Table ofContents

 

 

 

**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**x****   QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period ended June 30, 2010**

** **

**o****      TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For thetransition period from              to             **

 

**CommissionFile Number: 001-32986**

 

**GeneralMoly, Inc.**

(Exactname of registrant as specified in its charter)

 

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

 

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90days.  **YES****x****NO****o**

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files). **YES****o****NO****o**

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  **YES****o****NO****x**

 

The number of sharesoutstanding of registrant’s common stock as of July 28, 2010, was72,567,538.

 

 

 

----

Table of Contents

 

**TABLEOF CONTENTS**

 
| ** **       | ** **                                                                                  | **Page** |
|------------------|---------------------------------------------------------------------------------------------|----------|
| **Part I**  |
|             |                                                                                        |     |
| ITEM 1.          | FINANCIAL STATEMENTS                                                                        | 3        |
|             |                                                                                        |     |
| ITEM 2.          | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22       |
|             |                                                                                        |     |
| ITEM 3.          | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | 31       |
|             |                                                                                        |     |
| ITEM 4.          | CONTROLS AND  PROCEDURES                                                                    | 33       |
|             |                                                                                        |     |
| **Part II** |
|             |                                                                                        |     |
| ITEM 1.          | LEGAL PROCEEDINGS                                                                           | 33       |
|             |                                                                                        |     |
| ITEM 1A.         | RISK FACTORS                                                                                | 34       |
|             |                                                                                        |     |
| ITEM 2.          | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | 36       |
|             |                                                                                        |     |
| ITEM 3.          | DEFAULTS  UPON SENIOR SECURITIES                                                            | 36       |
|             |                                                                                        |     |
| ITEM 4.          | REMOVED AND RESERVED                                                                        | 36       |
|             |                                                                                        |     |
| ITEM 5.          | OTHER INFORMATION                                                                           | 36       |
|             |                                                                                        |     |
| ITEM 6.          | EXHIBITS                                                                                    | 36       |

 

2

----

Table of Contents

** **

**PART I - FINANCIAL INFORMATION**

 

**ITEM 1.                  FINANCIAL STATEMENTS**

 

**GENERALMOLY, INC.(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED BALANCE SHEETS**

 

**(Unaudited- In thousands, except par value amounts)**

 
| ** **                                                                                                                             | ** ** | **June 30,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                             | ** ** | ** **              | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                             | ** ** | ** **              |       |                        |       |
| CURRENT  ASSETS                                                                                                                        |       |                    |       |                        |       |
| Cash  and cash equivalents                                                                                                             |       | $                       | 22,895     |                        | $          | 48,614 |   |
| Deposits,  prepaid expenses and other current assets                                                                                   |       | 183                     |       | 179                         |       |
| Total  Current Assets                                                                                                                  |       | 23,078                  |       | 48,793                      |       |
| Mining  properties, land and water rights — Note 4                                                                                |       | 106,977                 |       | 101,190                     |       |
| Deposits  on project property, plant and equipment                                                                                     |       | 67,400                  |       | 42,648                      |       |
| Restricted  cash held for electricity transmission                                                                                     |       | 12,286                  |       | 12,286                      |       |
| Restricted  cash held for reclamation bonds                                                                                            |       | 1,133                   |       | 1,133                       |       |
| Non-mining  property and equipment, net                                                                                                |       | 452                     |       | 553                         |       |
| Other  assets                                                                                                                          |       | 2,994                   |       | 2,994                       |       |
| **TOTAL  ASSETS**                                                                                                                      |       | $                       | 214,320    |                        | $          | 209,597 |   |
| **LIABILITIES,  CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST AND EQUITY**                                                           | ** ** | ** **              |       |                        |       |
| CURRENT  LIABILITIES                                                                                                                   |       |                    |       |                        |       |
| Accounts  payable and accrued liabilities                                                                                              |       | $                       | 2,952      |                        | $          | 3,799 |   |
| Current  portion of long term debt                                                                                                     |       | 144                     |       | 163                         |       |
| Total  Current Liabilities                                                                                                             |       | 3,096                   |       | 3,962                       |       |
| Provision  for post closure reclamation and remediation costs                                                                          |       | 561                     |       | 586                         |       |
| Deferred  gain                                                                                                                         |       | 200                     |       | 100                         |       |
| Long  term debt, net of current portion                                                                                                |       | 10,239                  |       | 268                         |       |
| Total  Liabilities                                                                                                                     |       | 14,096                  |       | 4,916                       |       |
|                                                                                                                                   |       |                    |       |                        |       |
| COMMITMENTS  AND CONTINGENCIES — Note 10                                                                                          |       |                    |       |                        |       |
|                                                                                                                                   |       |                    |       |                        |       |
| CONTINGENTLY  REDEEMABLE NONCONTROLLING INTEREST                                                                                       |       | 99,761                  |       | 99,761                      |       |
|                                                                                                                                   |       |                    |       |                        |       |
| EQUITY                                                                                                                                 |       |                    |       |                        |       |
| Common  stock, $0.001 par value; 200,000,000 shares authorized, 72,567,538 and  72,437,538 shares issued and outstanding, respectively |       | 73                      |       | 72                          |       |
| Additional  paid-in capital                                                                                                            |       | 188,878                 |       | 187,290                     |       |
| Accumulated  deficit before exploration stage                                                                                          |       | (213                    | )          | (213                        | )          |
| Accumulated  deficit during exploration and development stage                                                                          |       | (88,275                 | )          | (82,229                     | )          |
| Total  Equity                                                                                                                          |       | 100,463                 |       | 104,920                     |       |
| **TOTAL  LIABILITIES, CONTINGENTLY REDEEMABLE NONCONTROLLING INTEREST AND EQUITY**                                                     |       | $                       | 214,320    |                        | $          | 209,597 |   |

 

Theaccompanying notes are an integral part of these consolidated financial statements.

 

3

----

Table of Contents

 

**GENERALMOLY, INC.(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED STATEMENTS OF OPERATIONS**

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

 
| ** **                                                                         | ** ** | ** **              | ** ** | ** **            | ** ** | ** **        | ** ** | ** **        | ** ** | **January 1,  2002** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|-------------------|------------|-------------------|------------|---------------------------|------------|
| ** **                                                                         | ** ** | ** **              | ** ** | ** **            | ** ** | ** **        | ** ** | ** **        | ** ** | **(Inception  of**        | ** ** |
| ** **                                                                         | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** | **Exploration**   | ** ** |
| ** **                                                                         | ** ** | **June 30,**       | ** ** | **June 30,**     | ** ** | **June 30,** | ** ** | **June 30,** | ** ** | **Stage)  to June**       | ** ** |
| ** **                                                                         | ** ** | **2010**                | ** ** | **2009**              | ** ** | **2010**          | ** ** | **2009**          | ** ** | **30,  2010**             | ** ** |
|                                                                               |       |                    |       |                  |       |              |       |              |       |                      |       |
| REVENUES                                                                           |       | $                       | —     |                  | $          | —            |       | $                 | —     |                      | $          | — |   | $ | — |   |
| OPERATING  EXPENSES:                                                               |       |                    |       |                  |       |              |       |              |       |                      |       |
| Exploration  and evaluation                                                        |       | 180                     |       | 166                   |       | 308               |       | 364               |       | 37,818                    |       |
| General  and administrative expense                                                |       | 2,985                   |       | 2,724                 |       | 5,703             |       | 5,637             |       | 54,689                    |       |
| TOTAL  OPERATING EXPENSES                                                          |       | 3,165                   |       | 2,890                 |       | 6,011             |       | 6,001             |       | 92,507                    |       |
| LOSS  FROM OPERATIONS                                                              |       | (3,165                  | )          | (2,890                | )          | (6,011            | )          | (6,001            | )          | (92,507                   | )          |
| OTHER  INCOME                                                                      |       |                    |       |                  |       |              |       |              |       |                      |       |
| Interest  and dividend income                                                      |       | 5                       |       | —                |       | 6                 |       | 8                 |       | 3,969                     |       |
| Interest  expense                                                                  |       | (41                     | )          | —                |       | (41               | )          | —            |       | (41                       | )          |
| Other  income                                                                      |       | —                  |       | —                |       | —            |       | —            |       | 65                        |       |
| TOTAL  OTHER INCOME                                                                |       | (36                     | )          | —                |       | (35               | )          | 8                 |       | 3,993                     |       |
| LOSS  BEFORE TAXES                                                                 |       | (3,201                  | )          | (2,890                | )          | (6,046            | )          | (5,993            | )          | (88,514                   | )          |
| Income  Taxes                                                                      |       | —                  |       | —                |       | —            |       | —            |       | —                    |       |
| NET  LOSS                                                                          |       | $                       | (3,201     | )                     | $          | (2,890            | )          | $                 | (6,046     | )                         | $          | (5,993 | ) | $ | (88,514 | ) |
| Less:  Net loss attributable to contingently redeemable noncontrolling interest    |       | —                  |       | 136                   |       | —            |       | 239               |       | 239                       |       |
| NET  LOSS ATTRIBUTABLE TO GENERAL MOLY, INC.                                  |       | $                       | (3,201     | )                     | $          | (2,754            | )          | $                 | (6,046     | )                         | $          | (5,754 | ) | $ | (88,275 | ) |
| Basic  and diluted net loss attributable to General Moly per share of common stock |       | $                       | (0.04      | )                     | $          | (0.04             | )          | $                 | (0.08      | )                         | $          | (0.08 | ) |   |   |
| Weighted  average number of shares outstanding — basic and diluted            |       | 72,568                  |       | 72,104                |       | 72,557            |       | 72,034            |       |                      |       |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

4

----

Table of Contents

 

**GENERALMOLY, INC.(A DEVELOPMENT STAGE COMPANY)CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited— In thousands)**

 
| ** **                                                                                      | ** ** | ** **                     | ** ** | ** **         | ** ** | **January 1, 2002** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|--------------------|------------|-------------------------------|------------|
| ** **                                                                                      | ** ** | ** **                     | ** ** | ** **         | ** ** | **(Inception of**        | ** ** |
| ** **                                                                                      | ** ** | ** **                     | ** ** | ** **         | ** ** | **Exploration**               | ** ** |
| ** **                                                                                      | ** ** | **Six Months Ended** | ** ** | **Stage) to** | ** ** |
| ** **                                                                                      | ** ** | **June 30,**              | ** ** | **June 30,**  | ** ** | **June 30,**             | ** ** |
| ** **                                                                                      | ** ** | **2010**                       | ** ** | **2009**           | ** ** | **2010**                      | ** ** |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                                          |       |                           |       |               |       |                          |       |
| Net  Loss                                                                                       |       | $                              | (6,046     | )                  | $          | (5,993                        | )          | $ | (88,514 | ) |
| Adjustments  to reconcile net loss to net cash used by operating activities:                    |       |                           |       |               |       |                          |       |
| Services  and expenses paid with common stock                                                   |       | —                         |       | —             |       | 1,990                         |       |
| Repricing  of warrants                                                                          |       | 585                            |       | —             |       | 585                           |       |
| Forfeitures  of deposits on property and equipment                                              |       | —                         |       | 378                |       | 378                           |       |
| Depreciation  and amortization                                                                  |       | 184                            |       | 173                |       | 1,081                         |       |
| Interest  expense                                                                               |       | 41                             |       | —             |       | 41                            |       |
| Equity  compensation for employees and directors                                                |       | 604                            |       | 257                |       | 14,062                        |       |
| (Increase)  decrease in deposits, prepaid expenses and other                                    |       | (4                             | )          | 5                  |       | (91                           | )          |
| Decrease  (increase) in restricted cash held for electricity transmission                       |       | —                         |       | 259                |       | (12,286                       | )          |
| (Decrease)  increase in accounts payable and accrued liabilities                                |       | (975                           | )          | 346                |       | 2,390                         |       |
| (Decrease)  increase in post closure reclamation and remediation costs                          |       | (25                            | )          | (145               | )          | 352                           |       |
| Net  cash used by operating activities                                                          |       | (5,636                         | )          | (4,720             | )          | (80,012                       | )          |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                                          |       |                           |       |               |       |                          |       |
| Payments  for the purchase of equipment                                                         |       | —                         |       | —             |       | (1,424                        | )          |
| Purchase  of securities                                                                         |       | —                         |       | —             |       | (137                          | )          |
| Purchase  and development of mining properties, land and water rights                           |       | (5,819                         | )          | (16,312            | )          | (100,452                      | )          |
| Deposits  on property, plant and equipment                                                      |       | (24,331                        | )          | (1,346             | )          | (67,357                       | )          |
| Proceeds  from option to purchase agreement                                                     |       | 100                            |       | 100                |       | 200                           |       |
| Increase  in restricted cash held for reclamation bonds                                         |       | —                         |       | —             |       | (642                          | )          |
| Cash  provided by sale of marketable securities                                                 |       | —                         |       | —             |       | 246                           |       |
| Net  cash used by investing activities                                                          |       | (30,050                        | )          | (17,558            | )          | (169,566                      | )          |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                                          |       |                           |       |               |       |                          |       |
| Proceeds  from issuance of stock, net of issuance costs                                         |       | 56                             |       | 63                 |       | 165,260                       |       |
| Proceeds  from debt                                                                             |       | 10,000                         |       | —             |       | 10,000                        |       |
| Cash  proceeds from POS-Minerals Corporation                                                    |       | —                         |       | —             |       | 100,000                       |       |
| Cash  paid to POS-Minerals Corporation for purchase price adjustment                            |       | —                         |       | —             |       | (2,994                        | )          |
| Decrease  in restricted cash — Eureka Moly, LLC                                            |       | —                         |       | 13,784             |       | —                        |       |
| Net  increase (decrease) in leased assets                                                       |       | (89                            | )          | (63                | )          | 161                           |       |
| Net  cash provided by financing activities                                                      |       | 9,967                          |       | 13,784             |       | 272,427                       |       |
| Net  (decrease) increase in cash and cash equivalents                                           |       | (25,719                        | )          | (8,494             | )          | 22,849                        |       |
| Cash  and cash equivalents, beginning of period                                                 |       | 48,614                         |       | 78,462             |       | 46                            |       |
| Cash  and cash equivalents, end of period                                                       |       | $                              | 22,895     |               | $          | 69,968                        |       | $ | 22,895 |   |
| NON-CASH  INVESTING AND FINANCING ACTIVITIES:                                                   |       |                           |       |               |       |                          |       |
| Equity  compensation capitalized as development                                                 |       | $                              | 472        |               | $          | 358                           |       | $ | 5,551 |   |
| Restricted  cash held for reclamation bond acquired in an acquisition                           |       | —                         |       | —             |       | 491                           |       |
| Post  closure reclamation and remediation costs and accounts payable assumed in an  acquisition |       | —                         |       | —             |       | 263                           |       |
| Common  stock and warrants issued for property and equipment                                    |       | —                         |       | —             |       | 1,586                         |       |

 

Theaccompanying notes are an integral part of these consolidated financialstatements.

 

5

----

Table of Contents

 

**GENERALMOLY, INC.(A DEVELOPMENT STAGE COMPANY)**

 

**NOTESTO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTE 1 — DESCRIPTION OF BUSINESS**

 

General Moly, Inc. (“we”,“us”, “our”, “the Company”, or “General Moly”) is a Delaware corporationoriginally 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 (“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 Securities and Exchange Commission (“SEC”), General Moly isdeemed a successor to Idaho General Mines, Inc.

 

We were in the explorationstage until October 4, 2007, when our Board of Directors (“Board”)approved the development of the Mt. Hope molybdenum property (“Mt. Hope Project”)in Eureka County, Nevada.  The Company isnow in the development stage and is currently proceeding with the developmentof the Mt. Hope Project.  We are alsoconducting evaluation activities on our Liberty molybdenum property (“LibertyProperty” formerly referred to as the Hall-Tonopah Property) in Nye County,Nevada.  In addition, we have certainother, non-core, mineral interests in the Western United States that we arecurrently evaluating for potential development or sale.

 

**The Mt. Hope Project.**  From October 2005 to January 2008,we owned the rights to 100% of the Mt. Hope Project.  Effective as of January 1, 2008, wecontributed all of our interest in the assets related to the Mt. Hope Project,including our lease of the Mt. Hope Project into a newly formed entity, EurekaMoly, LLC, a Delaware limited liability company (“LLC”), and in February 2008(“Closing Date”) entered into an agreement (“LLC Agreement”) for thedevelopment and operation of the Mt. Hope Project (“Project”) with POS-MineralsCorporation (“POS-Minerals”) an affiliate of POSCO, a large Korean steelcompany.  Under the LLC Agreement,POS-Minerals owns a 20% interest in the LLC and General Moly, through awholly-owned subsidiary, owns an 80% interest. These ownership interests and/or required contributions under the LLCAgreement are discussed below.

 

Pursuant to the terms of theLLC Agreement, POS-Minerals made its first and second cash contributions to theLLC totaling $100.0 million during the year ended December 31, 2008 (“InitialContributions”).  Additional amounts willbe due from POS-Minerals within 15 days after the date (“ROD Contribution Date”)that specified conditions (“ROD Contribution Conditions”) have beensatisfied.  The ROD ContributionConditions are the receipt of major operating permits for the project, that theRecord of Decision (“ROD”) from the United States Bureau of Land Management (“BLM”)for the project has become effective, and any administrative or judicialappeals with respect thereto are final. We are currently targeting the effectiveness of the ROD and thesatisfaction of the ROD Contribution Conditions to occur by mid-2011, butcircumstances beyond our control, including reviewing agency delays or requestsfor additional information or studies, and requests for review or appeals ofthe BLM decision, could cause the effectiveness of the ROD and/or thesatisfaction of the ROD Contribution Conditions to be delayed.

 

To maintain its 20% interestin the LLC, POS-Minerals will be required to make an additional $56.0 millioncontribution plus its 20% share of all Project costs incurred from the ClosingDate to the ROD Contribution Date within 15 days after the ROD ContributionDate.  If POS-Minerals does not make itsadditional $56.0 million contribution when due after the ROD Contribution Date,its interest will be reduced to 10% and the return of contributions will bezero.

 

In addition, if commercialproduction at the Mt. Hope Project is not achieved by December 31, 2011,****for reasons other than a force majeure event, the LLC maybe required to return to POS-Minerals $36.0 million of its contributions to theLLC, with no corresponding reduction in POS-Minerals’ ownershippercentage.  Based on our current planand expected timetable, Mt. Hope Project will not achieve commercial productionby December 31, 2011, and our payment to POS-Minerals will be due January 27,2012.  Our wholly-owned subsidiary and80% 

 

6

----

Table of Contents

 

owner of the LLC, NevadaMoly (“Nevada Moly”), is obligated under the terms of the LLC Agreement to makecapital contributions to fund the return of contributions to POS-Minerals, ifrequired.  If Nevada Moly does not makethese capital contributions, POS-Minerals has an election to either make asecured loan to the LLC to fund the return of contributions, or receive anadditional interest in the LLC of approximately 5%.  In the latter case, our interest in the LLCis subject to dilution by a percentage equal to the ratio of 1.5 times theamount of the unpaid contributions over the aggregate amount of deemed capitalcontributions (as determined under the LLC Agreement) of both parties to theLLC (“Dilution Formula”).  At December 31,2009, the aggregate amount of deemed capital contributions of both parties was$880.0 million.

 

Furthermore, a provision inthe LLC Agreement permits POS-Minerals the option to put its interest in theLLC to Nevada Moly after a change of control of the Company, as defined in theLLC agreement, followed by (i) failure to begin full construction at theLLC by the Company or the surviving entity before December 31, 2010, or (ii) failureto use standard mining industry practice in connection with development andoperation of the project as contemplated by the parties for a period of twelvemonths after December 31, 2010.  IfPOS-Minerals puts its interest, Nevada Moly would be required to purchase theinterest for 120% of POS-Minerals contributions to the LLC plus 10% interestper annum.

 

The Initial Contributions of$100.0 million that were made by POS-Minerals during 2008 were expended by thesecond quarter of 2009 in accordance with the program and budget requirementsof the Mt. Hope Project.  Nevada Moly isrequired, pursuant to the terms of the LLC Agreement, to advance funds requiredto pay costs for the development of the Mt. Hope Project that exceed theInitial Contributions until the ROD Contribution Date, at which point thecontributions described above to be made by POS-Minerals will be applied toreimburse us for POS-Minerals’ share of such development costs.  All costs incurred after the ROD ContributionDate will be allocated and funded pro rata based on each party’s ownershipinterest.  The interest of a party in theLLC that does not make its pro rata capital contributions to fund costsincurred after the ROD Contribution Date is subject to dilution based on the DilutionFormula.

 

**NOTE 2 — LIQUIDITY, CAPITALREQUIREMENTS AND RESTRUCTURING**

 

Our consolidated cashbalance at June 30, 2010, was $22.9 million compared to $48.6 million at December 31,2009.  The cash needs for the developmentof the Mt. Hope Project require that we or the LLC finalize significantfinancing in addition to the capital contributions to be received fromPOS-Minerals.

 

The anticipated sources offinancing described below, combined with funds anticipated to be received fromPOS-Minerals in order to retain its 20% share, provide substantially all of ourcurrently planned funding required to construct and place the Mt. Hope Projectinto commercial operation.

 

**SecuritiesPurchase Agreement with Hanlong (USA) Mining Investment Inc. and Chinese Bank Loan**

 

On March 4, 2010, wesigned a Securities Purchase Agreement (“Purchase Agreement”) with Hanlong(USA) Mining Investment, Inc. (“Hanlong”), an affiliate of Sichuan HanlongGroup, a large privately held Chinese company.  The Purchase Agreement andthe related agreements described below form the basis of a significantinvestment by Hanlong in the Company that is intended to provide the Companywith adequate capital to develop the Mt. Hope Project.  The PurchaseAgreement provides for the sale to Hanlong of shares of our common stock in twotranches that will aggregate 25% of our outstanding stock on a fully dilutedbasis.  The average price per share, based on the anticipated number ofshares to be issued, is $2.88 for an aggregate price of $80 million, andconstitutes a small premium as compared to the $2.60 closing share price of theCompany on March 4, 2010.  The share issuance is part of a largertransaction that includes the commitment by Hanlong to use its commerciallyreasonable efforts to procure a $665 million bank loan for the Company (“TermLoan”) from a prime Chinese bank that will be guaranteed by an affiliate ofHanlong, a $20 million bridge loan from Hanlong to the Company, and along-term molybdenum supply off-take agreement pursuant to which a Hanlongaffiliate will agree to purchase a substantial part of the molybdenumproduction from the Mt. Hope Project at specified prices.

 

7

----

Table ofContents

 

**Securities Purchase Agreement**

 

*Stock Purchase*.  ThePurchase Agreement provides, subject to terms and conditions of the PurchaseAgreement, for the purchase by Hanlong for an aggregate price of$80 million, of approximately 27.8 million shares of our common stockwhich will equal 25% of our outstanding common stock on a fully-diluted basisfollowing the purchase, or approximately 38.3% of our currently outstandingcommon stock.  Fully diluted is defined as all of our outstanding commonstock plus all outstanding options and warrants, whether or not currentlyexercisable.  Hanlong is obligated to purchase the first 12.5% of ourfully-diluted shares, or approximately 11.9 million (“Tranche 1”) for$40 million, or approximately $3.36 per share, following satisfaction ofcertain conditions, including receipt of stockholder approval of the equityissuances in connection with the transaction (received at the Annual Meeting ofStockholders held on May 13, 2010), publication of the notice ofavailability of the Draft Environmental Impact Statement (“DEIS”) concerningthe Mt. Hope Project by the BLM, receipt of necessary Chinese governmentapprovals for certain portions of the transaction, assurances from Hanlong asto the availability of the Term Loan, approval of the shares for listing on theNew York Stock Exchange Amex (“NYSE Amex”) and absence of certaindefaults.  The actual number of shares and price per share will beadjusted for any change in the number of fully diluted shares before theclosing of Tranche 1.  The parties may waive the conditions to theirrespective obligations.  The Company anticipates that Tranche 1 willclose later this year.

 

Hanlong and the Companycontinue to work toward achievement of Tranche 1 Conditions.  The Company received overwhelming supportfrom stockholders at the Company’s Annual General Meeting and is continuing toprogress toward publication of the Draft EIS. Hanlong, along with support from General Moly, is continuing work towardreceiving the Chinese Government approvals for the investment. On July 29,Hanlong received the third and final signature required for Sichuan ProvincialNational Development and Reform Commission (NDRC) approval and Hanlong hasadvanced the approval to NDRC’s Beijing headquarters.  Once the national NDRC approves thetransaction, Hanlong will pursue approvals from the Ministry of Commerce andthe State Administration for Foreign Exchange (SAFE).

 

Under the terms of theagreement, Hanlong is required to obtain government approvals for theinvestment within three months of stockholder approval, or August 13,2010.  Based on discussions with Hanlong,it was determined that it is highly unlikely that all of the Chinese Governmentapprovals will be fully obtained by this deadline.  Therefore, on July 30, the Companyexecuted an amendment to the Hanlong agreement extending the deadline forobtaining government approvals by two months to October 13, 2010.  In consideration for the extension, theamendment also extends the Company’s deadlines for publishing its DraftEnvironmental Impact Statement (DEIS) and receiving its Record of Decision(ROD) by two months, to February 28, 2011 and November 30, 2011,respectively, although the Company currently does not anticipate utilizing theadditional time permitted for the publication of the DEIS or receipt of theROD.

 

The second tranche (“Tranche 2”),which will involve the purchase of approximately 15.9 million additionalshares, will be for a purchase price of an additional $40 million, orapproximately $2.52 per share.  The actual number of shares and price pershare will be adjusted for any change in the number of fully diluted sharesbefore the closing of Tranche 2.  Significant conditions to the closing ofTranche 2 include issuance of the ROD for the Mt. Hope Project by the BLM,approval of the plan of operation for the Mt. Hope Project by the BLM, and thecompletion of documentation for and satisfaction of conditions precedent tolending under the Term Loan.  The Purchase Agreement may be terminated byeither party (provided the terminating party is not in default) if the closingsof Tranche 1 and Tranche 2 have not occurred by January 31,2011, and September 30, 2011, respectively, subject to extension undersome circumstances to January 31, 2012.

 

The potential purchase ofcommon stock by Hanlong gave ArcelorMittal, S.A. (“ArcelorMittal”), whichpresently owns approximately 10.0% of our fully diluted common stock, the rightto acquire additional shares so that it could maintain its current level ofownership.  On April 16, 2010, we entered into a Consent and WaiverAgreement whereby ArcelorMittal agreed to waive its anti-dilution rights withrespect to the Company’s proposed issuance of stock under the Hanlonginvestment.  ArcelorMittal will retainanti-dilution rights for future issuances of Company common stock.  ArcelorMittal also consented to the issuanceof common stock at a price that may be below the market price.  ArcelorMittal will also have the one-timeright to purchase a number of shares that will ensure that ArcelorMittal owns10% of the outstanding common stock if we issue more than 10,000,000 shares ofcommon stock, outside of those shares issued through the Hanlongtransaction.  In connection with theConsent and 

 

8

----

Table of Contents

 

Waiver Agreement, ArcelorMittal and the Company also enteredinto an Extension Molybdenum Supply Agreement on April 16, 2010 (“ExtensionAgreement”), providing ArcelorMittal with a five-year option to make effectivean agreement to purchase from the Company three million pounds of molybdenumper year for ten years following the expiration of the current five year, 6.5million annual pound molybdenum supply agreement.  The additional optional off-take will bepriced in alignment with the Company’s existing supply agreements.  In order for ArcelorMittal to exercise thisoption and make the Extension Agreement effective, ArcelorMittal must havebeneficial ownership of more than 11.1 million shares of Company common stockon or prior to April 15, 2015. ArcelorMittal currently owns approximately 8.3 million shares of commonstock.

 

Hanlong will have the rightto purchase a portion of any additional shares of common stock that we issue sothat it can maintain its percentage ownership unless its ownership at the timeis below 5%.  It may also acquire additional shares so that it maintains a20% indirect interest in the Mt. Hope Project if our interest in the LLCis reduced below 80%.  If we issue shares to fund our obligation to fundthe Mt. Hope Project under certain circumstances and Hanlong exercises itsrights to maintain its percentage interest, we will be obligated to refund toHanlong the cost of such shares over a three-year period up to an aggregate of$9 million.

 

*Break Fees*.  A breakfee is payable by both the Company and Hanlong if the Purchase Agreementterminates because of the failure of certain conditions to the closing ofTranche 1 or Tranche 2.  A break fee of $10 million ispayable to the Company if the Purchase Agreement is terminated because Hanlongfails to obtain necessary Chinese government approvals or to give itsassurances about the availability of the Term Loan.  The Company hasagreed to pay $5 million to Hanlong if the conditions concerning ourstockholder approval, the publication of the DEIS or the ROD are not timelysatisfied or waived and the Purchase Agreement is terminated.  The Companybreak fees may be increased by $5 million if the Purchase Agreement isterminated and the Company has violated the “no-shop” provisions of thePurchase Agreement and may be increased in other circumstances not to exceed anadditional $3 million if the Company requests and Hanlong grants certainextensions of deadlines concerning the DEIS and up to an additional $2 millionif the Company requests and Hanlong grants certain extensions concerning theROD.  In addition, the Company must pay a $2 million fee to Hanlong if itgrants the extension concerning the ROD, which fee can be credited against thearrangement fee described below.  The break fee payable by the Company toHanlong may be paid in cash, or, in certain circumstances, in shares of ourcommon stock at our option.  If paid in shares, the price would be thevolume weighted average of our common stock on the NYSE Amex for thefive days ending six days after the announcement of the termination.

 

*No Shop*.  TheCompany has agreed that it will not seek alternative proposals that wouldsupplant the proposed transaction with Hanlong until the closing of thetransactions contemplated by the Purchase Agreement or the earlier terminationof the Purchase Agreement.  The Board may, in the exercise of itsfiduciary obligations, consider an unsolicited offer that it views as superiorto the Hanlong transaction.  The Companycan terminate the Hanlong transaction for a superior offer by paying Hanlong abreak fee in cash.

 

*Registration Rights*.  We haveagreed to register for sale the shares purchased by Hanlong at its request.

 

*Chinese Bank Loan*. Pursuant to the Purchase Agreement, Hanlong is obligated to use itscommercially reasonable efforts to procure the Term Loan in an amount of atleast $665 million with a term of at least 14 years after commercialproduction begins at the Mt. Hope Project.  The Term Loan is expectedto bear interest at a rate of LIBOR plus a spread of between 2% and 4% perannum.  The Purchase Agreement provides that the Term Loan will have customarycovenants and conditions; however, the terms of the Term Loan have not beennegotiated with the lender and we have no assurance as to the final terms ofthe Term Loan.  Hanlong or an affiliate is obligated to guarantee the BankLoan.  When funds can be drawn by the Company under the Term Loan, theCompany will pay a $15 million arrangement fee to Hanlong who will pay allfees and expenses associated with the Term Loan before the Term Loan Closing,including those charged by the Chinese bank.

 

**Bridge Loan**

 

Hanlong has also agreed toprovide a $20 million bridge loan (“Bridge Loan”) to the Company in twoequal $10 million tranches.  On April 28, 2010, we drew downTranche 1 in the amount of $10 million.  The second loan tranche becameavailable five business days after receipt of stockholder approval and issubject to the satisfaction of customary conditions.  The first tranche ofthe Bridge Loan bears interest at LIBOR plus 2% per annum.  The 

 

9

----

Table of Contents

 

second tranche of the BridgeLoan will bear interest at 10% per annum.  The Bridge Loan will be repaidfrom the proceeds of the Term Loan.  If Hanlong agrees, the second tranchemay also be repaid, at the Company’s election, in shares of the Company’scommon stock.  If paid in shares, the price would be the volume weightedaverage of the Company’s shares on the NYSE Amex for a five-day period afterpublic announcement of the event that required repayment.  The Company mayoffset its right to receive the break fee against its obligations to repayborrowings under the Bridge Loan.  If not sooner repaid, the Bridge Loanwill mature on the earliest of 120 days after the issuance of the ROD, the dateon which the Purchase Agreement terminates, and January 31, 2012. The Bridge Loan and our obligation to pay a break fee to Hanlong under thePurchase Agreement are secured by a pledge by us of a 10% interest in the LLC.

 

**Molybdenum Supply Agreement**

 

The Company signed amolybdenum supply agreement (“Supply Agreement”) with a Hanlong affiliate(referred to in this subsequent discussion as “Hanlong”), which will beeffective upon the later of the Tranche 2 closing, the Term Loan closing, orthe Company’s election not to enter into the Term Loan.  Until theexpiration of certain existing molybdenum supply agreements by which theCompany is currently bound (“Existing Supply Agreements”), Hanlong will berequired to purchase all the Company’s share of the Mt. Hope molybdenumproduction above that necessary for the Company to meet its existing supplycommitments.  After the expiration of the Existing Supply Agreements,until the original scheduled maturity date of the Term Loan, or if the Companyelects not to enter into the Term Loan, 14 years after commencement ofcommercial production from the Mt. Hope Mine, Hanlong must annually purchasethe greater of 16 million pounds and 70% of the Company’s share of Mt. Hopeproduction.  Following the original scheduled maturity date of the TermLoan, or if the Company elects not to enter into the Term Loan, 14 years aftercommencement of commercial production from the Mt. Hope Mine, Hanlong mustpurchase a percentage of the Company’s share of Mt. Hope production equal to2.5 times Hanlong’s fully-diluted percentage ownership of our commonstock.  Subject to certain exceptions, the Supply Agreement will terminateonce Hanlong’s fully-diluted percentage ownership of the Company falls below5%. As long as Hanlong continues to guarantee the Term Loan, the SupplyAgreement will not terminate even if Hanlong’s ownership falls below 5%. If the cause of Hanlong’s ownership falling below 5% is a change of control ofthe Company or a dilutive transaction in which Hanlong does not have the rightto participate, the Supply Agreement will not terminate and Hanlong will beobligated to continue to purchase a percentage of the Company’s share of Mt.Hope production equal to 2.5 times Hanlong’s fully-diluted percentage ownershipof the Company as it existed immediately prior to such change of control ordilutive transaction.  If the Company elects not to enter into the TermLoan, and the second loan tranche does not close, Hanlong’s obligation topurchase the Company’s share of Mt. Hope production in each of the periodsdescribed above will be half of the obligations described above.

 

Prices under the SupplyAgreement are at two levels.  Twenty-five percent of the productionHanlong receives will be sold at a fixed-floor price per pound subject toadjustment, which pricing is similar to floor-price protected contracts thatthe Company has in place with other large steel producers and metaltraders.  Those contracts have fixed-floor prices ranging from $12.50 to$13.50 per pound and incremental discounts above the floor price.  For theremaining 75% of the production Hanlong receives, it will pay spot prices formolybdenum, less a small discount.

 

The result of thetransaction will be that if the Company elects to enter into the Term Loan, orif the Tranche 2 closing occurs, all of Mt. Hope’s production will be committedfor the first five years of operation, approximately half of which will containfloor price protection to help support the Company’s ability to service itsdebt in periods of low metal prices.

 

Existing supply agreementscover the sales of 100% of the production of Mt. Hope for the first 5 years ofoperation with 50% of those sales being covered by floor price protection.  Over the following 9 years of operationHanlong is committed to purchase a minimum of 70% of production with 25% ofthat covered under floor price protection. ArcelorMittal has an option to commit up to 3 million pounds ofproduction from year 6 through year 15 of operation.  Hanlong has committed to take a percentage ofproduction which is 2.5 times their percentage ownership share of the Companyfor the life of the mine

 

10

----

Table of Contents

 

**Cash Conservation Plan**

 

The Company continues tooperate under a cash conservation plan implemented in March 2009 designedto reduce expenditures and conserve cash in order to maximize financialflexibility.  With our June 30,2010, consolidated cash balance of $22.9 million, we have the capacity tocontinue our current level of permitting efforts, maintain efforts to finalizeproject financing, and secure and hold critical long lead equipment for theultimate construction of the Mt. Hope project through the end of 2010.

 

The Company has purchaseorders for two types of equipment — milling process equipment and miningequipment.  Most equipment orders for thecustom-built grinding and other milling process equipment will be completed bythe manufacturers and stored.  Thegrinding and milling process equipment require the longest lead times andmaintaining these orders is critical to the Company’s ability to re-start thedevelopment of Mt. Hope rapidly. Fabrication of less critical equipment has been suspended with somemanufacturers.  The Company has completedfinal negotiations with other equipment manufacturers to suspend or terminatefabrication of other milling equipment and to determine the equipment fabricationcosts incurred to date, storage costs, and the expected timing of restartingfabrication.

 

Based on our current plan,we expect to make additional payments of approximately $1.2 million undermilling process equipment orders throughout the remaining two quarters of 2010,and $12.8 million in 2011.  As additionalfinancing becomes available and equipment procurement is restarted, agreementsthat were suspended or terminated will be renegotiated under new market termsand conditions, as necessary.  For thegyratory crusher, SAG and ball mills and related electric mill drives, and someother long-lead equipment, we will own the equipment upon final payments thathave occurred throughout 2009, during 2010, and into early 2011.  This strategy will allow for a rapid restartof the Mt. Hope Project development upon BLM approval for publication of theDEIS, which will initiate the restart of engineering.

 

Some orders for miningequipment have been cancelled, and discussions with the remaining suppliers toeither cancel or suspend existing agreements are complete.  The lead times and costs associated with manyof these items have shortened.  Oncefinancing becomes available, the Company anticipates placing orders for this miningequipment.  The Company will continue toevaluate all options to facilitate a rapid re-start of the project development.

 

The cash conservation planhas reduced our total cash utilization for general administration and overheadto approximately $1 million per month, inclusive of maintenance costs at theLiberty Property.  Engineering efforts,approximately 60% complete, were largely suspended in the second quarter of2009, and will resume pending the BLM approval of the DEIS.  Some engineering that is critical forpermitting or project restart readiness has continued at a slower pace.

 

**NOTE 3 — SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

The interim consolidatedfinancial statements of the Company are unaudited.  In the opinion of management, all adjustmentsand disclosures necessary for a fair presentation of these interim statementshave been included.  All such adjustmentsare, in the opinion of management, of a normal recurring nature except for theadoption of the new accounting standards discussed below.  The results reported in these interimconsolidated financial statements are not necessarily indicative of the resultsthat may be reported for the entire year. These interim consolidated financial statements should be read inconjunction with the consolidated financial statements included in our AnnualReport on Form 10-K for the year ended December 31, 2009, filed withthe SEC on March 5, 2010.

 

This summary of significantaccounting policies is presented to assist in understanding the consolidatedfinancial statements.  The financialstatements and notes are representations of the Company’s management, which isresponsible for their integrity and objectivity.  These accounting policies conform toaccounting principles generally accepted in the United States of America (“GAAP”)and have been consistently applied in the preparation of the consolidatedfinancial statements.

 

11

----

Table ofContents

 

**Accounting Method**

 

Our interim consolidatedfinancial statements are prepared using the accrual basis of accounting inaccordance with GAAP.  With the exceptionof the LLC, all of our subsidiaries are wholly owned.  In February 2008, we entered into theagreement which established our ownership interest in the LLC at 80%.  At June 30, 2010, the interimconsolidated financial statements include the results of our wholly ownedsubsidiaries and the LLC.  ThePOS-Minerals contributions attributable to their 20% interest are shown as Contingently Redeemable NoncontrollingInterest on the Consolidated Balance Sheet.  For the quarter ended June 30, 2010, theLLC had no net operating expenses and therefore the Consolidated Statements ofOperations reflects no net loss attributable to contingently redeemablenoncontrolling interest for that period.

 

**Reclassification of Prior PeriodAmounts**

 

Certain prior period amountshave been reclassified to conform to the current period presentation.

 

**Contingently Redeemable Noncontrolling Interest**

 

On January 1, 2009, weadopted Financial Accounting Standards Board (“FASB”) issued authoritativeguidance related to Noncontrolling Interests in Consolidated FinancialStatements, the provisions of which, among others, require the recognition of anoncontrolling interest (previously referred to as minority interest), as acomponent of equity in the consolidated financial statements and separate fromthe parent’s equity for all periods presented. In addition, the amount ofconsolidated net income or loss attributable to the noncontrolling interest isincluded in net income or loss on the face of the consolidated statement ofoperations.    Under GAAP, certain noncontrolling interests inconsolidated entities meet the definition of mandatorily redeemable financialinstruments if the ability to redeem the interest is outside of the control ofthe consolidating entity.  As described in the ‘Description of Business’and in Note 1, the LLC Agreement permits POS-Minerals the option to put itsinterest in the LLC to Nevada Moly upon a change of control, as defined in theLLC Agreement, followed by (i) failure to begin full construction at theLLC by the Company or the surviving entity before December 31, 2010, or(ii) failure to use standard mining industry practice in connection withdevelopment and operation of the project as contemplated by the parties for aperiod of twelve months after December 31, 2010.  As such, thecontingently redeemable noncontrolling interest has continued to be shown as aseparate caption between liabilities and equity (mezzanine section).  Thecarrying value of the contingently redeemable noncontrolling interest reflectsthe investment of the noncontrolling interest, less losses attributable to theinterest.

 

**Estimates**

 

The process of preparingconsolidated financial statements requires the use of estimates and assumptionsregarding certain types of assets, liabilities, revenues, and expenses.  Such estimates primarily relate to unsettledtransactions and events as of the date of the consolidated financialstatements.  Accordingly, uponsettlement, actual results may differ from estimated amounts.

 

**Cash and Cash Equivalents**

 

We consider all highlyliquid investments with original maturities of three months or less to be cashequivalents. The Company’s cash equivalent instruments are classified withinLevel 1 of the fair value hierarchy established by FASB guidance for Fair ValueMeasurements because they are valued based on quoted market prices in activemarkets.  These cash instruments included $18.0 million in U.S. Governmentsecurities at June 30, 2010.

 

**Exploration and Development Stage Activities**

 

We were in the explorationstage from January 2002 until October 4, 2007.  On October 4, 2007, our Board approvedthe development 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 of theLiberty Property until we enter the production stage of the Mt. Hope Project.

 

12

----

Table ofContents

 

**Basic and Diluted Consolidated Net Loss Per Share**

 

Net loss per share wascomputed by dividing the net loss attributable to General Moly, Inc. bythe weighted average number of shares outstanding during the period.   The weighted average number of shares wascalculated by taking the number of shares outstanding and weighting them by theamount of time that they were outstanding. Outstanding warrants to purchase 7,455,434 and 7,455,434 shares ofcommon stock, options to purchase 2,743,323 and 3,377,156 shares of commonstock, and unvested stock awards totaling 222,074 and 175,000 at June 30,2010 and 2009, respectively, and 614,719 and 533,620 shares under Stock Appreciation Rights (“SARs”) at June 30,2010 and 2009, were not included in the computation of diluted loss per sharefor the three and six months ended June 30, 2010 and 2009, respectively,because to do so would have been antidilutive. Therefore, basic loss per share is the same as diluted loss per share.

 

**Mineral Exploration and Development Costs**

 

All exploration expendituresare expensed as incurred.  Significantproperty acquisition payments for active exploration properties arecapitalized.  If no economic ore body isdiscovered, previously capitalized costs are expensed in the period theproperty is abandoned.  Expenditures todevelop new mines, to define further mineralization in existing ore bodies, andto expand the capacity of operating mines, are capitalized and amortized on aunits-of-production basis over proven and probable reserves.

 

Should a property beabandoned, 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**

 

Costs of acquiring anddeveloping mining properties, land and water rights are capitalized asappropriate by project area.  Explorationand related costs and costs to maintain mining properties, land and waterrights are expensed as incurred while the property is in the exploration andevaluation stage.  Development andrelated costs and costs to maintain mining properties, land and water rightsare capitalized as incurred while the property is in the developmentstage.  When a property reaches theproduction stage, the related capitalized costs are amortized using theunits-of-production basis over proven and probable reserves.  Mining properties, land and water rights areperiodically assessed for impairment of value, and any subsequent losses arecharged 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.

 

**Depreciation and Amortization**

 

Property and equipment arerecorded at cost and depreciated using the straight-line method over theestimated useful lives of the assets. Property and equipment are depreciatedusing the following estimated useful lives: field equipment — five to sevenyears; office furniture, fixtures, and equipment — five to seven years;vehicles — three to five years; leasehold improvements — three years;residential trailers — ten to twenty years; and buildings and improvements —ten years.  At June 30, 2010, and2009, accumulated depreciation and amortization was $0.8 million and $0.5million, respectively, of which $0.6 million and $0.3 million, respectively,was capitalized.

 

**Provision for Taxes**

 

Income taxes are providedbased upon the liability method of accounting. 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.  In accordance with authoritative guidance for*Income Taxes*, a valuation allowance isrecorded against the deferred tax asset if management does not believe theCompany has met the “more likely than not” standard to allow recognition ofsuch an asset.

 

13

----

Table ofContents

 

**Reclamation and Remediation**

 

Expenditures for ongoingcompliance with environmental regulations that relate to current operations areexpensed or capitalized as appropriate. Expenditures resulting from the remediation of existing conditionscaused by past operations that do not contribute to future revenue generationsare expensed.  Liabilities are recognizedwhen environmental assessments indicate that remediation efforts are probableand the costs can be reasonably estimated.

 

Estimates of suchliabilities are based upon currently available facts, existing technology andpresently enacted laws and regulations taking into consideration the likelyeffects of inflation and other societal and economic factors, and includeestimates of associated legal costs. These amounts also reflect prior experience in remediating contaminatedsites, other companies’ clean-up experience and data released by TheEnvironmental Protection Agency or other organizations.  Such estimates are by their nature impreciseand can be expected to be revised over time because of changes in governmentregulations, operations, technology and inflation.  Recoveries are evaluated separately from theliability. When recovery is assured, the Company records and reports an assetseparately from the associated liability.

 

**Stock-based Compensation**

 

Stock-based compensationrepresents the fair value related to stock-based awards granted to members ofthe Board, consultants, officers and employees.  The Company uses theBlack-Scholes model to determine the fair value of stock-based awards underauthoritative guidance for *Stock-BasedCompensation*.  For stock-based compensation that is earned uponthe satisfaction of a service condition, the cost is recognized on astraight-line basis (net of estimated forfeitures) over the requisite vestingperiod (up to three years).  Awards expire five years from the date ofvesting.  Further information regardingstock-based compensation can be found in Note 7 — “Equity Incentives.”

 

**Comprehensive Loss**

 

For the three and six monthsended June 30, 2010, and 2009, the Company’s comprehensive loss was equalto the respective consolidated net losses for the periods presented.

 

**Recently Issued AccountingPronouncements**

 

**Consolidation(Topic 810):  Accounting and Reportingfor Decreases in Ownership of a Subsidiary — a Scope******Clarification**

 

In January 2010, theFASB issued Accounting Standards Update (ASU) 2010-02, Consolidation (ASC 810):Accounting and Reporting for Decreases in Ownership of a Subsidiary. Thisamendment to ASC 810 clarifies, but does not change, the scope of current USGAAP. It clarifies the decrease in ownership provisions of ASC 810-10 andremoves the potential conflict between guidance in that ASC and assetderecognition and gain or loss recognition guidance that may exist in other USGAAP. An entity will be required to follow the amended guidance beginning inthe period that it first adopts FAS 160 (now included in ASC 810-10). For thoseentities that have already adopted FAS 160, the amendments are effective at thebeginning of the first interim or annual reporting period ending on or after December 15,2009. The amendments should be applied retrospectively to the first period thatan entity adopts FAS 160. The adoption of ASU 2010-02 has had no materialeffect on the Company’s financial condition, results of operation, or cashflows.

 

**Fair Value Measurements and Disclosures (Topic820):  Improving Disclosures about FairValue Measurements**

 

In January 2010, theFASB issued Update No. 2010-06. Reportingentities will have to provide information about movements of assets amongLevels 1 and 2 of the three-tier fair value hierarchy established by SFAS No. 157,*Fair Value Measurements* (FASB ASC820). Also, a reconciliation of purchases, sales, issuance, and settlements ofanything valued with a Level 3 method is required.  Disclosure regarding fair value measurementsfor each class of assets and liabilities will be required. The guidance iseffective for our first annual reporting period beginning after 

 

14

----

Table of Contents

 

December 15, 2009, andfor interim periods within that annual period. We do not expect this adoption to have a material impact on ourconsolidated financial statements.

 

**Subsequent Events (Topic 855):  Amendments to Certain Recognition andDisclosure Requirements**

 

In February 2010, theFASB issued Update No. 2010-09, *Subsequent Events (Topic855): Amendments to Certain Recognition and Disclosure Requirements*.These amendments eliminate contradictions between the requirements of U.S. GAAPand the SEC’s filing rules. The amendments also discharge the requirement thatpublic companies disclose the date of their financial statements in both issuedand revised financial statements.  We donot expect this adoption to have a material impact on our consolidatedfinancial statements.

 

**NOTE 4 — MINING PROPERTIES, LANDAND WATER RIGHTS**

 

We currently have interestsin two mining properties that are the primary focus of our operations.  The Mt. Hope Project is currently in thedevelopment stage and the Liberty Property is in the exploration and evaluationstage.  The following is a summary ofmining properties, land and water rights at June 30, 2010, and December 31,2009 (dollars in thousands):

 
| **(Dollars in thousands)**      | ** ** | **At June 30,  2010** | ** ** | **At  December 31,  2009** | ** ** |
|---------------------------------|------------|----------------------------|------------|---------------------------------|------------|
| Mt.  Hope Project:              |       |                       |       |                            |       |
| Development  costs              |       | $                          | 82,779     |                            | $          | 76,985 |   |
| Mineral,  land and water rights |       | 10,253                     |       | 10,253                          |       |
| Advance  Royalties              |       | 3,300                      |       | 3,300                           |       |
| Total  Mt. Hope Project         |       | 96,332                     |       | 90,538                          |       |
| Total  Liberty Property         |       | 9,756                      |       | 9,763                           |       |
| Other  Properties               |       | 889                        |       | 889                             |       |
| Total                           |       | $                          | 106,977    |                            | $          | 101,190 |   |

 

On June 26, 2009, theCompany and Josephine Mining Corp. (“JMC”), a privately-owned Canadian companywhose president is a related party to one of the Company’s Board members,entered into an Option to Purchase Agreement for the Company’s Turner Goldproperty, a multi-metallic property located in Josephine County, Oregon.  The Company acquired the property in2004.  JMC paid $0.1 million uponentering into the agreement, which allows JMC certain exploratory rights throughthe option period.  Each option isnon-refundable.  The $0.1 million hasbeen recorded as a deferred gain pending completion of the purchase.  An additional $0.3 million installmentpayment is due December 26, 2010, and the final installment payment of$1.6 million is due on or before December 26, 2011.  Each installment payment under the Option toPurchase Agreement is optional, but is non-refundable once made.  If JMC makes all three of the installmentpayments, ownership of the Turner Gold property will transfer to JMC upon thefinal payment.  The Company has alsoretained a Production Royalty of 1.5% of all net smelter returns on futureproduction from the property.

 

On March 8, 2010, theCompany and Ascot USA, Inc. (“Ascot”), a Washington corporation, enteredinto an Option to Purchase Agreement for the Company’s Margaret property, anundivided 50% interest in the reserved mineral rights and all of the Company’sinterest in the 105 unpatented mining claims comprising the Red BonanzaProperty, situated in the St. Helens Mining District, Skamania County,Washington.  The Company acquired theproperty in September of 2004. Ascot paid $0.1 million upon entering into the agreement, which allowsAscot certain exploratory rights through the option period.  Each option is non-refundable.  The $0.1 million has been recorded as adeferred gain pending completion of the purchase.  An additional $0.3 million installmentpayment is due June 8, 2011, and the final installment payment of $1.6million is due on or before June 8, 2012. Each installment payment under the Option to Purchase Agreement isoptional, but is non-refundable once made. If Ascot makes all three of the installment payments, ownership of theMargaret property will transfer to Ascot upon the final payment.  The Company has also retained a ProductionRoyalty of 1.5% of all net smelter returns on future production from theproperty.

 

15

----

Table ofContents

 

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

 

During the three and sixmonths ended June 30, 2010, we issued zero and 163,648 shares of common stock,respectively, pursuant to stock awards under the 2006 Equity Incentive Plan.

 

At June 30, 2010, we hadwarrants outstanding totaling 7,455,434, of which 6,455,434 are exercisable at$3.75 per warrant and expire in February 2011 and 1,000,000 are exercisable at$5.00 per share once General Moly has received financing necessary for thecommencement of commercial production at the Mt. Hope Project and will expireone year afterwards.

 

CoghillCapital Management and its affiliates (“Coghill”), a significant stockholder inthe Company, provided substantial assistance to the Company with the signing ofthe Consent and Waiver Agreement and the Extension Agreement withArcelorMittal.  In recognition of thatsupport, on April 16, 2010, the Company amended and restated warrants issued toCoghill to purchase one million shares of the Company’s common stock issued inconnection with the November 2007 private placement and original molybdenumsupply agreement with ArcelorMittal to reduce the price of the warrants from$10.00 per share to $5.00 per share.  Theincremental cost of the reissued warrants is $0.6 million, which is recorded asexpense in the second quarter of 2010. The warrants remain exercisable once the Company has received financingnecessary for the commencement of commercial production at the Mt. Hope projectand will expire one year thereafter.  Itwill also become exercisable in the event of certain corporate reorganizations.

 

Pursuant to our Certificateof Incorporation, we are authorized to issue 200,000,000 shares of $0.001par value common stock.  All shareshave equal voting rights, are non-assessable and have one vote per share.  Voting rights are not cumulative andtherefore, the holders of more than 50% of the common stock represented at themeeting of the stockholders could, if they choose to do so, elect all of thedirectors of the Company.

 

**NOTE 6 — PREFERRED STOCK**

 

Pursuant to our Certificateof Incorporation we are authorized to issue 10,000,000 shares of $0.001per share par value preferred stock.  Theauthorized but unissued shares of preferred stock may be issued indesignated series from time to time by one or more resolutions adopted by theBoard.  The directors have the power todetermine the preferences, limitations and relative rights of each series ofpreferred stock.  At June 30, 2010, and2009, no shares of preferred stock were issued or outstanding.  On March 5, 2010, the Board adopted a stockholderrights plan.  Under the plan, each commonstockholder of the Company at the close of business on March 5, 2010 received adividend of one right for each share of the Company’s common stock held ofrecord on that date.  Each right entitlesthe holder to purchase from the Company, in certain circumstances, oneone-thousandth of a share of newly-created Series A junior participatingpreferred stock of the Company for an initial purchase price of $15.00 pershare.

 

Subject to certainexceptions, if any person becomes the beneficial owner of 20% or more of theCompany’s common stock, each right will entitle the holder, other than theacquiring person, to purchase Company common stock or common stock of theacquiring person having a value of twice the exercise price.   In addition, if there is a businesscombination between the Company and the acquiring person, or in certain othercircumstances, each right that is not previously exercised will entitle theholder (other than the acquiring person) to purchase shares of common stock (oran equivalent equity interest) of the acquiring person at one-half the marketprice of those shares.

 

**NOTE 7 — EQUITY INCENTIVES**

 

In 2006, the Board andshareholders of the Company approved the 2006 Equity Incentive Plan (“2006 Plan”)that replaced the 2003 Equity Incentive Plan (“2003 Plan”).  In May 2010, our shareholders approved anamendment to the 2006 Plan increasing the amount of shares that may be issuedunder the plan by 4,500,000 shares to 9,600,000 shares.  These additional shares are not consideredavailable for issuance as of June 30, 2010 as they have not yet been listedwith the NYSE Amex.  The 2006 Plan, asamended and restated, authorizes the Board, or a committee of the Board, toissue or transfer up to an aggregate of 10,030,000 shares of common stock (9,600,000shares plus 430,000 shares carried over from the 2003 Plan, of which 637,442remain available for issuance).  Awardsunder the 2006 Plan, as amended and restated, may include incentive stockoptions, non-statutory stock options, restricted 

 

16

----

Table of Contents

 

stock units, restrictedstock awards, and SARs.  At the option ofthe Board, SARs may be settled with cash, shares, or a combination of cash andshares.  The Company settles the exerciseof other stock-based compensation with common shares.

 

Stock-based compensationcost is estimated at the grant date based on the award’s fair value ascalculated by the Black-Scholes option pricing model and is recognized ascompensation ratably on a straight-line basis over the requisitevesting/service period.  As of June 30,2010, there was $1.2 million of total unrecognized compensation cost related toshare-based compensation arrangements, which is expected to be recognized overa weighted-average period of 1.6 years.

 

**Stock Options and SARs**

 

All stock options and SARsare approved prior to or on the date of grant. Stock options and SARs are granted at an exercise price equal to orgreater than the Company’s stock price on the date of grant.  Both award types vest over a period of zeroto three years with a contractual term of five years after vesting.  The Company estimates the fair value of stockoptions and SARs using the Black-Scholes valuation model.  Key inputs and assumptions used to estimatethe fair value of stock options and SARs include the grant price of the award,expected option term, volatility of the Company’s stock, the risk-free interestrate and the Company’s dividend yield. The following table presents the weighted-average assumptions used inthe valuation and the resulting weighted-average fair value per option or SARgranted:

 

**StockOption and SAR Valuation Assumptions**

 
| Expected  Life *                                                                                  |   | 3.5  to 5.5 years |   |
|---------------------------------------------------------------------------------------------------|--------|-------------------|--------|
| Interest  Rate                                                                                    |   | 0.  6% to 5.1%    |   |
| Volatility  **                                                                                    |   | 82.0%  to 100.4%  |   |
| Dividend  Yields                                                                                  |   | —            |   |
| Weighted  Average Fair Value of Stock Options Granted During the Six Months Ending June  30, 2010 |   | None              |   |
| Weighted Average Fair Value of SARs Granted During the Six Months  ended June 30, 2010            |   | $2.94             |   |

 

----

*                    The expected life is thenumber of years that the Company estimates, based upon history, that options orSARs will be outstanding prior to exercise or forfeiture.

**          The Company’sestimates of expected volatility are principally based on the historicvolatility of the Company’s common stock over the most recent periodcommensurate with the estimated expected life of the Company’s stock options orSARs and other relevant factors.

 

At June 30, 2010, theaggregate intrinsic value of outstanding and exercisable (fully vested) optionsand SARs was $0.7 million and had a weighted-average remaining contractual termof 2 years.  The total intrinsic value ofoptions exercised during the six months ended June 30, 2010 was nil.

 

**Restricted Stock Units and Stock Awards**

 

Grants of restricted stockunits and stock awards (“Stock Awards”) have been made to Board members,officers, and employees.  Stock Awardshave been granted as performance based, earned over a required service periodor to Board members and the Company Secretary without any servicerequirement.  Incentive based grants forofficers and employees generally vest and stock is received without restrictionto the extent of one-third of the grant for each year following the date of grant.  Also, incentive based grants were offered tocertain employees in connection with the cash conservation plan and vestJanuary 1, 2011.  Performance basedgrants are recognized as compensation based on the probable outcome ofachieving the performance condition. Past compensation for Stock Awards issued to members of the Board thatvested over time were recognized over the vesting period of one to twoyears.  Stock 

 

17

----

Table of Contents

 

Awards issued to Boardmembers and the Company Secretary that are fully vested at the time of issueare recognized as compensation upon grant of the award.

 

The compensation expenserecognized by the Company for Stock Awards is based on the closing market priceof the Company’s common stock on the date of grant.  For the six months ended June 30, 2010, theweighted-average grant-date fair value for Stock Awards was $2.38.

 

**Summary of Equity Incentive Awards**

 

The following table summarizesactivity under the Plans during the six months ended June 30, 2010:

 
| ** **                    | ** ** | **Stock Options**                      | ** ** | **SARs**                           | ** ** | **Stock Awards**                     | ** ** |
|-------------------------------|------------|----------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|
| ** **                    | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number of Shares  Under Option** | ** ** | **Weighted  Average  Strike  Price** | ** ** | **Number  of Shares  Under  Option** | ** ** | **Weighted  Average  Grant  Price** | ** ** | **Number of  Shares** | ** ** |
| Balance  at January 1, 2010   |       | $                                      | 5.53       |                               | 3,071,656  |                                 | $          | 1.55 |   | 528,006 |   | $ | 4.36 |   | 678,135 |   |
| Awards  Granted               |       | —                                 |       | —                             |       | 4.22                                 |       | 93,830 |   | 2.38 |   | 122,290 |   |
| Awards  Exercised or Earned   |       | 2.78                                   |       | (20,000                            | )          | —                               |       | — |   | 4.19 |   | (150,315 | ) |
| Awards  Forfeited             |       | 11.45                                  |       | (26,667                            | )          | 4.35                                 |       | (7,117 | ) | 2.44 |   | (2,910 | ) |
| Awards  Expired               |       | 7.03                                   |       | (281,666                           | )          | —                               |       | — |   | 2.31 |   | (5,000 | ) |
| Balance  at June 30, 2010     |       | $                                      | 5.34       |                               | 2,743,323  |                                 | $          | 1.92 |   | 614,719 |   | $ | 4.28 |   | 642,200 |   |
|                          |       |                                   |       |                               |       |                                 |       |   |   |   |   |   |   |
| Exercisable  at June 30, 2010 |       | $                                      | 5.10       |                               | 2,431,658  |                                 | $          | 1.55 |   | 176,347 |   |   |   | — |   |

 

**Summary of compensation cost recognized and capitalizedrelated to equity incentives**

 
| **Summary of  Compensation Cost Recognized and  Capitalized related to Equity Incentives for the Six  Months Ended June 30 (Dollars in thousands):** | ** ** | **2010** | ** **                  | **2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|-----------------------------|----------|------------|
| Stock  Options                                                                                                                                       |       | $        |      17 |     | $          |     928 |   |
| SARs                                                                                                                                                 |       | 375      |                        | 223      |       |
| Forfeitures  related to the restructuring                                                                                                            |       | —   |                        | (567     | )          |
| Stock  Awards:                                                                                                                                       |       |     |                        |     |       |
| Vesting  over time                                                                                                                                   |       | 393      |                        | 123      |       |
| Board  of Directors                                                                                                                                  |       | 292      |                        | 455      |       |
| Total                                                                                                                                                |       | $        | 1,077                       |     | $          | 1,162 |   |
| Included  in:                                                                                                                                        |       |     |                        |     |       |
| Capitalized  as Development                                                                                                                          |       | 471      |                        | 358      |       |
| Expensed                                                                                                                                             |       | 606      |                        | 804      |       |
|                                                                                                                                                 |       | $        | 1,077                       |     | $          | 1,162 |   |

 

**Taxes**

 

A portion of the Company’sgranted options are intended to qualify as incentive stock options (“ISO”) forincome tax purposes.  As such, a taxbenefit is not recorded at the time the compensation cost related to theoptions is recorded for book purposes due to the fact that an ISO does notordinarily result in a tax benefit unless there is a disqualifyingdisposition.  Stock option grants ofnon-qualified options result in the creation of a deferred tax asset, which isa temporary difference, until the time that the option is exercised.

 

18

----

Table ofContents

 

**NOTE 8 — CHANGES IN EQUITY**

 
| ** **                                                | ** ** | **Activity  for  Six Months Ended** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------|------------|
| **Changes in Equity (Dollars in  thousands)**             | ** ** | **June  30,  2010**                 | ** ** | **June  30,  2009** | ** ** |
| Total  Equity December 31, 2009, & 2008, respectively |       | $                                   | 104,920    |   | $ | 113,048 |   |
| Common  stock:                                            |       |                                |       |   |   |
| At  beginning of period                                   |       | 72                                  |       | 72 |   |
| Stock  Awards                                             |       | 1                                   |       | — |   |
| At  end of period                                         |       | 73                                  |       | 72 |   |
|                                                      |       |                                |       |   |   |
| Additional  paid-in capital:                              |       |                                |       |   |   |
| At  beginning of period                                   |       | 187,290                             |       | 185,179 |   |
| Awards  exercised                                         |       | 55                                  |       | 63 |   |
| Warrant  Repricing                                        |       | 585                                 |       | — |   |
| Stock  based compensation                                 |       | 948                                 |       | 616 |   |
| At  end of period                                         |       | 188,878                             |       | 185,858 |   |
| Accumulated  deficit:                                     |       |                                |       |   |   |
| At  beginning of period                                   |       | (82,442                             | )          | (72,203 | ) |
| Net  loss                                                 |       | (6,046                              | )          | (5,754 | ) |
| At  end of period                                         |       | (88,488                             | )          | (77,957 | ) |
|                                                      |       |                                |       |   |   |
| Total  Equity June 30, 2010, & 2009, respectively     |       | $                                   | 100,463    |   | $ | 107,973 |   |

 

**NOTE 9 — INCOME TAXES**

 

At June 30, 2010, andDecember 31, 2009, we had deferred tax assets principally arising from the netoperating loss carry forwards for income tax purposes multiplied by an expectedrate of 35%.  As management of the Companycannot determine that it is more likely than not that we will realize thebenefit of the deferred tax assets, a valuation allowance equal to the netdeferred tax asset has been established at June 30, 2010, and December 31,2009.  The significant components of thedeferred tax asset at June 30, 2010, and December 31, 2009, were as follows (inthousands):

 

**DeferredTax Asset Valuation**

 
| **(Dollars in thousands)**                        | ** ** | **June  30,  2010** | ** ** | **December 31,  2009** | ** ** |
|---------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|
| Operating  loss carry forward                     |       | $                   | 101,408    |                        | $          | 92,086 |   |
| Unamortized  exploration expense                  |       | 12,058              |       | 10,899                      |       |
| Fixed  asset depreciation                         |       | 85                  |       | (105                        | )          |
| Deductible  stock based compensation              |       | 1,587               |       | 902                         |       |
| Deductible  temporary difference                  |       | $                   | 115,138    |                        | $          | 103,782 |   |
| Taxable  temporary difference - development costs |       | (37,812             | )          | (32,502                     | )          |
| Net  deductible temporary difference              |       | $                   | 77,326     |                        | $          | 71,280 |   |
| Deferred  tax asset                               |       | $                   | 27,064     |                        | $          | 24,948 |   |
| Deferred  tax asset valuation allowance           |       | $                   | (27,064    | )                           | $          | (24,948 | ) |
| Net  deferred tax asset                           |       | $                   | —     |                        | $          | — |   |

 

19

----

Table ofContents

 

At June 30, 2010, andDecember 31, 2009, we had net operating loss carry forwards of approximately$101.4 million and $92.1 million, respectively, which expire in the years2023 through 2030.  The change in theallowance account from December 31, 2009, to June 30, 2010, was$2.1 million.

 

**NOTE 10—COMMITMENTS ANDCONTINGENCIES**

 

**Mt. Hope Project**

 

The Mt. Hope Lease may beterminated upon the expiration of its 30-year term, earlier at the election ofthe LLC, or upon a material breach of the agreement and failure to cure suchbreach.  If the LLC terminates the lease,termination is effective 30 days after receipt by Mount Hope Mines, Inc. (“MHMI”)of written notice to terminate the Mt. Hope Lease and no further payments wouldbe due to MHMI.  In order to maintain thelease, the LLC must pay certain deferral fees and advance royalties asdiscussed below.

 

The Mt. Hope Lease Agreementrequires a royalty advance (“Construction Royalty Advance”) of 3% of certainconstruction capital costs, as defined in the Mt. Hope Lease.  The LLC is obligated to pay a portion of theConstruction Royalty Advance each time capital is raised for the Mt. HopeProject based on 3% of the expected capital to be used for those certain constructioncapital costs defined in the lease. Through June 30, 2010, we have paid $3.3 million of the totalConstruction Royalty Advance.  Based onour Project Capital Estimate we estimate that $22.2 million remains unpaidrelated to the Construction Royalty Advance. Based on the current estimate of raising capital and developing andoperating the mine, we believe that $1.2 million of the LLC’s remainingConstruction Royalty Advance will be paid in 2010, and the remaining $21million will be paid in 2011, however, as discussed above, this would only bepaid if Hanlong financing becomes available. In the event there are any remaining unpaid Construction Royalty Advanceamounts on October 19, 2011, due to a delay in achieving expected projectfinancing, the remainder must be paid 50% on October 19, 2011, and 50% onOctober 19, 2012.

 

Once the ConstructionRoyalty Advance has been paid in full, the LLC is obligated to pay an advanceroyalty (“Annual Advance Royalty”) each October 19 thereafter in theamount of $0.5 million per year.  TheConstruction Royalty Advance and the Annual Advance Royalty are collectivelyreferred to as the “Advance Royalties.” All Advance Royalties are credited against the MHMI Production Royalties(as hereinafter defined) once the mine has achieved commercial production.  After the mine begins production, the LLCestimates that the Production Royalties will be in excess of the Annual AdvanceRoyalties for the life of the project and, further, the Construction RoyaltyAdvance will be fully recovered (credited against MHMI Production Royalties) bythe end of 2014.

 

**Deposits on project property, plant and equipment**

 

At June 30, 2010, we havecontracts to purchase mining equipment comprised of two electric shovels andhave cancelled orders for mine drills and loaders.  We have a non-binding letter of agreement on24 haul trucks that establishes our priority for delivery and provides for thethen current pricing using market indices upon initiation of an order.  We have active orders with varying stages offabrication on milling process equipment comprised of two 230kV primarytransformers and substation, a primary crusher, a semi-autogenous mill, twoball mills, and various motors for the mills. The Company has taken receipt of certain of these assets that are fullyfabricated in storage facilities at its Liberty Property, including the millmotors.  We have suspended fabrication on16 flotation cells, lime slaking equipment, hydrocyclones, and other smallermilling process equipment with the ability to re-initiate fabrication at anytime.  We have completed negotiationswith the manufacturer of two multi-hearth molybdenum roasters to terminate itsfabrication of this equipment and receive fully-fabricated components of theorder.  We plan to re-establish a newpurchase order with this manufacturer as additional financing is finalized andequipment procurement is restarted under the current market terms andconditions.

 

20

----

Table ofContents

 

The following table setsforth cash commitments under mining and milling equipment contracts(collectively, “Purchase Contracts”) for the LLC at June 30, 2010 (inmillions):

 
| **Year  (Dollars in millions)** | ** ** | **As of  June 30, 2010** | ** ** |
|-------------------------------------------|------------|-----------------------------------------|------------|
| 2010  – Remainder                    |       | $                                       | 1.2        |   |
| 2011                                      |       | 21.1                                    |       |
| 2012                                      |       | 21.1                                    |       |
| 2013                                      |       | 2.4                                     |       |
| 2014                                      |       | —                                  |       |
| Total                                     |       | $                                       | 45.8       |   |

 

**Obligations under capital and operating leases**

 

We have contractualobligations under capital and operating leases that will require a total of$1.0 million in payments over the next four years.  Our expected payments are $0.3 million, $0.4million, $0.2 million and $0.1 million for the years ended December 31, 2010,2011, 2012 and 2013, respectively.

 

**Environmental Considerations**

 

Our mineral propertyholdings in Shoshone County, Idaho include lands contained in mining districtsthat have been designated as “Superfund” sites pursuant to the ComprehensiveEnvironmental Response, Compensation, and Liability Act.  This “Superfund Site” was established toinvestigate and remediate primarily the Bunker Hill properties of Smelterville,Idaho, a small portion of Shoshone County where a large smelter waslocated.  However, because of the extentof environmental impact caused by the historical mining in the mining district,the Superfund Site covers the majority of Shoshone County including ourChicago-London and Little Pine Creek properties (which are distant from theoriginal smelter location) as well as many small towns located in NorthernIdaho.  We have conducted a propertyenvironmental investigation of these properties which revealed no evidence ofmaterial adverse environmental effects at either property.  We are unaware of any pending action orproceeding relating to any regulatory matters that would affect our financialposition due to these inactive mining claims in Shoshone County.

 

**NOTE 11 — SUBSEQUENT EVENTS**

 

**Costs Associated with relinquished land lease**

 

On July 6, 2010, following avote of the Eureka County Board of Commissioners (“the Commissioners”) at anopen public meeting on that date, the Commissioners signed documents torelinquish a land lease held by the LLC in Eureka County, Nevada (the “County”).  The LLC thus terminated the landlease held in the County. The termination was predicated on a vote of theCommissioners, which was other than perfunctory and could not be consideredfinal until the Commissioners voted in a public meeting. The Commissionersstrictly follow the Nevada Open Meetings Law that requires all decisions bemade in public meetings which are properly noticed and convened.

 

The LLC had planned todevelop housing on the lease after receipt of the ROD in mid-2011.  The relinquishment will make the landavailable for more rapid housing development by the Nevada Rural HousingAuthority and the County.  The LLC hadinvested approximately $5.0 million in preliminary development costs for theproperty covered by the relinquished lease. As a result of the relinquishment, the Company expects to incur a chargeof $4.0 million in the third quarter of 2010, reflecting its 80% portion of therelinquished lease.  In turn, the Countywill return a $0.1 million deposit to the Company.

 

21

----

Table ofContents

 

**Hanlong financing update**

 

Hanlong and the Companycontinue to work toward achievement of Tranche 1 Conditions.  The Company received overwhelming supportfrom stockholders at the Company’s Annual General Meeting and is continuing toprogress toward publication of the Draft EIS. Hanlong, along with support from General Moly, is continuing work towardreceiving the Chinese Government approvals for the investment. On July 29,Hanlong received the third and final signature required for Sichuan ProvincialNational Development and Reform Commission (NDRC) approval and Hanlong hasadvanced the approval to NDRC’s Beijing headquarters.  Once the national NDRC approves thetransaction, Hanlong will pursue approvals from the Ministry of Commerce andthe State Administration for Foreign Exchange (SAFE).

 

Under the terms of theagreement, Hanlong is required to obtain government approvals for theinvestment within three months of stockholder approval, or August 13,2010.  Based on discussions with Hanlong,it was determined that it is highly unlikely that all of the Chinese Governmentapprovals will be fully obtained by this deadline.  Therefore, on July 30, the Company executedan amendment to the Hanlong agreement extending the deadline for obtaininggovernment approvals by two months to October 13, 2010.  In consideration for the extension, theamendment also extends the Company’s deadlines for publishing its DraftEnvironmental Impact Statement (DEIS) and receiving its Record of Decision(ROD) by two months, to February 28, 2011 and November 30, 2011, respectively,although the Company currently does not anticipate utilizing the additionaltime permitted for the publication of the DEIS or receipt of the ROD.

 

**ITEM 2.****                 ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

References made in thisQuarterly Report on Form 10-Q to “we,” “our,” “us,” or the “Company,” refer toGeneral Moly, Inc.

 

The following discussion andanalysis of our financial condition and results of operations constitutesmanagement’s review of the factors that affected our financial and operatingperformance for the six months ended June 30, 2010, and 2009.  This discussion should be read in conjunctionwith the consolidated financial statements and notes thereto containedelsewhere in this report and in our Annual Report on Form 10-K for the yearended December 31, 2009, which was filed on March 5, 2010.

 

We routinely post importantinformation about us on our Company website. Our website address is www.generalmoly.com.

 

**Overview**

 

We are a development stagecompany and began the development of the Mt. Hope Project on October 4,2007.  During the year ended December 31,2008, we also completed work on a pre-feasibility study of our LibertyProperty.  The Liberty Property continuesin a care and maintenance mode, and we do not expect to spend appreciableamounts of capital there until market conditions warrant its development.

 

The development of the Mt.Hope Project has a Project Capital Estimate of $1,154 million includingdevelopment costs of $1,039 million (in 2008 dollars) and $115 million in cashfinancial assurance requirements and pre-payments.  These amounts do not include financing costsor amounts necessary to fund operating working capital.  Through the six months ended June 30, 2010,we have spent approximately $162.5 million and have $22.9 million remainingcash on hand for use in the development of the Mt. Hope Project and other cashrequirements.

 

The Company remains in acash conservation plan implemented in March 2009 designed to reduceexpenditures and conserve cash in order to maximize financial flexibility.  In addition to conserving cash, the planseeks to retain critical employees and the ability to start construction at theMt. Hope project pending the availability of the Hanlong financing.  With our June 30, 2010, consolidated cashbalance of $22.9 million, we have the capacity to continue our current level ofpermitting efforts, maintain efforts to finalize project financing, and securethe most 

 

22

----

Table of Contents

 

critical long lead equipmentfor the ultimate construction of the Mt. Hope project through the end of 2010without finalizing the Hanlong financing.

 

Once we have received themajor operating permits and the Record of Decision (“ROD”) from the UnitedStates Bureau of Land Management (“BLM”) and loan procurement efforts arecomplete, it is expected that Mt. Hope can be constructed and in productionwithin 20 months.  In the interim, ourpermitting efforts are continuing full-time. The Company has maintained its orders for grinding, milling, and otherspecialty long lead equipment, although other engineering, administrative andthird-party work has been slowed or suspended.

 

The worldwide molybdenumprice has fluctuated between $5.33 per pound in 2003 to over $40.00 per poundin 2005.  In 2009, molybdenum pricesaveraged $11.12 per pound.  Molybdenumprices fell substantially between October 2008 and April 2009 fromapproximately $33.50 per pound to $7.70 per pound.  Following April, prices generally rose andfinished 2009 at approximately $12.00 per pound.  In the first quarter of 2010 molybdenumprices trended upward, and by the end of March prices were at $17.10.  During the second quarter prices peaked at$17.92 in mid-April, and then retreated to $14.75 by the end of June.

 

**Restructuring and Suspension ofProject Development**

 

As discussed above, in March2009, we implemented a cash conservation plan to reduce expenditures andconserve cash in order to maximize financial flexibility.  Engineering efforts, approximately 60%complete, were largely suspended pending the finalization of financing.  Some engineering that is critical forpermitting or project restart readiness has continued at a slower pace.

 

The Company has purchaseorders for two types of equipment — milling process equipment and miningequipment.  Most equipment orders for thecustom-built grinding and other milling process equipment will be completed bythe manufacturers and stored.  Thegrinding and milling process equipment require the longest lead times andmaintaining these orders is critical to the Company’s ability to re-start thedevelopment of Mt. Hope rapidly. Fabrication of less critical equipment has been suspended with somemanufacturers. With respect to the remaining milling process equipment, whereschedule is not critical, the manufacturers have agreed to suspend fabricationof the equipment.  The Company hascompleted negotiation with other equipment manufacturers to suspend orterminate fabrication of other milling equipment and to determine the equipmentfabrication costs incurred to date, storage costs, and the expected timing ofrestarting fabrication.  As financingbecomes available and equipment procurement is restarted, agreements that weresuspended or terminated will be renegotiated under the then current marketterms and conditions, as necessary.

 

The drills and loaders forthe mine operation have been cancelled, and discussions for the purchase of theelectric shovels are complete and this order was amended and remains ineffect.  An agreement has been reachedwith a truck manufacturer to hold production slots for timely delivery.  The manufacturing times have shortened andpricing associated with many of these items have declined from 2007levels.  Once financing becomesavailable, the Company anticipates placing orders for the cancelled miningequipment again.  The Company willcontinue to evaluate all options to facilitate a timely re-start of the projectdevelopment.

 

**Permitting Update**

 

The Mt. Hope Project willrequire both Federal and State permits before it can commence construction andoperations.  Major permits required forthe Mt. Hope Project include the ROD, a BLM issued permit, the water pollutioncontrol permit and reclamation permit from the Nevada Division of EnvironmentalProtection—Bureau of Mining Regulation and Reclamation (“BMRR”), and an airquality permit from the Nevada Division of Environmental Protection— Bureau ofAir Pollution Control (“BAPC”).

 

The BLM is preparing anenvironmental impact statement (“EIS”) analyzing the environmental impacts ofthe Mt. Hope Project and alternatives in accordance with the NationalEnvironmental Policy Act.  Uponcompletion and approval of the EIS, the BLM will issue the ROD for the Mt. HopeProject.  The ROD will be effective onthe date the BLM has recorded its decision to approve the EIS and plan ofoperations for the Mt. Hope Project.  Wecurrently expect to receive the ROD by mid-2011.  In September 2006, the BLM determined thatthe plan of operations met 

 

23

----

Table of Contents

 

the regulatory requirementswith respect to completeness and comprehensiveness.  Since that time, baseline technical reportshave been submitted and plan of operations updates have been submitted toaccommodate additional detail based on progression of project design.  All technical reports that form the basis ofthe EIS have been approved by the BLM at the time of this filing, and theCompany anticipates publication of the draft EIS later this year.    Public comment will then be considered andif warranted by the BLM will be incorporated into the draft for publication ofa final EIS.

 

The other time-criticalState permits have also been submitted for agency review and approval at thetime of this filing.  We believe theseother major operating permits will be received on or prior to the effectivedate of the ROD.

 

Although we currently aretargeting the effectiveness of the ROD and the receipt of all major operatingpermits to occur by mid-2011, circumstances beyond our control, includingreviewing agency delays or requests for additional information or studies, andappeals of the BLM decision, could cause the effectiveness of the ROD to bedelayed.  The occurrence of any or acombination of these adverse circumstances may increase the estimated costs ofdevelopment, require us to obtain additional interim financing, and / or delayour ability to consummate project financing or other significant financing.  A delay in the ROD or the receipt of majoroperating permits also affects the satisfaction of the ROD ContributionConditions, extends the time for the receipt of POS-Minerals thirdcontribution, if any, and may affect the contingent obligation of Eureka Molyto refund capital contributions to POS-Minerals and the amount of any suchrefund.  See “—The Mt. Hope Project”below.

 

**Water Rights Update**

 

On March 26, 2009, theNevada State Engineer approved the Company’s previously filed waterapplications that requested mining and milling use of 11,300 acre feet annuallyof water to be drawn from a well field near the Mt. Hope project in KobehValley.  On April 24, 2009, two appealsof the ruling were filed by Eureka County, Tim Halpin, Eureka Producers’Cooperative and Cedar Ranches, LLC., (“Petitioners”) with the Seventh JudicialDistrict Court of the State of Nevada challenging the State Engineer’sdecision.  On April 21, 2010, theDistrict Court entered an order remanding the matter for another hearing by theState Engineer.  The Court ruled that thePetitioners’ due process rights to a full and fair hearing were violated whenthe State Engineer considered and relied upon a version of the Company’shydrology model that had not been presented to the Petitioners before thehearing.  The District Court’s decisionis separate from and does not affect the Federal permitting process and thework associated with the Company’s EIS.

 

In June 2010, the Companyfiled change applications with the State Engineer’s office requesting permits towithdraw water at well locations matching those incorporated in the Company’sfinal hydrology models now approved by the BLM. The applications previously granted by the State Engineer’s officecontained proposed well locations that the Company no longer intends to utilizebased on additional groundwater modeling and exploration.  Filing new change applications to match thoseincorporated in the Company’s final hydrology reports submitted to the BLMeliminates one issue raised by the County of Eureka in their appeal of theCompany’s water rights.  A publicationand protest period for the recently filed change application is required by lawand completion of these requirements will likely push the State Engineer’swater hearing to the latter part of this year; however, the Company remainsconfident that it will be granted access to water for the Mt. Hope project andthat permits will be granted prior to initiation of construction activities atthe project.  The Company is alsocontinuing work with the Commissioners of Eureka County and the growers inDiamond Valley to find a solution to their opposition of the Company’s waterapplications.  The Company’s scientificstudies continue to indicate that Mt. Hope’s water pumping in Kobeh Valley willhave virtually no impact to water in Diamond Valley.

 

**The Mt. Hope Project**

 

Effective as of January 1,2008, we contributed all of our interest in the assets related to the Mt. HopeProject, including our lease of the Mt. Hope Project into a newly formedentity, Eureka Moly, LLC, a Delaware limited liability company (“LLC”), and inFebruary 2008 (“Closing Date”) entered into an agreement (“LLC Agreement”) forthe development and operation of the Mt. Hope Project (“Project”) withPOS-Minerals Corporation (“POS-Minerals”) an affiliate of POSCO, a large Koreansteel company.  Under the LLC Agreement,POS-Minerals owns a 

 

24

----

Table of Contents

 

20% interest in the LLC andGeneral Moly, through a wholly-owned subsidiary, owns an 80% interest.  These ownership interests and/or requiredcontributions under the LLC Agreement can change as discussed below.

 

Pursuant to the terms of theLLC Agreement, POS-Minerals made its first and second cash contributions to theLLC totaling $100.0 million during the year ended December 31, 2008 (“InitialContributions”).  Additional amounts willbe due from POS-Minerals within 15 days after the date (“ROD Contribution Date”)that specified conditions (“ROD Contribution Conditions”) have beensatisfied.  The ROD ContributionConditions are the receipt of major operating permits for the project, that theROD from the BLM for the project has become effective, and any administrativeor judicial appeals with respect thereto are final.

 

To maintain its 20% interestin the LLC, POS-Minerals will be required to make an additional $56.0 millioncontribution plus its 20% share of all Project costs incurred from the ClosingDate to the ROD Contribution Date within 15 days after the ROD ContributionDate.  If POS-Minerals does not make itsadditional $56.0 million contribution when due after the ROD Contribution Date,its interest will be reduced to 10% and the return of contributions will bezero.

 

In addition, if commercialproduction at the Mt. Hope Project is not achieved by December 31, 2011,****for reasons other than a force majeure event, the LLC maybe required to return to POS-Minerals a portion of its contributions to theLLC, with no corresponding reduction in POS-Minerals’ ownershippercentage.  Based on our current planand expected timetable, Mt. Hope Project will not achieve commercial productionby December 31, 2011.  As POS-Mineralshas elected to retain its 20% interest and make its additional $56.0 millioncontribution, the return of contributions will be $36.0 million on or prior toJanuary 27, 2012.  Our wholly-ownedsubsidiary and 80% owner of the LLC, Nevada Moly, is obligated under the termsof the LLC Agreement to make capital contributions to fund the return ofcontributions to POS-Minerals, if required. If Nevada Moly does not make these capital contributions, POS-Mineralshas an election to either make a secured loan to the LLC to fund the return ofcontributions or receive an additional interest in the LLC of approximately5%.  In the latter case, our interest inthe LLC is subject to dilution by a percentage equal to the ratio of 1.5 timesthe amount of the unpaid contributions over the aggregate amount of deemedcapital contributions (as determined under the LLC Agreement) of both partiesto the LLC (“Dilution Formula”).  AtDecember 31, 2009, the aggregate amount of deemed capital contributions of bothparties was $880.0 million.

 

Furthermore, a provision inthe LLC Agreement permits POS-Minerals the option to put its interest in theLLC to Nevada Moly after  a change ofcontrol of the Company, as defined in the LLC agreement, followed by (i)failure to begin full construction at the LLC by the Company or the survivingentity before December 31, 2010, or (ii) failure to use standard miningindustry practice in connection with development and operation of the projectas contemplated by the parties for a period of twelve months after December 31,2010.  If POS-Minerals puts its interest,Nevada Moly would be required to purchase the interest for 120% of POS-Mineralscontributions to the LLC plus 10% interest per annum.

 

The Initial Contributions of$100.0 million that were made by POS-Minerals during 2008 were expended by thesecond quarter of 2009 in accordance with the program and budget requirementsof the Mt. Hope Project.  Nevada Moly isrequired, pursuant to the terms of the LLC Agreement, to advance funds requiredto pay costs for the development of the Mt. Hope Project that exceed theInitial Contributions until the ROD Contribution Date, at which point thecontributions described above to be made by POS-Minerals will be applied toreimburse us for POS-Minerals’ share of such development costs.  All costs incurred after the ROD ContributionDate will be allocated and funded pro rata based on each party’s ownershipinterest.  The interest of a party in theLLC that does not make its pro rata capital contributions to fund costsincurred after the ROD Contribution Date is subject to dilution based on theDilution Formula.

 

**Liquidity, Capital Resources andCapital Requirements**

 

*For the period from December 31,2009 to June 30, 2010*

 

Our total consolidated cashbalance at June 30, 2010, was $22.9 million compared to $48.6 million atDecember 31, 2009.  The decrease in ourconsolidated cash balances for the six months ended June 30, 2010, was dueprimarily to development costs incurred of $5.8 million, deposits on propertyplant and equipment totaling $24.3

 

25

----

Table of Contents

 

million, and general andadministrative costs of $5.7 million offset by bridge loan funding of $10million.  Deposits on property, plant andequipment relate primarily to scheduled payments for long lead time equipmentfor the Mt. Hope Project.  See “—Contractual Obligations” below.

 

With our cash conservationplan, our non-equipment related cash requirements have declined toapproximately $1 million per month, inclusive of maintenance costs at theLiberty Property.  Based on our currentplan and expected timetable, we expect to make additional payments ofapproximately $1.2 million under milling process equipment orders through theend of 2010, and $12.8 million in 2011. As the Hanlong financing becomes available and equipment procurement isrestarted, agreements that were suspended or terminated will be renegotiatedunder current market terms and conditions, as necessary.  Accordingly, based on our current cash onhand and our cash conservation plan, the Company expects it will have adequateliquidity for operations through the year ended December 31, 2010, withoutfinalizing the Hanlong financing discussed below, while maintaining the currentcash conservation strategy.

 

The anticipated sources offinancing described below, combined with funds anticipated to be received fromPOS-Minerals in order to retain its 20% share, provide substantially all of ourcurrently planned funding required to construct and place the Mt. Hope Projectinto commercial operation.

 

**Securities Purchase Agreementwith Hanlong (USA) Mining Investment Inc. and Chinese Bank Loan**

 

On March 4, 2010, theCompany signed a Securities Purchase Agreement (“Purchase Agreement”) withHanlong (USA) Mining Investment, Inc. (“Hanlong”), an affiliate of SichuanHanlong Group, a large privately held Chinese company.  The PurchaseAgreement and the related agreements described below form the basis of asignificant investment by Hanlong in the Company that is intended to providethe Company with adequate capital to develop the Mt. Hope Project.  ThePurchase Agreement provides for the sale to Hanlong of shares of our commonstock in two tranches that will aggregate 25% of our outstanding stock on afully diluted basis.  The average price per share, based on theanticipated number of shares to be issued, is $2.88 for an aggregate price of$80 million, and constitutes a small premium as compared to the $2.60closing share price of the Company on March 4, 2010.  The shareissuance is part of a larger transaction that includes the commitment byHanlong to use its commercially reasonable efforts to procure a$665 million bank loan for the Company (“Term Loan”) from a prime Chinesebank that will be guaranteed by an affiliate of Hanlong, a $20 millionbridge loan from Hanlong to the Company, and a long-term molybdenum supplyoff-take agreement pursuant to which a Hanlong affiliate will agree to purchasea substantial part of the molybdenum production from the Mt. Hope Project atspecified prices.

 

**Securities Purchase Agreement**

 

*Stock Purchase*.  ThePurchase Agreement provides, subject to terms and conditions of the PurchaseAgreement, for the purchase by Hanlong for an aggregate price of$80 million, of approximately 27.8 million shares of our common stockwhich will equal 25% of our outstanding common stock on a fully-diluted basisfollowing the purchase, or approximately 38.3% of our currently outstandingcommon stock.  Fully diluted means all of our outstanding common stockplus all outstanding options and warrants, whether or not currentlyexercisable.  Hanlong is obligated to purchase the first 12.5% of ourfully-diluted shares, or approximately 11.9 million (“Tranche 1”) for$40 million, or approximately $3.36 per share, following satisfaction ofcertain conditions, including receipt of stockholder approval of the equityissuances in connection with the transaction (received at the Annual Meeting ofStockholders held on May 13, 2010), publication of the notice of availabilityof the DEIS concerning the Mt. Hope Project by the BLM, receipt of necessaryChinese government approvals for certain portions of the transaction,assurances from Hanlong as to the availability of the Term Loan, approval ofthe shares for listing on the New York Stock Exchange Amex (“NYSE Amex”) andabsence of certain defaults.  The actual number of shares and price pershare will be adjusted for any change in the number of fully diluted sharesbefore the closing of Tranche 1.  The parties may waive the conditions totheir respective obligations.  The Company anticipates that Tranche 1will close later this year.

 

Hanlong and the Companycontinue to work toward achievement of Tranche 1 Conditions.  The Company received overwhelming supportfrom stockholders at the Company’s Annual General Meeting and is continuing toprogress toward publication of the Draft EIS. Hanlong, along with support from General Moly, is continuing work towardreceiving the Chinese Government approvals for the investment. On July 29,Hanlong received the third and 

 

26

----

Table of Contents

 

final signature required forSichuan Provincial National Development and Reform Commission (NDRC) approvaland Hanlong has advanced the approval to NDRC’s Beijing headquarters.  Once the national NDRC approves thetransaction, Hanlong will pursue approvals from the Ministry of Commerce andthe State Administration for Foreign Exchange (SAFE).

 

Under the terms of theagreement, Hanlong is required to obtain government approvals for theinvestment within three months of stockholder approval, or August 13,2010.  Based on discussions with Hanlong,it was determined that it is highly unlikely that all of the Chinese Governmentapprovals will be fully obtained by this deadline.  Therefore, on July 30, the Companyexecuted an amendment to the Hanlong agreement extending the deadline forobtaining government approvals by two months to October 13, 2010.  In consideration for the extension, theamendment also extends the Company’s deadlines for publishing its DraftEnvironmental Impact Statement (DEIS) and receiving its Record of Decision(ROD) by two months, to February 28, 2011 and November 30, 2011,respectively, although the Company currently does not anticipate utilizing theadditional time permitted for the publication of the DEIS or receipt of theROD.

 

The second tranche (“Tranche 2”),which will involve the purchase of approximately 15.9 million additionalshares, will be for a purchase price of an additional $40 million, orapproximately $2.52 per share.  The actual number of shares and price pershare will be adjusted for any change in the number of fully diluted shares beforethe closing of Tranche 2.  Significant conditions to the closing ofTranche 2 include issuance of the ROD for the Mt. Hope Project by the BLM,approval of the plan of operation for the Mt. Hope Project by the BLM, and thecompletion of documentation for and satisfaction of conditions precedent tolending under the Term Loan.  The Purchase Agreement may be terminated byeither party (provided the terminating party is not in default) if the closingsof Tranche 1 and Tranche 2 have not occurred by January 31,2011, and September 30, 2011, respectively, subject to extension undersome circumstances to January 31, 2012.

 

The potential purchase ofcommon stock by Hanlong gave ArcelorMittal, S.A. (“ArcelorMittal”), whichpresently owns approximately 10.0% of our fully diluted common stock, the rightto acquire additional shares so that it could maintain its current level ofownership. On April 16, 2010, we entered into a Consent and WaiverAgreement whereby ArcelorMittal agreed to waive its anti-dilution rights withrespect to the Company’s proposed issuance of stock under the Hanlonginvestment.  ArcelorMittal will retainanti-dilution rights for future issuances of Company common stock.  ArcelorMittal also consented to the issuanceof common stock at a price that may be below the market price.  ArcelorMittal will also have the one-timeright to purchase a number of shares that will ensure that ArcelorMittal owns10% of the outstanding common stock if we issue more than 10,000,000 shares ofcommon stock, outside of those shares issued through the Hanlongtransaction.  In connection with theConsent and Waiver Agreement, ArcelorMittaland the Company also entered into an Extension Molybdenum Supply Agreement on April 16,2010 (“Extension Agreement”), providing ArcelorMittal with a five-year optionto make effective an agreement to purchase from the Company three millionpounds of molybdenum per year for ten years following the expiration of thecurrent five year, 6.5 million annual pound molybdenum supply agreement.  The additional optional off-take will bepriced in alignment with the Company’s existing supply agreements.  In order for ArcelorMittal to exercise thisoption and make the Extension Agreement effective, ArcelorMittal must havebeneficial ownership of more than 11.1 million shares of Company common stockon or prior to April 15, 2015. ArcelorMittal currently owns approximately 8.3 million shares of commonstock.

 

Hanlong will have the rightto purchase a portion of any additional shares of common stock that we issue sothat it can maintain its percentage ownership unless its ownership is at thetime below 5%.  It may also acquire additional shares so that it maintainsa 20% indirect interest in the Mt. Hope Project if our interest in the LLCis reduced below 80%.  If we issue shares to fund our obligation to fundthe Mt. Hope Project under certain circumstances and Hanlong exercises itsrights to maintain its percentage interest, we will be obligated to refund toHanlong the cost of such shares over a three-year period up to an aggregate of$9 million.

 

*Break Fees*.  A breakfee is payable by both the Company and Hanlong if the Purchase Agreementterminates because of the failure of certain conditions to the closing ofTranche 1 or Tranche 2.  A break fee of $10 million ispayable to the Company if the Purchase Agreement is terminated because Hanlongfails to obtain necessary Chinese government approvals or to give itsassurances about the availability of the Term Loan.  The Company hasagreed to pay $5 million to Hanlong if the conditions concerning ourstockholder approval, the publication of the DEIS or the ROD are not timelysatisfied or waived and the Purchase Agreement is terminated.  The Companybreak fees may 

 

27

----

Table of Contents

 

be increased by$5 million if the Purchase Agreement is terminated and the Company hasviolated the “no-shop” provisions of the Purchase Agreement and may beincreased in other circumstances not to exceed an additional $3 million if theCompany requests and Hanlong grants certain extensions of deadlines concerningthe DEIS and up to an additional $2 million if the Company requests and Hanlonggrants certain extensions concerning the ROD.  In addition, the Companymust pay a $2 million fee to Hanlong if it grants the extension concerning theROD, which fee can be credited against the arrangement fee describedabove.  The break fee payable by the Company to Hanlong may be paid incash, or, in certain circumstances, in shares of our common stock at ouroption.  If paid in shares, the price would be the volume weighted averageof our common stock on the NYSE Amex for the five days ending six days afterthe announcement of the termination.

 

*No Shop*.  TheCompany has agreed that it will not seek alternative proposals that wouldsupplant the proposed transaction with Hanlong until the closing of thetransactions contemplated by the Purchase Agreement or the earlier terminationof the Purchase Agreement.  The Board may, in the exercise of itsfiduciary obligations, consider an unsolicited offer that it views as superiorto the Hanlong transaction.

 

*Registration Rights*.  We haveagreed to register for sale the shares purchased by Hanlong at its request.

 

*Chinese Bank Loan*. Pursuant to the Purchase Agreement, Hanlong is obligated to use itscommercially reasonable efforts to procure the Term Loan in an amount of atleast $665 million with a term of at least 14 years after commercialproduction begins at the Mt. Hope Project.  The Term Loan is expectedto bear interest at a rate of LIBOR plus a spread of between 2% and 4% perannum.  The Purchase Agreement provides that the Term Loan will havecustomary covenants and conditions; however, the terms of the Term Loan havenot been negotiated with the lender and we have no assurance as to the finalterms of the Term Loan.  Hanlong or an affiliate is obligated to guaranteethe Bank Loan.  When funds can be drawn by the Company under the TermLoan, the Company will pay a $15 million arrangement fee to Hanlong whowill pay all fees and expenses associated with the Term Loan before the TermLoan Closing, including those charged by the Chinese bank.

 

**Bridge Loan**

 

Hanlong has also agreed toprovide a $20 million bridge loan (“Bridge Loan”) to the Company in twoequal $10 million tranches.  On April 28, 2010, we drew downTranche 1 in the amount of $10 million.  The second loan tranche will beavailable five business days after receipt of stockholder approval and issubject to the satisfaction of customary conditions.  The first tranche ofthe Bridge Loan bears interest at LIBOR plus 2% per annum.  The secondtranche of the Bridge Loan will bear interest at 10% per annum.  TheBridge Loan will be repaid from the proceeds of the Term Loan.  If Hanlongagrees, the second tranche may also be repaid, at the Company’s election, inshares of the Company’s common stock.  If paid in shares, the price wouldbe the volume weighted average of the Company’s shares on the NYSE Amex for afive-day period after public announcement of the event that requiredrepayment.  The Company may offset its right to receive the break feeagainst its obligations to repay borrowings under the Bridge Loan.  If notsooner repaid, the Bridge Loan will mature on the earliest of 120 days afterthe issuance of the ROD, the date on which the Purchase Agreement terminates,and January 31, 2012.  The Bridge Loan and our obligation to pay abreak fee to Hanlong under the Purchase Agreement are secured by a pledge by usof a 10% interest in the LLC.

 

**Molybdenum Supply Agreement**

 

The Company signed amolybdenum supply agreement (“Supply Agreement”) with a Hanlong affiliate(referred to in this subsequent discussion as “Hanlong”), which will beeffective upon the later of the Tranche 2 closing, the Term Loan closing, orthe Company’s election not to enter into the Term Loan.  Until theexpiration of certain existing molybdenum supply agreements by which theCompany is currently bound (“Existing Supply Agreements”), Hanlong will berequired to purchase all the Company’s share of the Mt. Hope molybdenumproduction above that necessary for the Company to meet its existing supplycommitments.  After the expiration of the Existing Supply Agreements,until the original scheduled maturity date of the Term Loan, or if the Companyelects not to enter into the Term Loan, 14 years after commencement ofcommercial production from the Mt. Hope Mine, Hanlong must annually purchasethe greater of 16 million pounds and 70% of the Company’s share of Mt. Hopeproduction.  Following the original scheduled maturity date of the TermLoan, or if the Company elects not to enter into the Term Loan, 14 years aftercommencement of commercial production from the Mt. Hope Mine, 

 

28

----

Table of Contents

 

Hanlong must purchase apercentage of the Company’s share of Mt. Hope production equal to 2.5 timesHanlong’s fully-diluted percentage ownership of our common stock.  Subjectto certain exceptions, the Supply Agreement will terminate once Hanlong’sfully-diluted percentage ownership of the Company falls below 5%. As long asHanlong continues to guarantee the Term Loan, the Supply Agreement will notterminate even if Hanlong’s ownership falls below 5%.  If the cause ofHanlong’s ownership falling below 5% is a change of control of the Company or adilutive transaction in which Hanlong does not have the right to participate,the Supply Agreement will not terminate and Hanlong will be obligated tocontinue to purchase a percentage of the Company’s share of Mt. Hope productionequal to 2.5 times Hanlong’s fully-diluted percentage ownership of the Companyas it existed immediately prior to such change of control or dilutivetransaction.  If the Company elects not to enter into the Term Loan, andthe second loan tranche does not close, Hanlong’s obligation to purchase theCompany’s share of Mt. Hope production in each of the periods described abovewill be half of the obligations described above.

 

Prices under the SupplyAgreement are at two levels.  Twenty-five percent of the productionHanlong receives will be sold at a fixed-floor price per pound subject toadjustment, which pricing is similar to floor-price protected contracts thatthe Company has in place with other large steel producers and metaltraders.  Those contracts have fixed-floor prices ranging from $12.50 to$13.50 per pound and incremental discounts above the floor price.  For theremaining 75% of the production Hanlong receives, it will pay spot prices formolybdenum, less a small discount.

 

The result of thetransaction will be that if the Company elects to enter into the Term Loan, orif the Tranche 2 closing occurs, all of Mt. Hope’s production will be committedfor the first five years of operation, approximately half of which will containfloor price protection to help support the Company’s ability to service itsdebt in periods of low metal prices.

 

Existing supply agreementscover the sales of 100% of the production of Mt. Hope for the first 5 years ofoperation with 50% of those sales being covered by floor price protection.  Over the following 9 years of operationHanlong is committed to purchase a minimum of 70% of production with 25% ofthat covered under floor price protection. ArcelorMittal has an option to commit up to 3 million pounds ofproduction from year 6 through year 15 of operation.  Hanlong has committed to take a percentage ofproduction which is 2.5 times their percentage ownership share of the Companyfor the life of the mine.

 

**Results of Operations**

 

*Six months ended June 30,2010, compared to six months ended June 30, 2009*

 

For the six months ended June 30,2010, we had a consolidated net loss of $6.0 million compared with aconsolidated net loss of $6.0 million in the same period for 2009, due to thefactors noted below in the disclosure associated with exploration andevaluation expenses, and general and administrative expenses.

 

For the six months ended June 30,2010, and 2009, exploration and evaluation expenses were $0.3 million and $0.4million, respectively, as costs associated with the Liberty Property continuedto decline as a result of reduced activity.

 

For the six months ended June 30,2010, and 2009, general and administrative expenses were $5.7 million and $5.6million, respectively, as the cash conservation efforts initiated by theCompany in the first half of 2009 were offset in the first half of 2010 bycosts associated with the Hanlong financing transaction, inclusive of bridgeloan interest expense, and the incremental cost of the reissued warrants toCoghill.

 

Interest income and expensewere nil for the six months ended June 30, 2010 and 2009, as a result ofsubstantially lower interest rates and lower consolidated cash balances in 2010and 2009.

 

*Three months ended June 30,2010, compared to three months ended June 30, 2009*

 

For the three months ended June 30,2010, we had a consolidated net loss of $3.2 million compared with aconsolidated net loss of $2.9 million in the same period for 2009, due to thefactors noted below in the disclosure associated with exploration andevaluation expenses, and general and administrative expenses.

 

29

----

Table of Contents

 

For the three months ended June 30,2010, and 2009, exploration and evaluation expenses were $0.2 million and $0.2million, respectively, as costs associated with the Liberty Property continuedto decline as a result of reduced activity.

 

For the three months ended June 30,2010, and 2009, general and administrative expenses were $3.0 million and $2.7million, respectively, as the cash conservation efforts initiated by theCompany in the second quarter of 2009 were offset in the second quarter of 2010by the incremental cost of the reissued warrants to Coghill.

 

Interest income and expensewere nil for the three months ended June 30, 2010 and 2009, as a result ofsubstantially lower interest rates and lower consolidated cash balances in 2010and 2009.

 

**Contractual Obligations**

 

Our contractual obligationsas of June 30, 2010, were as follows:

 
| ** **                                              | ** ** | **Payments due by period********(Dollars in millions)** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Contractual  obligations**                            | ** ** | **Total**                                               | ** ** | **2010** | ** ** | **2011 - 2013** | ** ** | **2014 - 2015** | ** ** | **2016 &  Beyond** | ** ** |
| Long-Term  Debt (Capital Lease) Obligations             |       | $                                                       | 0.3        |   | $ | 0.1 |   | $ | 0.2 |   | $ | — |   | $ | — |   |
| Operating  Lease Obligations                            |       | 0.7                                                     |       | 0.2 |   | 0.5 |   | — |   | — |   |
| Purchase  Contracts                                     |       | 45.8                                                    |       | 1.2 |   | 44.6 |   | — |   | — |   |
| Advance  Royalties and Deferral Fees (1)                |       | 23.2                                                    |       | 1.2 |   | 22.0 |   | — |   | — |   |
| Provision  for post closure reclamation and remediation |       | 0.6                                                     |       | — |   | — |   | — |   | 0.6 |   |
| **Total**                                               |       | $                                                       | 70.6       |   | $ | 2.7 |   | $ | 67.3 |   | $ | — |   | $ | 0.6 |   |

 

----

(1)          Assumes that full project financing is obtainedduring 2011

 

At June 30, 2010, wehave contracts to purchase mining equipment comprised of two electric shovelsand have cancelled orders for mine drills and loaders.  We have a non-binding letter of agreement on24 haul trucks that establishes our priority for delivery and provides for thethen current pricing using market indices upon initiation of an order.  We have active orders with varying stages offabrication on milling process equipment comprised of two 230kV primary transformersand substation, a primary crusher, a semi-autogenous mill, two ball mills, andvarious motors for the mills.  TheCompany has taken receipt of certain of these assets that are fully fabricatedin storage facilities at its Liberty Property, including the mill motors.  We have suspended fabrication on 16 flotationcells, lime slaking equipment, hydrocyclones, and other smaller milling processequipment with the ability to re-initiate fabrication at any time.  We have completed negotiations with the manufacturerof two multi-hearth molybdenum roasters to terminate its fabrication of thisequipment and receive finished goods of the partially completed order.  We plan to re-establish a new purchase orderwith this manufacturer as additional financing is secured and equipmentprocurement is restarted under the current market terms and conditions.

 

30

----

Table of Contents

 

The following table setsforth the LLC’s remaining cash commitments under purchase contracts at June 30,2010, resulting from the re-negotiation and cancelation of Purchase Contractsas discussed above (in millions).

 
| **Period** | ** ** | **Cash Commitments  Under Purchase  Contracts as of********June 30, 2010  (Dollars in millions)** | ** ** |
|------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| 2010       |       | 1.2                                                                                                    |       |
| 2011       |       | 21.1                                                                                                   |       |
| 2012       |       | 21.1                                                                                                   |       |
| 2013       |       | 2.4                                                                                                    |       |
| 2014       |       | —                                                                                                 |       |
| Total      |       | $                                                                                                      | 45.8       |   |
|            |            |                                                                                                        |            |  |

 

Cash commitments underpurchase contracts are inclusive of $14.0 million under milling processequipment orders, and $31.8 million in mining equipment orders.  Based on our current plan, we expect to makeadditional payments of approximately $1.2 million under these milling processequipment orders through the end of 2010, and $12.8 million in 2011.  As our additional financing becomes availableand equipment procurement is restarted, agreements that were suspended orterminated will be renegotiated under the then current market terms andconditions, as necessary.

 

If the Company does not makepayments required under the purchase contracts, it could be subject to claimsfor breach of contract or to cancellation of the purchase contract.  In addition, we may proceed to selectivelysuspend, cancel or attempt to renegotiate additional purchase contracts if weare forced to further conserve cash.  See“— Liquidity and Capital Resources” above. If we cancel or breach any contracts, we will take all appropriateaction to minimize any losses, but could be subject to claims or penaltiesunder the contracts or applicable law. The cancellation of certain key contracts would cause a delay in thecommencement of operations, have ramifications under the LLC Agreement withPOS-Minerals and would add to the cost to develop our interest in the Mt. HopeProject.

 

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

 

**Commodity Price Risk**

 

We are a development stagecompany in the business of the exploration, development and mining ofproperties primarily containing molybdenum. As a result, upon commencement of production, our financial performancecould be materially affected by fluctuations in the market price of molybdenumand other metals we may mine.  The marketprices of metals can fluctuate widely due to a number of factors.  These factors include fluctuations withrespect to the rate of inflation, the exchange rates of the U.S. dollar andother currencies, interest rates, global or regional political and economicconditions, banking environment, global and regional demand, production costs,and investor sentiment.

 

In order to better managecommodity price risk and to seek to reduce the negative impact of fluctuationsin prices, we have entered into long term supply contracts.  On December 28, 2007, we entered into amolybdenum supply agreement with ArcelorMittal that provides for ArcelorMittalto purchase 6.5 million pounds of molybdenum per year, plus or minus 10%, oncethe Mt. Hope Project commences commercial operations at minimum specifiedlevels. The supply agreement provides for a floor price along with a discountfor spot prices above the floor price and expires five years after thecommencement of commercial production at the Mt. Hope Project.  Both the floor and threshold levels at whichthe percentage discounts change are indexed to a producer price index.

 

On May 14, 2008, weentered into a molybdenum supply agreement with SeAH Besteel Corporation (“SeAHBesteel”), Korea’s largest manufacturer of specialty steels, which provides forSeAH Besteel to purchase 4.0 million pounds of molybdenum per year, plus orminus 10%, once the Mt. Hope Project commences commercial operations at minimumspecified levels. Like the ArcelorMittal supply agreement, the supply agreementwith SeAH Besteel 

 

31

----

Table of Contents

 

provides for a floor pricealong with staged discounts for spot prices above the floor price and expiresfive years from the date of first supply under the agreement.  Both the floor and threshold levels at whichthe percentage discounts change are indexed to a producer price index.

 

On August 8, 2008, theCompany entered into a molybdenum supply agreement (“Sojitz Agreement”) withSojitz Corporation.  The Sojitz Agreementprovides for the supply of 5.0 million pounds per year of molybdenum for fiveyears, beginning once the Mt. Hope Project reaches certain minimum commercialproduction levels.  One million annualpounds sold under the Sojitz Agreement will be subject to a per-poundmolybdenum floor price and is offset by a flat discount to spot moly pricesabove the floor.  The remaining 4.0million annual pounds sold under the Sojitz Agreement will be sold withreference to spot moly prices without regard to a floor price.  The Sojitz Agreement includes an option forcancellation in the event that supply from the Mt. Hope Project has not begunby January 1, 2013.

 

On March 4, 2010, theCompany signed a molybdenum supply agreement (“Supply Agreement”) with aHanlong affiliate (referred to in this subsequent discussion as “Hanlong”),which will be effective upon the later of the Tranche 2 closing, the Term Loanclosing, or the Company’s election not to enter into the Term Loan.  Until the expiration of certain existingmolybdenum supply agreements by which the Company is currently bound (“ExistingSupply Agreements”), Hanlong will be required to purchase all the Company’sshare of the Mt. Hope molybdenum production above that necessary for theCompany to meet its existing supply commitments.  After the expiration of the Existing SupplyAgreements, until original scheduled maturity date of the Term Loan, or if theCompany elects not to enter into the Term Loan, 14 years after commencement ofcommercial production from the Mt. Hope Mine, Hanlong must annually purchasethe greater of 16 million pounds and 70% of the Company’s share of Mt. Hopeproduction.  Following the originalscheduled maturity date of the Term Loan, or if the Company elects not to enterinto the Term Loan, 14 years after commencement of commercial production fromthe Mt. Hope Mine, Hanlong must purchase a percentage of the Company’s share ofMt. Hope production equal to 2.5 times Hanlong’s fully-diluted percentageownership of our common stock.  Subjectto certain exceptions, the Supply Agreement will terminate once Hanlong’sfully-diluted percentage ownership of the Company falls below 5%. As long asHanlong continues to guarantee the Term Loan, the Supply Agreement will notterminate even if Hanlong’s ownership falls below 5%.  If Hanlong ceases to guarantee the Term Loan,if the cause of Hanlong’s ownership falling below 5% is a change of control ofthe Company or a dilutive transaction in which Hanlong does not have the rightto participate, the Supply Agreement will not terminate and Hanlong will beobligated to continue to purchase a percentage of the Company’s share of Mt.Hope production equal to 2.5 times Hanlong’s fully-diluted percentage ownershipof the Company as it existed immediately prior to such change of control ordilutive transaction.  If the Companyelects not to enter into the Term Loan, and Tranche 2 does not close, Hanlong’sobligation to purchase the Company’s share of Mt. Hope production in each ofthe periods described above will be half of the obligations described above.

 

Prices under the SupplyAgreement are at two levels.  Twenty-fivepercent of the production Hanlong receives will be sold at a fixed-floor priceper pound subject to adjustment, which pricing is similar to floor-priceprotected contracts that the Company has in place with other large steelproducers and metal traders.  Thosecontracts have fixed-floor prices ranging from $12.50 to $13.50 per pound andincremental discounts above the floor price. For the remaining 75% of the production Hanlong receives, it will payspot prices for molybdenum, less a small discount.

 

The result of thetransaction will be that if the Company elects to enter into the Term Loan, orif the Tranche 2 closing occurs, all of Mt. Hope’s production will be committedfor the first five years of operation, approximately half of which will containfloor price protection to help support the Company’s ability to service itsdebt in periods of low metal prices.

 

Existing supply agreementscover the sales of 100% of the production of Mt. Hope for the first 5 years ofoperation with 50% of those sales being covered by floor price protection.  Over the following 9 years of operationHanlong is committed to purchase a minimum of 70% of production with 25% ofthat covered under floor price protection. ArcelorMittal has an option to commit to 3 million pounds of productionfrom year 6 through year 15 of operation. Hanlong has committed to take a percentage of production which is 2.5times their percentage ownership share of the Company for the life of the mine.

 

All four long term supplyagreements provide for supply only after commercial production levels areachieved, and no provisions require the Company to deliver product or make anypayments if commercial production is never 

 

32

----

Table of Contents

 

achieved, or declines inlater periods.  The agreements requirethat monthly shortfalls be made up only if the Company’s portion of Mt. Hopeproduction is available for delivery, after POS-Minerals has taken itsshare.  In no event do these requirementsto make up monthly shortfalls become obligations of the Company if productiondoes not meet targeted levels.

 

Furthermore, each of theagreements have take-or-pay provisions that require the buyers to either takedelivery of product made available by the Company, or to pay as though they hadtaken delivery pursuant to the term of the agreements.  The Company has no obligation to supply productif it is not produced in sufficient quantity from the Mt. Hope mining andmilling operation.

 

While we have not usedderivative financial instruments in the past, we may elect to enter intoderivative financial instruments to manage commodity price risk.  We have not entered into any market risksensitive instruments for trading or speculative purposes and do not expect toenter into derivative or other financial instruments for trading or speculativepurposes.

 

**Interest Rate Risk**

 

As of June 30, 2010, wehad a balance of cash and cash equivalents and restricted cash of $22.9million.  Interest rates on short term,highly liquid investments have not changed materially since December 31,2008 and continue to be 1% or less on an annualized basis. If and to the extentthat these funds were invested in interest bearing instruments during theentire six month period ended June 30, 2010, a hypothetical 1% pointdecrease in the rate of interest earned on these funds would reduce interestincome to nil for the six month period ended June 30, 2010.

 

**ITEM 4.  CONTROLS AND PROCEDURES**

 

An evaluation was performedunder the supervision and with the participation of our management, includingour principal executive officer and principal financial officer, of theeffectiveness of our disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Actof 1934) as of the end of the period covered by this Quarterly Report onForm 10-Q.  Based on the foregoing,our management concluded that our disclosure controls and procedures areeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission rules and forms and such information is accumulatedand communicated to our management, including our principal executive officerand principal financial officer, to allow timely decisions regarding requireddisclosure.

 

There was no change in ourinternal control over financial reporting that occurred during the quarterended June 30, 2010, that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

**PART II**

 

**OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

The Mt. Hope Project isprimarily centered between two water basins: the Kobeh Valley Basin and theDiamond Valley Basin.  Operation of theMt. Hope Project is expected to require 7,000 gpm of fresh water that willbe sourced from wells located in Kobeh Valley, west of the Mt. HopeProject.  The Company has purchased fromexisting water rights holders essentially all available water rights in theKobeh Valley Basin, totaling more than 16,000 acre feet annually.  The Company believes it has sufficient waterrights for its planned mining and milling operations.

 

On March 26, 2009, theNevada State Engineer approved the Company’s previously filed waterapplications that requested mining and milling use of 11,300 acre feet annuallyof water to be drawn from a well field near the 

 

33

----

Table of Contents

 

Mt. Hope project in KobehValley.  On April 24, 2009, twoappeals of the ruling were filed by Eureka County, Tim Halpin, Eureka Producers’Cooperative and Cedar Ranches, LLC., (“Petitioners”) with the Seventh JudicialDistrict Court of the State of Nevada challenging the State Engineer’sdecision.  On April 21, 2010, theDistrict Court entered an order remanding the matter for another hearing by theState Engineer.  The Court ruled that thePetitioners’ due process rights to a full and fair hearing were violated whenthe State Engineer considered and relied upon a version of the Company’shydrology model that had not been presented to the Petitioners before thehearing.  The District Court’s decisionis separate from and does not affect the Federal permitting process and thework associated with the Company’s EIS.

 

In mid-June 2010, theCompany filed change applications with the State Engineer’s office requestingpermits to withdraw water at well locations matching those incorporated in theCompany’s final hydrology models now approved by the BLM.  The applications previously granted by theState Engineer’s office contained proposed well locations that the Company nolonger intends to utilize based on additional groundwater modeling andexploration.  Filing new changeapplications to match those incorporated in the Company’s final hydrologyreports submitted to the BLM eliminates one issue raised by the County ofEureka in their appeal of the Company’s water rights.  A publication and protest period for therecently filed change applications is required by law and completion of these requirementswill likely push the State Engineer’s water hearing to the latter part of thisyear; however, the Company remains confident that it will be granted access towater for the Mt. Hope project and that permits will be granted prior toinitiation of construction activities at the project.  The Company is also continuing work with theCommissioners of Eureka County and the growers in Diamond Valley to find asolution to their opposition of the Company’s water applications.  The Company’s scientific studies continue toindicate that Mt. Hope’s water pumping in Kobeh Valley will have virtually noimpact to water in Diamond Valley.

 

**ITEM 1A.               RISK FACTORS.**

 

Our Annual Report on Form 10-Kfor the year ended December 31, 2009, including the discussion under theheading “Risk Factors” therein, and this report describe risks that maymaterially and adversely affect our business, results of operations orfinancial condition.  The risks describedin our Annual Report on Form 10-K and this report are not the only risksfacing us. Additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial also may materially adversely affect ourbusiness, financial condition and/or operations.

 

**If certain conditions are not metunder the Hanlong transaction documents, our ability to begin development ofthe Mt. Hope Project could be delayed further.**

 

The investments by Hanlongin our common stock and the related financing with a Chinese bank and the molysupply agreement are subject to a number of conditions precedent including,among other conditions described in descriptions of the transactions in ourpublic filings, receipt by us of required governmental permits, approvals ofChinese government authorities for investments in us by Hanlong and loansexpected to be made by a Chinese Bank, and negotiation of acceptable loan termswith that bank. These conditions may not be met, in which case our ability tobegin development of the Mt. Hope Project could be delayed further while weattempt to obtain alternative financing. We may not be successful in obtaining acceptable financing since thecurrent credit markets are difficult for development stage companies.

 

**The existence of the stockholdersrights plan could prevent an acquisition of our shares that might be at apremium to the market price**

 

In March, 2010 our Boardadopted a stockholder rights plan, commonly known as a “poison pill”, which isdesigned to prevent or discourage acquisition of more than 20 per cent of ouroutstanding stock without the prior approval of our Board.  While ourBoard believes that the rights plan is in the best interests of ourstockholders, its existence could prevent an acquisition of our sharesthat might be at a premium to the market price and that stockholders might viewas beneficial.  Other matters that may prevent a takeover that is notapproved by our Board are discussed in the risk factors in our Form 10-Kfor the year ended December 31, 2009.

 

34

----

Table of Contents

 

**Special Note RegardingForward-Looking Statements**

 

Certain statements in thisreport may constitute forward-looking statements, which involve known andunknown risks, uncertainties and other factors, which may cause actual results,performance or achievements of our Company, the Mt. Hope Project, LibertyProperty and our other projects, or industry results, to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. We use the words “may,” “will,” “believe,” “expect,” “anticipate,” “intend,”“future,” “plan,” “estimate,” “potential” and other similar expressions toidentify forward-looking statements. These forward-looking statements are subject to a number of risks,uncertainties and assumptions that could cause actual results to differmaterially from those in the forward looking statements. Such risks, uncertaintiesand assumptions are described in the “Risk Factors” section included in ourAnnual Report on Form 10-K for the year ended December 31, 2009, andthis report, and include, among other 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 LLC Agreement;

·                  investments byHanlong and a loan from a Chinese bank are subject to significant consents, approvalsand conditions precedent which may not be obtained or met;

·                  negotiation ofacceptable loan terms with a Chinese bank in connection with the Hanlongtransaction;

·                  risks relatedto the failure of POS-Minerals to make contributions pursuant to the LLCAgreement;

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

·                  the estimationand realization of mineral reserves and production estimates, if any;

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

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

·                  requirementsfor additional 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;

·                  our investorsmay lose their entire investment in our securities;

·                  the disruptionsof 2008 and 2009 in the overall economy and financial markets may continue toadversely impact our business;

·                  counter partyrisks;

·                  inherentoperating hazards of mining;

·                  climate changeand climate change legislation for planned future operations;

·                  compliance/non-compliancewith the Mt. Hope lease;

·                  losing keypersonnel or the inability to attract and retain additional personnel;

·                  reliance onindependent contractors, experts, technical and operational service providersover whom we have limited control;

·                  increased costscan affect our profitability;

·                  shortages ofcritical parts, equipment, and skilled labor may adversely affect ourdevelopment costs;

·                  legislation maymake it difficult to retain or attract officers and directors and can increasecosts of doing business;

·                  adverse resultsof internal control evaluations could result in a loss of investor confidenceand have an adverse effect on the price of the common stock;

·                  our commonstock has a limited public market which may adversely affect the market priceof our shares and may make it difficult for our shareholders to sell theirshares;

·                  we do notanticipate paying cash dividends in the foreseeable future;

·                  provisions ofDelaware law and our charter and bylaws may delay or prevent transactions thatwould benefit shareholders.

 

You should not place unduereliance on these forward-looking statements, which speak only as of the dateof this report.  These forward-lookingstatements are based on our current expectations and are subject to a number ofrisks and uncertainties, including those set forth above.  Although we believe that the expectationsreflected in these forward-looking statements are reasonable, our actual resultscould differ materially from those expressed in these forward-lookingstatements, and any events anticipated in the forward-looking statements maynot actually occur.  

 

35

----

Table of Contents

 

Except as required by law,we undertake no duty to update any forward-looking statements after the date ofthis report to conform those statements to actual results or to reflect theoccurrence of unanticipated events.  Wequalify all forward-looking statements contained in this report by theforegoing cautionary statements.

 

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

 

None.

 

**ITEM 3.  DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.  REMOVED AND RESERVED**

 

**ITEM 5.  OTHER INFORMATION**

 

None.

 

**ITEM 6.  EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                                 |
|---------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **          | ** ** | ** **                                                                                                                                                                                 |
| 10.1†          | ** ** | Consent and Waiver Agreement, dated April 16, 2010, by  and between the Company and ArcelorMittal S.A. (Filed as Exhibit 10.1 to our  Current Report on Form 8-K filed on April 19, 2010.) |
| 10.2*               | ** ** | Extension Molybdenum Supply Agreement, dated as of April  16, 2010, by and between the Company and ArcelorMittal, S.A.                                                                     |
| 10.3†          | ** ** | Common Stock Purchase Warrant, dated April 16, 2010,  issued to CCM Qualified Master Fund, Ltd. (Filed as Exhibit 10.1 to our  Current Report on Form 8-K filed on April 19, 2010.)        |
| 10.4†          | ** ** | Common Stock Purchase Warrant, dated April 16, 2010,  issued to Coghill Capital Management, L.L.C. (Filed as Exhibit 10.1 to our Current  Report on Form 8-K filed on April 19, 2010.)     |
| 10.5†          | ** ** | General Moly, Inc. 2006 Equity Incentive Plan, as Amended  and Restated (Filed as Exhibit 10.1 to our Registration Statement on Form S-8  on May 21, 2010.)                                |
| 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                                                                                        |

 

----

* Confidential treatment hasbeen requested for certain portions of this exhibit, and such confidentialportions have been separately filed with the Securities and ExchangeCommission.

 

† Previously filed asindicated and incorporated herein by reference.

 

**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: July 30, 2010

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

 

36

----