Weaker Outlook for Molybdenum Companies - RBC Capital Analyst

It was not long ago that molybdenum (or moly, as it's called) emerged as one of the surprising stars of the commodity boom. But how things have changed in a very short time. RBC Capital Markets analyst Fraser Phillips wrote that prices have dropped from $32 a pound at the end of September to just $11 a pound today.

He wrote in notes to clients:

With ongoing cuts in steel production globally, moly prices could continue to drop until production cost support emerges.

He figures that the top of the cash cost curve is somewhere around $7 to $8 a pound.

Given the weaker outlook for prices and financing, Mr. Phillips downgraded two of the popular all-moly plays: Thompson Creek Metals Company Inc. (TC) and General Moly Inc. (GMO).

Thompson Creek has a strong balance sheet, with $244-million in cash and only $18.7-million in debt. But if moly prices fall below $10 a pound for any length of time, Mr. Phillips noted that the company would likely have to postpone the expansion of its Endako mine. It has already delayed its Davidson project and suspended its share buyback program.

General Moly is in a tougher position because it is trying to pursue financing for its Mt. Hope project. Mr. Phillips wrote that the project is "likely" to be delayed, and General Moly's interest could be diluted in order to secure financing for it. Steel giant POSCO (PKX), which is General Moly's partner on the project, wants to proceed on the original schedule and may provide financing support, he noted. 

Mr. Phillips downgraded Thompson Creek to "sector perform" (from "outperform") and lowered his price target to C$6.80 a share (from C$11). He cut General Moly to "underperform" (from "sector perform") and dropped his target all the way to C$1.90 a share (from C$3.40).