Analysts forecast a tough Q2 for moly prices

Analysts forecast a tough Q2 for moly prices

By Leia Michele Toovey- Exclusive to Moly Investing News

As a minor metal, molybdenum is prone to rapid price fluctuations; in the past this had generated huge returns on investment. Molybdenum was one of the last metals to feel the effects of the economic downturn, but has failed to match the recovery experienced by many metals since the start of the New Year.  

Despite a positive turn to most metal’s prices in 2009, molybdenum has continued its downward descent, falling in 11 of 13 weeks in Q1. The monthly Platts Metals Week published molybdenum oxide price averaged US $8.94 per pound during the quarter. For the month of April 2009, this published price declined further to an average US $7.90 per pound. Molybdenum oxide prices averaged just under US $29 per pound in 2008.

Analysts have pegged that in the near future the market price of molybdenum will drop, in parallel with the sharp drop in steel production.  As a result, analysts are reducing long-term price forecasts for molybdenum because of expected weak demand this year. Anthony Young at investment bank Dahlman Rose & Co. cut his forecast to $10 per lb this year from a previous prediction of $12 and lowered the estimate for next year to $12 from $15. Meanwhile, a less bullish Mike Gambardella at JP Morgan Chase sees molybdenum averaging around $8 per pound this year and $11.50 in 2010.

 Low steel production means stockpiling molybdenum inventories.  Even though moly is not actively traded on an exchange, producers have reported difficulty in ridding themselves of the metal.  Moly market fundamentals remain week, with pick up in demand a China only story. China became a net importer of molybdenum this year, and in March alone imported more molybdenum concentrate and molybdic oxide than it did in all of 2008. Chinese molybdenum imports skyrocketed 876 per cent to 14,447 tonnes in the first quarter of this year, while exports sank 69 per cent.

Company News

Thompson Creek Metals recently released its first quarter results, along with projections for the second quarter of 2009. Based on market trends experienced in the January to April period, the company expects its average realized price to be lower in the second quarter than in the first quarter of 2009. Additionally, the company’s sales volumes are expected to be less during the 2009 second quarter as the Company continues its efforts to match production with the anticipated level of sales. For 2009, previous guidance for molybdenum production levels of 20 to 24 million pounds remains unchanged; with expected production from the Thompson Creek Mine 15 to 17 million pounds, and the company’s share of Endako Mine’s expected production is 5 to 7 million pounds.

Given the lower cash cost per pound produced for the 2009 first quarter, the anticipated average cash cost per pound produced in 2009 has been revised to an estimated $6.25 to $7.25 per pound, with the Thompson Creek Mine expected to be approximately $6.00 to $7.00 per pound and the Endako Mine at an estimated cash cost of $7.00 to $ 8.00 per pound. The company’s 2009 sales of molybdenum produced from its own mines are expected to be 20 to 24 million pounds, with additional sales of molybdenum purchased, processed and resold in 2009 expected to be 3 to 4 million pounds Operating cash flows will be impacted by approximately $20 to $24 million for every $1 per pound change in the molybdenum price.

Taseko Mines Limited (TSX: TKO) recently released results for the three months ended March 31, 2009. The company brought in an operating profit of $6.6 million and net earnings of $3.5 million or $0.02 per share. This compares to an operating loss of $40.5 million and a net loss of $39.6 million for the quarter ended December 31, 2008. Revenue for the quarter was $40.2 million from the sale of 18.5 million pounds of copper and 230,000 pounds of molybdenum at an average realized price of US$1.61 per pound for copper and US$8.38 per pound for molybdenum.

Russell Hallbauer, President and CEO of Taseko commented, “During the first quarter of 2009, our Gibraltar Mine management team continued on its rigorous cost cutting program and by the end of March we had reduced total site cash costs of production to US$0.85 per pound, down US$0.12 per pound from that achieved in January 2009. Our total cost structure, including off property costs of US$1.18 per pound clearly demonstrates our ability to operate Gibraltar through all phases of the copper cycle. While we are extremely pleased with these operating results, particularly as they relate to our ability to contain costs and operate the upgraded concentrator at design recovery rates for copper, mine management recognizes that further upside exists with improved recovery rates from our molybdenum circuit and increased reliability and throughput of the SAG mill. These two important operating metrics will be the focus of our attention now that winter is over and operating conditions have improved.”   

Tonnes mined during the three months ended March 31, 2009 decreased compared to the same period in 2008 as a result of implementation of the revised mine plan. Cost of production during the quarter ended March 31, 2009 was US$1.18 per pound, a nearly 40 per cent decrease in costs from the three months ending March 31, 2008. Over the past six months, management has successfully implemented cost reduction measures and a new two-year mine plan which includes a reduced strip ratio and operation of only the most cost effective mining equipment. In the cumulative effects of new technology, increased recoveries and throughput from the Phase 1 expansion and upgrade to the mill, and reduced costs of consumables and purchased services such as steel, fuel and ocean freight, and effect of foreign exchange, have supported the significant drop in operating costs.