Centerra Gold Targets $472M After-Tax NPV with Molybdenum Operations Revamp
Centerra Gold (TSX: CG) has announced the results of a comprehensive feasibility study and strategic plan for its U.S. molybdenum operations, which include the restart of the Thompson Creek Mine in Idaho and the optimization of the Langeloth Metallurgical Facility in Pennsylvania. Together, these assets form the backbone of Centerra’s Molybdenum Business Unit (MBU), which the company views as crucial to its growth strategy, despite its primary focus on gold production.
“Over the last year, we have developed a value-enhancing strategy for Centerra’s U.S. molybdenum operations, centered around the vertical integration of Thompson Creek and Langeloth, and supported by strong molybdenum market fundamentals,” said CEO Paul Tomory.
He highlighted that the combined U.S. molybdenum business is expected to produce an after-tax net present value (NPV) of $472 million with an internal rate of return (IRR) of 22%.
Thompson Creek, a major molybdenum mine, has been on care and maintenance since 2014 due to low molybdenum prices. However, the recent feasibility study, which builds on a 2023 pre-feasibility study, confirms that the time is ripe for a restart. The feasibility study adds an extra year of production, bringing the mine’s expected life to 12 years and boosting molybdenum production to 146 million pounds—an increase of 12 million pounds from previous estimates.
The total capital required to restart Thompson Creek is pegged at $397 million over the next three years, with $55 to $65 million expected to be spent in the second half of 2024 alone. The mine is projected to begin production in the second half of 2027, with full ramp-up coinciding with the Langeloth facility’s increase in capacity.
“Following significant progress on permitting efforts in the second quarter of 2024, we have pivoted from a two-phased approval to a single-phase capital investment,” Tomory added. He also noted that the early works to restart Thompson Creek, such as equipment refurbishments and pre-stripping activities, are on schedule and within budget.
Langeloth facility
Centerra’s Langeloth Metallurgical Facility, located near Pittsburgh, Pennsylvania, plays a crucial role in the vertical integration strategy. The facility, which has been in operation for nearly a century, is one of only three molybdenum conversion plants in the U.S. and serves as a key player in North America’s steel supply chain. Once fully ramped up by 2028, Langeloth is expected to process up to 40 million pounds of molybdenum per year, with approximately one-third of that feed coming from Thompson Creek.
At full capacity, Langeloth could generate $50 million in annual earnings before interest, taxes, depreciation, and amortization (EBITDA), driven by the blending of high-grade molybdenum from Thompson Creek with third-party concentrates. The integration between the two operations is expected to result in “significant synergies and margin improvements,” as Tomory put it, allowing Centerra to better meet market demand and increase its flexibility in producing higher-margin molybdenum products.
The geographic location of Langeloth is another key advantage. Situated near major U.S. East Coast ports, it is ideally positioned for importing molybdenum concentrates and exporting finished products. This proximity to transportation networks further strengthens its connection to the North American steel market, a primary consumer of molybdenum.
Market fundamentals and molybdenum
The decision to restart Thompson Creek and optimize Langeloth comes at a time of strengthening molybdenum market conditions. Molybdenum, a metal used in the production of high-strength steel and other alloys, has seen rising demand due to its applications in both traditional industries—such as oil and gas—and emerging green technologies, including wind and geothermal energy.
According to the International Molybdenum Association, the world consumed approximately 630 million pounds of molybdenum in 2023. Market fundamentals suggest that demand will continue to grow, particularly with the push toward renewable energy.
A 2020 World Bank report identified molybdenum as one of the key minerals necessary for the global shift toward clean energy, projecting a 119% increase in demand through 2050.
The Thompson Creek Mine has proven and probable reserves of 161 million pounds of molybdenum with an average grade of 0.065%, while Langeloth’s operational flexibility allows for production of both high-purity molybdenum oxide and ferromolybdenum.
The integration of these properties then presents a highly attractive financial profile. The NPV at an 8% discount rate for the combined operations stands at $472 million, with an IRR of 22%. At a molybdenum price of $25 per pound, the NPV rises to $782 million, and the IRR increases to 29%.
Thompson Creek’s all-in sustaining costs (AISC) are estimated at $12.46 per pound of molybdenum produced, which is competitive given current market conditions. Operating costs are expected to be lower during the first few years of production, thanks to higher grades and larger volumes of ore being processed, which will bolster cash flows during this period.
Tomory also hinted at the potential for further expansion, stating, “We are continuing to explore strategic options to unlock the full potential of our molybdenum business, in line with Centerra’s strategy to maximize the value of each asset in our portfolio.”
Centerra Gold last traded at $9.49 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
