Moly Investing News (MIN) last caught up with General Moly (TSX:GMO,NYSEMKT:GMO) at the beginning of February, not long after the company had begun preliminary construction at its Mount Hope project — a significant milestone.
At the time, Scott Kozak, General’s director of investor relations, was in a positive mood, telling MIN, “Mount Hope is a large-scale, high-grade, lower-cost molybdenum deposit located in a stable jurisdiction. We also have excellent strategic partners that are both underpinning our financing and are committed customers for when we start production.”
However, since that time, the company’s fortune has taken a turn for the worse. What happened?
Put simply, General is now struggling to finance Mount Hope.
The company’s troubles date back to March 20, when it was informed that China Development Bank had told its legal counsel to suspend work on a $665-million loan intended to help finance the project. A press release published by General that day notes that the suspension was related to reports that Liu Han, chairman of Sichuan Hanlong (Group) Company, had been detained by Chinese authorities. Hanlong, General’s strategic partner, was arranging the loan, according to AMM.
Bruce Hansen, CEO of General, said that the plan was for General to “assess other financing alternatives,” though the hope was that the loan would come through.
However, by the beginning of April, it was starting to look like General was losing faith in the loan — Hansen commented in a company release that General was working with Hanlong “to secure another Chinese strategic partner” to fully finance Mount Hope.
Then, drawing the loan further into question, General and Hanlong agreed midway through May to terminate a $125-million subordinated loan agreement that was intended to supplement the $665-million loan.
Framing the development positively, Hansen noted, “[o]ur efforts to secure such a strategic partner are incrementally enhanced by the elimination of these warrants which reduces the potential for future dilution.” He also said that Hanlong would be helping General “move forward to secure another Chinese strategic partner capable of advancing the full financing of the Mt. Hope Project and reinvigorating advanced stage loan negotiations with China Development Bank.”
Unfortunately, Hansen’s positivity did not last: on August 21, General announced that its securities purchase agreement with Hanlong had been terminated. As General’s press release notes, the agreement “provided the opportunity for Hanlong to purchase the Company’s stock in two $40 million tranches.” While the first tranche was completed in December 2010, a condition for the second was Hanlong’s delivery of the $665-million loan; it was supposed to be available by August 16 of this year, but at this point it seems unlikely it will come through.
The upshot is that while Hanlong is still General’s largest stockholder, the company is now “focusing all [its] efforts on discussions with other parties that have expressed interest in advancing the full financing for the Mt. Hope Project.”
AMM notes that Hansen told Jefferies’ Global Industrial and Aerospace & Defense Conference that General is “currently looking at new strategic partners within China to replace Hanlong; at the same time, [it is] also looking at Western finance situations as well.” The company has reportedly retained London’s Cutfield Freeman & Company to help with that search.
For now, then, General is unable to do much to move Mount Hope forward. But, true to its name, it seems the project is still a hopeful prospect.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.