Demand for 'Moly' Can Only Rise

In last year’s Tax Day blog, “Good Golly Miss Moly,” I wrote about how molybdenum (aka Moly to industry insiders) would be a metal to watch in the coming years as it’s a major component in steel. As we know, steel is critical to building infrastructure and it’s also used heavily in the construction of nuclear power plants. The price of moly has been on a steady rise (except for last year’s credit crisis which tanked it along with the entire materials sector) due to the increasing steel capacity utilization rates in developing countries and improving steel capacity utilization rates in the developed nations. Over the past 50 years, annual moly growth has been averaging a steady 4%, but in 2007 that number jumped to 6.4% mainly due to increasing demand from China.

Now China is one of the world’s major moly producers but its appetite for the metal (and for pretty much everything else on the periodic table) has turned it into a moly importer (it now accounts for 25% of Thompson Creek’s sales) and one of the reasons why it’s been trying to partner with other miners.

Moly is commonly found along with copper so it’s natural that many companies that are principally engaged in copper mining also extract moly as a by-product. Companies that mine moly as a secondary ore are Freeport-McMoran (FCX), Rio Tinto (RTP), Southern Copper (PCU), and BHP Billiton (BHP).

Two US Moly Miners
As for those enterprises that mine moly as their principal ore, several are privately held. There are only two that trade publicly in this country: Thompson Creek (TC) and General Moly (GMO). Thompson Creek has been physically mining the metal while General Moly is still in the planning and permitting stages of developing its two mine areas. Their Mt. Hope project in Nevada is purported to be the largest and highest grade moly deposit in the world with 1.3 billion pounds of extractable ore. The company owns 80% of this project along with Posco (PKX) steel.

One big problem facing General Moly is that it’s going to need big bucks–on the order of $700 million–to actually get the ore out of the ground. How it’s going to accomplish that has been a matter of message board speculation.

According to rknapton commenting on the Motley Fool’s Caps board on 5/19/09: “Will they [GMO] trade off a further portion of thier [sic] interest in the project to fund this? Raise a lot of debt? Issue (and dilute) more shares? These are huge questions and it’ll be interesting to see how it plays out. But, with the current low prices for moly, I think the general outlook for this company is dismal -which is already fully reflected in the stock price. That is why I think it might be a good buying opportunity here. As soon as the infrastructure demand for steel gets back on track, moly, with its low inventory levels, should see a huge run up in price, and thus the moly producers such as TC (and GMO if they ever actually produce) will have a great run.”

Since this comment, the stocks of both companies have nearly doubled. However, there seems to have been some recent profit-taking in TC after it closed over $15 on August 1. Not so for GMO which broke $3 resistance only two days ago.

Barring a trade war with China, it’s possible to see speculators bid up General Moly to its next resistance area in the $5 to $5.20 region. If the company does receive its required financing at Street-acceptable terms, the stock could easily push past this level. For me to be a buyer of Thompson Creek, I’d need to see it resume its upward momentum and blow through the $15 level.

A safer, but less pure, play would be to buy the XME, the Metals & Mining ETF. All in all, current inventories of moly are at very low levels (estimated supply about one month) and unless the world sinks into another recession, demand for it can only rise.

Disclosure: No positions in any stocks mentioned.

Comments

[je:]

Wait for a pull back to at or below 32.
It should be good to 55 before ill winds blow.

Sep 15 08:36 AM

[Positroll:]

"There are only two that trade publicly in this country"
Not if you count the pink sheets:
There is also Mercator Minerals (MLKFF.PK, ml.to), producing copper, molybdenum and a little silver near Kingman, Arizona. Mercator was upgraded by lots of analysts these last weeks.
Cf. seekingalpha.com/artic...

And the Australian co. Moly Mines (MYMNF.PK , mol.ax) could become a major player, if they get their financing together (looks like they will, cf. finance.yahoo.com/q?s=... ).

disclosure: long

Sep 15 08:36 AM

[Eugene Beukman:]

Please see what this company is doing with a major resource and excellent infrastructure.

bardventures.com
en.wikipedia.org/wiki/...
Bard Ventures Creates Mining Community Group on Facebook; Posts Instant News Updates on TwitterInvestors seeking base metal news can now receive the latest mining industry updates on Facebook’s Molybdenum Group Page. Relevant and informative links to analyst forecasts, news articles, blog posts, pictures and videos, as well as daily price charts and related companies’ news releases are posted throughout the day.Recognizing a lack of molybdenum-focused information in online social hubs, Bard Ventures created the Facebook Molybdenum Group community for investors, media, analysts and geologists to connect with each other and share insights on the market. All investors – micro, small or large cap – are welcome to join this group and post their comments.

In addition to the Facebook Molybdenum Group Page, investors can follow Bard Ventures on Twitter to get brief updates of their Summer Exploration Program at the Lone Pine Moly Property, and links to breaking company news. At Bard Ventures’s Facebook Profile Page investors will find highlights of news releases, links to media and analyst coverage, information on upcoming events, exploration videos, specimen photo albums, and discussion topics. Bard Ventures encourages active and respectful discussion from the mining and investing community on all of its social media profiles.

Sep 16 04:33 PM

[Wildebeest:]

re: Moly mines

Yes they need to get their financing in place. Did sign a 10 year offtake agreement last year.

Ivanhoe (IVA.AX) has a much better resource but is further behind in the development stage. Is is partially owned by NYSE listed Ivanhoe (IVN).

George Soros recently bought 20% of small dual listed (australia/canada) copper/moly play Marengo (MGO.AX). Marengo have a resource in Papua New Guinea and can piggy back of another nearby project to get access to ports from the highlands.

Unfortunately wildebeest had a stake in Queensland Ores (recently renamed to something else) that was the first of the current aussie crop to start producing moly (and tungsten) but fell apart due to apparent technical difficulties with the ore processing. That happened just before the GFC collapsed metal/metalloid demand -- meaning that no money was there to explore ways to overcome the technical hurdles. :)

I'll be blogging something about the aussie molybdenum players sometime soon.

FWIW, when I've heard moly wannabees present at conferences they say that the main use is as a steel hardner for steel used in oil pipelines.

Sep 20 09:49 PM