High flying moly has a major price hiccup

By Leia Michele Toovey- Exclusive to Moly Investing News

Molybdenum has gone from an obscure metal, to a high performer garnering the attention of the LME, and then back to an undervalued alloying metal. Once an overlooked player in the investment arena, interest in moly picked up when worldwide spending on infrastructure took off, sending the metal’s price to new heights.  High prices and demand caused copper miners who produced moly in secondary production to copper to turn their focus to that metal. At the same time, junior miners and big players began exploring for primary producing moly mines.

Over the spring and summer as the general base metal complex suffered huge losses, moly’s obscurity helped it hold its position.  Because purchase contracts for moly are few and far between, its price held steady at the last negotiated rate of $34/pound.  However, as the latest wave of contracts were negotiated and made, the price has been slashed to coincide with the drop in demand. Now, moly, which was holding its game is now reflecting the world economic positions and trading at around $12.00 per pound.

The sharp drop and prices has caused a slew of miners to either cut production or close operations. Large mines are the hardest hit as the drop in price makes these mines uneconomical.  Shutdowns are temporary until the price re-stabilizes.  In the meantime, there is optimism that shutdowns will change the supply/demand balance and coax prices higher. There is no doubt that prices will eventually rebound- the only question is when. 

Chile’s Molymet, one of the world’s top processors of molybdenum concentrates, forecasts that price of the metal will remain around $10 per lb in 2009, coinciding with a 20 per cent decline in demand.

Company news

Strikeforce Mining and Resources Ltd (SMR) has postponed plans to double its capacity until demand from steel maker’s returns to pre-crisis levels.  The company has frozen new exploration projects but remains in a good position to increase its market share and launch a stock float after the financial crisis. Currently, the Russian molybdenum miner supplies about 4 per cent of the world’s Ferro-molybdenum from its mines and smelters in Siberia. It accounts for 5.5 per cent of Europe’s molybdenum requirements. SMR had planned within three to four years to double annual molybdenum ore processing capacity at its Sorsk plant to 14 million tonnes from 7 million tonnes and to boost throughput at its Zhireken plant to 5 million tonnes from nearly 3 million. For now these expansions are indefinitely on hold. The company is strong financially and has the ability to wait out the current trying times;  when things return to pre-crisis levels, expansion plans will proceed.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) announced on November 10 that it plans to defer the restart of the Climax Molybdenum Mine near Leadville, in response to sharp decline in molybdenum prices. It also announced it plans to reduce production from its Hen­derson primary molybdenum mine near Granite. On Friday, Freeport dropped $1.46, or 6.3 per cent, to $21.68 at 4:15 p.m. in New York Stock Exchange composite trading, taking this year’s fall to 79 per cent. The shares are the second-biggest decliner in the 16-member Philadelphia Stock Exchange Gold & Silver Index, which has slipped 56 per cent this year.

Queensland Ores Ltd. fell by the most on record in Sydney after stopping production at its Wolfram Camp tungsten and molybdenum mine in Australia because metal prices fell and it failed to meet ore grade targets. The Brisbane-based company’s shares plunged 67 per cent to 1.1 cents at the 4:10 p.m. Sydney time close on the Australian stock exchange. The slump was the biggest since it began trading in May 2005. Queensland Ores suspended operations to conserve cash while some mining and metallurgical issues are being addressed.  Apparently, the mine has been unable to meet targeted grades or recovery levels in its processing plant.
Norsemont Mining Inc., has received unsolicited offers for its Constancia copper and molybdenum deposit in Peru.  The board has formed a special committee and is retaining Fraser Milner Casgrain LLP to provide legal advice; no timetable has been set for the completion of a transaction. Constancia, about 600 kilometers southeast of Lima, contains an indicated resource of as much as 2.85 billion pounds of copper and may yield as much as 90,000 metric tons of the metal a year. Norsemont said last month it planned to complete a feasibility study on the project by April. Norsemont rose 25 cents, or 15 per cent, to C$1.95 at 3:57 p.m. in Toronto Stock Exchange trading, paring this year’s decline to 27 per cent.