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After moly held its price for months, over just a few weeks, the metal suffered huge losses.

By Leia Michele Toovey- Exclusive to Moly Investing News

After moly held its position over months of poor market sentiment, the metal has been hit hard.

Over the few weeks, the market price of molybdenum oxide has fallen by a whopping 30 per cent. Last week, the metal was trading in the range of US$16 to $18 per pound; at this price range moly is at the lowest level it has seen since the second quarter of 2004.

The market price of molybdenum oxide has been maintained on a comparatively high level at US$32 to US$33 per pound of Mo even while the other metals collapsed. This steep fall for molybdenum oxide is due to the offensive taken for disposals of molybdenum stocks at discounted prices. Fears that the stainless steel market would plunge are also largely responsible for the metal's drop.  Current miners involved in the molybdenum industry are finding ways to cope with the dramatic price drop.  Fortunately, optimism is reigning over the market sentiment with miners claiming that fear and not fundamentals are driving the price lower.

Company news

Freeport-McMoRan Copper and Gold Inc. ^[2] (NYSE:FCX) plans to cut molybdenum production due to a rapid decline in the price of the metal. Freeport will cut production by 25 per cent at its Henderson mine near Empire, Colorado, and lay off 14 per cent of the mine's 700 full time employees as well as 150 contract workers. The company is also eyeing cutbacks in molybdenum production at the Bagdad and Sierrita mines in Arizona. Freeport earlier called off expansion plans at the two mines. Mining at Bagdad and Sierrita is as a secondary product to copper extraction, and has provided a significant revenue source for the company while copper collapsed.

Freeport also announced it is suspending work at its Climax molybdenum mine near Leadville, Colorado, which it hoped to reopen in 2010, after a $500 million investment. Climax is the largest molybdenum mine in the world and has been closed since 1995. About 450 contract employees were let go. The Phoenix miner is said to also be considering cuts in the production of copper. ^[3]

Moly Mines Limited ^[4] (TSX:MOL) has recently raised US$150 million in debt finance facility from Trust Company of the West ^[5]. The funding facility provides financial security for Moly Mines for the next twelve months, allowing it to ride out the current global capital markets turmoil and removes any requirement for Moly Mines to need to consider further equity capital market issuances prior to full funding for the project.

Moly Mines had little asset collateral and no cash flows to obtain a low cost debt facility.  For that reason, the terms of the agreement are what some analysts consider stiff. TCW negotiated and achieved an effective rate of interest of 20% on the facility as well as the grant of attached warrants that can be converted into 15 per cent of ordinary shares of Moly Mines for consideration of AUD 1,500.  However, due to Moly Mines position the company had little few alternatives. The options were to raise cash that was effectively backed by no hard assets or cash flows which meant debt financing in the higher risk high yield securities market, project financing or equity financing. At estimated cash cost of production of US$9.00 per pound, future cash flows are still substantial for Moly Mines and significant for the project and for shareholders. This cost could be further reduced if the molybdenum price retraces in 2009. This appears more likely when more and more new mines like Thompson Creek Metal's Davidson Creek molybdenum project are being shelved.