Moly Is Looking Good?

- October 26th, 2009

Molybdenum demand from steelmakers is set to decrease in the fourth quarter, due to imminent production cut backs by domestic steelmakers following sliding steel product prices over the past few months. In such a scenario, wither moly?

By Kishori Krishnan Exclusive To Moly Investing News

Moly would be a metal to watch in the coming years. With gold near an all-time high, it would be tough to view the resource as cheap or undervalued.

Attention seems to have turned to molybdenum, a major component in steel which is critical to building infrastructure and 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.

And with the Dow Jones Industrial Average posting a solid rally during the summer and early fall, speculative traders have been “looking to take investment money and invest in commodities that may be undervalued,” said Darin Newsom, Telvent DTN senior analyst.

Commodity markets are also expected to rally given the weakening of the US dollar index.

So, while lead and tin are back at their prices of last year, with potential for supply shortages, molybdenum’s looking good too.

It trades for around $12 and there’s “a clear scope here for this to return to the $15 mark on some firmer industrial demand, particularly out of the oil-services sector which uses moly for pipelines and oilfield fittings.

Molybdenum is used as an alloy in steel, as a catalyst in petroleum refining and as a lubricant. All of Canada’s molybdenum is produced from three mines in British Columbia. Two of these mines, located in central and southern British Columbia, produce molybdenum as a byproduct of copper mining.

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).

Dire times?

However, a section of analysts portend that molybdenum demand from steelmakers is set to decrease in the fourth quarter, due to imminent production cut backs by domestic steelmakers following sliding steel product prices over the past few months.

Domestic prices of molybdenum concentrate, the raw material for making ferromolybdenum used in the manufacture of high-strength steel products, is likely to remain sluggish in the fourth quarter of the year, analysts say.

Molybdenum concentrate prices, measured by metal content, plummeted from highs of between RMB 184,500 ($27,023.07) per ton and RMB 186,750 ($27,352.62) per ton in early 2008, to between RMB 65,250 ($9,556.94) per ton and RMB 67,500 ($9,886.49) per ton in the second half of 2008, due to the global economic downturn.

China story

As has been seen in China’s steel industry, the country’s molybdenum concentrate supply is in huge surplus. China’s molybdenum concentrate output increased 9.7 per cent on an annual basis to 129,400 tons in the first eight months of 2009, equivalent to around 50,000 tons of molybdenum metal content.

At the same time, the country’s molybdenum concentrate imports reached 9,901 tons, equal to around 4,500 tons of molybdenum metal content. Meanwhile, China’s consumption was far from ideal, as domestic demand and exports slid, resulting in a surplus of 36,600 tons of molybdenum in China over the eight-month period.

Other downsides in the molybdenum market include a possible anti-dumping duty by the United States against China’s seamless steel tube exports, the weakening effect from the Chinese government’s stimulus package, and a lack of new incentive policies on the horizon.

Corporate news

Moly Mines (MOL) has got a major strategic investor. The firm has entered into a subscription agreement with Hanlong Mining Investment Pty Ltd, a subsidiary of the China based, privately owned, Sichuan Hanlong Group Co, Ltd, under which Hanlong will provide US$ 200 million in equity and debt funding to Moly Mines.

The deal also covers a commitment to provide or arrange US$ 500 million debt funding for the 10 million tonne per annum Spinifex Ridge molybdenum/copper project.

The news comes as a welcome relief for Moly after the company received a financial lifeline from the Trust Company of the West to restructure its debt facility with the company for financial reasons.

The US$ 200 million equity and debt funding is in addition to the recently announced institutional placement and share purchase plan. The total funding will enable Moly Mines to repay all amounts outstanding and could allow the commencement of the Spinifex Ridge molybdenum/copper project as early as mid 2010.

Freeport-McMoRan Copper & Gold Inc said last Wednesday that higher prices for its core-metals products led to a 77 per cent jump in third-quarter profit.

Shares of Freeport-McMoRan were in positive territory at $81.35 on Friday, and have now surged over 143 per cent in the past year.

The Phoenix-based mining giant posted a profit of $925 million, or $2.07 a share, up from $523 million, or $1.31 a share, in the year-ago period. Revenue fell to $4.14 billion from $4.62 billion, even as gold prices reached record highs this month.

“Our third-quarter results reflect strong operating performance, high volumes from our Grasberg mine and improved commodity prices for our products, copper, gold and molybdenum,” the company said.

Ivanhoe Australia has discovered high grade molybdenum and rhenium mineralisation close to its current Merlin deposit in Queensland.

Christened the Little Wizard deposit, Ivanhoe expects the 15,000 tonne inferred resource to provide potential early cash flow of up to $100 million.

This cash flow represents a substantial portion of Merlin’s development capital expenditure.

The 15,000 tonnes is graded at 13 per cent molybdenum, 160 grams per tonne of rhenium, 1.7 per cent copper and 0.8 grams per tonne of gold.

Creston Moly Corp (CMS:TSX.V) has provided an update on its 100 per cent owned El Creston molybdenum project located in the State of Sonora, Mexico.

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