restructure, suspend, cancel or extend payment terms of contracts as necessary or appropriate in order to conserve cash;
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Government regulation of mining operations, environmental conditions and risks, reclamation and rehabilitation expenses;
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Title disputes or claims;
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Limitations of and access to certain insurance coverage;
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The future price of molybdenum, copper or other metals; and
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Ability to retain key employees and staff.
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These forward-looking statements are based on our current expectations and are subject to a number of risks and uncertainties, including those identified under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Although we believe that the expectations reflected in these forward-looking statements are reasonable, our actual results could differ materially from those expressed in these forward-looking statements, and any events anticipated in the forward-looking statements may not actually occur.
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
ITEM 3. LEGAL PROCEEDINGS
History of Record of Decision (ROD)
On November 16, 2012, the BLM issued its initial ROD authorizing development of the Mt. Hope Project. The ROD was subsequently vacated by the U.S. Court of Appeals for the Ninth Circuit in December 2016, discussed below. Also, on April 23, 2015, the BLM issued a Finding of No Significant Impact (“FONSI”) supporting their Decision to approve an amendment to the PoO. The initial ROD and FONSI/Decision approved the PoO and amended PoO, respectively, for construction and operation of the mining and processing facilities and also granted the Right-of-Way, and amended Right-of-Way, respectively, for a 230kV power transmission line, discussed below. Monitoring and mitigation measures identified in the initial ROD and FONSI, developed in collaboration with the regulatory agencies involved throughout the permitting process, will avoid, minimize, and mitigate environmental impacts, and reflect the Company’s commitment to be good stewards of the environment. Ongoing changes to permits and the PoO during the life of mining operations are typical as design evolves and operations are optimized.
On February 15, 2013, Great Basin Resource Watch and the Western Shoshone Defense Project (“Plaintiffs”) filed a Complaint against the U.S. Department of the Interior and the BLM (“Defendants”) in the U.S. District Court, District of Nevada (“District Court”), seeking relief under the National Environmental Policy Act (“NEPA”) and other federal laws challenging the BLM’s issuance of the initial ROD for the Mt. Hope Project, and on February 20, 2013 filed a Motion for Preliminary Injunction. The District Court allowed the LLC to intervene in the matter.
On August 22, 2013, the District Court denied, without prejudice, Plaintiffs’ Motion for Preliminary Injunction based on a Joint Stipulation to Continue Preliminary Injunction Oral Argument, which advised the District Court that as a result of economic conditions, including the Company’s ongoing financing efforts, all major ground disturbing activities had ceased at the Mt. Hope Project.
On July 23, 2014, the District Court denied Plaintiffs’ motion for summary judgment in its entirety and on August 1, 2014 the Court entered judgment in favor of the Defendants and the LLC, and against Plaintiffs regarding all claims raised in the Complaint.
Thereafter, on September 22, 2014, the Plaintiffs filed their notice of appeal to the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) of the District Court’s dismissal. Oral argument of the parties before the Ninth Circuit was completed on October 18, 2016. On December 28, 2016, the Ninth Circuit issued its Opinion rejecting many of the arguments raised by the Plaintiffs challenging the Environmental Impact Statement ("EIS") completed for the Mt. Hope Project, but issued a narrow reversal of the BLM's findings related to air quality analysis and information related to potential public water resources. Because of this technical deficiency, the Court vacated the initial ROD.
Re-Issuance of Record of Decision Approving Supplemental Environmental Impact Statement (“SEIS”)
On remand from the Ninth Circuit to the BLM, the agency conducted additional evaluation of air quality impacts and resulting cumulative impact analysis under NEPA in preparation of a Supplemental Environmental Impact
Statement (“SEIS”). The SEIS disclosed additional information to the public related to the selection of appropriate background concentrations to use for dispersion modeling of air pollutants and information related to potential public water reserves. Because the SEIS must be prepared in accordance with NEPA guidelines, the SEIS process included three publications in the Federal Register: the first was the Notice of Intent (“NOI”) which was published on July 19, 2017; the second, the Notice of Availability (“NOA”) of the Draft SEIS (“DSEIS”) was published on March 6, 2019; and on September 27, 2019, the third, an NOA of the final SEIS, was published announcing that the BLM had re-issued the ROD marking completion of the NEPA process and approval of the SEIS. On October 31, 2019, a Complaint was filed against the U.S. Department of Interior and the BLM in the U.S. District Court in Nevada, challenging the re-issuance of the ROD. We are reviewing the Complaint filed by Great Basin Resource Watch and the Western Shoshone Defense Project, and may seek permission from the Court for the LLC to intervene on behalf of the Mt. Hope Project.
History of Mt. Hope Water Permits
In July 2011, the Nevada State Engineer (“State Engineer”) initially approved our applications for new appropriation of water for mining and milling use, and applications to change existing water from agricultural use to mining and milling use for the Mt. Hope Project. Subsequently, the State Engineer granted water permits associated with the approved applications and approved a Monitoring, Management and Mitigation Plan (“3M Plan”) for the Mt. Hope Project. Eureka County, Nevada and two other parties comprised of water rights holders in Diamond Valley and Kobeh Valley appealed the State Engineer’s decision approving the applications and granting the water permits to the Nevada State District Court (“District Court”) and then filed a further appeal to the Nevada Supreme Court challenging the District Court’s decision affirming the State Engineer’s decision to approve the applications and grant the water permits. In June 2013, the appeal was consolidated by the Nevada Supreme Court with an appeal of the State Engineer’s approval of the 3M Plan filed by two water rights holders. The District Court previously upheld the State Engineer’s approval of the 3M Plan and the two parties subsequently appealed the District Court’s decision to the Nevada Supreme Court.
On September 18, 2015, the Nevada Supreme Court issued an Order that reversed and remanded the cases to the District Court for further proceedings consistent with the Order. On October 29, 2015, the Nevada Supreme Court issued the Order as a published Opinion. The Nevada Supreme Court ruled that the State Engineer did not have sufficient evidence in the record at the time he approved the applications and granted the water permits to demonstrate that successful mitigation may be undertaken so as to dispel the threat to existing water rights holders.
On September 27, 2017, the Nevada Supreme Court affirmed a March 4, 2016 District Court Order vacating the 3M Plan, denying the water applications and vacating the permits issued by the State Engineer in July 2011 and June 2012. This decision of the Nevada Supreme Court was final, and not subject to further appeal.
New Change Applications for Water Use at Mt. Hope Project
After the Company received the September 2017 decision from the Nevada Supreme Court, it proceeded with new applications to change existing agricultural irrigation and mining/milling water rights owned by the Company to use at the Mt. Hope Project. These new change applications had been filed with the State Engineer in 2015 and 2016 while the above described appeals were pending before the Nevada Supreme Court. Originally, these applications and other new appropriation applications were to be addressed at a pre-hearing conference scheduled on August 25, 2016 before the State Engineer. These applications were the subject of a Writ of Prohibition or Mandamus (“Writ”) filed by Eureka County on August 23, 2016 to the Nevada Supreme Court seeking the Supreme Court’s intervention to stop further action by the State Engineer while the appeals discussed above were pending. On December 22, 2017 the Nevada Supreme Court denied Eureka County’s Writ Petition. As a result, the State Engineer allowed a pre-hearing conference held on January 24, 2018. At the pre-hearing conference the State Engineer and his hearing officer scheduled review of the new change applications for a September 11, 2018 hearing in Carson City, Nevada.
On January 2, 2018, Eureka County, and later joined by the other two protestants representing a rancher in Kobeh Valley and a ranching group in Diamond Valley, filed a motion to dismiss with the State Engineer asserting that our applications were precluded from review and approval asserting that they were repetitive of the applications denied previously by the Nevada Supreme Court in its September 2017 decision. On March 26, 2018, the State Engineer issued a non-final order denying the motion to dismiss finding that the applications to be reviewed at the upcoming hearing were not identical issues and that further consideration of the motion could be taken at the hearing. On May 14, 2018, Eureka County, joined by the other protestants filed a Writ to the Nevada Supreme Court and later a Motion to Stay the
September hearing date, asserting that the denial of the Motion to Dismiss was erroneous and that the Nevada Supreme Court should order that the applications be denied and/or the September 2018 hearing should be delayed until the Nevada Supreme Court can consider the Writ and underlying motion to dismiss. The Company filed its objection on June 27, 2018, and on August 30, 2018, the Nevada Supreme Court denied the Writ, permitting the September 2018 hearing before the Nevada State Engineer to proceed.
On the second day of the September hearing, all protest issues raised by Eureka County and the Diamond Natural Resources Protections & Conservation Association (“DNR”) concerning the Mt. Hope water rights applications were resolved through a Stipulation, Settlement Agreement and Withdrawal of Protest (“Settlement”). After Eureka County and DNR were excused, the hearing continued with evidence addressing concerns raised by another protestant representing a Kobeh Valley ranching family and cattle company that refused to participate in the Settlement. At the public hearing, the Company presented expert testimony in support of its augmentation and monitoring plan to the Nevada State Engineer, which will protect senior water rights in the Kobeh Valley basin when the Company commences construction and operation of its proposed Mt. Hope molybdenum project near the town of Eureka, Nevada. The hearing concluded on September 21, 2018.
Effective April 30, 2019, the Company, through its wholly owned subsidiary Kobeh Valley Ranch LLC (“KVR”) and the entered into a settlement agreement with a Kobeh Valley, Nevada ranching family (“Ranchers”), resolving the last set of protests pending before the Nevada State Engineer pertaining to the Mt. Hope Project’s water rights applications.
On June 6, 2019, the Nevada State Engineer issued Ruling 6464 granting the Company’s water rights applications for mining purposes. The water right permits for the Mt. Hope Project were issued on July 24, 2019. With receipt of and in compliance with the terms of the water permits, the water is available for consumptive use at the Mt. Hope Project. Neither the issuance of Ruling 6464 nor the issuance of the water permits were challenged, and the deadline for filing any appeal has expired.
Key Terms of Settlements
Eureka County and the DNR
Under the terms of the Settlement with Eureka County and the DNR, the Company and the LLC agreed to convey all related water rights for Mt. Hope Project at the future cessation of all mining activity to assist Eureka County and the DNR’s efforts to mitigate the pre-existing effects of agricultural groundwater pumping in Diamond Valley. Furthermore, upon construction of certain power infrastructure and grants of right of way by the LLC at the Mt. Hope Project, the Company and the LLC will work cooperatively with Eureka County to allow use of and access to such infrastructure to lessen the pre-existing effects of Diamond Valley groundwater pumping. Eureka County, and the Company and the LLC, also agreed to work cooperatively to seek opportunities to improve and implement groundwater monitoring efforts.
In addition, the Company withdrew its protests to Eureka County’s pending applications with the Nevada State Engineer to appropriate water from the Kobeh Valley basin, and at the request of DNR, the Company also agreed to publicly support the proposed Diamond Valley Ground Water Management Plan currently pending before the Nevada State Engineer.
With receipt of the water permits, the LLC increased its financial contributions to the existing Agricultural Sustainability Trust Agreement, discussed above, with the Eureka Producers’ Cooperative (“EPC”) in Diamond Valley with an additional $50,000 to EPC. Initially, upon execution of the Settlement, the LLC made a payment of $50,000.
The LLC will make additional contributions of $750,000 each after the commencement of molybdenum production at the Mt. Hope Project and on the one-year anniversary of production, for a total contribution obligation to the Sustainability Trust of $5.6 million, an increase of $1.6 million related to the terms of the Settlement. The amount has been accrued under mining properties, land, and water rights in the Company’s financial statements in addition to the previously accrued $4.0 million resulting in a total accrual of $5.6 million. The LLC has contributed $0.1 million into the Trust as of December 31, 2019.
The Sustainability Trust is tasked with developing and implementing programs that will serve to slow groundwater drawdown and thereby improve the sustainability of the agricultural economy in the Diamond Valley Hydrographic Basin.
Kobeh Valley Ranching Family
At the execution of the settlement agreement, the LLC funded an initial payment of $1 million into a trust account; distribution to the Ranchers occurred when the water permits were issued on July 24, 2019. Upon receipt of the initial $1,000,000 into the trust account, the Ranchers withdrew their protests and forfeited any judicial review of Ruling 6464 and the water applications and issuance of the water permits issued on July 24, 2019 by the Nevada State Engineer.
When conditions exist for the LLC to secure project financing additional consideration representing less than 1.5 % of the remaining project capital budget will be payable to the Ranchers. If the LLC has not secured Mt. Hope Project financing within 12 months of the executed settlement agreement or April 2020, the LLC will begin to make monthly payments of $10,000 to the Ranchers until financing is achieved and the remaining consideration will be paid to the Ranchers.
Pursuant to an April 29, 2019 Consent Agreement, the members of the LLC agreed that funding for the $1 million was advanced to the LLC by the Company, to preserve the joint venture’s existing reserve account. General Moly sourced $500,000 from its available cash, and received the remaining $500,000 from closing a sale of Series A Convertible Preferred Shares in a private placement with Mount Hope Mines Inc. (“MHMI”), the Mt. Hope Project’s claim/land lessor, discussed in Items 1 and 2 above and later in Note 7 to the consolidated financial statements contained elsewhere in this report.
In exchange for General Moly advancing the $1,000,000 initial settlement funding, the LLC members have agreed to repay the $1 million advance from the proceeds of ongoing sales of non-critical LLC assets and lands. On September 27, 2019, the Company and POS-Minerals entered into a further Consent Agreement for a reimbursement schedule concerning the approximately $700,000 owed to the Company by the LLC in return for the Company’s advance of funding to settle protests related to the water right applications for the Mt. Hope Project. Under the September Consent Agreement, $200,000 was reimbursed from the Reserve Account to the Company on September 30, 2019 and an additional $200,000 was reimbursed in early November. The remaining approximately $300,000 was reimbursed in March 2020 after the LLC sold more than $400,000 in non-critical Mt. Hope Project related equipment.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.