I introduced General Moly (GMO) to my subscribers in May of 2009. At that time, the permitting process was not paramount, as financing was the critical consideration as we were still emerging from the depths of the mining sector crash during the 2008 credit crisis. At the same time, China was embarking on a search for potential mining acquisitions in the West. It was inevitable that a plum such as General Moly would catch Beijing’s eyes.
General Moly sits atop a massive mountain of molybdenum in Nevada called Mt. Hope, the largest and highest grade asset in North America. Nevada happens to be one of the world’s most friendly mining jurisdictions. The union between China and GMO was inevitable. In order to make steel out of iron ore, molybdenum needs to be introduced into the mix. Ore can not be catalyzed into steel without the addition of molybdenum.
Mt. Hope’s high grade ore could be mixed with China’s low grade moly to produce a desired mixture which is needed for China’s massive infrastructure plans. China cast covetous eyes on this American bonanza as steel demand has increased. China has major infrastructure plans, such as building 27 nuclear reactors and 10 million social housing units, requiring a lot of steel. China has also classified molybdenum as a national resource, curbing its own domestic production and forcing banks to look overseas.
Moly is still trading below $20/lb way off its pre-credit crisis highs of over $30/lb. Chinese demand is increasing as the percentage of its usage of alloyed steel products are way below that of its neighbors like South Korea and Japan. As China competes with its neighbors and invests in its own infrastructure, its use of molybdenum as an alloying agent will also expand.
Several weeks ago, China plunked millions of dollars into the waiting arms of GMO. It's confident that water rights will be granted and that the requisite permits would follow. So confident is it in anticipating regulatory success that it fast-tracked the funding.
Today, GMO received the water rights which were expected back in March. This is a long-awaited milestone for those who have been patiently following this niche mining company.
Significantly, other institutions have purchased shares of GMO, namely Posco (PKX), the giant steel company from South Korea, and Sojitz (SZHFF.PK), the major Japanese trading company. For years, China has been the main supplier of the forenamed entities. Now China is experiencing a supply-demand shortage of its own concerning molybdenum. General Moly is one of the only pure moly developers with significant partners.
In addition to Mt. Hope, GMO has the Liberty Project, also in Nevada, which the market is giving little value. GMO announced drill results recently from Liberty. The company is planning to release an updated resource estimate on this project in the third quarter and plans to update the 2008 pre-feasibility in 2012.
Recently, institutions are scrambling to pick up vital molybdenum assets. Mercator Minerals (MLKFF.PK) paid a 38% premium for Creston Moly, which is far less advanced than General Moly in the mining process. General Moly has revealed how an analogous buyout of its assets would be worth at least $7 a share. Additionally, the Mercator buyout of Creston is a continuation of the trend of consolidation; Hudbay Mineral is taking over Norsemont Mining for millions of dollars.
As GMO de-risks Mt. Hope as it trudges through the final stages before building the mine, it is quite important for investors in mining stocks to exercise patience and fortitude. There are sometimes bureaucratic and regulatory delays which might make GMO’s price tend to base over several months and then return to its upward trend. However, many major institutions such as Posco, Hanlong, Arcelor Mittal (MT) and Sojitz have done their due diligence in this asset and are confident. One other consideration: General Moly is the only pure molybdenum play on the major U.S. exchanges. Thompson Creek (TC), the former pure play, has expanded into precious metals and has diversified away from molybdenum.
General Moly has been in a downtrend for most of 2011 as it has awaited the recent ruling.
Disclosure: I am long GMO.