Mercator Minerals Ltd.

Mercator Minerals is nearing completion of a two-phase construction to grow its milling operation at its Mineral Park Mine near Kingman, Ariz. Mercator acquired the copper and molybdenum-laden property in 2003. At that time, the solvent extraction electro-winning (SX/EW) operation was recovering copper from heap leaching. In 2007, the company started phase 1, to bring the facility’s production to 25,000 tons per day. Two years later, Mercator began commercial production, and in 2010 initiated construction of phase 2 to add an additional 25,000 tons per day capacity to bring the mill to its targeted 50,000-tons-per-day run-rate.

On Aug. 12, the company announced it completed construction and testing of a 37-megawatt turbine generator and commenced commercial operation of the generator on Aug. 15. It also had completed construction for the phase 2 ball mills and rougher flotation cells. The waterline and well construction were also complete by Aug. 15. All four wells were scheduled to be energized by mid-September. According to Gary Simmerman, general manager of Mineral Park, the remaining equipment installation and construction was finalized in September, bringing the mine to its destined 50,000 tons per day capacity.

For a small company in an uncertain market, such an investment may seem a risky undertaking. However, the company’s 2006 feasibility study returned a proven resource of more than 1 billion pounds of copper, 278 million pounds of molybdenum and 27 million ounces of silver. Milled at 50,000 tons per day, the mine has an expected 23 years of life.

A Quarter’s Worth
Though the phase 2 expansion is still underway, the company has already managed to increase its total commercial production quarter by quarter for 2011. In first quarter 2011, copper production stood at 9.5 million pounds and molybdenum production stood at 1 million pounds. In second quarter 2011, Mercator reported production of 11.18 million pounds of copper, 1.76 million pounds of molybdenum and more than 180,000 ounces of silver.

During the second quarter, the average throughput clocked in at 32,260 tons per day with a record throughput of 41,738 tons in one day. The company’s forecast for third-quarter production estimates an increase in copper production to 12 million pounds of copper and a slight decrease in molybdenum production to 1.7 million pounds. The company’s projections for the fourth quarter, during which phase 2 should be fully operational, show an all-around increase. The company says it expects to produce nearly 12.5 million pounds of copper and significantly increase its molybdenum production to 2.3 million pounds.

One of the most crucial components that will help the company achieve that fourth quarter forecast is its newly constructed General Electric LM6000PF natural gas turbine generator. In August, Mercator announced the new turbine generator had “comfortably passed performance testing and has been generating power at a rate of 40 megawatts.”

At that rate and at current natural gas prices, the company’s projected operating cost of the turbine is “approximately 33 percent less than [its] current power costs on a per kilowatt hour basis,” according to the company.

“With the new generator now online, which was the largest constraint to achieving targeted production levels of 50,000 tons per day run-rate, we can now focus our attention on finalizing the phase 2 expansion at Mineral Park,” states Bruce McLeod, president and CEO.

Less than a month after announcing the commissioning of its new natural gas turbine generator, Mercator released a new throughput count. The average throughput of the concentrator was recorded at 40,000 tons per day. During the last week of August, the throughput nearly averaged 45,000 tons per day, and on Aug. 31 the company achieved a single day record of 49,195 tons, just 805 tons away from its targeted rate.

“Despite the down time taken in August to tie in the new turbine and [phase 2] grinding and flotation circuits, our team did a tremendous job ramping up throughput to the highest levels ever,” McLeod explained.

“Even though nearly 50,000 [tons per day] throughput has been achieved, completion of the second crusher later in September will remove the final bottleneck to sustain throughput at these levels.”

The Right Investment
With the mine on track to reach 50,000 tons per day, the company expects to produce more than 45 million pounds of copper and nearly 7 million pounds of molybdenum for 2011. However, just as important as the amount of resources themselves is what those resources are worth, which is why the property warranted investment in the first place, according to Simmerman. “Copper and [molybdenum] prices have been very favorable,” he says. “Copper is over $4 [per pound] and [molybdenum] is over $14 [per pound]. Given the high demand for our products, we’re in the right business.”

Another reason for investment is molybdenum’s ever-expanding applications in the global market. Molybdenum always has been a big player in the steel market. The mineral is often added to strengthen the steel and help it withstand higher temperatures. However, it also is being used more frequently in superalloys, nickel-based alloys, lubricants, chemicals, electronics and cast iron. The company also will benefit from the world’s growing demand for steel, which on average increases more than 5 percent each year.

Factoring In Steel
The growing Chinese steel industry is a key driving force for molybdenum production. China’s rapid urbanization has called for large infrastructure projects, of which steel is a key component.

According to the International Iron and Steel Institute, China led steel production in 2007 with a 15.7 percent increase from the previous year. Japan and the United States are the next largest steel-producing countries. India and Brazil ranked lower on the list as far as overall production, but showed significant year-to-year increases. Brazil’s 2007 steel production increased by 9.3 percent from 2006, while India’s production increased by 7.3 percent.

To capitalize on the existing global conditions, Michael Surratt, one of the company’s founders and technical adviser to Bruce McLeod, Mercator’s president and CEO, pulled together a team of trusted names and past co-workers that he knew could accomplish the task.

“He was instrumental in purchasing the property, and he saw the potential to bring back a milling operation on the 5,800-acre property,” Simmerman says. “He’s assembled a team of guys he worked with before, and brought a couple of guys out of retirement. It’s been a big team effort between all of us to get us to where we are today.”