Big Time Rebound Set For Moly

- January 24th, 2010

There is a `little storm brewing’ in moly. In the third week of January, traders came in and bought up a lot of material, which caused some supply tightness. Now traders are in a position to push prices higher, state analysts.

By Kishori Krishnan Exclusive To Moly Investing News

Three months of sitting on the back burner and molybedenum oxide decided enough is enough. Prices for moly, a base metal used to make stainless steel, rose to an appreciable US$ 13.5 per pound and then to US$ 15.5 per pound.

At the end of October 2009, moly oxide was trading just around $10.5. By the end of the year, the price of molybdenum oxide had only risen to $11 per pound.

Reports indicate that as of August 14, 2009, the price peaked to $18 per pound, and then started its downward slide. Earlier, it had hit a low of $7.70 in April.

Reports indicate that major production cuts in both alloy steel and stainless steel saw global demand for molybdenum decline 10.2 per cent in 2009. In stainless steel, molybdenum is used along with chromium to raise corrosion resistance.

Ferromolybdenum, which is hawking between $32 to $33 per kilogram of Mo, has also risen by more than $3 as compared to the end of 2009.

“We have a little storm brewing,” one US-based trader told AMM. “In the third week of January, the traders came in and bought up a lot of material right before the mills came back on-line, which caused some supply tightness. The traders are now in the position to push prices higher.”

The question uppermost on people’s mind: Would the price of molybdenum oxide rebound over $18?

Fret not

A JP Morgan analyst has given a clear thumbs up. Analysts led by Michael Gambardella have written in a report that prices are set to rise a massive 55% in the next two years. By the fourth quarter of 2011, moly prices would be pegged to $24 per pound.

“Moly inventories remain very lean,” they wrote. “We also see more sustainability in the recent surge in moly prices compared to the spike this summer,” they have said in a report on Canadian molybdenum miner Thompson Creek Metals (TC).

As global industrial output expands, the analysts anticipate prices will climb to $21 by the end of this year and $24 by the fourth quarter of 2011.

Meanwhile, Haywood Securities has predicted that molybdenum prices will increase to US$ 15/lb this year, and $20/lb in 2011, declining to a long-term estimate of $15/lb in +2013.

“Looking ahead, we believe global molybdenum roasting capacity, currently at 480 million pounds per annum, is an important consideration, with some (arguably bullish) market commentators forecasting world consumption in excess of 480 million pounds within the next two years,” the analysts said.

“…we expect growing demand fundamentals to dominate the molybdenum market, noting that the current list of greenfields projects lacks a significant number of large-scale ventures to potentially fill the expected supply deficit.”

Underscoring this point is Chris Mayer, editor of Agora Financial’s Capital and Crisis. “With moly, there just aren’t that many quality moly mines or miners out there,” said Mayer.

Investor interest has also piqued on Creston Moly Corp (TSX V: CMS) which has provided the results of the recently completed mapping and sampling program undertaken at its 100 per cent owned El Creston molybdenum property.

Also, keeping declining supplies in mind, of the select companies added to the Nasdaq, Amex and Nyse naked short threshold lists is Mercator Minerals (OTC: MLKKF). Together with its subsidiary, Mineral Park, the firm focuses on copper and molybdenum properties.

Analysts are also taking a call on Mosquito Consolidated (TSX:MSQ), which is “the 100 per cent owner of the …as-yet-undeveloped molybdenum deposit.”

The company intends to move to a bankable feasibility study for the CUMO project in 2010, which provides a flex point that will either move the stock higher or knock it off the uptrend.

Readers are advised caution. All investments in this stock, as others, should be undertaken only after a thorough evaluation and analysis of the company concerned.

China calling

China’s appetite for moly is unsiated. This is also set to push demand, given that the current price of ferromolybdenum in the domestic market of China has risen from CNY 138,000 per tonne to CNY 142,000.

Prices have increased CNY 10,000 per tonne from that at the end of last year.

According to data issued by the National Bureau of Statistics of China, in December 2009, China produced 22,660 tons of molybdenum, up by 1.7 per cent versus November’s 22,280 tons, soaring by 65 per cent than December 2008. he demand for molybdenum in China is forecasted to put a substantial impact on molybdenum prices in 2010, following the same case in 2009. China has suddenly changed in 2009 from the country to export molybdenum as continued for more than 10 years to that to import molybdenum. In line with the strengthened policy to preserve natural resources as adopted by the Central Government of China, molybdenum has been still maintained as the objective material to regulate its exports.

For the full 2009 year, China produced 215,579 tons of molybdenum, an upswing by 17.5 per cent than 2008.

And if there is less moly available for the hungry nation, what is the net result: takeover, merger, acquisition.

Take a look at Moly Mines Limited (TSX:MOL)(ASX:MOL). The firm has announce that Hanlong Mining Investment Pty Ltd received a critical approval from the People’s Republic of China for Hanlong’s US$ 200 million equity and debt investment in Moly Mines.

Under the deal, Hanlong will also provide Moly Mines with an interest bearing US$ 60 million 10-year loan and arrange up to US$ 500 million in finance for the development of Moly Mines’ Spinifex Ridge project in Western Australia.

Concurrently, Moly Mines is working with Hanlong and PRC domestic banks to secure the US$ 500 million Project Finance Loan Facility.

Spinifex Ridge is western Australia is the world’s leading undeveloped primary molybdenum deposit. The company has been looking at strategies to finance its development after a downturn in molybdenum prices.

China’s Commerce Ministry and State Administration of Foreign Exchange still need to approve the project, which will result in Sichuan-based Hanlong owning more than 51 per cent of Moly.

Moly shares rose 2 per cent to 96 cents in Toronto Friday morning trading, while the overall market was lower.

Other companies that have a moly deposit or are eager to add to existing ones are Freeport-McMoRan Copper & Gold Inc.

During the fourth quarter of 2009, FCX purchased property adjacent to its Sierrita operations from Twin Buttes Properties, Inc for $200 million. The property includes the Twin Buttes copper mine, which ceased operations in 1994, and contains mineralized material of approximately 0.7 billion metric tons with average grades of 0.43 per cent for copper and 0.024 per cent for molybdenum.

Regal Resources Inc, a Vancouver-based mineral exploration company has also announced it has entered into an option agreement to earn 100 per cent interest in the Squaw Peak Copper-Molybdenum Project in Yavapai County, Arizona. The company will undertake cash payments of US$ 500,000, expenditures of US$ 2,800,000 and will issue 1,000,000 common shares of Regal over a 10 year period.

International PBX Ventures announced that it has acquired an additional 2,100 hectares in the prolific Chilean copper-molybdenum porphyry belt. The Huatacondo claims are located 8kms west of the company’s wholly-owned Copaquire Copper-Molybdenum-Rhenium property.

George Sookochoff, President and CEO, said: “While the Huatacondo claims are early stage, we believe they represent quality exploration targets at low entry costs in a region known to host numerous copper-moly porphyries.”

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