General Moly Reports Third Quarter 2019 Results
LAKEWOOD, COLORADO – November 19, 2019, General Moly, Inc. (the “Company” or “General Moly”) (NYSE AMERICAN and TSX: GMO), the only western-exchange listed, pure-play molybdenum (“moly”) development company, announced its financial results for the third quarter ended September 30, 2019.
Third quarter 2019 and year-to-date highlights:
- The Company and its major shareholder Amer International Group Co. Ltd. (“Amer”) are continuing negotiations and hope to reach a mutually beneficial resolution within the next two weeks. (See Company’s October 14, 2019 news release, “General Moly Announces Receipt of $300,000 Extension Fee from Amer International to Extend the Dispute Negotiation Period”).
- The federal Bureau of Land Management (“BLM”) issued the Record of Decision (“ROD”) authorizing the Mt. Hope Project’s Plan of Operations on September 27, 2019, approving the Supplemental Environmental Impact Statement (“SEIS”).
- On September 26, 2019, the Company entered into a 90-day deferral and forbearance agreement with the primary holder of the Company’s Senior Convertible Promissory Notes and Senior Promissory Notes (collectively, the “Senior Notes”), along with certain of the Company’s members of management and directors who participated in the offering. As a result, $162,000 of interest payments due at the end of the third quarter were deferred as described in the Company’s November 12, 2019 news release.
- The Company entered into an agreement in principle (“AiP”) with the holder of $5 million of the Company’s Senior Notes and certain other holders of the Senior Notes to exchange the Senior Notes for new units consisting of new senior non-convertible promissory notes maturing in 2022 in the same original principal amount bearing an interest rate between 12-14% (the “Exchange Notes”) and a three-year warrant to purchase common stock at $0.35 per share. The Exchange Notes have other terms described in Company’s November 12, 2019 news release.
- Under the AiP, the largest holder of the Senior Notes, as well as the Company’s CEO, Bruce Hansen, have agreed to purchase new 13% Senior Promissory Notes due 2022 in the principal amount of $610,000, providing additional capital to the Company. The AiP is subject to completion of definitive documentation, and there can be no assurance that the transactions contemplated by the AiP will be consummated.
- The Nevada State Engineer issued the water permits for the Mt. Hope Project as announced by the Company on July 29, 2019.
- Chief Executive Officer and Chief Financial Officer Bruce D. Hansen and Chief Operating Officer Robert Pennington invested further in General Moly through a private placement purchase of $400,000 of Series B Convertible Preferred Shares to provide interim incremental liquidity to the Company, as announced in the Company’s news release of August 1, 2019.
- On September 27, 2019, the Company entered into a Consent Agreement with POS-Minerals to accelerate the repayment of the balance of $1 million the Company advanced to the Company’s 80%-owned joint venture company, which operates the Mt. Hope Project, Eureka Moly, LLC (“EMLLC”) to fund the initial settlement payment to the Kobeh Valley ranching family to settle protests to the Mt. Hope Project water rights.
- EMLLC ended the quarter with a restricted cash balance of $4.1 million (100% basis) in a reserve account, and remains self-funded into 2021, based on current estimated care and maintenance expenses.
Mr. Hansen said, “In a major milestone for the Company, the Mt. Hope Project is now fully permitted for the eventual development and construction of the Mt. Hope Project with our EMLLC joint venture partner, POS-Minerals Corporation (“POS-Minerals”), subject to a positive molybdenum market and financing conditions. That significantly lowers the risk for any strategic options we are considering for this high-grade primary moly project to maximize value for our shareholders.”
Commenting on the recent moly prices, Mr. Hansen said, “We believe the downturn in moly prices in October is temporary and an aberration from a weakened Renminbi and fears of increased U.S.-China trade tension and more severe global economic slowdown. Global molybdenum production continues to fall in 2019 while world stainless steel output with its higher moly use remains strong. We expect to see a supply deficit through 2022. The International Stainless Steel Forum projected world stainless steel production to grow moderately in 2019 and by 4.4% year-over-year in 2020, driven by China.”
Consolidated net loss for the three months ending September 30, 2019 was $3.0 million ($0.02 per share), the same as the consolidated net loss for 3Q 2018.
For the three months ended September 30, 2019 and 2018, consolidated uses of cash included general and administrative expenses (“G&A”) of $1.0 million and $2.5 million, respectively, reflecting the Company’s cash conservation efforts. In conjunction with non-core asset sales, the Company took write-downs of $1.6 million during the quarter. In 3Q 2018, the Company G&A included costs associated with former due diligence efforts assessing value-accretive acquisition opportunities with Amer.
Exploration and evaluation expenses for 3Q 2019 were for ongoing care and maintenance expenses for the Liberty Project of $196,000, which are approximately half of the expenditures in 3Q 2018. The expenses for 3Q 2018 included costs associated with maintenance for and repair to a legacy leach pad at the Liberty Project.
Interest expense for the three months ended September 30, 2019 and 2018 was $0.2 million in both periods.
Third quarter expenses were partially offset by an inflow of funds released from the reserve account held at EMLLC of $0.9 million, and $0.4 million from a private placement from two officers of the Company.
At the end of the third quarter, the Company had $1.1 million in unrestricted cash and equivalents.
Since the end of the third quarter, there have been cash inflows from the $300,000 Dispute Negotiation Period extension fee paid by Amer, a $200,000 repayment from EMLLC under a Consent Agreement as noted above, plus the anticipated cash infusion of $610,000 from the pending issuance of new 13% Senior Promissory Notes (described in highlight bullets above). Subject to completion of definitive documentation of the AiP, the Company is anticipated to have sufficient cash to fund its working capital needs through early in the first quarter of 2020. If there is no additional financing, the Company will have inadequate cash to continue operations and is continuing to pursue asset sales and short-term financing options. If it is unsuccessful in obtaining sufficient financing, the Company may consider bankruptcy protection, as stated in the Company’s July 29, 2019 news release.
The Company’s financial advisors, XMS Capital Partners, Headwall Partners, and Odinbrook Global Advisors (collectively, the “Advisors”), continue to be engaged by the Board of Directors to assist in securing financing and negotiating with debt holders and other potential stakeholders. (See the Company’s March 13, 2019 news release.)
EMLLC Repayment to General Moly
Through an agreement with POS-Minerals, General Moly advanced $1.0 million on behalf of EMLLC for the initial settlement payment resolving the final protest to the Mt. Hope Project’s water rights applications, as detailed in the Company’s May 14, 2019 news release. General Moly sourced $500,000 from its available cash and $500,000 from closing a private placement of Series A Preferred Convertible Shares with Mount Hope Mines Inc., the project’s claim and land lessor.
The Company’s $1.0 million advance is to be repaid by EMLLC from the proceeds of ongoing sales of non-critical Mt. Hope Project related equipment, assets and property. In June 2019, approximately $293,000 was returned from such sales.
On September 27, 2019, the Company and POS-Minerals entered into a Consent Agreement for a reimbursement schedule concerning the $707,000 owed to the Company by EMLLC. Under the Consent Agreement, $200,000 was reimbursed from the EMLLC reserve account to the Company on September 30, 2019 and an additional $200,000 was reimbursed in early November. The remaining $307,000 will be reimbursed in December, provided that EMLLC has sold a minimum of $400,000 in non-critical Mt. Hope Project related equipment, assets and property.
Table 1: Financial Summary
Table 2: Balance Sheet Summary
Anticipated Additional Funding
Under the AiP, the largest holder of the Senior Notes, as well as the Company’s CEO, Bruce Hansen, have agreed to purchase new 13% Senior Promissory Notes due 2022 in the principal amount of $610,000 (representing 10% of the original principal amount of the Senior Notes to be exchanged) providing additional capital to the Company. The total principal amount of Senior Notes contemplated to be extended by the AiP is $6.37 million out of the $7.25 million Senior Notes outstanding. The maturity date for the outstanding Senior Notes is December 26, 2019.
The AiP is subject to completion of definitive documentation. As the definitive documentation has not been executed by the parties, there can be no assurance that the transactions contemplated by the AiP will be consummated.
Mt. Hope Project
The Mt. Hope Project received its water permits from the Nevada State Engineer in July 2019 and the final federal permit in the form of the ROD in September 2019. The Mt. Hope Project now has all state and federal permits for the eventual construction and operation of the Mt. Hope Project, subject to positive market conditions and project financing.
In the Company’s November 5, 2019 news release, the Company noted that 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. The Company is reviewing the Complaint filed by Great Basin Resource Watch and the Western Shoshone Defense Project, and may seek permission from the Court to intervene on behalf of the Mt. Hope Project.
Engineering remains approximately 65% complete at the Mt. Hope Project. Currently, there is no ongoing engineering and procurement effort.
The moly oxide daily global spot price per pound is currently at $8.85 compared with $11.88 at yearend 2018, according to Platts. The moly price ranged from a low of $11.53/lb to a high of $12.00/lb during the third quarter, but declined to a two-year low at $8.38 per pound on November 11, 2019 before recovering to $8.85. The $11.74 average for the year-to-date through November 10, 2019 is, however, only 1.9% lower than the average of the same period of 2018.
The recent lower moly prices may be attributed to the heightened U.S.-China trade tensions that led to a weakened Renminbi which further exacerbated the price fall when expressed in dollars. China is the world’s largest consumer and producer of moly, noted the CPM Group, an econometrics and commodities research firm in New York. Increased fears about a more severe global economic slowdown may also have dampened moly demand. An evident shift in demand in China away from nickel-rich 300-series stainless steel to a cheaper and less moly-intensive 200-series might have had a further impact. Such shifts occurred in the past as well.
Moly prices can be volatile. The CPM Group expects moly prices to strengthen over the next several years. CPM projects per pound average real prices of $11.44 in 2019, $13.55 in 2020, $14.64 in 2021, and $15.30 declining to $14.32 in 2022-2025. (CPM is currently reviewing its price forecasts for 2021 to 2025 but for now is using these earlier projections.)
While noting that it is still investigating what all of the factors contributing to the perplexing recent precipitous price downturn, CPM states that the fundamentals are still looking reasonably robust, including that moly production continues to contract, and that this price decrease may have been a seasonal dip from destocking inventory in October, exacerbated by the depreciation of the Renminbi. Indeed, the present decline in prices is likely to sharpen the decline in moly production and encourage increased use of the metal once again.
Approximately 70% of moly’s first use is for steel production as moly is a premier alloy to strengthen steel and make it corrosion resistant. Most of moly in steel is consumed by the specialty steels, an expanding, value-added segment accounting for approximately 10% of overall steel production. Within the specialty steels segment, stainless steel accounts for the largest use of moly at 21%, and full alloy steel accounts for 20% of total moly consumption.
The ISSF projected that world stainless steel consumption is estimated to increase by 2.4% in 2019 over 2018 and by 4.4% year-over-year in 2020. ISSF also reported that the first half of 2019 showed a 2% increase in stainless steel melt shop production to 26.1 million metric tons over the 2018 period, led by a 9% increase in output of 14.4 million metric tons from China.
On the supply side, the CPM Group estimates that the moly market was near equilibrium with a growing deficit in 2020-2021. CPM projects that the deficit will shrink in 2022 followed by small surpluses in 2023-2025.
Chart 1: Moly Weekly Spot Price (1/8/2004 – 11/15/2019)
About General Moly
General Moly is a U.S.-based, molybdenum mineral exploration and development company listed on the NYSE American, recently known as the NYSE MKT and former American Stock Exchange, and the Toronto Stock Exchange under the symbol GMO. The Company’s primary asset, an 80% interest in the Mt. Hope Project located in central Nevada, is considered one of the world’s largest and highest grade molybdenum deposits. Combined with the Company’s wholly-owned Liberty Project, a molybdenum and copper property also located in central Nevada, General Moly’s goal is to become the largest primary molybdenum producer in the world.
Molybdenum or “moly” is a metallic element used primarily as an alloy agent in steel manufacturing. When added to steel, molybdenum enhances steel strength, resistance to corrosion and extreme temperature performance. In the chemical and petrochemical industries, molybdenum is used in catalysts, especially for cleaner burning fuels by removing sulfur from liquid fuels, and in corrosion inhibitors, high performance lubricants and polymers.
Statements herein that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and are intended to be covered by the safe harbor created by such sections. Such forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, expected, or implied by the Company. These risks and uncertainties include, but are not limited to availability of cash to continue ongoing operations, availability of insurance, metals price and production volatility, global economic conditions, currency fluctuations, increased production costs and variances in ore grade or recovery rates from those assumed in mining plans, exploration risks and results, reclamation risks, political, operational and project development risks, ability to maintain required federal and state permits to continue construction, and commence production of molybdenum, copper, silver, lead or zinc, ability to identify any economic mineral reserves of copper, silver, lead or zinc; ability of the Company to obtain approval of its joint venture partner at the Mt. Hope Project in order to mine for molybdenum, copper, silver, lead or zinc, ability to raise required project financing or funding to pursue an exploration program related to potential copper, silver lead or zinc deposits at Mt. Hope, ability to respond to adverse governmental regulation and judicial outcomes, and ability to maintain and /or adjust estimates related to cost of production, capital, operating and exploration expenditures. For a detailed discussion of risks and other factors that may impact these forward-looking statements, please refer to the Risk Factors and other discussion contained in the Company’s quarterly and annual periodic reports on Forms 10-Q and 10-K, on file with the SEC. The Company undertakes no obligation to update forward-looking statements.