Will the stimulus provide the economy with a much needed boost?

By Leia Michele Toovey- Exclusive to Moly Investing News

After weeks of debate, on Tuesday, US president Barack Obama signed the stimulus bill.  Many were hoping that this would have marked a momentous occasion, one in which the economic picture started to improve. In true nature of the recession thus far; the exact opposite of what was anticipated transpired. Shortly after the bill was signed, the Dow Jones declined nearly 300 points to finish close to its lowest level of the financial crisis. Fearful investors piled into safe-haven investments such as U.S. Treasuries and gold.  

The steel sector has been deeply impacted by the global economic climate; with an approximate 50% decline in production.  Moly, as an important alloy, is following suit. Miners around the globe have been on a fast track since H2 2008; adjusting their business plans to cope with the deepening recession.

Moly prices have fluctuated in the New Year, but have for the most part finished where they started. The market demand for molybdenum decreased during the Lunar New Year holiday, as purchase volumes from China were light.  The price dropped; then steel mills started to strengthen their efforts to stock the products prior to the Spring Festival.  The price jumped briefly but then stabilized back to New Year holiday levels.

Company News

This week Thompson Creek Metals sent out an update concerning its plans to reduce output and conserve cash.  ”Thompson Creek has taken the necessary steps to adjust production and reduce costs and capital spending in response to the lower demand for molybdenum and generally unfavorable market conditions,” said Kevin Loughrey, Chairman and Chief Executive Officer.” The changes we have adopted, along with the Company’s substantial cash balances and low debt, put Thompson Creek in a better position to continue operating during the worldwide economic downturn. We intend to remain flexible and ready to adjust our production higher or lower if there are substantial changes in market conditions in the future.”

The Company announced on January 27, 2009 that its molybdenum production is expected to be 20 to 24 million pounds in 2009, down from previous guidance of 31.5 to 34 million pounds. The Company’s sales of molybdenum produced at its own mines are expected to be 20 to 24 million pounds in 2009. As previously announced, the Endako expansion project has been suspended until the molybdenum market improves. The Company’s cash balances were $258 million and outstanding debt was $17.3 million as at December 31, 2008. The company’s Cash balances as of February 16, 2009 were approximately $271 million, and outstanding debt is estimated to be $17.3 million.

The largest producer of molybdenum in Asia, China’s Jinduicheng Molybdenum Group Co, has seen its full-year net profit fall 13 percent year-on-year, in response to the falling molybdenum price. January-December net income fell to 2.75 billion Yuan ($402 million) in 2008 from 3.17 billion Yuan a year earlier.

Freeport McMoRan Copper & Gold expects its sales to slide 15% to 60 million lbs in 2009 from the 71 million lbs shipped in 2008. The new forecast is 25% lower than the 2009 estimate made last October, attributing the change to reduced-demand market conditions. In the fourth quarter of 2008, Freeport-McMoRan had consolidated molybdenum sales from the Henderson primary mine in Colorado and byproduct mines totaled 12 million lbs, 7 million lbs lower than the fourth quarter of 2007, primarily resulting from lower demand. Now, Freeport has revised annual production plans at Henderson for 2009 at a 25% reduction. In a statement, the company said “additional reductions at Henderson may be considered if market conditions warrant.” Freeport also has made adjustments to its molybdenum production plans at certain byproduct mines.

Peru is the world’s largest producer of silver and in the top five in gold, copper and zinc production. It also produces large amounts of minerals such as molybdenum and tin. The country has been hit hard by the recession; and financing for mining projects has dried up.  Sociedad Minera Cerro Verde SAA just announced that it would suspend its molybdenum circuit, which produced 3 million pounds of molybdenum in 2008, due to poor market conditions. Base metals miner Southern Copper Corp. (PCU) said recently that its capital projects have been put on hold or dramatically reduced as a result of what it called the “drastic” reduction in metals prices and unsettled economic conditions.

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