Industrial Metals

Depressed prices have stalked the molybdenum market recently, but savvy moly investors could be poised to benefit as demand picks up.

The United States is the world’s second-largest molybdenum producer. In 2011, the country produced an estimated 64,000 tons of the metal, according to the US Geological Survey. China, the world’s leading producer, had 94,000 tonnes of output.

When used as an additive, molybdenum makes steel harder and more heat resistant. According to the London Metal Exchange, 29 percent of global molybdenum production was used in stainless steel in 2011 while about 32 percent went into other alloys.

Molybdenum is often mined as a by-product of copper; in 2011, there were six US copper mines that also produced molybdenum and four producing it as a primary product.

US molybdenum production rose 8 percent in 2011 from 2010, and it looks to be set for further gains, thanks in part to projects like the Climax mine, located 13 miles northeast of Leadville, Colorado, which recently restarted after a 17-year shutdown.

History of molybdenum mining in the US

Molybdenum was first discovered in the US in 1879, when prospector Charles Senter discovered a grey, mineralized outcrop on the western slope of Bartlett Mountain in Colorado. At the time, Senter had no idea that he had found molybdenite ore, but sensing that the find might have value one day, he claimed the property, which came to be called Climax after a nearby railroad station where helper locomotives decoupled from trains after the long climb from Denver.

The ore was correctly identified 16 years later, around the same time that metallurgists realized that the metal can replacetungsten as an alloying agent in steel. In 1891, French firm Schneider & Co. first used molybdenum as an alloying element in armor-plate steel. World War I further spurred demand, prompting businessman Max Schott to form Climax Molybdenum Company to mine and process the deposit on Bartlett Mountain.

But Schott was just a little too late. Mining operations started at Climax in 1918, just months before the end of the war. The mine operated for only 10 months before low molybdenum prices forced it to shut down.

The oldest molybdenum mine in the US is now back in business

Schott was able to find enough new customers to reopen the mine in 1924, and it went on to become the world’s biggest molybdenum operation before low molybdenum prices again forced it to close in 1982. It operated sporadically until 1995.

In 2007, Climax Molybdenum, now a subsidiary of Freeport-McMoRan Copper & Gold (NYSE:FCX), announced that it would spend $700 million on cleaning up and redeveloping the site. As a result, the Climax mine is now producing again: its first molybdenum shipment left on May 10, 2012.

The company expects the mine’s production to rise to 20 million pounds per year during 2013. That could climb as high as 30 million pounds, depending on the molybdenum market, making Climax one of the world’s biggest molybdenum mines.

Molybdenum demand looks steady, though prices remain volatile

The US appears to be raising production at a time of increasing molybdenum demand. According to a new report from UK-based metals and minerals research firm Roskill, global demand for molybdenum is expected to increase by 4.6 percent a year until 2016.

That is largely thanks to a forecast 7.5-percent-a-year growth in demand from China, which now accounts for 31 percent of the world’s molybdenum consumption. Increased molybdenum use in stainless steel, energy projects, and vehicle components is also contributing to higher demand.

The agency does say that the longer-term outlook for molybdenum prices is uncertain because existing mine capacity is sufficient to satisfy demand. However, it also points out that a number of planned new projects will likely be delayed.

Molybdenum prices have fallen recently due to concerns about the European debt crisis and slowing developing-world growth. According to Metal-Pages, spot molybdenum prices are now around $12 a pound. To put that in context, Freeport-McMoRan puts its costs to extract molybdenum at the Climax mine at around $7 a pound.

Three ways to invest in rising US molybdenum production

Here’s a look at two major US molybdenum producers and one junior mining company with promising properties in Nevada:

Freeport-McMoRan is an Arizona-based mining firm that produces copper, gold, cobalt, and molybdenum. It has operating mines in North America, South America, and Indonesia, and operates the Tenke Fungurume deposit, which the company says is the world’s largest undeveloped copper-cobalt deposit, in the Democratic Republic of the Congo.

Freeport is the world’s leading molybdenum producer. Apart from the Climax mine, its Henderson mine, 42 miles west of Denver, also produces molybdenum as a primary product. In 2011, this facility produced 38 million pounds of the metal. In addition, the company produces molybdenum as a by-product of copper mining at four other US mines.

Thompson Creek Metals(TSX:TCM,NYSE:TC) operates the Thompson Creek primary molybdenum mine, which the company says is the fourth largest in the world. The mine is 35 miles southwest of Challis, Idaho, and has proven and probable reserves of 220.9 million pounds of molybdenum. In Canada, Thompson Creek has a 75 percent stake in the Endako primary molybdenum mine in British Columbia, which has 303.9 million pounds of proven and probable reserves. Thompson Creek also has a roasting facility in Langeloth, Pennsylvania.

The company produced 28.3 million pounds of molybdenum in 2011, down from 32.3 million pounds in 2010. That’s mainly because production was slowed when waste rock at the Thompson Creek mine was removed to access a higher-grade area. The company also expanded the mill at Endako.

General Moly (TSX:GMO,AMEX:GMO) is a junior mining company with two molybdenum properties in Nevada: Mount Hope (80 percent owned) and Liberty (100 percent owned). The company says Mount Hope contains 1.3 billion pounds of proven and probable reserves, while Liberty contains estimated proven and probable reserves of over 700 million pounds of molybdenum and close to 900 million pounds of copper.

Mount Hope is the company’s flagship project. General Moly has produced a bankable feasibility study that envisions an open-pit mine on the site with a 44-year life. It is now in the process of acquiring the necessary permits.


Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.



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