** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **x**                                                  | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**  |
|--------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                               |
| **For the quarterly period ended  June 30, 2008** |
|                                                   |       |                                                                                               |
| **o**                                                  | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |

 

**For the transition period from             to             **

** **

**Commission File Number: 001-32986**

** **

**GeneralMoly, Inc.****(Exact name of registrant asspecified in its charter)**

 

| **DELAWARE**                      | ** ** | **91-0232000**      |
|-----------------------------------|------------|---------------------|
| (State or other jurisdiction      |       | (I.R.S. Employer    |
| of incorporation or organization) |       | Identification No.) |

 

**1726 Cole Blvd., Suite 115Lakewood, CO 80401Telephone:  (303) 928-8599**(Address and telephonenumber of principal executive offices)

** **

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for at least the past 90 days.  **YES ****x NO ****o**

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| o | Large accelerated filer |                                        | Accelerated filer         | x |
|---|-------------------------|---------------------------------------------|---------------------------|---|
| o | Non-accelerated filer   | (Do not check if smaller reporting company) | Smaller reporting company | o |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  **YES ****o NO ****x**

 

The number of shares outstanding of registrant’scommon stock as of July 29, 2008 was 71,274,805.

 

 

** **

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** **

**PART I - FINANCIAL INFORMATION**

** **

**ITEM 1.                  FINANCIAL STATEMENTS**

 

**GENERAL MOLY, INC.(A DEVELOPMENT STAGE COMPANY)CONDENSED CONSOLIDATED BALANCE SHEETS**

** **

**(Unaudited - Dollars in thousands except per shareamounts)**

 
| ** **                                                                                                                                 | ** ** | **June 30,   2008** | ** ** | **December 31,   2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| **ASSETS**                                                                                                                                 |       |                          |       |                              |       |
| CURRENT ASSETS                                                                                                                             |       |                          |       |                              |       |
| Cash and cash equivalents                                                                                                                  |       | $                             | 83,745     |                              | $          | 78,371 |   |
| Restricted cash – Eureka Moly, LLC                                                                                                    |       | 73,621                        |       | —                            |       |
| Deposits, prepaid expenses and other current assets                                                                                        |       | 193                           |       | 360                               |       |
| Total Current Assets                                                                                                                       |       | 157,559                       |       | 78,731                            |       |
| Mining properties, land and water rights                                                                                                   |       | 48,110                        |       | 29,578                            |       |
| Deposits on property, plant and equipment                                                                                                  |       | 19,864                        |       | 490                               |       |
| Restricted cash held for reclamation bonds                                                                                                 |       | 1,128                         |       | 777                               |       |
| Property and equipment, net                                                                                                                |       | 596                           |       | 711                               |       |
| Other assets                                                                                                                               |       | 2,994                         |       | —                            |       |
| TOTAL ASSETS                                                                                                                               |       | $                             | 230,251    |                              | $          | 110,287 |   |
| ** **                                                                                                                                 |       |                          |       |                              |       |
| **LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’  EQUITY**                                                                          |       |                          |       |                              |       |
| CURRENT LIABILITIES                                                                                                                        |       |                          |       |                              |       |
| Accounts payable and accrued liabilities                                                                                                   |       | $                             | 10,582     |                              | $          | 7,457 |   |
| Payable to POS-Minerals                                                                                                                    |       | 2,994                         |       | —                            |       |
| Provision for post closure reclamation and remediation costs                                                                               |       | 90                            |       | 90                                |       |
| Current portion of long term debt                                                                                                          |       | 75                            |       | 62                                |       |
| Total Current Liabilities                                                                                                                  |       | 13,741                        |       | 7,609                             |       |
| Provision for post closure reclamation and remediation costs, net of  current portion                                                      |       | 510                           |       | 422                               |       |
| Long term debt, net of current portion                                                                                                     |       | 140                           |       | 151                               |       |
| Total Liabilities                                                                                                                          |       | 14,391                        |       | 8,182                             |       |
|                                                                                                                                       |       |                          |       |                              |       |
| COMMITMENTS AND CONTINGENCIES – NOTE 9                                                                                                |       | —                        |       | —                            |       |
|                                                                                                                                       |       |                          |       |                              |       |
| MINORITY INTEREST                                                                                                                          |       | 100,000                       |       | —                            |       |
|                                                                                                                                       |       |                          |       |                              |       |
| STOCKHOLDERS’ EQUITY                                                                                                                  |       |                          |       |                              |       |
| Preferred stock, $0.001 par value; 10,000,000 shares authorized,  no shares issued and outstanding                               |       | —                        |       | —                            |       |
| Common stock, $0.001 par value; 200,000,000 shares authorized,  71,104,916 and 66,131,384 shares issued and outstanding, respectively |       | 71                            |       | 66                                |       |
| Additional paid-in capital                                                                                                                 |       | 182,646                       |       | 159,828                           |       |
| Accumulated deficit before exploration stage                                                                                               |       | (213                          | )          | (213                              | )          |
| Accumulated deficit during exploration and development stage                                                                               |       | (66,644                       | )          | (57,576                           | )          |
| Total Stockholders’ Equity                                                                                                            |       | 115,860                       |       | 102,105                           |       |
| **TOTAL LIABILITIES, MINORITY INTEREST AND  STOCKHOLDERS’ EQUITY**                                                                    |       | $                             | 230,251    |                              | $          | 110,287 |   |

 

The accompanying notes are an integral part of these condensedconsolidated financial statements.

 

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**GENERAL MOLY, INC.(A DEVELOPMENT STAGE COMPANY)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited - In thousands, except per share amounts)**

 
| ** **                                                 | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **January 1, 2002  (Inception of  Exploration   Stage) to ** | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|--------------------------------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **June 30, 2008**      | ** ** | **June 30, 2007**    | ** ** | **June 30, 2008**                                                                | ** ** | **June 30, 2007** | ** ** | **June 30, 2008** | ** ** |
|                                                       |       |                             |       |                           |       |                                                                                       |       |   |   |   |   |
| REVENUES                                                   |       | $                                | —     |                           | $          | —                                                                                     |       | $ | — |   | $ | — |   | $ | — |   |
| OPERATING EXPENSES:                                        |       |                             |       |                           |       |                                                                                       |       |   |   |   |   |
| Exploration and evaluation                                 |       | 1,662                            |       | 6,313                          |       | 4,187                                                                                      |       | 10,155 |   | 35,222 |   |
| General and administrative expense                         |       | 2,690                            |       | 3,533                          |       | 5,914                                                                                      |       | 8,932 |   | 34,760 |   |
| TOTAL OPERATING EXPENSES                                   |       | 4,352                            |       | 9,846                          |       | 10,101                                                                                     |       | 19,087 |   | 69,982 |   |
| LOSS FROM OPERATIONS                                       |       | (4,352                           | )          | (9,846                         | )          | (10,101                                                                                    | )          | (19,087 | ) | (69,982 | ) |
| OTHER INCOME                                               |       |                             |       |                           |       |                                                                                       |       |   |   |   |   |
| Interest and dividend income                               |       | 503                              |       | 361                            |       | 1,033                                                                                      |       | 529 |   | 3,273 |   |
| Realized gains                                             |       | —                           |       | —                         |       | —                                                                                     |       | — |   | 65 |   |
| TOTAL OTHER INCOME                                         |       | 503                              |       | 361                            |       | 1,033                                                                                      |       | 529 |   | 3,338 |   |
| LOSS BEFORE TAXES                                          |       | (3,849                           | )          | (9,485                         | )          | (9,068                                                                                     | )          | (18,558 | ) | (66,644 | ) |
| INCOME TAXES                                               |       | —                           |       | —                         |       | —                                                                                     |       | — |   | — |   |
| NET LOSS                                                   |       | $                                | (3,849     | )                              | $          | (9,485                                                                                     | )          | $ | (9,068 | ) | $ | (18,558 | ) | $ | (66,644 | ) |
| BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK           |       | $                                | (0.05      | )                              | $          | (0.18                                                                                      | )          | $ | (0.13 | ) | $ | (0.38 | ) |   |   |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC |       | 70,957                           |       | 53,642                         |       | 68,805                                                                                     |       | 48,767 |   |   |   |

** **

Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.

 

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** **

**GENERAL MOLY, INC.(A DEVELOPMENT STAGE COMPANY)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

** **

**(Unaudited – In thousands)**

 
| ** **                                                                                     | ** ** | **Six Months Ended** | ** ** | **1-Jan-02  (Inception of  Exploration  Stage) to   June 30, ** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------------------------------------------|------------|
| ** **                                                                                     | ** ** | **June 30, 2008**    | ** ** | **June 30, 2007**                                                              | ** ** | **2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                          |       |                           |       |                                                                                     |       |   |   |
| Net loss                                                                                       |       | $                              | (9,068     | )                                                                                        | $          | (18,558 | ) | $ | (66,644 | ) |
| Adjustments to reconcile net loss to net cash used by operating  activities:                   |       |                           |       |                                                                                     |       |   |   |
| Services and expenses paid with common stock                                                   |       | —                         |       | 304                                                                                      |       | 1,990 |   |
| Depreciation and amortization                                                                  |       | 149                            |       | 76                                                                                       |       | 407 |   |
| Equity compensation for management and directors                                               |       | 1,580                          |       | 4,519                                                                                    |       | 11,107 |   |
| Decrease (increase) in deposits, prepaid expenses and other                                    |       | 301                            |       | (151                                                                                     | )          | (101 | ) |
| Increase in accounts payable and accrued liabilities                                           |       | 3,125                          |       | 1,971                                                                                    |       | 10,559 |   |
| Increase in post closure reclamation and remediation costs                                     |       | 88                             |       | 220                                                                                      |       | 391 |   |
| Net cash used by operating activities                                                          |       | (3,825                         | )          | (11,619                                                                                  | )          | (42,291 | ) |
|                                                                                           |       |                           |       |                                                                                     |       |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                                         |       |                           |       |                                                                                     |       |   |   |
| Payments for the purchase of equipment                                                         |       | (168                           | )          | (480                                                                                     | )          | (1,011 | ) |
| Purchase of securities                                                                         |       | —                         |       | —                                                                                   |       | (137 | ) |
| Purchase and development of mining properties, land and water rights                           |       | (17,461                        | )          | (8,475                                                                                   | )          | (43,826 | ) |
| Deposits on property, plant and equipment                                                      |       | (19,374                        | )          | —                                                                                   |       | (19,864 | ) |
| Decrease (increase) in restricted cash held for reclamation bonds                              |       | (351                           | )          | (84                                                                                      | )          | (637 | ) |
| Cash provided by sale of marketable securities                                                 |       | —                         |       | —                                                                                   |       | 246 |   |
| Net cash used by investing activities                                                          |       | (37,354                        | )          | (9,039                                                                                   | )          | (65,229 | ) |
|                                                                                           |       |                           |       |                                                                                     |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                          |       |                           |       |                                                                                     |       |   |   |
| Proceeds from issuance of stock, net of issuance costs                                         |       | 20,172                         |       | 30,264                                                                                   |       | 164,702 |   |
| Cash proceeds from POS-Minerals Corporation                                                    |       | 100,000                        |       | —                                                                                   |       | 100,000 |   |
| (Increase) in restricted cash – Eureka Moly, LLC                                          |       | (73,621                        | )          | —                                                                                   |       | (73,621 | ) |
| Net increase in debt                                                                           |       | 2                              |       | 49                                                                                       |       | 138 |   |
| Net cash provided by financing activities                                                      |       | 46,553                         |       | 30,313                                                                                   |       | 191,219 |   |
| Net increase in cash and cash equivalents                                                      |       | 5,374                          |       | 9,655                                                                                    |       | 83,699 |   |
| Cash and cash equivalents, beginning of period                                                 |       | 78,371                         |       | 17,882                                                                                   |       | 46 |   |
| Cash and cash equivalents, end of period                                                       |       | $                              | 83,745     |                                                                                     | $          | 27,537 |   | $ | 83,745 |   |
|                                                                                           |       |                           |       |                                                                                     |       |   |   |
| NON-CASH INVESTING AND FINANCING ACTIVITIES:                                                   |       |                           |       |                                                                                     |       |   |   |
| Equity compensation capitalized as development                                                 |       | $                              | 1,071      |                                                                                     | $          | — |   | $ | 2,875 |   |
| Restricted cash held for reclamation bond acquired in an acquisition                           |       | —                         |       | 491                                                                                      |       | 491 |   |
| Post closure reclamation and remediation costs and accounts payable  assumed in an acquisition |       | —                         |       | 263                                                                                      |       | 263 |   |
| Common stock and warrants issued for property and equipment                                    |       | —                         |       | 826                                                                                      |       | 1,586 |   |

** **

**Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.**

** **

**4**

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** **

**GENERAL MOLY, INC.(A DEVELOPMENT STAGE COMPANY)**

** **

**NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS**

** **

**NOTE 1 — DESCRIPTION OFBUSINESS**

** **

GeneralMoly, Inc. (“we,” “us,” “our,” “the Company,” or “General Moly,”) is aDelaware corporation originally incorporated as General Mines Corporation on November 23,1925.  In 1966, the Company amended itsarticles of incorporation to change its name to Idaho General Petroleum andMines Corporation, and amended its articles again in 1967, changing its name toIdaho General Mines, Inc. On October 5, 2007, we reincorporated inthe State of Delaware (the “Reincorporation”) through a merger involving IdahoGeneral Mines, Inc. and General Moly, Inc., a Delaware corporationthat was a wholly owned subsidiary of Idaho General Mines, Inc. TheReincorporation was effected by merging Idaho General Mines, Inc. with andinto General Moly, with General Moly being the surviving entity.  For purposes of the Company’s reportingstatus with the U.S. Securities and Exchange Commission, General Moly is deemeda successor to Idaho General Mines, Inc.

 

Wewere in the exploration stage until October 4, 2007 when our Board ofDirectors (the “Board”) approved the development of the Mt. Hopemolybdenum property (the “Mt. Hope Project”) in Eureka County,Nevada.  The Company is now in thedevelopment stage and is currently proceeding with the development of theMt. Hope Project.  We are alsoconducting exploration and evaluation activities on our Liberty molybdenumproperty (the “Liberty Property” formerly referred to as the “Hall-TonopahProperty”) in Nye County, Nevada.

 

Effectiveas of January 1, 2008, we contributed all of our interest in the assetsrelated to the Mt. Hope Project, including our lease of the Mt. HopeProject, into a newly formed entity, Eureka Moly, LLC, a Delaware limitedliability company (“Eureka Moly”), and in February 2008 (the “Closing Date”)entered into a joint venture for the development and operation of theMt. Hope Project (the “Joint Venture”) with POS-Minerals Corporation (“POS-Minerals”)an affiliate of POSCO, a large Korean steel company.  Under the Joint Venture, POS-Minerals owns a20% interest in Eureka Moly and General Moly, through a wholly-ownedsubsidiary, owns an 80% interest.

 

Theinterim Condensed Consolidated Financial Statements of the Company areunaudited.  In the opinion of management,all adjustments and disclosures necessary for a fair presentation of theseinterim statements have been included. All such adjustments are, in the opinion of management, of a normalrecurring nature.  The results reportedin these interim Condensed Consolidated Financial Statements are notnecessarily indicative of the results that may be reported for the entireyear.  These interim CondensedConsolidated Financial Statements should be read in conjunction with theConsolidated Financial Statements included in our Annual Report on Form 10-KSBfor the year ended December 31, 2007.

 

Certainamounts for the three and six months ended June 30, 2007 have beenreclassified to conform to the 2008 presentation.

 

**NOTE 2 — LIQUIDITY ANDCAPITAL REQUIREMENTS**

** **

On October 4,2007, our Board of Directors approved the development of the Mt. HopeProject as contemplated in our Bankable Feasibility Study (the “BankableFeasibility Study”).  The development ofthe Mt. Hope Project has an estimated total capital requirement ofapproximately $1.0 billion comprised of initial construction cost inexcess of $850.0 million (in 2007 dollars); $53.0 million in cashbonding requirements; $22.0 million in Advance Royalty Payments (ashereinafter defined); and amounts necessary for financing costs and workingcapital.

 

AtJune 30, 2008, the Company has completed basic engineering of the Mt. HopeProject and has placed approximately $215.8 million in equipment orders.  Given that the level of engineering for theMt. Hope Project has advanced to over 25% design completion and that the BankableFeasibility Study is approximately one year old, the Company has requested thatM3 Engineering & Technology Corporation provide the Company with anupdated 

 

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capitalcost estimate.  The Company will completean evaluation of the estimate and examine the Mt. Hope Project’s economics,including molybdenum prices, capital, cash bonding requirements and operatingcosts.  Although our equipment ordersthat have been placed are at prices consistent with the Bankable FeasibilityStudy, we expect to see escalation in the remainder of the construction costestimate related to steel, concrete and other construction materials,construction labor and fuel price increases (which will affect freight costs todeliver equipment and pre-stripping costs). Higher energy prices will also impact our production costs.  We will also update the project economicswith our updated molybdenum price forecast, prepared by the same independentcommodities research company (the CPM Group) used for the Bankable FeasibilityStudy, which forecasts higher molybdenum prices in the longer term.  We currently anticipate publishing an updatedevaluation of the Mt. Hope Project economics during the third quarter of 2008.

 

In February 2008,we entered into the Joint Venture, the terms of which reduced our fundingrequirements for the Mt. Hope Project by up to 20% and will provide up to$170.0 million for use in funding our remaining 80% share.  Of the $170.0 million,$50.0 million was received in February 2008, $50.0 million wasreceived in June 2008, and the remaining $70.0 million is to bereceived once the Mt. Hope Project receives the necessary permits todevelop and operate the Mt. Hope Project (the “POS-Minerals ThirdContribution Date”).

 

Additionalcapital will be required through the commencement of Mt. Hope processingwhich is estimated to begin in late 2010. Our ability to develop the project on time and on budget is dependenton, among other things, the permitting process and our ability to raise thenecessary capital to fund the Mt. Hope Project both in sufficient amountand in a timely manner.  Additionally, ifthe currently estimated costs of the Mt. Hope Project are exceeded we willneed to raise additional capital to fund such overruns.

 

We donot currently have the capital necessary to complete the Mt. Hope Projectand, accordingly, plan to raise the capital on an ongoing basis whenneeded.  The Company is currently, andwill on an ongoing basis be, pursuing the most efficient sources of funding forthe project including, but not limited to, the bank project finance markets andthe high yield capital debt markets.  Ourexisting cash on hand at June 30, 2008 should be sufficient to fundplanned operations for the Mt. Hope Project, as well as our other plannedoperations into 2009.  If we are unableto raise capital when needed, it will be necessary to develop alternative plansthat could delay the development and completion of the Mt. HopeProject.  There is no assurance that wewill be able to obtain the necessary financing for the Mt. Hope Project onterms acceptable to us, or at all.

 

Wealso require capital to continue the exploration and evaluation of the LibertyProperty, as well as continue payment of ongoing general and administrativecosts associated with supporting our planned operations.

 

**NOTE 3 — SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

** **

Thissummary of significant accounting policies is presented to assist inunderstanding the financial statements. The financial statements and notes are representations of the Company’smanagement, which is responsible for their integrity and objectivity.  These accounting policies conform toaccounting principles generally accepted in the United States of America (“U.S.GAAP”) and have been consistently applied in the preparation of the financialstatements.

 

*Accounting Method*

 

Ourfinancial statements are prepared using the accrual basis of accounting inaccordance with U.S. GAAP.  At December 31,2007, all of our subsidiaries were wholly owned.  In February 2008, we entered into theJoint Venture which establishes our ownership interest in Eureka Moly at80%.  At June 30, 2008, theconsolidated financial statements include all of our wholly owned subsidiariesand Eureka Moly.  The POS-Mineralscontributions attributable to their 20% interest are shown as Minority Interestin the financial statements.

 

*Estimates*

 

Theprocess of preparing financial statements requires the use of estimates andassumptions regarding certain types of assets, liabilities, revenues, andexpenses.  Such estimates primarilyrelate to unsettled transactions and 

 

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events as of the date of the financialstatements.  Accordingly, uponsettlement, actual results may differ from estimated amounts.

 

*Cash and Cash Equivalents*

 

Weconsider all highly liquid investments with original maturities of three monthsor less to be cash equivalents.  Therestricted cash of Eureka Moly represents the unspent amount of the POS-Mineralscontributions, which are available for the continuing development of the Mt.Hope Project.

 

*Exploration and Development Stage Activities*

 

We were in theexploration stage from January 2002 until October 4, 2007.  On October 4, 2007, our Board approved thedevelopment of the Mt. Hope Project as contemplated in the BankableFeasibility Study and we then entered into the Development Stage.  We have not realized any revenue fromoperations.  We will be primarily engagedin development of the Mt. Hope Project and exploration and evaluation ofthe Liberty Property until we enter the production stage.

 

*Fair Value of Financial Instruments*

 

Ourfinancial instruments as defined by Statement of Financial Accounting StandardsNo. 157, “Fair Value Measurements,” include cash, restricted cash,accounts payable and accrued liabilities. All instruments are accounted for on a historical cost basis, which, dueto the short maturity of these financial instruments, approximates fair valueat June 30, 2008 and December 31, 2007.

 

*Basic and Diluted Loss Per Share*

 

Lossper share was computed by dividing the net loss by the weighted average numberof shares outstanding during the period. The weighted average number of shares was calculated by taking thenumber of shares outstanding and weighting them by the amount of time that theywere outstanding.  Outstanding warrantsto purchase 7,560,434 and 12,705,445 shares of common stock, options topurchase 4,267,500 and 4,442,500 shares of common stock and unvested stockawards totaling 255,000 and 370,000 at June 30, 2008 and 2007,respectively, were not included in the computation of diluted earnings pershare for the three and six months ended June 30, 2008 and 2007,respectively, because to do so would have been antidilutive.  Therefore, basic loss per share is the sameas diluted loss per share.  Diluted netloss per share for us is the same as basic net loss per share, as the inclusionof these common stock equivalents would be antidilutive.

 

*Mineral Exploration and Development Costs*

 

Allexploration expenditures are expensed as incurred.  Significant property acquisition payments foractive exploration properties are capitalized. If no economic ore body is discovered, previously capitalized costs, inexcess of the property value, are expensed in the period the property isabandoned.  Expenditures to develop newmines, to define further mineralization in existing ore bodies, and to expandthe capacity of operating mines, are capitalized and amortized on aunits-of-production basis over proven and probable reserves.

 

Shoulda property be abandoned, its capitalized costs are charged to operations.  The Company charges to the consolidatedstatement of operations the allocable portion of capitalized costs attributableto properties sold.  Capitalized costsare allocated to properties sold based on the proportion of claims sold to theclaims remaining within the project area.

 

*Mining Properties, Land and Water Rights*

 

Costsof acquiring and developing mining properties, land and water rights arecapitalized as appropriate by project area. Exploration and related costs and costs to maintain mining properties,land and water rights are expensed as incurred while the property is in theexploration and evaluation stage. Development and related costs and costs to maintain mining properties,land and water rights are capitalized as incurred while the property is in the 

 

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development stage. When a property reaches the production stage, the related capitalizedcosts are amortized using the units-of-production basis over proven andprobable reserves.  Mining properties,land and water rights are periodically assessed for impairment of value, andany subsequent losses are charged to operations at the time of impairment.  If a property is abandoned or sold, a gain orloss is recognized and included in the consolidated statement of operations.

 

*Provision for Taxes*

 

Incometaxes are provided based upon the liability method of accounting pursuant toStatement of Financial Accounting Standards No. 109, “Accounting forIncome Taxes” (hereinafter “SFAS 109”). Under this approach, deferred income taxes are recorded to reflect thetax consequences in future years of differences between the tax basis of assetsand liabilities and their financial reporting amounts at each year-end.  A valuation allowance is recorded against thedeferred tax asset if management does not believe the Company has met the “morelikely than not” standard imposed by SFAS 109 to allow recognition of suchan asset.

 

*Reclamation and Remediation*

 

Expendituresfor ongoing compliance with environmental regulations that relate to currentoperations are expensed or capitalized as appropriate.  Expenditures resulting from the remediationof existing conditions caused by past operations that do not contribute tofuture revenue generations are expensed as incurred.  Liabilities are recognized when environmentalassessments indicate that remediation efforts are probable and the costs can bereasonably estimated.

 

Estimates of such liabilities are based upon currentlyavailable facts, existing technology and presently enacted laws and regulationstaking into consideration the likely effects of inflation and other societaland economic factors, and include estimates of associated legal costs.  These amounts also reflect prior experiencein remediating contaminated sites, other companies’ clean-up experience anddata released by The Environmental Protection Agency or otherorganizations.  Such estimates are bytheir nature imprecise and can be expected to be revised over time because ofchanges in government regulations, operations, technology and inflation.  Recoveries are evaluated separately from theliability and, when recovery is assured, the Company records and reports anasset separately from the associated liability.

 

*Accounting Pronouncements—Recent*

 

In September 2006,the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“SFAS157”). SFAS 157 defines fair value, establishes a framework for measuring fairvalue in generally accepted accounting principles, and expands disclosuresabout fair value measurements. The provisions of SFAS 157 were adopted on January 1,2008. In February 2008, the FASB staff issued Staff Position No. 157-2“Effective Date of FASB Statement No. 157” which delayed the effectivedate of SFAS 157 for nonfinancial assets and nonfinancial liabilities whichwill be effective for our fiscal year beginning January 1, 2009.

 

SFAS157 establishes a fair value hierarchy that prioritizes the inputs to valuationtechniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices inactive markets for identical assets or liabilities (Level 1 measurements) andthe lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchyunder SFAS 157 are described below:

 

Level 1 – Unadjustedquoted prices in active markets that are accessible at the measurement date foridentical unrestricted assets or liabilities.

Level 2 – Quoted pricesin markets that are not active, or inputs that are observable, either directlyor indirectly, for substantially the full term of the asset or liability.

Level 3 – Prices orvaluation techniques that require inputs that are both significant to fairvalue measurement and unobservable (supported by little or no market activity).

 

8

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TheCompany’s cash, restricted cash, and cash equivalents are classified withinLevel 1 of the fair value hierarchy because they are valued using quoted marketprices.  The cash instruments that arevalued based on quoted market prices in active markets are primarily moneymarket securities.

 

In February 2007,the FASB issued FASB Statement No. 159, “The Fair Value Option forFinancial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permitsentities to choose to measure many financial instruments and certain otheritems at fair value, with the objective of improving financial reporting by mitigatingvolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. The provisions of SFAS 159 were adopted January 1, 2008. TheCompany did not elect the Fair Value Option for any of its financial assets orliabilities and therefore the adoption of SFAS 159 had no impact on ourconsolidated financial statements.

 

In December 2007,the FASB issued FASB Statement No. 160, “Noncontrolling Interests inConsolidated Financial Statements- an amendment of ARB No. 51” (“SFAS 160”),which establishes accounting and reporting standards pertaining to ownershipinterests in subsidiaries held by parties other than the parent, the amount ofnet income attributable to the parent and to the noncontrolling interest,changes in a parent’s ownership interest, and the valuation of any retainednoncontrolling equity investment when a subsidiary is deconsolidated. SFAS 160also establishes disclosure requirements that clearly identify and distinguishbetween the interests of the parent and the interests of the noncontrollingowners. SFAS 160 is effective for our fiscal year beginning January 1,2009. We do not expect the adoption of SFAS 160 to have a material impact onour consolidated financial statements.

 

**NOTE 4 — MININGPROPERTIES, LAND AND WATER RIGHTS**

** **

We currently have interests in two mining propertiesthat are the primary focus of our operations. The Mt. Hope Project is currently in the development stage and theLiberty Property is in the exploration and evaluation stage.

 

**The Mt. Hope Project. **We are currently in the process of developing theMt. Hope Project.  From November 2004to January 2008, we owned the rights to 100% of the Mt. HopeProject.  In February 2008, we enteredinto the Joint Venture with POS-Minerals and we now own 80% of theMt. Hope Project and POS-Minerals owns the remaining 20%.  While these ownership interests and/or therequired contributions under the Joint Venture can change based on our failureto satisfy specified conditions, including the receipt of the necessaryoperating permits by December 31, 2009, failure to achieve production by December 31,2011 for reasons other than force majeure, or non-payment of amounts due underthe Joint Venture by either party, we expect the ownership interests in theJoint Venture to remain as they are now through the life of the project and thecontributions to be received in the amounts that follow.

 

Pursuantto the terms of the Joint Venture, POS-Minerals agreed to make cashcontributions to the Joint Venture in the aggregate amount of$170.0 million in exchange for their 20% interest, of which$50.0 million was received in February 2008, $50.0 million wasreceived in June 2008 (the “February 2008 and June 2008 Contributions”),and the remaining $70.0 million is to be received on the POS-MineralsThird Contribution Date.  These initialfunds are available to fund the Mt. Hope Project development costsincurred subsequent to the Closing Date. Additionally, in third quarter of 2008, we will pay to POS-Minerals anestimated $3.0 million as a final purchase price adjustment based on the termsof the Joint Venture related to the difference in the budgeted versus actualexpenditures of the Mt. Hope Project prior to the Closing Date.

 

We arerequired, pursuant to the terms of the Joint Venture, to advance funds requiredfor the development of the Mt. Hope Project in excess of the February 2008and June 2008 Contributions until the POS-Minerals Third ContributionDate, at which point POS-Minerals is required to reimburse us for their 20%share of all development costs incurred from January 1, 2008 through thePOS-Minerals Third Contribution Date. All costs incurred subsequent to the POS-Minerals Third ContributionDate will be allocated and funded pro rata based on each party’s ownershipinterest.

 

9

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** **

**TheLiberty Property.**  Weare currently in the process of exploration and evaluation of the LibertyProperty.

 

**Summary. **The following is a summaryof mining properties, land and water rights at June 30, 2008 and December 31,2007 (in thousands):

 
| **Mining properties, land and water rights:** | ** ** | **At June 30,   2008** | ** ** | **At   December 31,   2007** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------------------------------|------------|
| Mt. Hope Project:                                                 |       |                                  |       |                                        |       |
| Development costs                                                      |       | $                                     | 25,180     |                                        | $          | 7,989 |   |
| Mineral, land and water rights                                         |       | 10,253                                |       | 9,792                                       |       |
| Advance Royalties                                                      |       | 1,980                                 |       | 1,100                                       |       |
| Total Mt. Hope Project                                            |       | 37,413                                |       | 18,881                                      |       |
| Total Liberty Property                                                 |       | 9,808                                 |       | 9,808                                       |       |
| Other Properties                                                       |       | 889                                   |       | 889                                         |       |
| Total                                                                  |       | $                                     | 48,110     |                                        | $          | 29,578 |   |

 

**NOTE 5 — COMMON STOCKUNITS, COMMON STOCK AND COMMON STOCK WARRANTS**

** **

**Six Months ended June 30,2008**

** **

Duringthe six months ended June 30, 2008, we had the following issuances ofcommon stock.  We issued 125,930 and92,654 shares of common stock upon the cashless exercise of warrants andoptions, respectively.  Warrants andoptions in the amount of 4,332,522 and 135,000, respectively, were exercisedfor cash in the amount of $19.9 million and $0.3 million,respectively.

 

The following is asummary of common stock warrant activity from January 1, 2007 through thesix months ended June 30, 2008:

 
| **Description**                                        | ** ** | **Number of   Shares Under   Warrants** | ** ** | **Exercise Price** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|-------------------------|------------|
| Balance at January 1, 2007                        |       | 12,217,675                                                  |       | $0.80  to $3.75         |       |
| Issued in connection with private placements and other |       | 3,676,471                                                   |       | $5.20                   |       |
| Issued as finders fee                                  |       | 1,000,000                                                   |       | $10.00                  |       |
| Exercised for cash                                     |       | (4,261,689                                                  | )          | $0.80  to $3.75         |       |
| Exercised in cashless exchange                         |       | (542,000                                                    | )          | $1.00  to $3.75         |       |
| Expired                                                |       | (10,000                                                     | )          | $1.00                   |       |
| Balance at December 31, 2007                      |       | 12,080,457                                                  |       | $0.80  to $10.00        |       |
| Exercised for cash                                     |       | (4,332,523                                                  | )          | $0.80  to $5.20         |       |
| Exercised in cashless exchange                         |       | (187,500                                                    | )          | $3.75                   |       |
| Balance at June 30, 2008                          |       | 7,560,434                                                   |       | $2.10  to $10.00        |       |
| Weighted average exercise price                        |       | $                                                           | 4.56       |                    |       |   |
|                                                        |            |                                                             |            |                         |            |  |

 

Of thewarrants outstanding at June 30, 2008, 6,485,434 are exercisable at $3.75per warrant and expire February 2011; 1,000,000 are exercisable at $10.00per share and are expected to expire in 2010 and the remaining 75,000 areexercisable at $2.10 per share and expire in August 2008.

 

**NOTE 6 — PREFERRED STOCK**

** **

Pursuantto our Certificate of Incorporation we are authorized to issue10,000,000 shares of $.001 per share par value preferred stock.  The authorized but unissued shares ofpreferred stock may be issued in designated series from time to time by one ormore resolutions adopted by our board of directors.  The directors have the power to 

 

10

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determine the preferences, limitations and relativerights of each series of preferred stock. At December 31, 2007 and June 30, 2008, no shares ofpreferred stock were issued or outstanding.

 

**NOTE 7 — COMMON STOCKOPTIONS**

** **

During2006, our board of directors and stockholders adopted the Company 2006 EquityIncentive Plan (the “2006 Plan”).  In October 2007,our stockholders approved an amendment to the 2006 Plan increasing the amountof shares that may be issued under the 2006 Plan from 3,500,000 to5,100,000.  During 2004, our board ofdirectors and stockholders adopted the Company 2003 Stock Option Plan (the “2003Plan” and together with the 2006 Plan, the “Plans”).  The purpose of the Plans is to give usgreater ability to attract, retain, and motivate our officers and keyemployees.  The Plans are intended toprovide us with the ability to provide incentives more directly linked to thesuccess of our business and increases in stockholder value.

 

Underthe 2006 Plan, our board of directors is authorized to grant incentive stockoptions (“ISOs”) to employees (pursuant to Internal Revenue Code 422),non-statutory stock options, restricted stock awards, restricted stock unitsand stock appreciation rights.  Theaggregate number of shares of common stock that may be issued pursuant toawards granted under the 2006 Plan will not exceed 5,100,000, plus the numberof shares that are ungranted and those that are subject to reversion under the2003 Plan.  As of June 30, 2008, themaximum number of shares available for issuance under the 2003 Plan was360,000 shares.  Shares under the2003 Plan that become eligible for awards under the 2006 Plan may not begranted again under the 2003 Plan.

 

Duringthe six months ended June 30, 2008, we granted 465,000 options under the2006 Plan with an exercise price ranging from $7.80 to $11.45 with vesting atvarious dates through 2011.  Theseoptions were granted to officers and employees of the Company.  The fair value of each option is estimated onthe issue date using the Black-Scholes Option Price Calculation.  The following assumptions were made inestimating the fair value:  risk freeinterest of 1.7% to 3.5%; volatility of 85% to 90%; dividend rate of 0%; andexpected life of from 3.5 to 5.5 years. The total value of options awarded during the six months ended June 30,2008 was calculated at $2.9 million. Expense was recorded of $1.6 million and $1.1 million wascapitalized as part of development costs for the options which were earnedduring the six months ended.

 

Thefollowing is a summary of our stock option plans as of June 30, 2008:

 
| **Compensation Plan**                                 | ** ** | **Number of   Securities to be   Issued Upon   Exercise of   Outstanding Options** | ** ** | **Weighted Average   Exercise Price of   Outstanding Options** | ** ** | **Number of   Securities   Remaining Available   for Future Issuance   Under Equity   Compensation Plans** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans not approved by security holders |       | 1,142,500                                                                                                                            |       | $                                                                                            | 1.44       |                                                                                                                                                              | n/a        |   |
| Equity compensation plans approved by security holders:    |       |                                                                                                                                 |       |                                                                                         |       |                                                                                                                                                              |       |
| 2006 Plan                                                  |       | 3,065,000                                                                                                                            |       | 5.85                                                                                         |       | 971,038                                                                                                                                                           | (1)        |
| 2003 Plan                                                  |       | 60,000                                                                                                                               |       | 2.10                                                                                         |       | 360,000                                                                                                                                                           |       |
| Total                                                      |       | 4,267,500                                                                                                                            |       | $                                                                                            | 4.62       |                                                                                                                                                              | 1,331,038  |   |

 

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| (1) |   | The  aggregate number of shares of common stock that may be issued pursuant to  awards granted under the 2006 Plan will not exceed 5,100,000, plus the number  of shares that are ungranted and those that are subject to reversion under  2003 Plan.  Shares under the 2003 Plan  that become eligible for awards under the 2006 Plan may not be granted again  under the 2003 Plan. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

11

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The following is asummary of stock option activity in 2007 and for the six months ended June 30,2008:

 
| **Description**                                 | ** ** | **Number of Shares   Under Options** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------------|------------|
| Outstanding January 1, 2007                |       | 3,650,000                                                |       | $                                              | 1.48       |   |
| Granted                                         |       | 2,730,000                                                |       | 5.21                                           |       |
| Exercised                                       |       | (2,170,833                                               | )          | 1.54                                           |       |
| Forfeited                                       |       | (91,667                                                  | )          | 2.56                                           |       |
| Expired                                         |       | (50,000                                                  | )          | 3.20                                           |       |
| Outstanding December 31, 2007              |       | 4,067,500                                                |       | $                                              | 3.91       |   |
| Exercisable at December 31, 2007           |       | 2,350,832                                                |       | $                                              | 2.38       |   |
| Weighted Average Fair Value Granted During 2007 |       | $                                                        | 2.77       |                                           |       |   |
| Outstanding January 1, 2008                |       | 4,067,500                                                |       | $                                              | 3.91       |   |
| Granted                                         |       | 465,000                                                  |       | 9.21                                           |       |
| Forfeited                                       |       | (30,000                                                  | )          | 4.05                                           |       |
| Exercised                                       |       | (235,000                                                 | )          | 1.53                                           |       |
| Outstanding June 30, 2008                  |       | 4,267,500                                                |       | $                                              | 4.62       |   |
| Exercisable at June 30, 2008               |       | 2,797,498                                                |       | $                                              | 2.99       |   |
| Weighted Average Fair Value Granted During 2008 |       | $                                                        | 6.17       |                                           |       |   |

** **

**Stock Awards under the 2006 Plan**

** **

Duringthe year ended December 31, 2007, we issued 250,000 shares of commonstock to an officer of the Company that were earned based on achievingcertain performance based milestones.** **Additionally, during the year ended December 31,2007, we reserved for issuance 535,000 shares of non-vested common stockfor officers and employees of the Company of which 280,000 were issued uponachievement of certain performance based milestones in the six months ended June 30,2008 and the remaining 255,000 will vest and be issued based on the achievementof certain performance based milestones established for each person**.**

** **

Duringthe six months ended June 30, 2008 and the year ended December 31,2007, we issued 67,296 and 160,000 shares, respectively, to directors thatvest over one and two year periods in exchange for services as boardmembers.  During the six months ended June 30,2008, two of the directors retired, forfeiting a total of 63,334 shares of suchstock.  Also during the six months ended June 30,2008 and the year ended December 31, 2007, we issued 10,000 shares and5,000 shares, respectively, to retiring board members in exchange forservices rendered.

 

Thetotal value of stock awards granted and expensed during the six months ended June 30,2008 was $0.8 million and $0.5 million, respectively.  The total value of stock awards grantedduring the year ended December 31, 2007 was $3.2 million of which$1.9 million was expensed and $1.3 million was capitalized as part ofdevelopment costs.

 

**NOTE 8 — INCOME TAXES**

** **

At June 30,2008 and December 31, 2007, we had deferred tax assets principally arisingfrom the net operating loss carry forwards for income tax purposes multipliedby an expected rate of 35%.  As ourmanagement cannot determine that it is more likely than not that we willrealize the benefit of the deferred tax assets, a valuation allowance equal tothe deferred tax asset has been established at June 30, 2008 and December 31,2007.  The significant components of thedeferred tax asset at June 30, 2008 and December 31, 2007 were asfollows (in thousands):

 

12

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| **Description**                        | ** ** | **June 30,   2008** | ** ** | **December 31,   2007** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|-----------------------------------|------------|
| Operating loss carry forward           |       | $                             | 47,727     |                              | $          | 39,755 |   |
| Unamortized exploration expense        |       | 7,682                         |       | 8,268                             |       |
| Deductible stock based compensation    |       | 576                           |       | 1,914                             |       |
| Net operating loss carry forward       |       | $                             | 55,985     |                              | $          | 49,937 |   |
| Deferred tax asset                     |       | $                             | 19,595     |                              | $          | 17,478 |   |
| Deferred tax asset valuation allowance |       | $                             | (19,595    | )                                 | $          | (17,478 | ) |
| Net deferred tax asset                 |       | $                             | —     |                              | $          | — |   |

 

At June 30,2008 and December 31, 2007, we had net operating loss carry forwards ofapproximately $56.0 million and $49.9 million, respectively, whichexpire in the years 2022 through 2027.

 

**NOTE 9—COMMITMENTS ANDCONTINGENCIES**

** **

**Mt. Hope Project**

** **

EurekaMoly currently has a 30-year renewable lease with Mount Hope Mines, Inc. (“MHMI”)for the Mt. Hope Project (as amended, the “Mt. Hope Lease”).  The Mt. Hope Lease may be terminatedupon the expiration of its 30-year term, earlier at the election of EurekaMoly, or upon Eureka Moly’s material breach and failure to cure suchbreach.  If Eureka Moly terminates thelease, termination is effective 30 days after receipt by MHMI of written noticeto terminate the Mt. Hope Lease and no further payments would be due toMHMI.  In order to maintain the lease,Eureka Moly must pay certain deferral fees and advance royalties as discussedbelow.

 

Pursuantto the terms of the Mt. Hope Lease, the underlying total royalty onproduction payable to MHMI, less certain deductions, is the greater of: (i) $0.25per pound of molybdenum metal (or the equivalent of some other product) sold ordeemed to be sold from the Mt. Hope Project;  (ii) 3.5% if the average gross level ofproducts sold is equal to or lower than $12.00 per pound; (iii) 4.5%if the average gross level of products sold is higher than $12.00 per pound,but equal to or lower than $15 per pound, and (iv) 5% if the averagegross level of products sold is higher than $15 per pound (the “ProductionRoyalties”).  Additionally, Eureka Molyis obligated to pay Exxon Mineral Company a 1% net smelter royalty on allproduction.

 

TheMt. Hope Lease requires a royalty advance (the “Construction RoyaltyAdvance”) of the greater of $2.5 million or 3% of the construction capitalcost estimate upon the earlier of (i) Eureka Moly securing projectfinancing in sufficient amounts to develop and put the Mt. Hope Projectinto operation at an annual production level of at least 10 million poundsor (ii) October 19, 2008.

 

EurekaMoly has the right to defer the Construction Royalty Advance for one or twoyears by payment of a deferral fee (the “Deferral Fee”) in the amount of$0.4 million on or before October 19, 2008 and October 19, 2009in the event project financing for the project has not been secured by each ofthe dates.  By October 19, 2010,Eureka Moly must pay at a minimum $2.5 million of the Construction RoyaltyAdvance with the remainder due upon securing project financing or 50% of theremainder on October 19, 2011 and the other 50% due on October 19,2012.

 

Oncethe Construction Royalty Advance has been paid in full, Eureka Moly isobligated to pay an advance royalty (the “Annual Advance Royalty”) each October 19thereafter in the amount of $0.5 million per year.  The Construction Royalty Advance and theAnnual Advance Royalty are collectively referred to as the “Advance Royalties”.  All Advance Royalties are credited againstthe Production Royalties once the mine has achieved commercial production.  The Deferral Fees are not recoverable againstProduction Royalties.

 

EurekaMoly is obligated to pay the Construction Royalty Advance each time capital israised for the Mt. Hope Project. Based on the current estimate of raising capital and developing andoperating the mine, we believe Eureka Moly’s contractual obligations under theMt. Hope Lease will be as shown in the following table (inthousands).  This estimate is based onour current estimates of the timing of securing project financing andconstruction capital 

 

13

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costs.  The amounts shown are the total amounts (inthousands) remaining at June 30, 2008 under the contracts to EurekaMoly.  Through June 30, 2008, wehave advanced a total of $2.0 million.

 
| **Year**         | ** ** | **Deferral Fees** | ** ** | **Advance Royalties** | ** ** | **Total** | ** ** |
|------------------|------------|------------------------|------------|----------------------------|------------|-----------|------------|
| 2008 (remainder) |       | $                      | 350        |                       | $          | 1,320     |       | $ | 1,670 |   |
| 2009             |       | —                 |       | 19,300                     |       | 19,300    |       |
| 2010             |       | —                 |       | 500                        |       | 500       |       |
| 2011             |       | —                 |       | —                     |       | —    |       |
| Thereafter (1)   |       | —                 |       | —                     |       | —    |       |
| Total            |       | $                      | 350        |                       | $          | 21,120    |       | $ | 21,470 |   |

 

----

(1)          Basedon our current estimates of production and molybdenum prices, after the firstfull year of production, Eureka Moly estimates that the Production Royaltieswill be in excess of the Annual Advance Royalties for the life of the projectand, further, the Construction Royalty Advance will be fully recovered(credited against MHMI Production Royalties) by the end of 2012.

** **

**Deposits on property, plant and equipment**

** **

As acontinuing part of the development of the Mt. Hope Project, Eureka Molyhas begun to place orders for mining and milling equipment that must be builtto specification and requires a long lead time for engineering andmanufacturing.  Contractual commitmentsfor long lead items require progress payments during the engineering andconstruction of the equipment and have cancellation penalties in the eventEureka Moly cancels the contract.

 

In September andOctober 2007, we entered into contracts to purchase a primary crusher, asemi-autogenous mill, two ball mills and various motors for the mills.  Additionally, during the six months ended June 30,2008, we entered into contracts to purchase, among other items, two electricshovels, two multi-hearth molybdenum roasters, 16 flotation cells, three blasthole drills and 24 haul trucks.  At June 30,2008 and December 31, 2007, $19.9 million and $0.5 million,respectively, had been paid under the contracts and at June 30, 2008Eureka Moly has committed to the following additional amounts under thecontracts by year (in thousands).

 
| **Year**         | ** ** | **Total** | ** ** |
|------------------|------------|-----------|------------|
| 2008 (remainder) |       | $         | 22,836     |   |
| 2009             |       | 121,980   |       |
| 2010             |       | 50,718    |       |
| Total            |       | $         | 195,534    |   |

 
| **ITEM  2.** | ** ** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|--------------|------------|-------------------------------------------------------------------------------------------------|

** **

Referencesmade in this Quarterly Report of Form 10-Q to “we,” “our,” “us,” or the “Company,”refer to General Moly, Inc.

 

Thefollowing discussion and analysis of our financial condition and results ofoperations constitutes management’s review of the factors that affected ourfinancial and operating performance for the three and six month periodsended June 30, 2008 and 2007.  Thisdiscussion should be read in conjunction with the financial statements andnotes thereto contained elsewhere in this report and in our Annual Report on Form 10-KSB,for the year ended December 31, 2007.

 

**Overview**

** **

We area development stage company and are currently proceeding with the developmentof the Mt. Hope Project.  We arealso conducting exploration and evaluation activities on our Liberty Property.

 

14

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On October 4,2007, our Board of Directors approved the development of the Mt. HopeProject as contemplated in the Bankable Feasibility Study.  The development of the Mt. Hope Projecthas an estimated total capital requirement of approximately $1.0 billioncomprised of initial construction cost in excess of $850.0 million (in2007 dollars); $53.0 million in cash bonding requirements; $22.0 millionin Advance Royalty Payments; and amounts necessary for financing costs andworking capital.

 

AtJune 30, 2008, the Company has completed basic engineering of the Mt. HopeProject and has placed approximately $215.8 million in equipment orders.  Given that the level of engineering for theMt. Hope Project has advanced to over 25% design completion and that theBankable Feasibility Study is approximately one year old, the Company hasrequested that M3 Engineering & Technology Corporation provide theCompany with an updated capital cost estimate. The Company will complete an evaluation of the estimate and examine theMt. Hope Project’s economics, including molybdenum prices, capital, cashbonding requirements and operating costs. Although our equipment orders that have been placed are at pricesconsistent with the Bankable Feasibility Study, we expect to see escalation inthe remainder of the construction cost estimate related to steel, concrete andother construction materials, construction labor and fuel price increases(which will affect freight costs to deliver equipment and pre-strippingcosts).  Higher energy prices will alsoimpact our production costs.  We willalso update the project economics with our updated molybdenum price forecast,prepared by the same independent commodities research company (the CPM Group)used for the Bankable Feasibility Study, which forecasts higher molybdenumprices in the longer term.  We currentlyanticipate publishing an updated estimate of the Mt. Hope Project economicsduring the third quarter of this year.

 

Effectiveas of January 1, 2008, we contributed all of our interest in the assetsrelated to the Mt. Hope Project, including the Mt. Hope Lease, toEureka Moly and in February 2008 (the “Closing Date”) entered into theMt. Hope Project joint venture with POS-Minerals (the “Joint Venture”).  Under the terms of the Joint Venture,POS-Minerals owns a 20% interest in Eureka Moly and General Moly, through asubsidiary, owns an 80% interest. While these ownership interests and/or therequired contributions under the Joint Venture can change based on our failureto satisfy certain specified conditions, including the receipt of the necessaryoperating permits by December 31, 2009, failure to achieve production by December 31,2011 for reasons other than force majeure, or non-payment of amounts due underthe Joint Venture by either party, we expect the interests to remain as theyare now through the life of the project and the contributions to be received inthe amounts that follow.

 

Pursuantto the terms of the Joint Venture, POS-Minerals agreed to make cashcontributions to The Joint Venture in the aggregate amount of $170.0 millionin exchange for their 20% interest, of which $50.0 million was received inFebruary 2008, $50.0 million was received in June 2008 (the “February 2008and the June 2008 Contributions”), and the remaining $70.0 million isto be received once the Mt. Hope Project receives the necessary permits todevelop and operate the project (the “POS-Minerals Third Contribution Date”).  These initial funds are available to fund theMt. Hope Project development costs incurred subsequent to the ClosingDate. Additionally, in the third quarter of 2008, we will pay to POS-Mineralsan estimated $3.0 million as a final purchase price adjustment based on theterms of the Joint Venture related to the difference in the budgeted versusactual expenditures of the Mt. Hope Project prior to the Closing Date.

 

We arerequired, pursuant to the terms of the Joint Venture, to advance funds requiredfor the development of the Mt. Hope Project in excess of the February 2008and June 2008 Contributions until the POS-Minerals Third Contribution Dateat which point POS-Minerals is required to reimburse us for their 20% share ofall development costs incurred from the Closing Date through the POS-MineralsThird Contribution Date.  All costsincurred subsequent to the POS-Minerals Third Contribution Date will beallocated and funded pro rata based on each party’s ownership interest.

 

Additionalcapital will be required through the commencement of Mt. Hope processing,which is estimated to begin in late 2010. Our ability to develop the project on time and on budget is dependenton, among other things, the permitting process and our ability to raise thenecessary capital to fund the Mt. Hope Project both in sufficient amountand in a timely manner.  Additionally, ifthe currently estimated costs of the Mt. Hope Project are exceeded we willneed to raise additional capital to fund such overruns.

 

15

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We donot currently have the capital necessary to complete the Mt. Hope Projectand, accordingly, plan to raise the capital on an ongoing basis whenneeded.  The existing cash on hand at June 30,2008 should be sufficient to fund planned operations for the Mt. HopeProject, as well as our other planned operations into 2009.  If we are unable to raise capital whenneeded, it will be necessary to develop alternative plans that could delay thedevelopment and completion of the Mt. Hope Project.  There is no assurance that we will be able toobtain the necessary financing for the Mt. Hope Project on customary orfavorable terms, or at all.

 

Wealso require additional capital to continue the exploration and evaluation ofthe Liberty Property, as well as continue payment of ongoing general andadministrative costs associated with supporting our planned operations.

 

**Liquidity andCapital Resources**

** **

Wehave limited capital resources and thus have had to rely upon the sale ofequity securities and the formation of a joint venture for the cash requiredfor exploration and development purposes, for mineral property acquisitions andto fund our general and administration costs. As discussed above in the overview section, we will require, andcontinue to require additional funds on an ongoing basis until we havecompleted the development of the Mt. Hope Project and profitableoperations are achieved at the Mt. Hope Project.  Since we do not expect to generate anyrevenues until the Mt. Hope Project begins production, we will continue torely on the sale of our equity and debt securities, bank financing and jointventure arrangements to raise capital. There is no assurance that we will be able to obtain the necessaryfinancing in the amount required at any particular time or for any period or,if available, that it can be obtained on terms acceptable to us.

 

Ourcash balance at June 30, 2008 was $83.7 million compared to$78.4 million at December 31, 2007. Additionally we have $73.6 million of restricted cash that representsthe unspent amount of the February 2008 and June 2008 Contributionsfrom POS-Minerals that is available for the continuing development of the Mt.Hope Project.

 

Totalassets as at June 30, 2008 were $230.3 million compared to$110.3 million as of December 31, 2007.  These increases were due primarily to thereceipt of a total of $100.0 million from POS-Minerals in the February andJune 2008 Contributions, and proceeds from exercises of warrants andoptions totaling $20.2 million offset by expenditures for continuingexploration and evaluation of our Liberty Property, plus expenditures for ourgeneral and administrative costs.

 

Asdiscussed above, in addition to the $100.0 million we received fromPOS-Minerals in the February 2008 and June 2008 Contributions, we arescheduled to receive an additional $70.0 million at the time Eureka Molyreceives the necessary permits to develop and operate the Mt. Hope Project(including the record of decision for the Mt. Hope Project), which isexpected in mid-2009.  Additionally,POS-Minerals will fund approximately $65.0 million on the POS-MineralsThird Contribution Date, which represents POS-Minerals’ share of theanticipated project costs from January 1, 2008 through the POS-MineralsThird Contribution Date.

 

Webelieve the cash on hand at June 30, 2008 (including the cash restrictedfor use in the Joint Venture) will be sufficient to fund our joint venturedevelopment, exploration, evaluation and operating activities, as well as ourother planned operations, into 2009.

 

**Resultsof Operations**

** **

Forthe three months ended June 30, 2008 we had a net loss of $3.8 millioncompared with a net loss of $9.5 million in the same period for 2007.  For the six months ended June 30, 2008we had a net loss of $9.1 million compared with a net loss of $18.6 million inthe same period for 2007.

 

Forthe three months ended June 30, 2008 and June 30, 2007, explorationand evaluation expenses were $1.6 million and $6.3 million, respectively.   For the six months ended June 30, 2008and June 30, 2007, exploration and evaluation expenses were $4.2 millionand $10.2 million, respectively.  Duringthe entire six months ended June 30, 2007 both our Mt. Hope Project andour Liberty Property were in the exploration and evaluation stage.  In October 2007 the Mt. Hope Projectadvanced to the development stage.  Forthe three and six months ended June 30, 2008 

 

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weincurred exploration and evaluation costs on the Liberty Property as weprogressed to the completion of a pre-feasibility study on the Liberty Propertythat was completed in April 2008.

 

Forthe three months ended June 30, 2008 and June 30, 2007, general andadministrative expenses were $2.7 million and $3.5 million, respectively.  For the six months ended June 30, 2008and June 30, 2007, general and administrative expenses were $5.9 millionand $8.9 million, respectively.  Duringthe three months ended June 30, 2008 and June 30, 2007 we incurred$0.7 million and $1.4 million, respectively and during the six months ended June 30,2008 and June 30, 2007 we incurred $1.6 million and $4.5 million,respectively, in non-cash equity compensation for management and directorsincluded in the general and administrative expenses above.  The amounts in 2007 were significantly higherthan in 2008 as a greater amount of equity compensation was incurred duringboth the first and second quarters of 2007 as we added new management anddirectors as part of a reorganization and expansion of the executive teamcompared with the same period in 2008. The cash portion of our general and administrative expense wasapproximately the same in both periods.

 

Interestincome was $0.5 million for the three months ended June 30, 2008 comparedwith $0.4 million for the same period in 2007 and was $1.0 million for the sixmonths ended June 30, 2008 compared with $0.5 million for the same periodin 2007 as a result of higher cash balances in 2008 compared with thecorresponding periods in 2007.

 

**Changes inAccounting Policies**

** **

We didnot change our accounting policies during the six months ended June 30,2008.

 
| **ITEM  3.** | ** ** | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|--------------|------------|-----------------------------------------------------------------|

** **

**Commodity Price Risk**

** **

We area development stage company in the business of the exploration, development andmining of properties primarily containing molybdenum.  As a result, upon commencement of production,which is estimated to begin at the Mt. Hope Project in late 2010, our financialperformance could be materially affected by fluctuations in the market price ofmolybdenum and other metals we may mine. The market prices of metals can fluctuate widely due to a number offactors.  These factors includefluctuations with respect to the rate of inflation, the exchange rates of theUS dollar and other currencies, interest rates, global or regional politicaland economic conditions, banking environment, global and regional demand,production costs, and investor sentiment.

 

Inorder to better manage commodity price risk and to seek to reduce the negativeimpact of fluctuations in prices, we will seek to enter into long term supplycontracts.  On December 28, 2007, weentered into a molybdenum supply agreement with ArcelorMittal that provides forArcelorMittal to purchase 6.5 million pounds of molybdenum per year, plusor minus 10%, once the Mt. Hope Project commences commercial operations atminimum specified levels. The supply agreement provides for a floor price alongwith a discount for spot prices above the floor price and expires five yearsafter the commencement of commercial production at the Mt. HopeProject.  Both the floor and thresholdlevels at which the percentage discounts change are indexed to a producer priceindex.

 

Additionally,on May 14, 2008, we entered into a molybdenum supply agreement with SeAHBesteel Corporation (“SeAH Besteel”), Korea’s largest manufacturer of specialtysteels, that provides for SeAH Besteel to purchase 4.0 million pounds ofmolybdenum per year, plus or minus 10%, once the Mt. Hope Projectcommences commercial operations at minimum specified levels. Like theArcelorMittal supply agreement, the supply agreement with SeAH Besteel providesfor a floor price along with staged discounts for spot prices above the floorprice and expires five years from the date of first supply under theagreement.  Both the floor and thresholdlevels at which the percentage discounts change are indexed to a producer priceindex.

 

Whilewe have not used derivative financial instruments in the past, we may elect to enterinto derivative financial instruments to manage commodity price risk.  We have not entered into any market risksensitive 

 

17

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instruments for trading or speculative purposes and donot expect to enter into derivative or other financial instruments for tradingor speculative purposes.

 

**Interest Rate Risk**

** **

As of June 30,2008, we had a balance of cash and cash equivalents and restricted cash of$157.4 million.  If and to the extentthat these funds were invested in interest bearing instruments during theentire six month period ended June 30, 2008, a hypothetical 1% decrease inthe rate of interest earned on these funds would affect our income for the sixmonth period ended June 30, 2008 by approximately $0.8 million.

 
| **ITEM 4.** | ** ** | **CONTROLS  AND PROCEDURES** |
|-------------|------------|------------------------------|

** **

Anevaluation was performed under the supervision and with the participation ofour management, including our principal executive officer and principalfinancial officer, of the effectiveness of our disclosure controls andprocedures (as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934) as of the end of the period covered bythis Quarterly Report on Form 10-Q. Based on the foregoing, our chief executive officer and chief financialofficer concluded that our disclosure controls and procedures were effective asof the period covered by this Quarterly Report on Form 10-Q to ensure thatinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the Securities and Exchange Commission rules andforms and such information is accumulated and communicated to our management,including our principal executive officer and principal financial officer, toallow timely decisions regarding required disclosure.

 

Therewas no change in our internal control over financial reporting that occurredduring the quarter ended June 30, 2008 that has materially affected, or isreasonably likely to materially affect, our internal control over financialreporting.

 

**PART II**

** **

**OTHER INFORMATION**

** **
| **ITEM 1.** | ** ** | **LEGAL  PROCEEDINGS** |
|-------------|------------|------------------------|

** **

We areinvolved from time to time in litigation incidental to our business. We believethat the outcome of current litigation is not expected to have a materialadverse effect on our results of operations or financial condition.

 
| **ITEM 1A.** | ** ** | **RISK  FACTORS.** |
|--------------|------------|--------------------|

** **

OurAnnual Report on Form 10-KSB for the year ended December 31, 2007,including the discussion under the heading “Risk Factors” therein, and thisreport describe risks that may materially and adversely affect our business,results of operations or financial condition. The risks described in our Annual Report on Form 10-KSB and thisreport are not the only risks facing us. Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial condition and/oroperations.

 

**Special Note Regarding Forward-Looking Statements**

** **

Certainstatements in this report may constitute “forward-looking statements” within the meaning of the Private SecuritiesLitigation Reform Act of 1995, which involve known and unknown risks,uncertainties and other factors, which may cause actual results, performance orachievements of our Company, the Mt. Hope Project, Liberty Property andour other projects, or industry results, to be materially different from anyfuture results, performance or achievements expressed or implied by suchforward-looking statements.  We use thewords “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “future,” “plan,”“estimate,” “potential” and other similar expressions to identifyforward-looking statements.  Theseforward-looking statements are subject to a number of risks, uncertainties andassumptions that could cause actual results to differ materially from those inthe forward looking 

 

18

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statements. Such risks, uncertainties and assumptionsare described in the “Risk Factors” section included in our Annual Report on Form 10-KSBfor the year ended December 31, 2007 and this report, and include, amongother things:

 

·                  our dependenceon the success of the Mt. Hope Project;

·                  the ability toobtain all required permits and approvals for the Mt. Hope Project and theLiberty Property;

·                  issues relatedto the management of the Mt. Hope Project pursuant to the Mt. HopeJoint Venture;

·                  risks related tothe failure of POS-Minerals to make contributions pursuant to the Mt. HopeJoint Venture;

·                  fluctuations inthe market price of, and demand for, molybdenum and other metals;

·                  the estimationand realization of mineral reserves, if any;

·                  the timing ofexploration, development and production activities and estimated futureproduction, if any;

·                  estimatesrelated to costs of production, capital, operating and explorationexpenditures;

·                  requirements foradditional capital and the possible sources of such capital;

·                  governmentregulation of mining operations, environmental conditions and risks,reclamation and rehabilitation expenses;

·                  title disputesor claims; and

·                  limitations ofinsurance coverage.

 

Youshould not place undue reliance on these forward-looking statements, whichspeak only as of the date of this report. These forward-looking statements are based on our current expectationsand are subject to a number of risks and uncertainties, including those setforth above.  Although we believe thatthe expectations reflected in these forward-looking statements are reasonable,our actual results could differ materially from those expressed in theseforward-looking statements, and any events anticipated in the forward-looking statementsmay not actually occur.  Except asrequired by law, we undertake no duty to update any forward-looking statementsafter the date of this report to conform those statements to actual results orto reflect the occurrence of unanticipated events.  We qualify all forward-looking statementscontained in this report by the foregoing cautionary statements.

 
| **ITEM 2.** | ** ** | **UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
|-------------|------------|------------------------------------------------------------------|

 

None.

 
| **ITEM 3.** | ** ** | **DEFAULTS  UPON SENIOR SECURITIES** |
|-------------|------------|--------------------------------------|

** **

None.

 
| **ITEM 4.** | ** ** | **SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|------------|----------------------------------------------------------|

** **

Weheld our Annual Meeting of Stockholders on June 12, 2008 (the “AnnualMeeting”) to (1) elect three Class I members to our Board ofDirectors and (2) ratify the selection of PricewaterhouseCoopers LLP asour independent auditor.

 

At thetime of the record date for our Annual Meeting, April 16, 2008, there were70,930,195 shares of our common stock outstanding.  At our Annual Meeting, a total of 51,471,449,or approximately 73% of our total outstanding shares, were represented inperson or by proxy.

** **

**19**

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The results of ourAnnual Meeting were as follows:

 

****(1)********           Election of Three Class IMembers to our Board of Directors****

 

Our stockholders elected the following three Class IMembers to serve as members of our Board of Directors:

 
| **Name**             | ** ** | **Votes Cast For** | ** ** | **Votes Withheld** | ** ** |
|----------------------|------------|------------------------------|------------|-------------------------|------------|
| Jean-Pierre M. Ergas |       | 49,716,416                   |       | 1,755,033               |       |
| Gary A. Loving       |       | 49,703,622                   |       | 1,767,827               |       |
| Richard F. Nanna     |       | 50,538,973                   |       | 932,476                 |       |

 

****(2)********           Ratification of theSelection of******PricewaterhouseCoopers LLPas our independent auditor**

 

Ourstockholders ratified the selection of PricewaterhouseCoopers LLP as ourindependent auditor by the following vote:

 
| For              |   | 51,158,511 |   |
|------------------|--------|------------|--------|
| Against          |   | 254,638    |   |
| Abstain          |   | 58,300     |   |
| Broker Non-Votes |   | 0          |   |

 

**ITEM 5.****** ****OTHERINFORMATION

 

EffectiveAugust 1, 2008, Andrew J. Russell, Vice of President of Project Development,resigned as an employee of the Company pursuant to a Waiver and Release enteredinto by and between Mr. Russell and the Company (the “Release Agreement”).  The Release Agreement provides, among otherthings, for Mr. Russell to perform certain transition services for the Companyand includes a general release of any claims by Mr. Russell against theCompany.

 

Pursuant to the Release Agreement, the Company isobligated to pay Mr. Russell $100,000 upon the execution of the ReleaseAgreement and fulfillment of certain other conditions.  Subject to the terms and conditions of theRelease Agreement, Mr. Russell is also entitled to receive $50,000 within 30days of the execution of the Release Agreement and another $50,000 on December31, 2008.

 

**ITEM 6.****** ****EXHIBITS

 

| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                             |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1†           |       | Agreement  and Plan of Merger, dated October 5, 2007 (Filed as Exhibit 99.1 to  our Current Report on Form 8-K filed on October 5, 2007.)                                                                                                    |
| 3.1†           |       | Certificate  of Incorporation (Filed as Exhibit 3.1 to our Current Report on  Form 8-K filed on October 5, 2007.)                                                                                                                                 |
| 3.2†           |       | Bylaws  (Filed as Exhibit 3.2 to our Current Report on Form 8-K filed on  October 5, 2007.)                                                                                                                                                       |
| 4.1†           |       | Form of  Security Purchase Agreement in connection with the private placement  completed February 15, 2006 (Filed as Exhibit 4.1 to our Current  Report on Form 8-K filed on February 17, 2006.)                                        |
| 4.2†           |       | Form of  Common Stock Purchase Warrant in connection with the private placement  completed February 15, 2006 (Filed as Exhibit 4.2 to our Current  Report on Form 8-K filed on February 17, 2006.)                                      |
| 4.3†           |       | Form of  Common Stock Warrant Issued Pursuant to Placement Agent Agreement in  connection with the private placement completed February 15, 2006 (Filed  as Exhibit 4.3 to our Current Report on Form 8-K filed on  February 17, 2006.) |
| 4.4†           |       | Securities  Purchase Agreement, dated March 28, 2007, for the private placement  completed in April 2007 (Filed as Exhibit 4.5 to our Registration  Statement on Form S-3 filed on May 14, 2007.)                                       |
| 10.23               |       | Amended and  Restated Employment Agreement, dated January 30, 2007, between the  Company and Andrew J. Russell (Filed herewith)                                                                                                                             |
| 10.24               |       | Amendment to  Amended and Restated Employment Agreement, dated January 14, 2008, by  and between the Company and Andrew J. Russell (Filed herewith)                                                                                                         |
| 10.25*              |       | Molybdenum  Supply Agreement between the Company and SeAH Besteel Corporation, dated as  of May 14, 2008                                                                                                                                                    |

 

20

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| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                      |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------|
| 31.1                |       | Certification  of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
| 31.2                |       | Certification  of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
| 32.1                |       | Certification  of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |
| 32.2                |       | Certification  of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |

 

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† Previouslyfiled as indicated and incorporated herein by reference.

*Confidential treatment has been requested for certain portions of this exhibit,and such confidential portions have been separately filed with the SecuritiesExchange Commission.

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

Dated: August 4, 2008

 
|   |   | GENERAL  MOLY, INC. |
|--------|--------|---------------------|
|   |   |                |
|   |   | By:                 | /s/  David A. Chaput |
|   |   |                | David  A. Chaput |
|   |   |                | Chief  Financial Officer and |
|   |   |                | Duly  Authorized Officer |

 

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