Strong Demand, Tight Roasting Capacity = Firm Molybdenum Price

The molybdenum price continues to surprise mining analysts by remaining ‘remarkably firm’ through 2006. And the same should be true in 2007, if Sprott Asset Management researcher Maria Smirnova is correct. “We see demand growing, while there are not many new sources of supply,” she told us. “In a market where 16-20 million pounds of new supply is required every year to keep up with demand, we are aware of less than 10 million pounds coming on-stream next year from new mines.”

“New production that was anticipated, particularly during the first half of 2006, has not materialized,” William Cook explained. Cook is the North American representative for Derek Raphael & Co (UK), presently the world’s largest molybdenum trader. “We have yet to see one pound of new production coming from a number of mines we had anticipated.” It’s not just delays in new mines coming on. “A lot of the producing mines are not producing what they had budgeted,” Cook said.

U.S. Geological Survey molybdenum specialist Michael Magyar pointed to Kennecott’s Bingham Canyon mine in Utah as an example, “They are producing below their mine plan this year.” Magyar explained, “The molybdenum industry does have the ability to produce more moly, but we can’t roast much more moly right now.” He explained that increased molybdenum in steel demand could create another bottleneck at the roasters. Roasting is the process where molybdenum is brought up to spec by burning off sulphides. “No one is actively permitting for more roasting capacity in North America,” Magyar warned.

Strong demand, lack of new molybdenum mines and roasting capacity to remove the sulphides from molybdenum may provide investors with opportunities in the metal. While it is traded in the cash market among traders, primarily in Europe and Asia, some believe emerging near-term primary molybdenum producing companies could be winners if the metal’s price remains around the $25/pound level. Most of the world’s moly comes to the market as a byproduct of copper mining.

Smirnova’s favorites among near-term primary producers include Blue Pearl (TSX: BLE), which she says has been catapulted to “one of the largest and most profitable mining companies in Canada.” Another company in which Sprott Asset Management, through its funds, has invested is Roca Mines (TSX: ROK). “Roca is one of the very few emerging moly producers that we know of. Roca is still progressing towards beginning production at the end of this year or early next year.”

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James Finch contributes to StockInterview.com and other publications. StockInterview’s “Investing in the Great Uranium Bull Market” has become the most popular book ever published for uranium mining stock investors. Visit stockinterview.com stockinterview.com