Suggesting that molybdenum markets will be driven by the economics of primary production due to increased product demand, Scotia Capital has substantially revised its moly price forecasts upward.
Author: Dorothy KosichPosted: Friday , 05 Oct 2007
RENO, NV -
Scotia Capital has recently initiated coverage of three molybdenum equities, revising its moly price forecast for this year from $25.25/lb to $30.43/lb, the 2008 forecast from $19.25/lb to $33.25/lb, its 2009 forecast from $8/lb to $27/lb and long-term forecast from $7.50/lb to $12/lb.
Metals analysts Lawrence Smith and Alex Terentiew predicted global molybdenum consumption growth of 7.1% in 2007 (previously forecast at 6.2%) and 8.4% in 2008, up from 3.9%.
"The increase in our long-term price is based primarily in the incentive price necessary to include sufficient new capacity into production, taking into account our estimates of capital and operating costs," they said. "We are now assuming that the long-term price is reached in 2015, rather than 2010, which was previously assumed."
Scotia's analysts asserted that they believe "molybdenum equities will transition from being considered special situation to being mainstream mining equities."
"In our opinion the molybdenum market is undergoing an evaluation from being driven by by-product copper production to becoming more driven by the economics of primary product," Smith and Terentiew suggested. "Similarly, we believe this evolution will be reflected in the equity markets, where an investable universe of molybdenum-focused equities are emerging."
Scotia's analysis revealed that industry consolidation has seen the "investable universe of aluminum and nickel names disappear from the Toronto Stock Exchange. We believe that molybdenum-focused equities are a viable investment to redeploy this capital."
The analysts said that the market "is being increasingly supplied by primary molybdenum mines as the share of supply from secondary or by-production production from copper mining declines." They estimate that 46% of global moly production will be from primary mines, up from 40% in 2006. "We believe that as a result, long-term prices will be higher as prices will be determined more by the economics of the primary mining industry, rather than as a by-product of copper production."
To meet the demand for moly until 2010, new primary molybdenum mines will have to be developed, according to Scotia's analysis. "Many of the attractive projects are held by small capitalization companies, which may suggest they will need to issue equity to finance the development of new mines. This need to access the equity markets will, in our view, increase investor awareness of this segment of the mining industry."
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Scotia Capital has initiated coverage of Thompson Creek Metals (TSX: TCM), Idaho General Mines (AMEX: GMO), and Moly Mines (TSX: MOL). Noting that there are only two large pure-play publicly-traded molybdenum producers in the world, Thompson Creek Metals and China Moly, the analysts suggested that they could be joined by a second Chinese moly producer, Jinduicheng Molybdenum Mining Company.
The top eight molybdenum producers include Freeport McMoRan (Phelps Dodge) with 2006 production of 68 million pounds or 17% of the world share; Codelco, 60 million pounds and 15% of global production; Rio Tinto, 37 million pounds and 9% of production; Junduicheng Molybdenum, 27 million pounds and 7% of production; Thompson Creek, 25 million pounds and 6% of production; Southern Copper, 24 million pounds and 6% of production; Antofagasta, 22 million pounds, 5% of production; and China Moly, 22 million pounds, 5% of production.
Scotia Capital has given a 1-Sector Outperform recommendation for Thompson Creek Metals and a one-year target price of Cdn$24, implying a rate of return of 9.3%. The analysts advised that Thompson Creek "may play the role of consolidator in the molybdenum industry."
"As the company is currently generating significant operating cash flow, has ‘borrowing' capacity due to its strong balance sheet, and has the ability to raise new equity efficiently since it is already a public company, Thompson Creek may be able to finance projects that a junior mining and/or developing company could not."
The analysts also noted that annual production of moly from Thompson Creek's mines could increase from 20 million pounds in 2007 to 34 million pounds in 2010.
Scotia also forecasts "big projects, big potential" for Idaho General Mines. They initiated coverage on the company with a 1-Sector Outperform recommendation and a one-year target price of Cdn$9.50, implying a 43.1% return.
With a potential annual production exceeding 60 million pounds from its two Nevada moly properties, Smith and Terentiew suggested that Idaho General "could become the largest pure-play molybdenum producer in the world." Noting the two projects have more 1,300 million pounds of molybdenum, the analysts declared that "Idaho General may have the largest molybdenum resource of any pure-play molybdenum developer or producer in the world."
Scotia rated Moly Mines with a 3-Sector Underperform recommendation and a one-year target price of Cdn$4, implying a potential return of -14.5%. The analysts noted Moly's Spinifex Ridge project in Western Australia is "one of the largest and most advanced stage molybdenum deposits currently being evaluated in the world." The deposit has a resource estimate of more than 600 million pounds of molybdenum.
"We believe that Moly Mines' key advantage over its competitors is its more advanced position in its stage of development," the analysts advised.
Subject: The Best Mining Stock in the World.
Silver Stock Report
by Jason Hommel, November 20, 2006
I've been investing and writing about mining stocks since 1999, and the best mining stock in the world in my opinion, is the one that will most likely move up in price the most. The following company should be worth about $1-3 billion dollars, which would imply a share price of about $17 to $51, and yet the stock is trading at $2.45/share.
Disclaimer: I own 549,000 shares of Idaho General Mines (which was over 10% of my net worth), and just today, I placed an order to sell 100,000 shares to diversify a bit, and raise cash for a private placement in another stock that also has great potential.
Idaho General Mines (Symbol: GMO trading on the AMEX)
http://www.idahogeneralmines.com/
41.5 million shares issued and outstanding
58.8 million shares fully diluted
@ $2.46/share
$145 million market cap (fully diluted)
The company has $36 billion worth of proven and probable reserves.
They have a completed feasibility study (the plans to mine) indicating cash costs are about 11% of the value of the reserves, so about 89% of what they pull out of the ground will be pure profit! Interested?
But it's even better, because they don't have $36 billion paper dollars in the ground that can go up in smoke, it's a mineral that is vital to world growth, and demand is expected to grow faster than mine supply for many years.
If this were a gold mine, the gold equivalent, at $625/oz. would be 58 million ounces of gold in proven and probable reserves, with a feasibility study indicating cash costs of $68/oz.!
This would be, by far, the largest gold mine in the world, with the lowest cash costs in the world.
If this were a silver mine, the silver equivalent, at $12.73/oz. would be 2,827 million ounces of silver in proven and probable reserves, with a feasibility study indicating cash costs of $1.40/oz.!
It wouldn't much matter if GMO had gold or silver. If they had either silver or gold, this stock would be worth about $1-3 billion in market cap in today's markets.
At $3 billion, (counting fully diluted shares) that implies a stock price of $51/share! That's 21 times higher than the current $2.46/share!
But, actually, the mineral is not gold, nor silver, it's molybdenum! Pronounced mah-lib'-da-num. Or, "moly" as it is called.
The beauty of moly is that we don't have to wait for prices to skyrocket, because they already have, which has created this incredible investment opportunity. Moly prices have risen over ten fold up to a high of $40/lb., and have recently bottomed out around $22/lb., and are back up again at $27.50/lb.!
The company has 1.3 billion pounds of molybdenum in reserves at
The free market, which is the most efficient and most profitable economic system ever, is based on allowing prices to freely move, as prices are the best indicator of telling us investors what the world wants and needs, and what to invest in.
If you believe in the efficiency of the free market at all, you should listen to what moly prices are saying, especially about the profitability of moly projects. Moly prices cannot be manipulated to the downside, as they are not traded on any futures exchange.
Moly prices have been above about $25/pound for OVER two years now, and are telling us to invest in a good moly project. Idaho General Mines is the best moly stock I've found, out of about 20 of the best ones.
So, why does the stock remain so cheap? Several reasons.
First, over two years ago, Idaho General Mines acquired the
Second, I began promoting this stock just this year, in January 2006, when the stock was $1/share. (You should subscribe to get my free email newsletter at silverstockreport.com).
Third, about 7 months ago, GMO completed a $30 million financing at $2/share, to help them get through the permitting stage. This stock placement recently came free trading on about August 6th, which caused selling pressure back down to $2/share.
Fourth, only about 3 months ago, GMO was listed on the AMEX.
But in the past year,
If GMO produces 33 million pounds of moly at $27.50/lb., at cash costs of $3.15/lb., that's a projected EBDTA (earnings before depreciation, taxes & amortization) of $803 million per year!
This moly project will be wildly profitable even if moly prices drop back to $7/pound.
The location is
I've visited the
GMO has substantially updated their web site in recent months with new information for investors. See
http://www.idahogeneralmines.com/igmidir2/investors.htm
See also their Frequently Asked Questions page:
http://www.idahogeneralmines.com/igmidir2/investorfaqs1.htm
Some questions I've received are generally how this company compares with many others.
Many moly projects have higher grades, but will only produce about 1-2 million pounds of moly per year, not 35 million pounds like per year like this one.
GMO has the highest grades of the large projects.
GMO is the largest moly project out there, by far. Adanac, another moly company, will produce only about 11 million pounds of moly per year, which is 1/3 as much, and Adanac has cash costs nearly twice as high, with lower grades of moly, and has capital costs about the same.
Now, there are other big copper/gold/moly projects such as Northern Dynasty, which has a market cap five times as high at $545 million or more. But that is mostly a copper project, their moly grades are very low by comparison, and their overall grades are also low by comparison. Also, it is still being drilled, and may not be permitted until 2011, and my cost between $600 to $800 million to build their mine.
Northern Orion, another gold/copper/moly project, also has a market cap of about 6 times higher, at $600 million. NTO is still working on feasibility, has moly grades 1/3rd as rich as GMO, and has low copper grades of .3 to .4%, and is located in more politically risky Argentina, and will probably also require substantially higher capital costs to get started.
I strongly suggest that you put no more than 10% of your portfolio into any one thing. But I also strongly suggest that you put up to 10% of your portfolio into GMO. This stock is now liquid, on a major exchange, on a price dip, and has the most leverage and potential of any stock that I know of. I think the biggest risk is permitting, although permitting is progressing nicely.
Idaho General Mines, Inc. Announces Progress Permitting the
http://biz.yahoo.com/bw/061018/20061018005283.html?.v=1
Financing should be easy.
If GMO raises $500 million at $10/share, for 50 million more shares, that will be 107 million shares. If they earn up to $800 million per year, that could give them a market cap of $4-8 billion, which would imply a stock price of $37 to $74/share. That's substantially higher than the $2.46/share it's trading at today.
Possible share price timeline:
Promotion throughout 2007. $2-7/share.
Permitting completed by 2008. $7-14/share
Financing completed by 2008. $19-18/share.
Mine completed by 2009. $15-30/share
Mine producing by 2009. $20-40/share.
Mine producing with history, 2010. $40-80/share.
The stock could go higher than that, of course, as I expect molybdenum to continue to be in high demand. Moly is primarily used as an ingredient in steel, such as zinc. Zinc prices have also exploded, for much the same reason! The world economy is booming!
Specialist Expert Gives an Upbeat Survey of Molybdenum Demand Growth
By Jack Lifton
20 Sep 2007 at 01:58 PM GMT-04:00
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
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
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)
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.
St. LOUIS (ResourceInvestor.com) --
According the feasibility study, the project has a net present value (NPV) of $1.4 billion at a 10% discount using price forecasts by CPM Group. At $15 per pound of molybdenum, the
“The estimated NPV of $1.4 billion continues to compare favorably to our fully-diluted market capitalization of $429.3 million,” said CEO Bruce D. Hansen. “We believe the company will provide value to our investors given the company's current nearly 70% valuation discount to the NPV of Mt. Hope and the unique growth opportunity that Hall-Tonopah provides.”
During the first five years,
Hansen told analysts in a conference call that
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The study calculates 1.31 billion pounds of moly in Proven & Probable reserves at an average grade of 0.068%, using a cutoff grade of 0.034%. For the 44-year life of the mine, the deposit will produce on average 25.5 million pounds per year at a grade of 0.068% at costs of $6.05/lb.
Concerning funding, Hansen said the company plans to finance the mine’s development using 60%-70% debt and the rest equity. However, he added that Idaho General has had discussions with steel producers and trading companies for offtake and financing agreements.
Hansen anticipates placing long-lead equipment orders in the fourth quarter of this year and receiving the required permits in the first quarter of 2009. Pre-stripping at
“Clearly we have a lot of work ahead of us,” said Hansen, but “we’re here at the right time.”
From 1950 to 2006, the average molybdenum price has been $9.45/lb. In the past 15 years, the price of moly has been as low at $1.82/lb and as high as $40/lb. Today, moly is priced above $32/lb.
Molybdenum is mainly used as an alloy to strengthen iron and steel, increasing the melting point and enhancing resistance to corrosion. It is a vital component in the making of stainless steel and oil and gas pipelines.
CPM Group expects demand growth for molybdenum to remain robust in the next 10 years, driven largely by
The China Iron and Steel Association recently predicted that
Statistics from the U.S. Geological Survey show world-wide molybdenum consumption at an apparent 44,500 tonnes, while mine production came in at just 60,500 tonnes last year.
