Sprott Molybdenum Fund Set for IPO on April 16
By Todd Flagg
09 Apr 2007 at 06:29 PM GMT-04:00
resourceinvestor.com
St. LOUIS (ResourceInvestor.com) -- Sprott Molybdenum Participation Group announced the share prices for its highly anticipated initial public offering worth C$180 million (US$156 million). Shares will sell for C$5 per share.
According to Iryna Gordiyenko, manager of financial reporting for Sprott Molybdenum Participation Corporation, the fund will invest in both miners and molybdenum, which is valued for its strengthening and anti-corrosive properties. She said the company had acquired 3.9 million common shares of the molybdenum fund, representing a 9.94 percent stake.
According to Canadian regulatory filings, among the companies listed in the fund are Blue Pearl [TSX: BLE], Mercator Minerals Ltd. [TSX: ML], and Roca Mines [TSX: ROC.V]. Each unit consists of one common share and one-half of one common share purchase warrant, Gordiyenko said. Warrant holders can buy one common share for C$7.50 in a two-year period from the close of the offering, expected on April 16.
A syndicate of agents will get an overallotment option to buy up to five percent of the total units sold on closing.
Anticipation for the announcement was high because - as was seen with the launch of last year’s silver ETF (and given the relatively minuscule and illiquid nature of the molybdenum market and equities) - the expected spike in demand is already moving both the metals and the equities to new highs.
Indications the company was interested in the molybdenum market showed up when research analyst Maria Smirnova gave in an interview to stockinterview.com in 2006.
“I think the key to the molybdenum story is its wide-reaching applicability, especially in the energy sector,” Smirnova said in the article. “This specialty metal is used in oil and natural gas pipelines, hydrocarbon desulphurization, oil drill rigs, pollution control equipment and nuclear energy applications.
“Moly producers we speak with indicate that they have no problems securing buyers for the metal,” Smirnova said. “There is obviously demand, and it will provide a floor to the price. Moly is also more insulated from certain economic downturns (than copper). If the U.S. housing market has a meltdown – signs of which we already see, moly will find support in the energy and mining sectors, unless spending is reduced in those areas.
“I don’t think moly prices would necessarily tumble if copper prices were to go south,” Smirnova told us. While some 60% of the molybdenum mined is a byproduct of some of the world’s large copper mines, Smirnova pointed out, “The markets are quite different and the two metals have different end uses. On the supply side, there are fewer producers of moly than there are of copper.”
Since 2002, prices of molybdenum have peaked and dropped several times, reaching a high of about $45 per pound in June 2005. Molybdenum is trading at about $30 per pound.
Source: InfoMine.com
One major fact that has caused prices of molybdenum to rise recently is Chinese supply, after the country’s government announced earlier this month that it plans to introduce a quota system for molybdenum exports in the near future. The quota system will only grant export permission to those firms with export volumes of over 3,000 tonnes and with registered capital of at least RMB 100 million (approximately US$13 million).
Sprott is banking on a significant increase in demand is due to economic growth in China, as well as increased demand for stainless steel, chemicals, catalysts and super-alloys in the United States, South America, Europe and China. According to the Canadian regulatory filings, the average annual growth rate for molybdenum will be about 4.2% per year until 2010.
Source: Roskill Report
Blue Pearl
Blue Pearl [TSX:BLE], previously covered by Resource Investor was created in early 2005, but didn’t really hit the scene in last fall, when it the junior bought out privately-held Thompson Creek Metals, the largest primary molybdenum producer (most other moly producers, such as Rio Tinto and BHP, produce the metal as a by-product) in North America. As such, Blue Pearl has become the defacto pure-play for investors seeking operational moly exposure.
While Blue Pearl recently reported a net loss of US$21 million for 2006, this was largely due to inventory purchase costs associated with the Thompson Creek acquisition. UBS analysts recently estimated 2007 earnings of US$1.06/share (when Blue Pearl expects it will produce 27 million pounds of moly), giving the company a forward P/E of just over 9 times.
The Thompson Creek project in Challis, Idaho is an open-pit mine with a 10-year mine life based on proven and probable reserves. The mine during which time it is expected to produce 148 million pounds of molybdenum at an estimated average cash operating cost of US$3.68 per pound.
Measured and indicated resources of molybdemun at the Thompson project is 370.6 million pounds. Proven and probable reserves at the site are 169.1 million pounds of molybdenum.
According to the Canadian Press, share price has hit a 52-week high at $13.75. Since the announcement share price has increased by 39 cents per share or about three percent.
Roca Mines
Since the release of the fund price, shares of Roca Mines [TSX: ROC.V] has increased about nine percent. Share price for Roca Mines has increased sine April 2006, when it was 60 cents per share.
The backbone of the company’s molybdemun operations is its MAX Molybdenum Mine near Revelstoke, B.C.
The initial phase of mining is expected to produce approximately 1.5 million lbs of contained molybdenum from each production run of 72,000 tonnes. In 2007, Roca intends to complete back-to-back production runs resulting in the production of approximately 3.0 million lbs of contained molybdenum. Total annual operating costs (mine, mill and overhead) are estimated at US$7.2 million (approximately $100/tonne) with capital costs of approximately US$14 million. Payback of start-up capital is approximately 9 months from construction startup or 4 months from mill startup. Using a campaigned mining-milling approach, Roca plans to recover much of the 260,000 tonnes of 1.95% MoS2 within the first few years of production, and to make expansion decisions based on prevailing molybdenum prices during 2007 and beyond.
The global measured and indicated resource, 42,940,000 tonnes grading 0.20% MoS2 at a 0.10% MoS2 cutoff contains in excess of $3 billion contained metal value (at $30/lb molybdenum, not including any inferred resources) and remains open at depth. Future exploration will focus on expanding this resource both at depth and in areas surrounding the main deposit. An advisory board of porphyry molybdenum experts has been formed to guide the Company with further exploration plans at MAX.
Mercator Minerals Ltd.
Mercator Minerals Ltd. [TSX: ML] is a diversified natural resource company engaged in the exploration, development and mining of base and precious metals deposits. Mercator is currently producing by SX/EX leach extraction approximately 1 million pounds of copper a month at its wholly-owned Mineral Park Mine located near Kingman, Ariz.
The company has recently commenced a two-phase expansion of its Mineral Park operations to a 50,000 tonne per day copper and molybdenum milling operation which is expected to increase total Mineral Park average annual production over the first ten years of a 25-year mine life to 56 million pounds of copper, 10 million pounds of molybdenum and .6 million pounds of silver.
Shares of Mercator have remained relatively unchanged since the announcement of the share price of the fund, dropping less than one percent to C$4.76 per share. |
