Moly Market Mania Offers Upside for Junior Explorers
By Jon A. Nones
15 May 2007 at 05:07 PM GMT-04:00
resourceinvestor.com
NEW YORK (ResourceInvestor.com) -- From 1950 to 2006, the average molybdenum price has been $9.45/lb. In the past 15 years, the price of moly has been as low at $1.82/lb and as high as $40/lb. Today, with moly at $30.25/lb, the market is beginning to recognize that prices may not fall back to levels seen in 2002-2003.
Molybdenum is mainly used as an alloy to strengthen iron and steel, increasing the melting point and enhancing resistance to corrosion. It is a vital component in the making of stainless steel and oil and gas pipelines.
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China’s growth is expected to keep demand for both at record high levels.
Brian Hicks, senior research analyst of U.S. Global Investors, said that China’s GDP is expected to hit $12 trillion by 2020, currently equivalent to that of the U.S. Last year, China’s economy grew at 11% compared to 3.3% in the U.S.
China now demands about 49% of the world’s iron-ore, but Korean and Taiwanese steel consumption is still 4-5 times more than Chinese demand at present levels, according to Hicks.
The China Iron and Steel Association recently predicted that China's steel consumption growth rate would be 10%-13% in 2007 at 437 to 450 million tonnes.
World Demand for Molybdenum
Source: Roskill Information Services
P&GJ's 2006 Worldwide Pipeline Construction Survey shows 81,593 miles of new and planned oil and gas pipelines are either under construction or planned. Global pipeline projects could account for as many as 73,000 more miles of pipe over the course of the next two decades.
On the high side, if 1,600 tonnes of pipeline steel were required for every mile of pipeline, the energy industry would need more than 600 million pounds of molybdenum. That’s about 150% of the world’s current production.
Statistics from the U.S. Geological Survey show world-wide molybdenum consumption at an apparent 44,500 tonnes (although reported figures are only 19,300 tonnes). Consumption has increased 25% since 2005 and 84% since 2004.
On the supply side, mine production came in at 60,500 tonnes last year, up only 2,500 from 2005. Rex Loesby, President of Western Troy Capital Resources, said production is only expected to increase about 25% by 2015.
About 65% of molybdenum production is a byproduct of copper mining. Loesby said these secondary producers could simply lower yearly production to increase the price. There are only four major producers of moly:
1.
Kennecott (owned by Rio Tinto [NYSE:RTP])
2.
Grupo Mexico (state-owned)
3.
Codelco (Brazilian state-owned)
4.
Phelps Dodge (now Freeport McMoRan [NYSE:FCX])
Molybdenum Reserves
Source: Roskill Information Services
Therefore, junior moly exploration companies can offer investors a profitable opportunity in the moly mania. Loesby said to look at the companies’ market capitalization vs. the moly valuation in the ground, grade and location of the resource.
In a special moly panel at the New York Hard Assets Investment Conference, four such explorers were highlighted: Western Troy Capital Resources, Columbia Yukon, Idaho General Mines and Virgin Metals.
Western Troy
Western Troy [TSX-V:WRY] is developing its 100%-owned MacLeod Lake Property in Quebec, Canada. The deposit hosts a well defined Main Zone of copper, molybdenum, gold and silver mineralization, containing about 44 million total ounces of moly resources.
A 43-101 report on McLeod Lake was prepared in the fall of 2005. The Main Zone has a near surface indicated resource of 23.7 million tonnes of 0.52% copper, 0.08% molybdenum, 0.05 g/t gold and 4 g/t silver.
The South Zone appears to pinch out to the southwest, but it is open to the North and East. An inferred mineral resource of 877,000 tonnes grading 0.22% molybdenum, 0.84% copper, 0.59 g/t gold, and 16 g/t silver has been identified.
The company has many exploration targets including the South Zone, several IP anomalies of potential interest and massive sulphide zinc mineralization.
On 20 April 2007, Pinetree Capital Ltd. [TSX:PNP] purchased 3,333,333 common shares of Western Troy and 1,666,667 share purchase warrants, exercisable at $0.90 until 19 April 2009. These holdings represent approximately 24.3% of the total issued and outstanding common shares of Western Troy.
Also on 20 April, Western Troy announced the completion of two non-brokered private placements with Sprott Asset Management Inc. and another public institutional investor for total proceeds of $4 million.
The company has 18,879,872 shares outstanding with a float quoted market cap of C$27.3 million at today’s stock price of $C1.45.
Columbia Yukon
Columbia Yukon Explorations Inc. [TSX-V:CYU] acquired the rights to explore the Storie Molybdenum Deposit in British Columbia, Canada on 20 March 2006. The deposit was last drilled by Shell Canada [TSX:SHC] in the late 1970s and early 1980s, and has been archived from exploration over the last 25 years.
The historical resource estimate for the Storie Deposit taken from Shell’s historical reports is 100.5 million tonnes at 0.077% Mo for about 77.385 million tonnes of moly resources. However, this resource estimate does not meet NI 43-101 standards.
The deposit is open along strike to the east, north and west. Random historical deep drill holes show mineralization does continue to at least 200 metres in depth. Columbia Yukon intends to re-drill the deposit sequentially along strike and to an approximate depth of 300-meters, on 100-meter drill centers to fully delineate the deposit.
John Kowalchuk, VP Exploration for Columbia Yukon, said the company plans to complete a 43-101 estimate shortly, with a revised estimate by year-end after 20,000 metres of core drilling at the site. A pre-feasibility study is expected by spring of 2008.
“It’s a stock you should definitely keep an eye on,” he said.
There are 24.2 million shares outstanding (37.65 million on an undiluted level) with a float quoted market value of C$24.2 million at today’s price of C$1.44.
Idaho General Mines
Idaho General Mines [AMEX:GMO] is currently developing the Mount Hope molybdenum deposit located in Eureka County, Nevada, and in 2006 acquired the Hall-Tonopah project, located in Nye County, Nevada.
Mount Hope is estimated to contain 1.2 billion pounds of moly based on a historic feasibility study done in 2005. CEO Bruce Hansen said he expects a bankable feasibility study by mid-2007.
In the first 10 years, the company estimates average production of 31 million ounces per year at 0.10% Mo. With a 50-year mine life, Mount Hope will produce about 1.2 billion ounces.
At $15/lb moly, Hansen said the mine will have a Net Present Value (NPV) of about $840 million. At current prices, the NPV will be about $2.5 billion.
Earlier this month, Resource Investor profiled Idaho General as an emerging market darling with a long-lived development project “easily worth four times GMO’s current stock price.”
The startup costs at Mount Hope are about $600-$700 million, but the project’s economics of $4-$5/lb moly cash costs make the project value accretive at moly prices as low as $10/lb, according to company estimates.
“With its still relatively small market cap, the shares could be worth a small punt for speculators - with an eye toward holding for upwards of one year,” RI noted.
Idaho General has 45.8 million basic shares outstanding (71 million fully diluted), no debt and $25 million in cash. Quoted market cap comes in at around $250 million at today’s price of $5.40.
Virgin Metals
Virgin Metals [TSX:VGM] has two advanced exploration stage molybdenum-copper porphyry properties in Sonora State, northern Mexico: Los Verdes and Cuatro Hermanos.
The Los Verdes property is a historic molybdenum producer and was extensively drilled in the 1960s and 70s by a number of major companies including Newmont [NYSE:NEM], Homestake, Cominco [NYSE:TCK; TSX:TCK-B] and Penoles.
Cominco and Penoles reported mineralization calculated from the drilling of 7.1 million tonnes grading 0.8% copper, 0.16% molybdenum and 0.135% tungsten. Further drilling by Virgin in 2006 has resulted in a 43-101 compliant estimate of 10.5 million tonnes M&I resources at 0.124% Mo and Inferred resources of 1.1 million tonnes at 0.12% Mo.
Recent drill results reported a 39.62-metre intercept at 0.73% Mo. The company now estimates 28.5 million pounds of contained molybdenum and 105 million pounds of contained copper.
Chris Davie, President and CEO said a feasibility study is underway projecting 1 million tonnes per year for 10 years. At 89% Mo and 86% Cu, the company estimates 2.5 million pounds of annual moly production with 9 million pounds of copper.
The Cuatro Hermanos property has the potential to be much larger but has been less intensively explored. Drill spacing over most of the property is of the order of 300 to 700 metres and thickness of mineralization varies from 6 to 40 metres.
The company’s target is a resource of the order of hundreds of millions of tonnes at grades that are expected to average 0.5% copper and molybdenum credits. Drilling is expected to take place in a series of campaigns over the next one to two years.
Last month, RI profiled Virgin Metals as “more than a fast-money moly momentum trade ... turning up impressive holes with enviable grades, making it one of the better vehicles with which to ride the moly wave.”
“We would not be surprised to see it trading near C$1 in the near-term and a TSX listing will further help the company distinguish itself from what will be a growing roster of moly companies emerging in the near-term,” we noted.
The company has 76,650,130 shares outstanding (102,244,767 fully diluted) with a quoted float market cap of C$51.35 million at today’s share price of 71 cents. |
