►The Complete Kaiser Report courtesy of Crazy Diamond
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Below is the complete John Kaiser report on Molybdenum and what he refers to as "Molymania". I have taken the liberty of copying and pasting what he had to say about Adanac to the top, but the entire article along with his thoughts on Adanac can be found below.
Excerpt on Adanac Moly Corp.
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Adanac Moly Corp: the first moly dedicated junior
The earliest bird among the exploration juniors is Adanac Moly Corp (AUA-V: $0.82), which staked the 4,325 hectare Adanac molybdenum deposit in July 2001 while the company was still called Stirrup Creek Gold Ltd and struggling to reactivate itself. Stirrup consolidated its stock 5:1 on October 31, 2003 and renamed itself Adanac Gold Corp even though the TSXV had classified it as a "copper-molybdenum" company. Larry Reaugh's caution was likely linked to his earlier foray into molybdenum exploration. During the mid nineties he had pushed two other companies, Molycor Gold Corp (MOR-V) and Verdstone Gold Corp, into molybdenum exploration with several prospects in southern British Columbia. In March 1997 both companies secured an option on the Yorke-Hardy deposit near Smithers and investigated putting its high grade core into production at 3,000 tpd. They abandoned the option several years later and gave up their molybdenum focus. By November 2004, however, molybdenum's rocketing price had turned Larry Reaugh into a believer once again and he changed Adanac's name to Adanac Moly Corp.
The Adanac deposit, now renamed Ruby Creek, was discovered in 1898 but did not undergo serious exploration until the 1967 when a junior called Adanac Mining and Exploration staked the property. Kerr Addison optioned the property and completed a feasibility study in 1971 but declined to proceed. Placer optioned the project in 1978 and initiated permitting for a 14,000 tpd mine on the basis of a resource calculation of 151,971,000 tonnes of 0.063% Mo but lost interest in 1982 and dropped its option. John Lamacraft's Adanac merged with John Weatherall's Bell Molybdenum Mines in 1995, which in 1997 acquired an airborne geophysical survey company called Aerodat and renamed itself Bell Earth Services. The Adanac (Ruby Creek) claims lapsed after Aerodat went bankrupt in 1998 and Bell Earth delisted from the VSE in 1999, enabling Larry Reaugh's unrelated Adanac to stake the deposit in 2001. In late 2003 the new Adanac initiated a scoping study on the Ruby Creek deposit which concluded that at $6/lb molybdenum a 14,000 tpd milling operation with a 17 year mine would have a 16% internal rate of return and a rather abysmal net present value of Cdn $3.5 million. The scoping study envisioned construction of a nearby 10,000 kilowatt hydroelectric facility to provide power. The Ruby Creek deposit is located in the northwestern corner of British Columbia 25 km northeast of the small town of Atlin, a location which would qualify as remote and lacking in infrastructure. During 2004 Adanac completed a 36 hole 9,000 metre drill program that consisted mainly of infill drilling but also included some stepout holes. Although historical resource calculations were made by major mining companies, they are not in compliance with 43-101 requirements and some of the data needed to make the resource 43-101 compliant is no longer available. The purpose of the 2004 drilling was to allow a reserve study which will yield a 43-101 compliant resource. Adanac's goal in 2005 is to complete a prefeasibility study which justifies putting the Ruby Creek deposit into production as a pure molybdenum mine.
Adanac completed a flurry of financings during December 2004 that raised several million dollars. On December 21 Adanac received approval for a short offering financing of 2.4 million units at $0.50 by Canaccord. Once this financing is done Adanac will have about 50.1 million shares fully diluted. The company has 5.8 million private placement warrants outstanding that escalate from $0.40 to $0.50 on July 7, 2005. During August 2004 Adanac acquired the Nevada BC project in Nevada on reasonable terms. The Nevada BC property covers part of a tabular molybdenite bearing body controlled by US Smelting and Refining. Should Adanac secure a reasonable option on the USS claims the Nevada BC project could also become a significant moly play. This project in Nevada somewhat offsets the risk associated with the upcoming May 2005 provincial government elections in British Columbia. If the anti-development New Democrat Party comes back into power exploration and mine development in British Columbia will likely once again hit a wall of resistance that would kill the market's appetite for plays such as Ruby Creek. At the moment it does not look like the NDP will replace the incumbent Liberals (not the same as US Democrats), but BC politics is such that nothing can be taken for granted. Adanac has an advantage over other moly juniors in that the company has established a high profile as a molybdenum exploration junior. The company's web site, www.adanacmoly.com, provides links to current molybdenum prices and charts.
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The entire article:
January 4, 2005
Will MolyMania Hit the Juniors in 2005?
An obscure but ubiquitous metal called molybdenum underwent a little noticed tenfold spot price increase during the past two years which has started to catch the attention of the Canadian exploration industry. Molybdenum is widely used in steel and other metal alloys to provide hardness and corrosion resistance. Molybdenum's low toxicity has also turned it into an important component of catalysts and lubricants, many of which are used by the oil industry. Molybdenum demand has grown as a result of the infrastructure development boom in China and the push to develop and deliver new energy sources that ease global dependency on Islamic oil. Molybdenum last boomed during the seventies when many of the known molybdenum deposits in Alaska, British Columbia and western United States were delineated. Prices collapsed under the pressures of the 1982 recession and the arrival of molybdenum by-product production from copper mines. Molybdenum languished in the $1-$3 per lb range for more than two decades except for a short-lived spike in 1994-1995 related to a temporary mine shutdown. The world's needs were amply met by Chinese production, several major North American primary molybdenum mines such as Endako and Henderson, and price-insensitive by-product production from North and South American copper mines. The sharp molybdenum price increase in 2004 to nearly $35/lb is due partly to a structural shift in demand, and partly due to processing bottlenecks. The industry consensus is that current prices are unsustainable for the simple reason that at this level an enormous portion of the in ground inventory of molybdenum is very economic and if developed would soon enough glut the market. In addition, existing molybdenum producers are not operating at capacity, and there is some suspicion that the price spike is due to forces similar to those which pushed American electricity prices through the roof in 2000. The conventional view is that prices will retreat sharply in 2005 as existing producers, particularly the primary molybdenum mines which have been operating below capacity, act to increase supply by processing higher grade material or moving to full capacity. Less clear is the price level at which molybdenum eventually stabilizes, which presents to the speculative juniors the question of whether to ignore the stunning price increase as a temporary aberration or to grab long abandoned known deposits or good exploration targets and promote the story that this time is different. One's willingness to believe that long term prices higher than the historical average of the past decades lie ahead depends on the degree one believes that the economic revolution underway in Asia has staying power. I hold the view that MolyMania will catch on in 2005 much as UraMania did in 2004 and will result in substantial price increases for juniors with good pure molybdenum projects.
Although several exploration juniors have acquired known molybdenum deposits or interesting exploration plays which have attracted financings, their shares have not been swept up in a MolyMania resembling the UraMania that swept uranium juniors during 2004 when uranium prices doubled even though there are many similarities between the metals. Both the obscurity of molybdenum and the "flash-in-the-pan" perception (remember the tantalum "mania" of a few years ago?) are to blame. But the prevailing sentiment that molybdenum prices will soon collapse began to weaken in November. Larry Reaugh's Adanac Moly Corp (AUA-V: $0.82), which 321Gold's Bob Moriarty had written up in August (Good Golly, Miss Molly), began to get respect as it attracted a new round of financing in early December for its Ruby Creek deposit. Speculators began to do the math on the high grade molybdenum core within the Max deposit of Scott Broughton's Roca Mines Ltd (ROK-V: $0.35). The Nithi Mountain prospect a few miles from Endako that Jim Davis had staked a year ago for Leeward Capital Corp (LWC-V: $0.34) started to attract inquiries from potential joint venture partners. A stricken bottom-fish called Patent Enforcement & Royalties Inc (PAL-V: $0.18 halted) was halted for a change of business when management gave up bankrolling lawsuits in favor of acquiring the Yorke-Hardy molybdenum deposit. Perhaps the best sign that molybdenum was tickling the market's imagination came when Harry Barr sent El Nino Ventures Inc (ELN.H-V: $0.44) on a quest for moly plays. Lest anybody complain that this must mean the moly sure-thing siren is wailing too loudly for any serious bucks left to be made in this flavor-of-the-month, I should point out that El Nino is also acquiring a silver and a uranium play, a most positive sign of healthy uncertainty.
Molybdenum's price run is clouded with a "too-good-be-true" aura that has prevented MolyMania from snowballing, but the situation has reached a perceptual tipping point. Speculators can ignore a rocket launch price chart only so long. The purpose of Express 2005-01 is to alert bottom-fishers to the possibility of MolyMania in 2005, present a framework for thinking intelligently about molybdenum plays, and point out several key speculative vehicles for participating in MolyMania. You can skip to the bottom of this report for information on the moly juniors mentioned above. The implied project value chart above indicates how the market is presently pricing moly plays controlled by juniors. The table below lists the primary molybdenum plays controlled by juniors about whom further information is available on Kaiser Bottom-Fish Online. Daily updates are posted to the Spec Value Hunter - Pure Molybdenum Plays table. My prediction is that these "moly" juniors will trade at prices 2-3 times higher their current levels during the first few months of 2005 as MolyMania catches fire, with potential to go significantly higher if they successfully advance their projects and molybdenum prices do not collapse to historical levels.
Key to Understanding the Spec Value Hunter Tables Flagship Play Secondary Plays Other Plays
A Spec Value Hunter table allows speculators to identify which projects offer poor, fair or good speculative value according to the rational speculation model. The speculative value depends on the project stage, the project's implied value as calculated by the company's fully diluted, stock price and net project interest, and the dream target deemed appropriate for the project. A dream target is what a project would be worth in discounted cash flow terms once in production. The table also presents the market assigned odds (ie 50:1) and upside potential (ie 500%) for the three different dream targets: $100 million, $500 million and $2 billion. In other words, it tells you how much the stock would go up from its current price in the absence of further stock or net interest dilution if exploration turns the dream target into reality.
Green background indicates the dream target judged appropriate for this play by John Kaiser - otherwise unranked.
Poor Speculative Value - Fair Speculative Value - Good Speculative Value -
Note: narrow arrows indicate IPV is outside the fair value channel but within 25% of the fair value limits
Reviewed during the past 31 days
Above Bottom-Fish Range Within Bottom-Fish Range Below Bottom-Fish Range
Spec Value Hunter - Pure Molybdenum Plays December 31, 2004 Company
Project Stage IPV
millions $100 million
Odds-Spec Val-Upside $500 million
Odds-Spec Val-Upside $2 billion
Odds-Spec Val-Upside
Adanac Moly Corp (AUA-V) $0.82 Nye County - Nevada BC M2 $41 1:1 100% 11:1 1,100% 48:1 4,800%
Adanac Moly Corp (AUA-V) $0.82 Northwest BC - Ruby Creek M3 $41 1:1 100% 11:1 1,100% 48:1 4,800%
Leeward Capital Corp (LWC-V) $0.34 Central BC - Nithi Mountain M1 $12 7:1 700% 39:1 3,900% 161:1 16,100%
Patent & Enforcement Royalties Inc (PAL-V) $0.18 Northwest BC - Yorke-Hardy M5 $5 20:1 2,000% 106:1 10,600% 425:1 42,500%
Roca Mines Inc (ROK-V) $0.35 Southeast BC - Max M5 $17 5:1 500% 29:1 2,900% 117:1 11,700%
(Note: while I found a number of good online resources about molybdenum, none present a complete and up-to-date compilation of production and capacity statistics, and the major producers of molybdenum provide very little detail about molybdenum in their filings or on their web sites. The situation is completely different with uranium where organizations like the World Nuclear Association do a fantastic job that puts the International Molybdenum Association to shame. The US Geological Survey is a helpful resource on which I relied for much of my data. If any of the information in the various tables turns out to be incorrect I will add the changes to this document and insert a note indicating when the table was updated. All figures are in US dollars except where they refer to the stock prices and valuations of Canadian exchange listed juniors.)
Moly at Five to Tenfold its historical average price is unsustainable
Some basic warnings are in order. First of all, do not take seriously the current molybdenum spot prices. And be prepared for MolyMania promoters who plug spot prices into their cash flow models! The price of molybdenum has stagnated at pretty much the same level for 20 years as the world annually consumed just under $1 billion worth of the stuff. Annual production between 1990-2003 ranged 207-306 million lbs, with the low occurring in 1993 just before a price spike in 1994 that fizzled in 1995 when production surged to 300 million lbs. Estimates for 2004 production are not yet available, but are unlikely to be less than the 275 million lbs produced in 2003. Is it even remotely plausible that within two years the global economy has grown so strong it can afford the $10 billion value that existing production is worth after a tenfold increase in the spot price of molybdenum? Even when you concede that demand for alloys with specialized requirements will grow in only one direction?
Existing molybdenum reserve could supply current demand for 142 years
If the sheer magnitude of the value of 2004 production does not faze you consider that on the basis of historical average prices the US Geological Survey estimates that worldwide known molybdenum-bearing deposits of at least marginal economics represent about 42 billion pounds of molybdenum worth about $1.4 trillion at $35/lb moly. Can you imagine how much molybdenum mineralization becomes economic at $35/lb moly? The existing reserve base as estimated by the US Geological Survey could supply the global demand of recent years for another 142 years. At $35 moly all of the reserve base is likely economic. At $35 moly the reserve base is actually much bigger. Porphyry molybdenum deposits have grade zonation; geologic resources were calculated decades ago, employed cutoff grades linked to historical moly prices, and consequently represent only a portion of any mineralized system's entire footprint. Be wary of ambitious stock promoters who puff up their moly deposits by chopping the cutoff grade and then plug in the current moly price to crank out an astronomical gross in situ value for their deposit! For example, the mother of all unexploited moly porphyry deposits, Quartz Hill in Alaska, has a geologic resource of 1.2 billion tonnes of 0.077% Mo calculated at a cutoff grade of 0.027% Mo. At $35 moly Quartz Hill has an in situ value of $71 billion with $21 rock as the cutoff, a rather high cutoff for what would be a very low cost giant open pit mining operation. By reducing the minimum rock value to $10 per tonne one could probably boost the Quartz Hill resource by 50%. Great on paper but not in real life! It would be foolish to reject the industry consensus view that current molybdenum prices are unsustainable and should not be used in any cash flow scenarios. The two charts below show that China, which was in third place in 2003 in terms of production, has enormous untapped molybdenum reserves, followed by first place producer United States. It is not clear what is needed to mobilize the Chinese resource base.
Forget the short term supply squeeze, focus on the medium term outlook
That said I will not be surprised if during the interim spot prices shoot higher and maintain ridiculous levels through much of 2005. The argument about the sustainability of recent molybdenum prices is a red herring in the debate of whether or not MolyMania is possible. The real debate is about whether or not Asia's transformation into a consumer society that fosters the expansion of a middle class is sustainable. Not too long ago about 200 small molybdenum mines in China were exporting so much molybdenum onto world markets that the Europeans, who do not mine an ounce of molybdenum but do convert tonnes of molybdenite concentrate into the molybdic oxide and ferromolybdenum used by the steelmaking and chemical industries, imposed anti-dumping duties on Chinese molybdenum. But in 2003 Chinese authorities shut down all the mines in the key molybdenum producing region of Liaoning Province for safety inspections after two accidents. Of the 200 mines only 120 were expected to be allowed to resume production in 2004. Safety inspections in China? Is respect for individual rights displacing the need for individual sacrifice for the good of the state? Regardless whether the mine shutdowns were just a supply manipulation strategy or really a reflection of rising middle class values, China has turned into a net importer of molybdenum to feed its steel making industry and pipeline projects. The Europeans, whose fabricators of high performance alloy based parts are staggering under the burden of tenfold higher molybdenum prices, are now considering elimination of the anti-dumping duties. A little too late perhaps? The biggest theme in the coming years will be the extent that China manages to turn itself into the biggest consumer of its production and in the process weans itself of its dependency on the well-being of the American consumer. For those observers who regard an implosion of the China boom and a reversion to wheel-spinning communism as inevitable, MolyMania is easy to ignore. For those like myself who see a historic transformation on a civilization scale underway, MolyMania has to be taken seriously.
The metal with a nasty history of biting its supporters
The key speculative assumption I am making is that the molybdenum price is not going to crash back to historical levels, an assumption that is not unreasonable in light of what we witnessed with other metals during 2004. My target equilibrium for molybdenum is the $10-$15/lb range where most deposits are not slam dunks, but do represent opportunities considerably better than were available in the $3-5/lb range. This target has a contrarian twist in that it partly depends on a wizened industry's dread of the circular dynamics of supply and demand to breed a collective reluctance to undertake the capital investment needed to expand production or develop new deposits, moves that would be hugely profitable provided hardly anybody makes them. The people who run mining companies remember that molybdenum prices barely increased during the boom years of 1959-1970, but exploded eight-fold during the mid-seventies, a price boom that fueled the exploration boom that outlined many deposits and put enough primary molybdenum deposits into production to more than offset the demand that never materialized. The molybdenum boom of the seventies resembled the uranium boom of the same period when anticipation of widespread nuclear reactor construction in reaction to the OPEC oil squeeze spurred uranium stockpiling. Instead, the accidents at Three Mile Island and later at Chernobyl, coupled with the rise of environmentalism, the public aversion to anything radioactive, and the endless debate over radioactive waste disposal, killed the enthusiasm for nuclear energy, a situation compounded by the slump in oil prices during the eighties.
Parallels between molybdenum and uranium
The parallel between the fate of uranium and molybdenum goes further. During the eighties and particularly during the nineties the molybdenum market was inundated by molybdenum by-product production from copper mines. Once a copper producer added a molybdenum recovery circuit, whose operating costs were buried in the copper production cost, molybdenum was produced with utter disregard to price and market demand. After the collapse of the Soviet Union in 1989 uranium producers found their market inundated by a new supply of uranium as the West scrambled to decommission obsolete Soviet nuclear warheads and convert the highly enriched uranium into fuel for nuclear reactors. This extra supply of uranium was not guided by economics but rather by the urgent need to get rid of weapons grade uranium before it fell into the hands of lunatic generals, criminals, Axis of Evil contenders and Islamic terrorists. The chart above shows only new uranium production; destockpiling and reworked enriched uranium has until recently helped meet annual consumption of about 100,000 tonnes. The parallel falls apart when you consider that the supply of enriched uranium has pretty much run out, but the current boom in copper demand can only encourage more molybdenum by-product production. Fortunately for MolyMania, the upper echelons of the copper miners are filled with as many experienced executives with long memories as are those of the molybdenum miners. I am counting on game theory paralysis to keep molybdenum prices high for longer than industry executives imagine, a condition which would attract broader audiences to molybdenum plays. Executive caution and a continuing China economic revolution will keep molybdenum from sinking back to price levels that prevailed during the final decades of the twentieth century. The essence of MolyMania will not be how high the price of molybdenum soars, but rather how low it will eventually fall, and that question will remain unanswered for at least a couple years, long enough for the earlybird juniors to become market sensations.
Copper-Molybdenum deposits do not qualify for MolyMania
Okay, so you promise not to use $35 moly when calculating the rock value of a molybdenum deposit or drill hole intersection assay. Instead you will use $10 moly on rainy days and $15 moly on sunny days. Now, another basic warning is to stay clear of copper-molybdenum projects when looking for a MolyMania vehicle. Stick to "pure" molybdenum porphyry deposits of which there are plenty in the Western Cordillera (the South American porphyries are dominated by copper-molybdenum mineralization). Many juniors with copper porphyry deposits have started reporting the molybdenum grade which is generally below 0.05% and usually below 0.02%. (There are some that grade 0.05-0.1% Mo but they generally have weak copper grades below 0.1% whose presence is detrimental because it costs more to remove it from the molydenite concentrate than it is worth.) At $35/lb molybdenum these grades represent rock values of $39 and $15 per tonne respectively. When you add the molybdenum value to the copper value, the combined rock value of many copper-moly deposits will suggest fantastic economics. However, nobody in their right mind, let alone a banker, will plug the current copper and molybdenum prices into their feasibility study cash flow models. The future copper price curve is in backwardation suggesting a price 30% below current levels two years down the road. Any major copper deposit for which a production decision is made today will require 3-5 years of permitting and construction before it is in production. Adding a molybdenum recovery circuit to an existing or planned operation requires an additional capital investment. In so far as a production decision for a copper deposit will depend on the molybdenum by-product for feasibility only the historical molybdenum price will be used.
Does the reported molybdenum grade refer to contained Mo or MoS2?
Care must be taken when calculating the rock value of a molybdenum deposit because molybdenum grade and molybdenum price are each reported in two different manners. The molybdenum content of a deposit is reported as a percentage of pure molybdenum (Mo) or molybdenite (MoS2), a molybdenum sulphide which is the only economically significant form in which molybdenum naturally occurs. Molybdenum by weight represents 60% of molybdenite. Milling and flotation of molybdenite produces a molybdenite concentrate from which the sulphur must be stripped by roasting to produce the molybdic oxide supplied to end-users or other upgrading processes. Whenever reviewing a geological report of molybdenum grade or assays, check to see if the number refers to "contained molybdenum" or "molybdenite" (usually shortened to MoS2). If the source is of a technical or scientific nature, I assume any grade presented as just "% Mo" refers to the contained molybdenum, but if the source is literature from an exploration junior I would get confirmation from management before relying on "% Mo" as meaning contained molybdenum.
Does the moly price refer to the weight of contained moly or the moly containing product?
The price of molybdenum is quoted in US dollars per lb for molybdic oxide (MoO3) or per kg for ferromolybdenum. Molybdic oxide (also called "tech oxide" and abbreviated as MoX), which is produced by roasting molydenite concentrate to remove the sulphur, theoretically contains 75% molybdenum by weight, though the minimum "technical grade" requirement is 57% molybdenum. Ferromolybdenum (abbreviated as FeMo), which is produced from molybdic oxide, contains 60-70% molybdenum while the rest is iron. What nobody seems to know or is willing to disclose is whether the quoted price refers to "contained" molybdenum or the material delivered. For example, when a fabricator is quoted $34 per lb of molybdic oxide and orders 100 lbs at a total cost of USD $3400, does he receive 100 lbs of molybdic oxide powder containing 75 lbs of pure molybdenum, or does he receive 133 lbs of molybdic oxide powder containing 100 lbs of pure molybdenum? Most organizations such as the US Geological Survey assume that the quoted price refers to "contained molybdenum", which is the convention used in the rock value conversion table below. When comparing the per pound price of molybdic oxide and ferromolybdenum the molybdenum in ferromolybdenum seems to be 20% higher which presumably reflects the extra conversion and iron content charge. In calculating the rock value of molybdenum bearing mineralization use the price of molybdic oxide, and if the grade is quoted as molybdenite (MoS2) do not forget to multiply the result by 0.6 to account for the fact that only 60% of molybdenite is molybdenum. Readers who do not want bother with the math can use the Rock Value Table below to look up the rock value for certain grades and prices.
Rock Value (USD per Tonne) Table for Molybdenum Mineralization Molybdenum Price as Roasted Molybdic Oxide (USD / lb)
Mo Grade $2.50 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $40.00 $50.00
0.01% $0.55 $1.10 $2.21 $3.31 $4.41 $5.51 $6.62 $8.82 $11.03
0.05% $2.76 $5.51 $11 $17 $22 $28 $33 $44 $55
0.1% $5.51 $11 $22 $33 $44 $55 $66 $88 $110
0.2% $11 $22 $44 $66 $88 $110 $132 $176 $221
0.5% $28 $55 $110 $165 $221 $276 $331 $441 $551
1.0% $55 $110 $221 $331 $441 $551 $662 $882 $1,103
2.0% $110 $221 $441 $662 $882 $1,103 $1,323 $1,764 $2,205
Note: the table above assumes the grade represents contained molybdenum in a metric tonne and uses the formula: 2205 x Grade (decimal form) x Price. When grade is reported as % molybdenite (MoS2) the contained molybdenum is 60% of the MoS2 grade. When looking up the rock value for an MoS2 grade adjust the figure by multiplying by 0.6.
Copper by-product molybdenum the biggest near term supply growth source
The biggest downside threat to molybdenum prices lies with the giant Chilean copper deposits where adding a molybdenum recovery circuit is an afterthought easily made during the current copper boom. One of the reasons for the molybdenum price rut of the past two decades is that by-product molybdenum gets produced regardless of the molybdenum price once the initial decision to add the capacity has been made. Copper by-product molybdenum production represents 50-60% of global molybdenum production. Copper-Molybdenum stories are not a good game for exploration juniors to play because that is an arena for the majors. Friedland, Hunter-Dickinson and the Lundins can tackle the copper-moly story, but the oomph they get from the moly credit will be an incremental contribution. It is generally believed that new molybdenum supply will come mainly from copper-moly mines and to some degree from the handful of primary molybdenum mines controlled by majors as they move to full capacity. It is fear of by-product molybdenum production from copper mines that prevents most people from believing in higher long-term molybdenum prices, which fear, ironically, could keep molybdenum prices high longer than they deserve to be. The fear over more copper by-product production may be overwrought. Skepticism about the sustainability of strong copper prices could prolong high molybdenum prices. Long term copper prices have been 20-30% lower than spot prices for more than a year now. Furthermore, copper producers like Phelps Dodge have shifted their development strategy toward smaller, higher grade copper oxide deposits using SX-EW (solvent extraction electro-winning), a process which does not recover molybdenum. Because of the uncertainty about long-term copper prices there will be a reluctance to develop large medium grade primary sulphide copper deposits with a molybdenum credit that require optimistic long term price assumptions for copper. The table below shows the extent that molybdenum production from fairly high grade copper mines (133 million lbs) compares to pure molybdenum mines (91 million lbs). Information about the mines in China, Iran and Armenia was unavailable.
Major Producers of Molybdenum (2003 annual figures) Mine Location Type Production
(lbs Mo) Operator
Henderson Colorado, USA Mo 40,000,000 Phelps Dodge
Chuquicamata Chile Cu Mo 36,000,000 Codelco
Bagdad/Sierrita Arizona, USA Cu Mo 33,000,000 Phelps Dodge
Bingham Canyon Utah, USA Cu Mo 19,400,000 Rio Tinto
Thompson Creek Idaho, USA Mo 18,000,000 Thompson Creek
Endako British Columbia, Canada Mo 14,000,000 Thompson Creek
Questa New Mexico, USA Mo 12,000,000 Molycorp (Unocal)
Cuajone Peru Cu Mo 10,730,000 Southern Peru Copper
Toquepala Peru Cu Mo 9,516,000 Southern Peru Copper
El Teniente Chile Cu Mo 7,700,000 Codelco
Highland Valley British Columbia, Canada Cu Mo 7,300,000 Teck-Cominco
Sorsk Russia Mo 7,000,000 Teck-Cominco
Andina Chile Cu Mo 4,500,000 Codelco
Salvador Chile Cu Mo 2,600,000 Codelco
Erdenet Mongolia Cu Mo 2,200,000 Russian/Mongolian JV
Strong gold prices are good for pure moly plays
Stronger gold prices also discourage development of copper by-product molybdenum. Generally, the better the gold grade in a copper porphyry deposit, the weaker will be the molybdenum grade, usually below 0.01% which at $35 moly represents a $7.50 per tonne credit but at $3 moly just a $0.60 credit. A copper producer is more likely to gamble on the long term value of a gold credit than a molybdenum credit when deciding which medium grade copper deposit to put into production. The prospect of higher gold prices is thus indirectly bullish for molybdenum prices because the development of sulphide copper-gold deposits would suppress the long term copper price. Demand for copper and molybdenum are both linked to economic growth, so the prices for both can be expected to suffer during economic slowdowns. Gold, in contrast, is supposed to have an inverse price relationship to economic growth, at least in regard to the US economy and dollar. A gold credit thus should remain steady during periods of weak copper demand growth or oversupply. The chart below shows that during the past ten years there has been no correlation between copper and gold prices. A gold bull can also be a moly bull.
Who will roast your molybdenite?
Another basic warning that will become relevant as juniors contemplate putting small high grade molybdenum deposits into production is that molybdenite concentrate must be converted to molybdic oxide before it can be sold to end users. The conversion is accomplished through roasting. Most major molybdenum mines such as Endako have on site roasters or, like Henderson, have operators who own off-site roasters that were permitted and built decades ago when pollution control requirements were less stringent. Some roasters will perform toll processing for molybdenite concentrate from other mines. Endako will roast third party concentrates but prefers it from primary molybdenum mines because it markets a high purity end-product from its own roasted molybdic oxide and does not want to deal with copper contamination. Roasters associated with "pure" moly mines such as Endako will not accept copper by-product concentrates unless the copper content has first been reduced through acid leaching. Phelps Dodge's Fort Madison roaster in Iowa handles Henderson concentrate and does third party processing. It's Green Valley roaster in Arizona handles the by-product concentrate from the nearby Bagdad and Sierrita copper mines. Phelps Dodge's Rotterdam roaster in the Netherlands handles just third party concentrates. Thompson Creek's Langeloth roaster in Pennsylvania handles concentrates from its Thompson Creek moly mine in Idaho as well as third party concentrates. Molymet, which operates roasters in Belgium, Chile and Mexico, is the big third party roaster which handles the by-product concentrates from the big copper mines of Codelco in Chile (Chuquicumata, El Teniente, Salvador and Andina), Southern Peru Copper in Peru (Toquepaia, Cuajone), Rio Tinto's Bingham Canyon mine in Utah, and Molycorp's pure moly Questa mine in New Mexico. Most operators of roasters own molybdenum mines that are operating at less than full capacity (50% in 2003) and thus have spare roaster capacity. However, if high molybdenum prices prevail, the same economic rationale that encourages independent parties to develop new molybdenum mines will also encourage outfits like Endako to ramp up production from their own mine and use up the spare roasting capacity. Chinese producers roast their molybdenite in China. There is no quick way to increase roasting capacity. On December 14, 2004 Molymet, the world's biggest processor of molybdenum, announced plans to invest $156 million to boost annual processing output capacity from 100 million lbs to 150 million lbs by expanding two plants in Chile and Belgium. Molymet handles most of the South American copper by-product molybdenite concentrates. The new capacity will not be available until 2007. Reuters quoted Molymet CEO John Graell as predicting that "in the medium term prices were bound to cool down, though they would continue high in 2005 and 2006". Molybdenum resembles uranium in that both are incremental inputs for bigger processes (steel-making and nuclear energy) for which there are limited substitutes and whose cost represents a fraction of the overall cost. Short term demand for molybdenum or uranium is not sensitive to price.
Major Roasters of Molybdenite Concentrates Operator Location Annual Input
Capacity (tonnes) Annual Output
Capacity (lbs) Concentrate Source
Molymet Nos, Chile 43,000 46,000,000 3rd party Cu By-Product
Molymet Cumpas, Mexico 18,500 22,000,000 3rd party Cu By-Product
Molymet Ghent, Belgium 18,500 22,000,000 3rd party Cu By-Product
Phelps Dodge Fort Madison, Iowa ? ? Henderson
Phelps Dodge Green Valley, Arizona ? ? Bagdad, Sierrita
Phelps Dodge Rotterdam, Netherlands ? ? 3rd party
Thompson Creek Endako, BC 10,200 22,000,000 Endako
Thompson Creek Langeloth, Pennsylvania ? 12,000,000 Thompson Creek, 3rd party
Expect growth in demand for stainless steel and low alloy pipeline steel
Additional copper mine by-product molybdenum and full capacity operation by primary molybdenum mines combined with expanded roasting capacity will bring down molybdenum prices in the medium term. But if my analysis of the decision-making dynamics behind new copper mines is correct and the gold price uptrend continues, there is a limit with regard to how much new copper by-product molybdenum supply can enter the market in the medium term. Steel demand is expected to continue to grow in 2005, and molybdenum demand is closely tied to steel demand which is in turn driven by the Asian infrastructure buildup. In particular one could expect demand for stainless steel, which uses 2-6% molybdenum, to boom as China moves beyond export-oriented infrastructure construction into domestic consumption of the material goods the North American and European middle class takes for granted. Unless the China boom implodes or other gold bug style catastrophes grip the world in economic paralysis, within 5-10 years molybdenum demand could once again exceed supply. Another development that could boost molybdenum demand is the approval of major pipeline projects. A National Post article on December 30, 2004 points out that 2005 will be a pivotal year in determining which pipelines get built. The addition of 0.1-0.3% molybdenum to low alloy steels plays a critical role in providing the strength needed by oil and natural gas pipelines that cross rugged and Arctic terrains. At issue is the ability to deliver energy to the US market as well as coastal ports where it can be shipped to energy-hungry Asia. The $7 billion MacKenzie Valley proposal would pipe natural gas to Alberta's oilsands where steam is needed to coax out the sticky oil. Then there is the $2-3 billion proposal to build a pipeline that will transport oil from the oilsands to the west coast. Scheduled to start construction after 2012 is the monstrous $20 billion Alaska Highway pipeline which will move 4.5 billion cubic ft of gas per day from Alaska to the United States, passing through Canada along the way. It will be another two years before the Canadian projects clear the environmental and aboriginal gauntlet and start sucking up molybdenum, but no such obstacles are holding back pipeline projects in Asia where middle class values and processes such as human rights and environmentalism are ineffectual because the Asian middle class is still in its infancy. (There is a perverse irony in the righteous indignation exported to emerging countries by the comfortable middle class members of western non-governmental organizations who battle to preserve subsistence based cultures while keeping everything out of their own backyard.) It is not hard to imagine that in 5-10 years molybdenum demand will once again outstrip supply.
Juniors promoting a MolyMania play must focus on the window 5-10 years from now
High short term prices during 2005 will initially feed MolyMania, but what will happen to MolyMania when new supply from existing copper and molybdenum mines push the molybdenum price into a downtrend? While some exploration juniors will pursue small high grade deposits they hope to mine during the next couple years while molybdenum prices remain strong, the majority of projects acquired in North America need to be focused on the window 5-10 years from now. Because the mining industry figures molybdenum prices will eventually collapse to historical lows, there is little motivation to bring into production new primary molybdenum mines. In 1995 after moly prices had spiked into the teens Cyprus Amax (now owned by Phelps Dodge) put its underground Climax mine in Colorado back in production only to shutdown a few months later as moly prices collapsed. Molycorp put its Questa deposit in New Mexico back into production in 1996 but two years later had to cut back production levels. Thompson Creek bought Endako from Placer Dome in 1997 and nearly shut down operations a couple years ago. During the late seventies quite a few molybdenum deposits were pushed through feasibility and even permitted, but were permanently shelved in the early eighties as molybdenum prices collapsed, and were eventually allowed to lapse. Mining executives have been there, done that, and have no desire to retire in a cloud of disgrace for not having learned from history. Molybdenum's discouraging history offers an entry window for exploration juniors dismissed as either "not knowing any better" or "just looking for a stock promotion". But when the junior is looking 5-10 years down the road and making optimistic assumptions about where the Asia boom is heading, taking on a major moly project today is neither stupid nor cynical.
Beware of location problems associated with known molybdenum deposits
That brings me to another important warning about MolyMania. While this time may be different, something else is also different from the seventies, namely the entrenched North American opposition to the development of major new mines, particularly in locations that have cultural or environmental sensitivities. Where is your moly play located? Many of the deposits delineated during the seventies are located in remote regions which lack infrastructure. Bringing in power can be a problem not just in terms of extra cost, but also in terms of the approval process. Permitting a new open pit mine may prove arduous, but permitting a roaster may prove impossible, which leaves the mine dependent on access to third party roasters. Furthermore, most roasters were built during the seventies when less stringent pollution control requirements applied; the cost of building a brand new roaster fully compliant with pollution requirements may be prohibitive. There is not a significant weight difference between a 90% molybdenite concentrate and market ready molybdic oxide. Both need to be shipped to a roaster or market. The project thus needs road or rail access to move 10,000-20,000 tonnes of annual production.
Beware of proximity to communities and environmentally sensitive habitats
The worst thing to watch out for is proximity to human communities or environmentally sensitive habitats. Take the Quartz Hill deposit, the mother of all unexploited moly deposits I mentioned earlier. Quartz Hill, discovered in 1974 by US Borax, is located 45 miles east of Ketchikan in southeastern Alaska. In 1978 Jimmy Carter surrounded Quartz Hill with a 2.3 million acre National Monument called Misty Fjords. Think about that. Let's build a giant open pit mine in the midst of misty fjords. In 1980 Congress slapped on another level of protection called the Alaska National Interest Lands Conservation Act but excluded a 152,610 acre parcel surrounding Quartz Hill so it could be developed. US Borax proposed an 80,000 tpd mining operation that included a submarine tailings disposal plan. Yes, the same sort of waste disposal strategy that is causing grief for Newmont in Indonesia. Meanwhile Congress had introduced new water standards to protect the fishing industry. Although the 1.5 billion tons of mine life tailings from the Quartz Hill deposit would be inert, the bottom of the fjord into which they were to be disposed would be turned into a silty habitat wasteland. US Borax beavered on during the eighties and managed to get an EPA draft permit in 1988 which was withdrawn in 1990 after the Sierra Club filed a legal appeal. After spending more than $100 million US Borax gave up and sold the deposit to Cominco in 1991 for an undisclosed amount. Because there are plenty of other molybdenum deposits in less politically and environmentally sensitive areas of the United States it is unlikely that the United States would use Arctic Wildlife Refuge style strategic reasoning to help Quartz Hill overcome permitting obstacles. While I doubt Teck-Cominco would restart the permitting process, it would not surprise me if it hands off Quartz Hill to one of the high powered junior exploration groups just as it did the Pebble copper-gold porphyry deposit in Alaska to Bob Dickinson's Northern Dynasty. What is surprising is that US Borax struggled to permit Quartz Hill throughout the eighties despite low molybdenum prices.
The days of special environmental exemptions are gone
British Columbia proved more accommodating to the idea of dumping tailings into a fjord but mine economics got in the way. In 1979 Amax received a controversial exemption allowing it to dump tailings (100 million tonnes over 25 years) from the Kitsault open pit molybdenum mine into British Columbia's Alice Arm. Amax spent $50 million to build a company town but pulled the plug in 1982 after only two years of operation when molybdenum prices collapsed. Canada later passed water protection legislation that repealed the Kitsault exemption and it is doubtful that approval to dispose of tailings in seawater will ever again be granted. The Kitsault mine site has since been dismantled and reclaimed. Phelps Dodge, which inherited the project through a series of mergers, is now trying to sell the intact ghost town. The infrastructure and permitting problems associated with some of the major undeveloped primary molybdenum deposits, coupled with the general uncertainty over long term molybdenum prices, contribute to the likelihood medium term supply-demand imbalances will prevail. Exploration juniors which latch onto primary moly projects with minimal location issues that could be in production five years from now are the best plays for speculators.
Facts about molybdenum
Molybdenum is a silvery-grey metallic element with the atomic number 42 and an atomic weight of 95.94. In the periodic table it occurs beneath chromium and above tungsten in Group VIb. Molybdenum in metallic form has a specific gravity of 10.2. Molybdenum is hard, malleable, and ductile, and has a high melting temperature of 2610 degrees Celsius. These and other chemical properties bestow hardness, corrosion resistance and high temperature strength on steel and other metal alloys when molybdenum is added. Molybdenum, which derives its name from the Greek word "molybdos", meaning "lead-like", was discovered in 1778 by a Swedish scientist called Carl Wilhelm Scheele. But a commercial use did not emerge until 1891 when a French company used it as an alloy in producing armour plate. Demand for molybdenum took off when World War I created a severe tungsten shortage and molybdenum was recognized as an ideal alloy hardening substitute with half the weight of tungsten. The first molybdenum exploration boom led to the discovery of the Climax deposit in Colorado, the biggest and richest molybdenum deposit in the world. Climax began production in 1918 and operated through most of the 20th century. It is currently on standby awaiting resumption of underground mining when the nearby similarly rich Henderson mine is depleted. During the World War II buildup decade research into the temperature properties of molybdenum led to the development of molybdenum as an important alloy in tool making, particularly in high speed drills where heating and wear resistance are critical issues. During the sixties and seventies research led to new consumer market applications, particularly in stainless steel, which fueled the exploration boom of the seventies. More recently the development of chemical applications which partly take advantage of molybdenum's low toxicity has created demand for molybdenum based catalysts, lubricants and pigments. Molybdenum's role in pollution control processes gives it an "environment friendly" spin that is more plausible than that accorded to uranium and nuclear energy (the Bush administration has concluded that global warming is not due to carbon dioxide emissions from fossil fuels). A growing demand for pipelines to deliver natural gas and oil to markets, in which molybdenum is a crucial alloy component, allows one to get away with calling molybdenum the "energy metal". An important aspect of demand growth for molybdenum is the existence of an enormous undeveloped reserve base of the metal that becomes economic well below the recent price spike levels, and the fact that the molybdenum content in any end-product is a fraction of the product's overall cost. The prospect of long term supply scarcity is not an issue in developing and adopting new applications involving molybdenum. The following breakdown of molybdenum use provided by the IOMA is somewhat outdated (1997) and does not include Chinese or CIS usage, but does provide a good idea of molybdenum's versatility.
Geology of molybdenum deposits
The only economically significant form of mineralization in which molybdenum occurs naturally is the sulphide molybdenite (MoS2). Molybdenite has a specific gravity of 4.62-4.73, a lead-grey color with a metallic lustre, a greasy feel, and a hardness of only 1.0-1.5. In fact, originally molybdenite was confused as a variation of lead or graphite. Molydenite occurs mainly in granite-related hydrothermal porphyry systems where the average grade is generally less than 0.5% molybdenum though locally within veins and breccia pipes the grade can be higher. Molybdenite mineralization occurs within veins, fissures and stockworks in porphyry systems. The molybdenum content of porphyry deposits ranges from exclusively molybdenum bearing to heavily copper-bearing with minor molybdenum. Other forms not commercially exploited include high grade (plus 1%) but erratic replacement style deposits usually in association with tungsten and tin formed at the contacts between felsic intrusives and limestone, sporadic molybdenite within pegmatites and aplite dykes, and bedded sandstone type uranium deposits where molybdenum is sometimes recovered as a by-product. Although non-porphyry molybdenum deposits have not historically received much attention, the recent high molybdenum prices will undoubtedly encourage exploration by juniors hoping to launch small scale high grade mining operations before molybdenum prices crash.
Major Deposits and a classification system
A major geological paper on molybdenum deposits written by R. B. Carten, W. H. White and H. J. Stein in 1993: "High-grade Granite-related Molybdenum Systems: Classification and Origin", includes an extensive list of deposits from which I have excerpted the selection in the table below. Tonnages and grades are generally "geologic" and may differ from figures in other sources. Molybdenum grades represent contained molybdenum. Carten et al classify molybdenum bearing porphyries into two broad groups based on their magmatic environment. The first group has a higher grade of molybdenum, a flourine rich, highly evolved rhyolite magma, and an intra-plate rift setting. This group has little or no copper mineralization and includes the main world class molybdenum deposits such as Climax, Henderson, Mt Emmons, and, somewhat controversially, Endako and Quartz Hill. Within the high silica, rhyolite-alkalic suite "rift" group they define three sub-groups: a "Climax" type which they restrict to the world class Climax and Henderson deposits and which have steep grade gradients, a "Transitional" type which is similar to but lower grade than the Climax type, and an "Alkalic" type which has a lower rhyolite volume and an association with alkalic volcanic complexes. The alkalic type typically involves mineralized breccia pipes and is the least economically significant of the rift-related molybdenum deposits. Quartz Hill and Endako do not quite fit the "rift setting" group because they are low in flourine. The second group has an intermediate to felsic composition (Monzogranite), low flourine, a tendency toward greater copper content and a lower molybdenum grade, and a subduction related interplate arc setting. Tungsten in the form of scheelite is often associated with continental arc-related molybdenum porphyries. The molybdenum grade tends to disappear as the porphyry becomes more mafic (diorite-granodiorite). Economic porphyry deposits are mainly of Cretaceous to Tertiary age, with 80% of the world's economic molybdenum porphyry deposits located in the western part of Canada and the United States. The Canadian deposits tend to be associated with an arc setting while the American deposits are associated with a rift setting. The Andean molybdenum bearing porphyries are arc-related and contain significant copper with the result that South America only produces molybdenum as a by-product of copper mines. In the table below the deposit type is taken from Carten et al (the format reflects the dominant metal ie "Mo Cu", the setting, ie "rift" or "arc", and the type, ie C=Climax type, T=Transitional, M=Monzogranite). The map below is from the above referenced 1993 Carten article in the now out of print Special Paper 40 published by the Geological Association of Canada. It is intended to convey a rough idea of the global distribution of molybdenum deposits.
Primary Molybdenum Deposits Deposit Location Owner Type Tonnage
(Tonnes) Grade
(% Mo) Contained Moly
(million lbs) Status
Climax Colorado, USA Phelps Dodge Mo Rift-C 907,000,000 0.24% 4,800 Mothballed
Henderson Colorado, USA Phelps Dodge Mo Rift-C 727,000,000 0.171% 2,741 32,000 tpd
Quartz Hill Alaska, USA Teck-Cominco Mo Rift?-M 1,216,000,000 0.077% 2,066 Undeveloped
Mt Hope Nevada, USA Idaho General Mo Rift-T 510,000,000 0.1% 1,125 ?
Questa New Mexico, USA Molycorp Mo Rift-T 277,000,000 0.144% 880 18,000 tpd
Mt Emmons Colorado, USA Phelps Dodge Mo Rift-T 141,000,000 0.264% 821 Undeveloped
Big Ben Montana, USA ? Mo Rift-T 376,000,000 0.098% 812 ?
Endako BC, Canada Thompson Creek Mo Rift?-M 336,000,000 0.087% 645 33,000 tpd
Pine Grove Utah, USA ? Mo Rift-T 125,000,000 0.17% 469 ?
Thompson Creek Idaho, USA Thompson Creek Mo Arc-M 181,000,000 0.11% 439 Operating
Yorke-Hardy BC, Canada Patent Mo Arc-M 125,000,000 0.151% 416 Undeveloped
Red Mountain Yukon, Canada ? Mo Arc-M 187,000,000 0.1% 412 ?
Cannivan Montana, USA ? Mo Arc-M 185,000,000 0.096% 392 ?
Adanac (Ruby Creek) BC, Canada Adanac Moly Mo Arc-M 270,000,000 0.053% 316 Undeveloped
Kitsault BC, Canada Phelps Dodge Mo Arc-M 108,000,000 0.115% 274 Dismantled
Pine Nut Nevada, USA ? Mo Arc-M 181,000,000 0.06% 239 ?
Storie Moly BC, Canada Eveready Res Corp Mo Arc-M 101,000,000 0.078% 174 ?
Trout Lake (Max) BC, Canada Roca Mo Arc-M 50,000,000 0.138% 152 Undeveloped
Molybdenum-Copper Deposits (Cu less than 0.1%) Deposit Location Owner Type Tonnage
(Tonnes) Grade
(% Mo) Contained Moly
(million lbs) Status
Mt Tolman Washington, USA ? Mo-Cu Arc 2,177,000,000 0.054% 2,592 ?
Jin Dui Cheng China ? Mo-Cu Arc 907,000,000 0.1% 2,000 ?
Buckingham Nevada, USA ? Mo-Cu Arc 1,297,000,000 0.058% 1,659 Undeveloped
Cumo Idaho, USA ? Mo-Cu Rift 1,258,000,000 0.059% 1,637 ?
Hall Nevada, USA ? Mo-Cu Arc 181,000,000 0.091% 363 ?
El Creston Mexico ? Mo-Cu Arc 181,000,000 0.074% 295 ?
Copper-Molybdenum Deposits (Cu primary metal) Deposit Location Owner Type Tonnage
(Tonnes) Grade
(% Mo) Contained Moly
(million lbs) Status
El Teniente Chile Codelco Cu-Mo Arc 8,350,000,000 0.03% 5,523 Operating
Chuquicamata Chile Codelco Cu-Mo Arc 10,387,000,000 0.024% 5,497 Operating
Bingham Canyon Utah, USA Rio Tinto Cu-Mo Rift 2,869,000,000 0.044% 2,784 Operating
Andina Chile Codelco Cu-Mo Arc 3,000,000,000 0.025% 1,654 Operating
Sierrita Arizona, USA Phelps Dodge Cu-Mo Arc 719,000,000 0.028% 444 115,000 tpd
Bagdad Arizona, USA Phelps Dodge Cu-Mo Arc 499,000,000 0.03% 330 Operating
Sar-Cheshmeh Iran ? Cu-Mo Arc 450,000,000 0.03% 298 ?
El Salvador Chile Codelco Cu-Mo Arc 535,000,000 0.025% 295 Operating
Michiquillay Peru ? Cu-Mo Arc 575,000,000 0.022% 279 ?
Cuajone Peru Southern Peru Copper Cu-Mo Arc 426,000,000 0.025% 235 Operating
Berg BC, Canada ? Cu-Mo Arc 308,000,000 0.031% 210 Undeveloped
Michiquillay Peru ? Cu-Mo Arc 575,000,000 0.022% 279 ?
Twin Buttes Arizona, USA ? Cu-Mo Arc 413,000,000 0.023% 209 ?
Brenda BC, Canada Noranda Cu-Mo Arc 227,000,000 0.039% 195 Mined Out
Brief Overview of Earlybird Moly Juniors
The following group of molybdenum juniors are ones I have so far identified as either having advanced molybdenum deposits or interesting molybdenum exploration projects. No doubt new moly plays will be brought to my attention as MolyMania catches on and I will make an effort to add them to the list. I will exclude copper dominated plays where the copper grade is higher than the molybdenum grade because these projects are properly viewed as copper plays. The focus of MolyMania is the notion that a new generation of pure molybdenum mines will be brought into production during the next 10 years if it becomes apparent that a structural shift in demand is underway which cannot be met by additional by-product supply from copper mines and the ramping up to full capacity production by existing pure moly mines, some of which are headed for depletion within 10 years. The charts of all five juniors featured here show breakouts from recent bottoms which I expect to continue during the first quarter of 2005. I cannot predict when the molybdenum price spike will stall, nor the degree with which it pulls back. Anybody who owns moly juniors should be aware that their price momentum is vulnerable to a molybdenum price reversal which is virtually guaranteed during the next six months. Keep in mind that the real issue is whether molybdenum prices will eventually collapse back to historical levels below $3/lb or settle in at a new level, ideally $10-$15/lb. Anybody making a serious bet on a moly junior must make the latter long term assumption and be prepared for hair-raising volatility during the interim.
Adanac Moly Corp: the first moly dedicated junior
The earliest bird among the exploration juniors is Adanac Moly Corp (AUA-V: $0.82), which staked the 4,325 hectare Adanac molybdenum deposit in July 2001 while the company was still called Stirrup Creek Gold Ltd and struggling to reactivate itself. Stirrup consolidated its stock 5:1 on October 31, 2003 and renamed itself Adanac Gold Corp even though the TSXV had classified it as a "copper-molybdenum" company. Larry Reaugh's caution was likely linked to his earlier foray into molybdenum exploration. During the mid nineties he had pushed two other companies, Molycor Gold Corp (MOR-V) and Verdstone Gold Corp, into molybdenum exploration with several prospects in southern British Columbia. In March 1997 both companies secured an option on the Yorke-Hardy deposit near Smithers and investigated putting its high grade core into production at 3,000 tpd. They abandoned the option several years later and gave up their molybdenum focus. By November 2004, however, molybdenum's rocketing price had turned Larry Reaugh into a believer once again and he changed Adanac's name to Adanac Moly Corp.
The Adanac deposit, now renamed Ruby Creek, was discovered in 1898 but did not undergo serious exploration until the 1967 when a junior called Adanac Mining and Exploration staked the property. Kerr Addison optioned the property and completed a feasibility study in 1971 but declined to proceed. Placer optioned the project in 1978 and initiated permitting for a 14,000 tpd mine on the basis of a resource calculation of 151,971,000 tonnes of 0.063% Mo but lost interest in 1982 and dropped its option. John Lamacraft's Adanac merged with John Weatherall's Bell Molybdenum Mines in 1995, which in 1997 acquired an airborne geophysical survey company called Aerodat and renamed itself Bell Earth Services. The Adanac (Ruby Creek) claims lapsed after Aerodat went bankrupt in 1998 and Bell Earth delisted from the VSE in 1999, enabling Larry Reaugh's unrelated Adanac to stake the deposit in 2001. In late 2003 the new Adanac initiated a scoping study on the Ruby Creek deposit which concluded that at $6/lb molybdenum a 14,000 tpd milling operation with a 17 year mine would have a 16% internal rate of return and a rather abysmal net present value of Cdn $3.5 million. The scoping study envisioned construction of a nearby 10,000 kilowatt hydroelectric facility to provide power. The Ruby Creek deposit is located in the northwestern corner of British Columbia 25 km northeast of the small town of Atlin, a location which would qualify as remote and lacking in infrastructure. During 2004 Adanac completed a 36 hole 9,000 metre drill program that consisted mainly of infill drilling but also included some stepout holes. Although historical resource calculations were made by major mining companies, they are not in compliance with 43-101 requirements and some of the data needed to make the resource 43-101 compliant is no longer available. The purpose of the 2004 drilling was to allow a reserve study which will yield a 43-101 compliant resource. Adanac's goal in 2005 is to complete a prefeasibility study which justifies putting the Ruby Creek deposit into production as a pure molybdenum mine.
Adanac completed a flurry of financings during December 2004 that raised several million dollars. On December 21 Adanac received approval for a short offering financing of 2.4 million units at $0.50 by Canaccord. Once this financing is done Adanac will have about 50.1 million shares fully diluted. The company has 5.8 million private placement warrants outstanding that escalate from $0.40 to $0.50 on July 7, 2005. During August 2004 Adanac acquired the Nevada BC project in Nevada on reasonable terms. The Nevada BC property covers part of a tabular molybdenite bearing body controlled by US Smelting and Refining. Should Adanac secure a reasonable option on the USS claims the Nevada BC project could also become a significant moly play. This project in Nevada somewhat offsets the risk associated with the upcoming May 2005 provincial government elections in British Columbia. If the anti-development New Democrat Party comes back into power exploration and mine development in British Columbia will likely once again hit a wall of resistance that would kill the market's appetite for plays such as Ruby Creek. At the moment it does not look like the NDP will replace the incumbent Liberals (not the same as US Democrats), but BC politics is such that nothing can be taken for granted. Adanac has an advantage over other moly juniors in that the company has established a high profile as a molybdenum exploration junior. The company's web site, www.adanacmoly.com, provides links to current molybdenum prices and charts.
Roca: sneaking into production with a 75,000 tpd small miner permit
Roca Mines Ltd (ROK-V: $0.34) is the sister company to Stikine Gold Corp (SKY-V: $0.35), a top priority bottom-fish buy recommendation in the $0.30-$0.49 that drilled a deep hole in 2004 that nipped the edge of Sullivan-style Sedex system next door to the world-class Sullivan deposit. Since peaking at $0.70 in late September when it hit its target Stikine stock has been consolidating in the $0.30-$0.40 while management completed a new downhole UTEM survey. Preliminary interpretation suggests that the massive sulphide zinc-silver mineralization is the western fringe of a large sulphide body that extends northward, and not the down-dropped northern fringe of the near-surface Sullivan deposit located south of the Kimberley fault. Stikine is drilling a wedge hole expected to intersect the sedex system 100 metres closer to its centre, but the critical test will take place later this year when the junior drills another deep hole aimed at the guts of the sulphide body. I continue to regard Stikine as a top priority bottom-fish buy, though this time around I do not think the market will care until it is given a high grade 10-20 metre interval which confirms that Sullivan Deeps is indeed a sister to Sullivan.
Roca, which spent most of the $2 million it raised in June 2004 through a 10,000,000 units at $0.20 Canaccord short form offering on the Foremore volcanogenic massive sulphide play in northwest British Columbia, has toiled in the vociferous but small shadow cast by Stikine's Sullivan Deeps market play. Although Roca management is encouraged by the results of the 36 hole 5,900 metre drill program at Foremore, the market can barely stifle its yawn. What has started to catch the market's attention since mid November is the Max molybdenum deposit Roca optioned 100% in January 2004. Roca can earn 100% by paying $200,000 and issuing 600,000 shares in stages by Januaty 16, 2007, subject to a 2.5% NSR of which 1.5% can be bought out for $2 million.
The Max deposit was originally called the Trout Lake deposit because of its proximity to a major trout lake called, you guessed it, Trout Lake. The property first received exploration in 1969 when Scurry Rainbow optioned it from a prospector. In 1975 Newmont optioned the property and formed a joint venture with Esso Minerals that drilled 32 holes from surface totaling 15,747 metres, drove 2,000 metres of underground development, and drilled 87 holes from underground totaling 22,151 metres. After spending $14.9 million and establishing a geologic resource of 49.7 million tonnes of 0.116% Mo at a 0.06% Mo cutoff, which included a 4.8 million tonne core of 0.29% Mo at a 0.15% Mo cutoff, Newmont stopped work in 1982 when molybdenum prices collapsed. Newmont maintained title to the property by making the final option payments and during the early nineties bought out Esso's 45% stake. Newmont let the key claims covering the deposit lapse in 1997 through some sort of screwup, whereupon they were promptly staked by a private company. Newmont completed reclamation work in 2003, which included plugging the portal and burying the old core. After optioning the central claims Roca drilled two holes in May 2004 to confirm reported grades, and in August 2004 Roca acquired the remaining Newmont claims and the exploration data set for a 2.5% NSR, of which 1.5% can be bought for $2 million, and 200,000 shares issuable upon a production decision. Roca has also agreed to be responsible for any further reclamation liability. The Newmont claims that overlap with the 6 km area of interest surrounding the core claims are also subject to that vendor's 2.5% NSR.
As the diagram reveals the Max deposit is a deep porphyry system with pipelike extension whose ore will have to be extracted through underground mining. In 1982 Newmont came up with a 1,500-3,000 tpd underground mining plan that would have targeted a resource of 8,189,000 tonnes of 0.217% Mo at a 0.12% Mo cutoff. Newmont also conducted environmental studies on the valley below the portal whose wetlands drain into Trout Lake and concluded that a tailings dump upslope near the portal would not have a negative environmental impact. Roca will have to demonstrate that any mining plan will not impact the sensitive valley habitat. Terry Maccauley has reviewed the old Newmont data and produced a 43-101 compliant resource calculation which estimates a measured and indicated resource of 42,940,000 tonnes of 0.12% Mo at a 0.06% Mo cutoff, which includes a high grade core of 1,380,000 tonnes of 0.564% Mo at a 0.3% Mo cutoff. Roca has retained Hatch Associates Ltd to conduct a scoping study which will explore two development avenues. The first scenario would focus on the high grade core and take advantage of British Columbia's 75,000 tonnes per year small miner permitting system. Although this approach would produce only about 900,000 lbs of molybdenum per year, it has the advantage that it could be in production within a year and take advantage of high molybdenum prices. This scenario would involve finding a third party roaster, and because the Max concentrate has a minor copper content, it would have to be submitted to acid leaching before roasting. Hatch will also look at a larger scale 2,000-3,000 tpd mining scenario. Roca's immediate plans are to reopen the portal and conduct underground infill drilling to tighten the high grade resource.
Following a recent private placement financing of 1,750,000 units at $0.30 through Canaccord and Bolder Roca will have about $1 million working capital. In late November Frank Giustra's Endeavor Financial took down most of a 2 million units at $0.25 private placement. UK based RAB Capital, which has also been a big investor in Stikine Gold, holds just under 20% of Roca's issued stock. On a fully diluted basis Roca has about 48.4 million shares out, which gives its 100% owned Max project an implied value of only $16 million, about a third that enjoyed by Adanac's Ruby Creek project. Roca's Scott Broughton is an engineer by profession, and although the company still talks highly of its Foremore VMS project, I suspect that in 2005 the Max molybdenum play will become the top priority, particularly if MolyMania takes hold in the market.
Patent: convincing a town that skiing and mining are compatible
Patent Enforcement & Royalties Inc (PAL-V: $0.18 halted) was halted on November 18, 2004 when it announced a plan to acquire 100% of the Yorke-Hardy molybdenum deposit near Smithers, British Columbia. Patent is an old top priority bottom-fish buy recommendation ($0.30-$0.49 range January 5, 2000) which was declared a Spec Cycle 100% Hold on March 21, 2000 during the peak of the dot-com frenzy when the stock shot to a high of $2.15 before collapsing into the $0.10-$0.20 range. Patent was a shell-type bottom-fish first recommended in late 1998 which in 1999 turned itself into a speculator on the outcome of patent infringement lawsuits. In exchange for bankrolling legal costs "PEARL", as it became known, was to receive a portion of any awards. The company spent several years supporting two lawsuits against Land O'Lakes and Conair that culminated in negative decisions in May 2004 which prompted management to switch back to mineral exploration. The stock is now halted pending completion of documentation related to the change of business. I have not commented on "PEARL" for several years because the litigation story became tiresome, but now that the company is shifting back to a sector I believe will be hot I am resuming coverage.
Patent can acquire 100% of the Yorke-Hardy deposit for $75,000 up front (paid) and $950,000 within 150 days (late April 2005). The vendor retains a 2.75% net smelter royalty on which Patent must make annual advance payments ranging $100,000 to $500,000 depending on the price of molybdenum. This is a tough deal clearly based on MolyMania taking off, so expect Patent to be aggressively promoted. The terms are tougher than what the vendor, Donald A Davidson, asked of Larry Reaugh back in 1997 when Molycor and Verdstone optioned the deposit, though the former owner, Cyprus Amax (now Phelps Dodge), no longer has a 40% back-in option should a production decision be made . A couple weeks prior to the acquisition Patent completed a private placement of 4 million shares at $0.10 which cleaned up liabilities and enabled the company to make the Yorke-Hardy upfront payment. The financing appears to have been taken down by insiders and close associates. The key shareholders are Kerry Knoll and Ian McDonald, who together own at least 4 million shares. Knoll and McDonald were the key people behind Wheaton River who turned the Golden Bear mine into a profitable operation, acquired additional gold deposits through a series of mergers, and in early 2001 handed the keys to Frank Giustra and Ian Telfer who with the help of Pierre Lassonde acquired the Mexican gold and silver assets of Luismin in 2002. Wheaton River is now merging with Goldcorp on a 4:1 basis and it is time for Knoll and McDonald to launch a new play on their own. Patent expects to get about $650,000 from the recent settlement of the litigation between IAMGOLD and Kinbauri Gold Corp (KNB-V: $0.28), a recent medium priority bottom-fish buy recommendation that is itself ready to launch a new life cycle. Patent had provided preferred share financing about five years ago to help fund Kinbauri's legal battle with IAMGOLD over a failed reverse takeover during the early nineties. Kinbauri has received the $4 million judgement and Patent should be in receipt of its share shortly, putting it in good shape to pursue a followup financing.
The Yorke-Hardy deposit is located 10 km northwest of Smithers in northwestern British Columbia. The deposit was found by prospector William Yorke-Hardy in 1957. Amax explored the deposit during the sixties, drilling 191,500 ft, of which 114,500 ft was done from adits (8,500 ft) driven into Hudson Bay Mountain. Gary Giroux completed a resource calculation in 1998 on behalf of Molycor and Verdstone using the old drill data and came up with a resource of 120 million tonnes of 0.152% Mo using a 0.1% Mo cutoff grade. He also calculated a high grade core of 24,200,000 tonnes at 0.24% Mo using a 0.18% Mo cutoff. (These figures are from the BC MINFILE Report and differ slightly from those quoted by Patent.) Molycor and Verdstone looked at mining the high grade core at 3,000 tpd but did not proceed. Patent has retained Giroux Consultants to conduct a new resource calculation that is 43-101 compliant. A technical report has not yet been filed.
In terms of infrastructure the location of the Yorke-Hardy deposit is excellent. The town of Smithers has a population of 5,414 and is a major regional service centre with rail and road access. The problem lies with the other names the Yorke-Hardy deposit has had in the past, namely "Glacier Gulch" and "Hudson Bay Mountain". The deposit is located on the east flank of Hudson Bay Mountain, on the north and south flanks of which are the Ski Smithers ski runs. Smithers is located in a scenic valley that has developed a tourism industry. Consider the following excerpt I found on a web site promoting Smithers as a tourist destination:
"Smithers is a quaint little alpine community situated at the base of the panoramic Hudson Bay Mountain in the scenic, fertile Bulkley Valley. Located on the Yellowhead highway halfway between Prince George and Prince Rupert, this community has a Swiss Bavarian theme with its red brick sidewalks, colorful flags and a life-sized alpine herdsman statue. Hunting, fishing, swimming, waterskiing, rock hounding, mountain climbing, mountain biking, horseback riding and hiking are just some of the summer activities Smithers has to offer within a short radius. In the winter, visitors and residents have plenty to do choosing from snowmobiling, curling and hockey, ice skating, snowshoeing, crosscountry and downhill skiing. Surrounded by high mountains and pastoral farmlands, this community of 5000 has all the accommodations one could desire."
The challenge for Patent will be to come up with a mine development plan that is acceptable to the community of Smithers. Even at $10/lb molybdenum the high grade core has a $53 rock value and an in situ gross value over $1 billion. A visually low impact underground mining operation could prove acceptable, though if the NDP win the May 2005 provincial election this story is probably dead in the water. In any case, I suspect Patent will come up with other molybdenum projects to flesh out its new role as a MolyMania vehicle and offset skepticism about the permitting of Yorke-Hardy. Because Patent has only 26 million shares fully diluted and will own 100% of Yorke-Hardy, the project had an implied value of only $5 million at the $0.18 price when the stock was halted. Given that Adanac's Ruby Creek deposit is carrying an implied value of $42 million and has location problems of a different sort, Patent, even with extra dilution from financings along the way, could easily support a price in the $0.80-$1.00 range when trading resumes.
Leeward: revisiting Nithi Mountain as a possible successor to Endako
Unlike the other moly juniors which acquired existing molybdenum deposits abandoned by their former owners during the past two decades of weak molybdenum prices, Leeward Capital Corp (LWC-V: $0.34) late last year staked a molybdenum prospect on Nithi Mountain about 18 km southeast of the world class Endako molybdenum mine. Originally explored as a uranium prospect during the fifties, Nithi Mountain was blanketed by small claims during the sixties after Placer discovered the Endako deposit in 1962. The Endako molybdenum showing had been known since 1927, but the scale of the deposit was not recognized until Placer optioned the property. Endako is a low flourine, quartz monzonite molybdenum porphyry deposit where molybdenite occurs within a series of large quartz veins and a stockwork of veinlets and fracture fillings that defines a zone 3,360 metres long and 370 metres wide. Endako has been estimated at 336 million tonnes of 0.087% Mo. Placer put Endako into production in 1965 at a cost of $22 million and operated it at 28,000 tpd until 1982 when the mine was shut down until 1986 due to low molybdenum prices. In 1997 Placer sold Endako to Thompson Creek Mining and Nissho Iwai Moly Mining. The main Endako pit is 2,000 metres long and 700 metres wide, with one pit wall 350 metres high. The Endako Mine is expected to have another 5-10 years of operation, with a higher strip ratio in the later years as deeper ore is accessed. Endako has an on-site roaster that turns its molybdenite concentrate into molybdic oxide. Current production is apparently 33,000 tpd. Infrastructure is excellent. The Endako mine has power, road and rail access. The nearby community of Fraser Lake has a population of 1,308 and provides support for the region's mining, logging and sawmill industry.
Although Nithi Mountain has been acknowledged in the geological literature as the second most significant molybdenum porphyry system in the region, it has never been systematically explored. During the boom years in the sixties a chaotic patchwork of small claims, many of them owned by exploration juniors, prevented any one group from fully exploring the extent of the molybdenite showings. A junior called Nithex Exploration, which today survives as a BC coal miner called Pine Valley, controlled part of Nithi Mountain from 1970 until the mid-eighties. Leeward's Jim Davis became familiar with the prospect when his service company, Taiga Consultants, operated an exploration program in 1980-81. Drilling focused on two readily accessible showings and encountered sporadic low grade molybdenite. The junior did not pursue followup work and the claims eventually lapsed. When Davis investigated the claim status at Nithi Mountain in late 2003 he discovered that the entire mountain had come open, so he staked it for Leeward. During the summer he sent prospecting crews to Nithi Mountain and discovered that logging roads had opened up many areas which had previously been inaccessible. Roadcut prospecting indicated widespread molybdenite showings. In the western part of the property Davis observed molybdenite bearing ribbon quartz, a form of mineralization common at Endako which he had not previously seen on Nithi Mountain. Compilation of historical work and the summer work revealed a 3,000 metre by 1,500 metre "mineralized" footprint dubbed the Alpha Zone. During November 2004 Leeward expanded the size of the property through additional staking and in December it completed an airborne geophysical survey. A 5,000 metre drill program is planned for 2005 once the mountain becomes accessible in May.
The Nithi Mountain play is intriguing because despite its proximity to Endako and clear evidence for the existence of a molybdenum bearing porphyry system in a geological setting similar to Endako, it has never been hit with a systematic drilling program. Davis, ever the party-pooping realist, does not believe Nithi Mountain has the grade potential to host a molybdenum resource with a scale comparable to Endako, at least not near surface. But he does believe the Alpha Zone footprint has the potential to host 100 million tonnes of molybdenite up to 0.1% MoS2 (0.06% Mo). Such a deposit would not be economic on a standalone basis, but if mined and trucked to the nearby Endako milling and roasting facility 5-10 years from now when the Endako orebody is depleted or too deep to allow open pit mining, it could prove very valuable. At $10/lb moly such a deposit would have a $1 billion in situ gross value with a ten year mine life at the Endako capacity of 28,000 tpd. So while Adanac, Roca and Patent all have molybdenum deposits bigger and/or richer than what Leeward hopes to prove up at Nithi Mountain but infrastructure problems and no obvious exit strategy, Leeward has the infrastructure and exit strategy in hand should drilling at Nithi Mountain deliver the dream target. Furthermore, while additional drilling by the others either confirms existing numbers or adds irrelevant tonnage, drilling by Leeward, with luck, will build a deposit. Speculators have reason to pay attention to Nithi Mountain results, because the grade goal is modest but the economic implications significant. And there is always the possibility that the party-pooper is unduly pessimistic. Nithi Mountain's potential as a molybdenum discovery play is a key reason various other juniors have shown interest in optioning the property. The dynamic driving the Ruby Creek, Yorke-Hardy and Max projects will be MolyMania, number-crunching, and human solutions to the obstacles.
A recent financing and exercise of warrants has boosted Leeward's treasury back to $500,000, not enough for the proposed Nithi Mountain drill program which will cost about $2 million. Leeward has 36.3 million shares fully diluted, which implies a value of $12 million for the Nithi Mountain play. Leeward's fortunes do not hinge on Nithi Mountain. The company is set to resume drilling with Jet Gold Corp (JAU-V: $0.20) on their Set Ga Done gold project in Myanmar.
El Nino: warming up for MolyMania
Harry Barr has a keen ear for sirens signaling a hot new theme that lends itself well to the efforts of this tireless promoter, be it a new gold discovery in Venezuela, a nickel discovery at Voisey's Bay, soaring platinum group metal prices, Alaska gold or a new mania for uranium projects. Sometimes he is quick and latches onto good plays as he did in Venezuela, Labrador and with Pacific Northwest at River Valley, but sometimes his timing is a little off as I suspect will be the case with Canalaska's rush into uranium where there is now quite a bit of competition from other juniors. With El Nino I think he is ahead of the curve. El Nino Ventures Inc (ELN-V: $0.44) has been an inactive shell in Harry Barr's stable since August 19, 1999 when a predecessor called Corum underwent a 12:1 rollback. El Nino optioned the Sassy property near Teck's Pogo gold discovery in Alaska which the junior still holds but has not done any work on for years. In October 2003 the TSXV pushed El Nino onto the NEX board where it hides companies deemed inactive. El Nino completed a private placement of 1.5 million units in late 2003 which cleaned up most of the company's liabilities and which was largely taken down by Harry Barr who now controls 1,750,299 shares plus a bunch of warrants. A year later El Nino did another private placement of 1 million units at $0.20 and announced its intention to acquire projects in the uranium, silver and molybdenum sectors. As of this writing El Nino has not acquired any projects but since the announcement the MolyMania buzz has increased noticeably and it would not surprise me if Harry Barr makes molybdenum the primary focus of El Nino. I include El Nino in this MolyMania writeup because the stock, unlike all the rest of the moly juniors, is well structured to deliver big price gains if Harry Barr latches onto good molybdenum plays without incurring heavy dilution for El Nino's capitalization.
There are presently 4.6 million shares issued, of which Harry Barr controls 38%, and 8.2 million fully diluted if the $0.20 private placement closes, leaving the junior with about $150,000 working capital. Although El Nino meets the classic criteria of a well-structured bottom-fish controlled by management with a good track record funding and promoting their projects, and on that count should be a top priority bottom-fish recommendation at current prices, my participation in the recent financing prevents me from making a formal bottom-fish recommendation. El Nino is presently featured on Kaiser Bottom-Fish Online as a "Shellfish", a category for experienced bottom-fishers who can recognize a bottom-fish without being told it is one. When such KBFO featured companies acquire a decent project they are reclassified as "Gamefish", which may receive analytical coverage from me if their story is topical.
Conclusion: As you can see, all these molybdenum juniors are flawed in some way, which makes you wonder, when you also take into account the uncertainty that MolyMania will materialize in 2005, why bother to speculate in these juniors? Well, if these projects did not have their flaws, the juniors would never have gotten hold of them, and if MolyMania were already a raging fad, the juniors with moly plays would be trading considerably higher. In the real world the potential for big gains always comes with big risks. The trick is to find speculative situations where big risk actually correlates with big gain potential. Most of the time the juniors offer big risk and small gain potential. I have tried to make a case why this time is different for molybdenum prices, why the current spike to record price levels will not be followed by a collapse to historical levels, why instead a new equilibrium long term price several times higher than the historical average of the past two decades lies ahead. If my analysis proves correct, these moly juniors can overcome the flaws associated with their projects and turn into big winners.
*JK owns shares or Leeward and El Nino
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Message sent on Tue Jan 4, 2005 at 1:05:57 PM Pacific Time |
