Earth Matters: Hiatus

It is typical: The economy didn’t collapse when I was young and could ignore or otherwise deal with it. Karma, Murphy’s Law and Keynesian economics being what they are, it had to happen when I’m an old dude, unable to move off the grid and live in the woods with a stone ax. Perhaps that is too cynical a point of view.

Instead, I should be looking for that glass half-full. Economic advisors tell me, for example, that our economic meltdown is prime-time for bargains. If you have money, they say, current depressed prices present an excellent opportunity to invest in stocks or buy real estate, diamonds, yachts, automobiles, airline tickets, flat-screen televisions, appliances and other big-ticket items. The question of who the hell has money goes begging.

The glass is half-full with other silver linings…or molybdenum linings as the case may be. Economic malaise has sent recently bullish commodity prices into a bearish tailspin that might otherwise have me dancing in the streets. I say otherwise, because when the price of molybdenum crashed in the early 1980s and AMAX withdrew its proposal to mine Mt. Emmons and Red Lady Bowl, we did dance in the streets.

Those were heady days. The difference is that back then molybdenum prices crashed in a more isolated way. Prices didn’t reflect devaluation of our world economy as they do now. That is a significant difference. Now we are all in the toilet and molybdenum prices are merely collateral damage. Molybdenum prices have fallen more than seventy percent in the past six months.

The glass half-full tells me tanked molybdenum prices work to my advantage. Thompson Creek Metals’ proposal to mine Mt. Emmons would find a tough row to hoe if the company were to seek financing to mine in this economic maelstrom.

According to Mining News, the global economic slowdown has “cast a pall over the mining industry…” Mining executives expect a significant reduction in exploration activity and at least thirty percent of exploration companies to go out of business.

Commodities analyst VM Group says $50 billion less will be injected into the mining industry in 2009 and 2010 than expected before the recession. The group projects impacts to future production efficiencies and metal supply, and crippling of early stage production. This would presumably lead to another metal price boom when the recession is over because demand would outstrip supply. Katie, bar the door.

For its part, Thompson Creek Metals is cutting cash injections while sitting on $270 million in cash and a $35 million untapped credit line. CEO Kevin Loughrey plans to preserve capital until market conditions improve. Thompson Creek Metals will reduce molybdenum production from a previously estimated 34 million pounds to 24 million pounds.

The company recently closed its Smithers, British Columbia—Davidson Project—office as a cost saving measure. The Davidson Project, a proposed underground molybdenum mine, is completely off the books with no budget at all for 2009. The company’s other mines, Idaho’s Thompson Creek Mine and British Columbia’s Endako Mine, will reduce output considerably.

But Kevin Loughrey is betting on the come that molybdenum prices will recover as government economic stimulus packages take effect. He expects molybdenum demand to rise as emerging-market economies build new energy infrastructure and as developed countries replace worn pipelines, retool aging oil refineries and gear up for nuclear power production. “Long term,” said Loughrey, “we still feel very comfortable with where moly is headed.”

What does all this cost-cutting mean for Crested Butte and the Mt. Emmons Project? Probably not much. Thompson Creek Metals must still pay property owner U.S. Energy $1 million a year to maintain Thompson Creek’s seventy-five percent option to mine ore from under Red Lady Bowl. The company will undoubtedly continue its evaluation and permitting process, an undertaking that will consume at least a decade. The price of molybdenum could yo-yo several times during that period.

The current hiatus in activity—cutbacks, cost saving, whatever—is misleading. Thompson Creek Metals is using the time to insidiously insert itself into our community. Confident that the recession will end and metal prices will rebound, Thompson Creek believes time is on its side.

We could hope the company would close its Gunnison and Crested Butte offices like it did in Smithers, BC. We could hope that Thompson Creek would see the light and not plan a molybdenum mine smack in the middle of Crested Butte’s watershed and our tourist and emerging amenities-based economies. We could hope that pigs grow wings. Katie, keep that door barred.