pro moly article - borrowed from arg boardrecent story in REsource Investor
LAS VEGAS (ResourceInvestor.com) -- Ivan Herring, who is a consultant on industrial metal sourcing and associated risk management for end users spoke to the Hard Assets Conference in Las Vegas on Tuesday, September 11, 2007 about the future trend of molybdenum fundamentals. He noted that current demand is strong and that the expansion of uses for molybdenum may cause even the current high demand to increase substantially in the near term. Supply, he said, is tight, and new mines must be brought on line as rapidly as possible to reduce the chance of a supply crisis. I wrote about his proposal for molybdenum futures contract to increase the funding available to molybdenum miners with proven resources earlier this week.
Mr. Herring received the rapt attention of everyone in the room with his opening summary about “minor metals,” of which molybdenum is one:
“The markets for the minor metals are kind of viewed as the ‘Wild West’ by big industry and very limited expertise exists within them to deal with price fluctuations. Not much is known about the minor metals by either consumers or the general investment banking community. I got a call a couple of years ago from a major Investment Banker who was about to put a large investment in a ‘moly deal’ and needed to know what it was. This area of the market may be the biggest remaining opportunity for individual and small institutional investors, if for no other reason than so little is known about it by the ‘big boys’.
As a consultant in the same line of work, sourcing of industrial metals, as Mr. Herring, I well remember a similar call I received from a client at a very prominent New York investment bank just a few months ago. The caller asked me if the molybdenum metal recovered as a byproduct from copper mining in the U.S. was the same material as the molybdenum metal, which was the basis of an IPO by a Chinese ‘primary’ producer of molybdenum. I was literally struck silent by the palpable ignorance of the question.
Just after Mr. Herring’s talk I spoke with an attendee, Mr. Deworth Williams, the CEO of Monarch Molybdenum, which, he told me, is now in the process of finalizing an IPO to develop a mine on a property in Colorado. He told me that he thought that someone from every existing molybdenum producing operation and every molybdenum opportunity in North America had been present for the talk. He said that he had never before seen such a community of interest among molybdenum miners.
Ivan showed the following slide:
After his initial statement about the sourcing of minor metals quoted above, Ivan Herring continued on to point out that 60% of the molybdenum produced in the U.S. is a byproduct of copper mining in deposits that typically contain molybdenum at concentrations up to 0.1%; the remaining 40% of the U.S. production of molybdenum is produced from ‘primary’ deposits, of typically up to 0.3% molybdenum concentration almost always accompanied by minor concentrations of copper and tungsten, which in many cases today, are of sufficient grade to be mined as byproducts of these primary molybdenum deposits.
Molybdenum produced as a byproduct of copper mining is of course subject to linkage with copper fundamentals and politics. If a primary copper mine is shut down due to price drop, excess supply, labour unrest, or environmental issues its molybdenum production also ceases. This raises the question of whether American demand can be met by (North) America’s existing primary molybdenum mines as listed by Mr. Herring here:
Ivan doesn’t think so. He also said that he doesn’t think that domestic demand growth can even be met by today’s total domestic capacity both of primary and byproduct molybdenum. He went on to describe the drivers for total molybdenum demand and showed the slide below to describe where molybdenum is used in major industrial products.
It is very important to note that the line above, “As Alloy Constituent to Resist Sulfur Attack” describes the critical property of molybdenum, as well as that of nickel, that makes one or the other of them or a combination of both essential for oil field tubular goods, the piping that transports crude oil from the pool to the wellhead and from the well to the refinery. Even refined crude is corrosive enough to demand molybdenum or nickel steels be used to transport it from the refinery to further processing or to an end user.
The lubricants used in the joining of all such ‘tubular goods’ are predominantly based on molybdenum disulfide, which has superior lubrication properties over a wide range of temperatures while being itself insoluble in crude or refined oil products. Molybdenum is thus critical to oil field operations and refining because of the combination of its metallurgical and chemical properties, its domestic availability, and its price in relation to the recent price escalation in the nickel market.
Ivan went on to point out that the volatility of nickel prices, which have been skyrocketing, and the dramatic recent drop in which he sees as temporary, in combination with the unavailability of domestically produced nickel, make molybdenum substitution for nickel in oil field tubular goods and some other specialized high temperature applications attractive and likely. Substitution out of molybdenum for high temperature steel applications such as automotive exhaust manifolds, he said, is unlikely due to automotive industry reluctance to change particularly for proprietary materials approved for such uses which face high barriers of cost to revalidate.
He began his conclusion about the future of the molybdenum market with the following slide:
He was emphasizing that because the primary molybdenum mines now operating in the U.S., Canada, and Mexico (currently inactive), cannot supply more than 40% of the total output produced in the US in 2006 there is a potential for a market ‘squeeze’ by investors holding physical metal. Additional production will lessen the risk of this possibility and thus investment in such production may be a critical risk management factor for large end users.
Also, the sole source of the metal rhenium, is a process discovered in 1943, in which rhenium is recovered as a byproduct of molybdenum refinery ‘roasting’ from the bag house ‘dust.” The importance of rhenium, which some are calling the new precious metal or the seventh platinum group metal (technically incorrect), is shown in outline above. I will discuss rhenium in detail in my article: Rhenium, a byproduct of a byproduct, another peak metal, and, perhaps, a new precious metal,” which will be published tomorrow.
Ivan’s concluding slide speaks for itself.
I finally want to note that International Investment Conferences (IIC) has now expanded their horizons well beyond the gold, silver, and platinum group markets to reflect the new realities of commodity investing. An assured supply of the minor metals, such as molybdenum, at a predictable price is necessary to the continuation and well being of the domestic economies of the world’s industrial nations.
The global race to secure supplies and continued production of them is on. Investors in hard assets take note and keep reading Resource Investor. We will keep you abreast of the latest developments in all of the metal markets, major and minor.