What Lies Ahead For Moly?

Reproduction
Thu, Feb 18, 2010

Feature Articles, Moly Articles
Post by Melissa Pistilli, Moly Senior Reporter

By Kishori Krishnan Exclusive To Moly Investing News

Is there any excitement left in molybdenum, given that its price has been ranging around $15 a lb and the fact that there are few takers for the forthcoming LME futures?

Contracts for minor metal molybdenum are to start trading on the London Metal Exchange from February 22, but the world’s No 2 producer of moly, Chile’s Codelco, has taken a stand that it will stay away and not hedge against price risk.

Why has the producer taken this stringent position? Listing the metal on the exchange would clearly ensure transparent pricing and risk management to market participants.

The volatility in recent times has also highlighted the urgent need for an exchange-traded and monitored product. But some traders have warned that the introduction of the new contracts could “lead to erratic trading and to higher prices in the short term”.

Has Codelco bought into this theory? Do they want to go it alone? Or is there another reason: Is the 40 per cent slump of the red metal copper more to blame?

Copper tones

Moly is a by-product of copper and nickel. Around 75 per cent of global annual molybdenum output goes into the production of stainless steel. The metal is used with chromium to augment corrosion resistance.

Like nickel, molybdenum is used to enhance the corrosion resistance in stainless steel.

Molybdenum’s price is pretty much dictated by a relatively small number of western hemisphere copper producers, such as Phelps Dodge (PD), BHP Billiton (BHP), Teck (TCK) and Chilean-state-owned Codelco.

China plays a prominent role, from the other side of the hemisphere.

In their bid to counter price volatility, corporates involved in copper, nickel and moly have been setting monthly average prices with clients.

From the highs of $39 a lb in May 2005, moly dropped to $21 a lb by March 2006. Again, in July 2008, the price firmed to $34 a lb. Economic recession ensured that the price touched a low of $8 a lb. The barometer bounced back again to touch $18 a lb in August 2009.

Do the signs portend a shift in stance? Are the top six moly producers – Rio Tinto (RIO.L), Freeport McMoRan (FCX.N), Codelco (CODEL.UL), Grupo Mexico (GMEXICOB.MX), China Molybdenum (3993.HK) and China’s Jinduicheng Molybdenum Group – contemplating going their seperate ways on the issue of pricing?

Staying on

Brady plc, the leading supplier of trading and risk management solutions for metals and commodities, has however added support for the new LME minor metals contracts.

Gavin Lavelle, CEO of Brady, has been quoted as saying that the launch of the cobalt and molybdenum contracts on the LME “is a significant development for the metals market.”

Liz Milan, commercial director at the LME, is also on record as saying that the LME intends to be the leading forum for price discovery and risk management.

Smaller players are also keen to gain a larger foothold. Win-Eldrich Mines Limited (TSXV-WEX) has announced its intention to complete a National Instrument 43-101 compliant technical report on the gold deposit located north of, and above, the current molybdenum resource at its Ashdown Property.

In conjunction with the planned drilling on the gold resource, the company is also keen to target the molybdenum zone with the intention of identifying additional resources. The company currently operates an underground mine and molybdenum sulfide flotation mill.

Entree Gold Inc (ETG-T, EGI-X) too has a strategy. The firm, which had optioned two large contiguous properties, the Blackjack and Roulette properties from HoneyBadger and Bronco Creek respectively, in western Nevada, plans to acquire a core ground position in the under-explored region, known to host sizeable copper, molybdenum and gold resources.

The company has budgeted approximately US$ 4 million for the first phase 2010 exploration on Shivee West, in a program that includes detailed geophysics and approximately 5,000 metres of drilling to test deep geophysical targets and copper, molybdenum, gold soil geochemical targets.

The firm has also announced 2010 exploration budgets for initial work programs in Mongolia, the USA and Canada totaling approximately US$ 7 million.

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Pingback: What Lies Ahead For Moly?
Ken Shonk

Several misimpressions in this article. First, molybdenum is not a by-product of nickel production. When it occurs with nickel mineralization, it is a mineralogical curiosity, as is rheniite. Second, Entree Gold’s Yerington area copper project is just that, a copper porphyry exploraton project, with minor potential for by-product molybdenum production. The odds are 100:1 than any new porphyry copper mineralization in the Yerington district will be similar in character to the long known Ann Mason deposit which is 810Mt grading 0.004% Mo and 0.4% Cu with a higher grade core containing 165Mt grading 0.01% Mo. This does not a molybdenum mine make. Most companies producing by-product molybdenum from their mining of porphyry copper deposits have Mo grades of 0.015% or higher though there are a few exceptions. The metallurgical character of molybdenite in the deposit is key to the technical and economic feasibility of recovery. Entree Golds real Mo asset is Zun Mod in Mongolia, but grades discovered to date are probably marginal. Higher grade deposits not in production include Climax, Kitsault, Liberty-Hall-Tonapah, Cave Peak, and Mount Hope in the US, several deposits in China, and two very large deposits in Russia.

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