General Moly Gets Boost from POSCO Deal

It appears that the steel industry is growing more concerned about the future supply of molybdenum.

One producer of the metal often used in high-strength steel alloys, General Moly Inc. (GMO), got a big boost after it announced that South Korea’s POSCO (PKX), the world’s third largest steel producer, will pay $170-million for a 20% stake in the Mount Hope molybdenum project in Nevada.

This joint venture and General Moly’s relationship with ArcelorMittal (MT), the world’s largest steelmaker, reduces the obstacles for it to become a leading producer of molybdenum by 2011, according to Wellington West analyst Leonie Soltay.

ArcelorMittal recently agreed to buy a 12.6% stake in General Moly and will receive 6.5 million pounds of molybdenum from it annually for five years.

Tuesday’s deal signals Asia’s need for moly feed as the supply-demand balance is expected to remain in a deficit through 2010 and perhaps beyond, Ms. Soltay told clients in a note.

She continues to rate General Moly a “buy” with a $13 price target.

Blackmont Capital’s George Topping also rates the shares a “buy,” but hiked his price target by $0.15 to $15.40 on a minor increase to his net asset value estimate.

The establishment of floor prices in this agreement is important because it will provide General Moly with low-cost access to debt, he said in a note.

The analyst also pointed out that General Moly continues to have undiluted control of the Tonopah deposit, which he thinks could be as good as Mt. Hope in economic terms.

GMO vs. MT vs. PKX 1-yr chart: