Adanac Moly Corp fka AUA

[seeclear]

Recent Update...Not lookin' pretty... Credit Crunch Hits Molybdenum Miner

By Ben Abelson

20 Mar 2008 at 08:23 PM GMT-04:00

http://www.resourceinvestor.com/pebble.asp?relid=41363

CHICAGO (ResourceInvestor.com) -- Shares in Adanac Moly [TSX:AUA; OTCPK:AUAYF] fell almost 13% today to a new 52-week low after the company said it had yet to secure satisfactory financing for its Ruby Creek mine development and four builders have filed liens on the project totalling about $3 million.

This recent development is just one in several setbacks that have hit Adanac since the company disclosed late January that it was essentially not immune to the systemic credit crunch.

Back in January, Adanac called its trouble securing a key $80 million bridge loan a “minor schedule disruption” and said that it would “slow down” construction activities on its massive $650 million Ruby Creek mine while it worked to secure financing continued through February. Yesterday, the company characterized the situation a bit more frankly, disclosing that the firm had be unable to date to secure the financing on satisfactory terms, and that all construction activities at the project had been suspended.

The sudden turnabout in the characterization of the “slow down” and the fact that the four builders have now filed $3 million in liens against the company didn’t inspire tremendous confidence in the project by investors, who now value Adanac’s shares at just C$0.57, about 80% less than the C$2.50-plus they traded at in July.

The costs of Ruby Creek are nothing if not massive, and given current market conditions it’s unclear when the project will get built. While the project’s base-case economics are reasonably strong, with an IRR of 18.9%, these take into account an elevated molybdenum price of $28 through 2010 and $15 through 2015.

Even if the company is able to secure the bridge loan in the near term, Adanac’s problems will unfortunately not simply disappear. The project requires $600 million in debt financing after the bridge financing has run out. Even if the bridge loan is arranged, it’s unclear if this is anywhere close to being finalized – and so investors have no certainty when the stars will align for Adanac given current market conditions.

It’s unclear how much cash Adanac has on hand to date, but the company could also be forced to freeze ongoing exploration at the Ruby Creek if funds run tight. As of the end of October 2007, the company had about C$11 million in cash. Additionally, if it receives its final construction permit shortly, the company will be required to post a $3 million bond, which would likely have the effect of restricting usage of an additional sum of cash. Finally the company cannot call on significant equity financing to help out, especially given that the C$65 million market cap company just completed a C$15 million equity deal at the end of December.

In short, without cash – and a significant improvement in the credits market soon – Ruby Creek could be dead in the water.

Given the project’s base case NPV of C$300 million, there is of course a chance that a larger, better financed firm may try to scoop up Adanac at a bargain price. While there is a shot at this happening, the mine’s construction bill is not insignificant even to a larger player – so it’s unclear who might want to take on the risk at this point. Additionally, Adanac would owe a break fee to the investment bank it’s engaged for its debt financing of up to $12 million if it is taken out – so this amount must be effectively tacked onto the purchase price.

Given the level of uncertainty that exists with the project’s development at this stage – and the level of leverage to molybdenum at the project (average costs are the $7/lb range) – it’s uncertain which firms might step up to the plate, and if Adanac’s longer-term shareholders/management would approve such a deal.

The Ruby Creek Molybdenum Deposit is a low-grade bulk type of molybdenum deposit, containing 143.7 million tonnes at 0.059% Mo proven and probable reserves and 206.4 million tonnes at 0.63% Mo measured and indicated resources.


SC.