U.S. Energy finds new partner in Thompson Creek

Company specializes in molybdenum

One of the largest molybdenum mining companies in the world has dipped its toe in the pool and signed on to test the waters with the proposed Lucky Jack Mine on Mt. Emmons. Thompson Creek Metals Company USA has signed an options agreement with U.S. Energy Corp. that gives Thompson Creek an option to acquire up to 75 percent of the project.

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Under the option agreement, Thompson Creek has made a $500,000 payment to Wyoming-based U.S. Energy. Unless the agreement is terminated sooner, Thompson Creek will pay $1 million annually to U.S. Energy for six years beginning January 1, 2009 and ending January 1, 2014. As the project manager, Thompson Creek will direct additional funds towards the assessment, environmental permitting, exploration and development of the property.
“It’s what we were hoping for,” said a very pleased Perry Anderson, director of community relations for the Lucky Jack Project. “They are a good solid company and they have the assets and knowledge to see this project through. It is very positive for U.S. Energy, it is positive for the project and it is positive for the community. It’s good for Thompson Creek, too.”
Not everyone agrees with that sentiment. “Thompson Creek is an interesting company but it is no surprise that U.S. Energy was seeking and found a partner,” said High Country Citizen’s Alliance public lands director Dan Morse. “And I say partner loosely. Their initial investment is just $500,000, which, given the scope of the project, isn’t much. It’s less than one-tenth of what Kobex spent in nine months.”
Kobex Resources Ltd. of Canada was previously partnered with U.S. Energy on the Lucky Jack project but pulled out of the deal last spring.
Red Lady Coalition president Bill Ronai said that was a good decision. “We believe Kobex made a wise decision when it pulled out of its partnership with U.S. Energy last March,” he said. “It is apparent to the Red Lady Coalition that Lucky Jack is a project U.S. Energy can’t do on its own. We think it’s unwise of Thompson Creek to partner with U.S. Energy in a project that will never get permitted to proceed.”
According to a Thompson Creek press release, it has the right to withdraw from the project and associated payment commitments at any time for any reason. The company will not assume any existing liabilities on or related to the property until it exercises its right to acquire an ownership interest in the property.
“We are extremely pleased to have the opportunity to become involved in a project of such high quality,” said Kevin Loughrey, chairman and chief executive officer of Thompson Creek. “The Lucky Jack Project is one of the largest, high-grade, undeveloped molybdenum deposits in the world, with a historical mineral resource in excess of 700 million pounds of molybdenum. The transaction we have entered into with U.S. Energy allows us to earn our way into property ownership by spending money to develop the project over a period up to 10 years, although we hope to advance the project to completion more quickly. The transaction is also particularly appropriate for Thompson Creek at this time because it gives the company access to a world-class ore body without the company issuing additional shares, which currently are undervalued.”
A U.S. Energy press release made it clear that the company is extremely pleased with the partnership. “Securing a partnership with a global leader like Thompson Creek provides significant validation of both the Lucky Jack project and our strategy to realize value from this asset over the long-term,” said Mark Larsen, president of U.S. Energy Corp. “Thompson Creek brings an outstanding environmental record, substantial expertise, financial resources and a singular focus on the development and operation of molybdenum projects to the table. With an office in Denver, operating mines in the U.S. and Canada, and substantial roasting capacity, we believe that Thompson Creek is the ideal partner for the advancement of the project,” he added.
Morse admitted that Thompson Creek, as a company, is more familiar with moly mining than Kobex Resources Ltd. “But the issues are still there,” he said. “The acid discharge problems from the Standard Mine are still there. The vocal, well-informed community that is against a mine on Mt. Emmons is still there. The obstacles in the permitting process haven’t changed. In that way, it’s kind of business as usual. The opposition from HCCA is unchanged. The community concerns about the potential impacts on drinking water, the economy and the environment are still the same.”
Lucky Jack’s Perry Anderson said Thompson Creek brings a lot more to the table than Kobex. “Kobex was shy on experience when it came to molybdenum mining but Thompson Creek isn’t,” he said. “They have the experience to see the project through to completion.”
According to marketwatch.com, Thompson Creek Metals Company Inc. is one of the largest publicly traded, pure molybdenum producers in the world. The company owns the Thompson Creek open-pit molybdenum mine and mill in Idaho, a metallurgical roasting facility in Langeloth, Pa. and a 75 percent share of the Endako open-pit mine, mill and roasting facility in northern British Columbia. Thompson Creek is also developing the Davidson Deposit, a high-grade underground molybdenum project near Smithers, B.C.
Morse said that while Thompson Creek is experienced, other large mining companies saw the writing on the wall, and abandoned the project. “You can’t draw a lot of comparison with Kobex to Thompson Creek, but if you think back to Amax or Phelps-Dodge, they are in the same arena. In fact, Phelps-Dodge is a bigger company and they eventually made the decision that they didn’t want to be here. All mining companies eventually feel the pressure of the issues that will be bad for them as a business.”
Ronai agrees it will be the business end of the deal that eventually will cause Thompson Creek to give up on the project like its predecessors.
“The proposed mining project could cause irreparable harm to the town of Crested Butte and the economy of Gunnison County,” he said. “We believe that the high environmental mitigation and transportation costs could be uneconomical for Thompson Creek. We look forward to the opportunity to meet with the management of the company so we can show them and their shareholders why we believe an attempt by them to pursue a mine on Mt. Emmons would be a poor business decision.
“As with any project of this magnitude, there are challenges,” admitted Thompson Creek’s Loughrey. “However, we are confident we can develop this deposit in a manner that is environmentally sound, a boon to the local community, and positive for our shareholders. Projects such as this represent hundreds of long-term jobs, millions of dollars of tax revenues, and significant opportunities for the local and state economies. Gunnison County is fortunate to have an asset of this quality within its borders.
“Naturally, we will review the details of the project and take a fresh look at all aspects of the previously planned development, and we will seek the input of the residents of the County,” Loughrey continued in the press release. “In addition, we will work, as we always do, with local, state, and federal officials and agencies to ensure that the project is developed in accordance with all applicable laws and regulations. Fortunately our Company has the experience and resources to develop and ultimately reclaim the property in a professional, efficient, and environmentally sound manner.”
Thompson Creek has approximately 800 employees. Its principal executive office is in Denver, with other executive offices in Toronto, Ontario and Vancouver, B.C.
More information is available at www.thompsoncreekmetals.com.