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Molybdenum demand strong enough to withstand market hiccups

By Leia Michele Toovey- Exclusive to Moly Investing News

The past week was arguably the most volatile in market history. But molybdenum managed to continue its recent trend of holding steadfast despite market hiccups.

This was a week that saw stocks and commodities across the board plummet. In all this, it came as little surprise that one of the biggest gainers on the market was a company with an asset focus in moly. Global Hunter ^[2] (TSX.V: BOB) saw its shares shoot up 39 per cent on the news that its Rabbit project in Kamloops BC was the host to high quality moly ores.

This year's strong moly performance is influencing the actions of many companies, a metal that has been traditionally mined only as a byproduct of copper, is now getting into the front seat of a company's business plans. As a result, the world's largest copper producers have, of late, been placing strong emphasis on their molybdenum production as a byproduct. Some even to the point of declaring negative cash costs thanks to rising molybdenum prices.

Meanwhile, other companies such as U.S. producer Freeport McMoRan Copper & Gold, are for the first time starting operations that produce molybdenum exclusively. Víctor Pérez, Marketing Director of Codelco ^[3] said that his company's molybdenum production is set to grow by about 22 per cent from now till 2012, and will allow the company to remain the world's leading producer that declares the metal as a byproduct. In overall terms, Codelco is the second largest molybdenum producer. He added that Codelco "has projects for all of its mining divisions to increase its molybdenum production".

The positive performance of moly caught the eye of the LME ^[4] this year, and they announced that they would add it to their trading. This week they provided an update on the moly contracts set to launch in the second half of 2009. The contracts were approved at the September 4, 2008 LME board meeting and will now be finalized in conjunction with market participants. LME released a statement saying that once launched, "the contracts will offer all the benefits of an exchange traded product, allowing participants access to a transparently derived price and the ability to manage price risk".

The details on their molybdenum offering announced this week include:

(1) lot size: 2 tonnes gross of roasted molybdenum concentrates with a net weight of 1,190 kilos of molybdenum contained, equivalent to 59.5 per cent molybdenum contained

(2) tolerance level: 2.5 percentage points, enabling concentrates with molybdenum content between 57 per cent and 62 per cent to be delivered

(3) impurities set at: copper 0.5 per cent max, sulphur 0.1 per cent max, phosphorous 0.05 per cent

(4) delivery points: Rotterdam, Baltimore and Busan, Korea initially

(5) tick size: US$0.05 per kilogram, and

(6) Trading venue: telephone, select, ring (shared with cobalt at 12.25 daily and in kerb

China, which controls much of the industrial metal's performance via their ravenous demand, will likely exhibit a strong moly need over the coming years. Hardy Mohrbacher, a metallurgical engineer, steel expert and consultant to the global steel business, said that China was virtually locked-in to a host of giant projects that will need steels with molybdenum content. "There is no way around it," said Mohrbacher. "What is driving China are these big infrastructure projects, and they have to be done in order to keep general industrialization of China sustainable. These large scale projects need high quality steels. Corrosion resistance and buckling strength are demanded in the oil and gas industry," he said. Mohrbacher estimates China steel demand at between 540 million and 580 million tonnes in 2010. He said molybdenum consumption could rise from about 14,298 tonnes in 2007 to at least 16,307 tonnes in 2010, according to conservative estimates.

Moly Mines Limited ^[5] (TSX:MOL)(ASX:MOL) has announced that it was finalizing an Interim Financing Facility of US$150 million, and expected to be in a position to drawdown the funds during October. The funds will provide "sufficient" working capital for the Spinifex Ridge Molybdenum Project and enable Moly Mines to maintain its leading position in the industry as it moves towards becoming the first major new molybdenum mine in over 25 years. The Company continues to focus on full Project funding through its negotiations with prospective strategic investors and investment banking advisors.