Investor Exposure to Molybdenum

There is no bolt futures bazaar in molybdenum. Yes, there are abounding added moly traders than trading companies affairs and affairs uranium. But, it is a baby market. Because molybdenum mining is majorly a byproduct of chestnut mining, investments in Phelps Dodge is mainly a bet on the acceleration of copper. A July 24th address that a worker's bang at Escondida in arctic Chile, the world's bigger chestnut operation, was approaching should apparently accord molybdenum prices a boost. "Whether it's a connected bang or a abbreviate one charcoal to be seen," Magyar told us, during a buzz alarm to his USGS appointment in Reston, Virginia.
He acicular out U.S. molybdenum production, the bigger in the world, had accomplished 58,000 metric bags in 2005, up a whopping 37 percent from 2004. "Increases for 2006 will be incremental," he said. "Through May, assembly is up 2500 tons." In January, Magyar wrote in his account update, "China connected its top akin of animate assembly and consumption, appropriately accouterment able appeal for molybdenum." There appeared to be no signs of China slowing down. Conceivably it is time to attending at molybdenum companies.
We angry to Maria Smirnova for what Sprott Asset Management favors as molybdenum investments. Surprisingly, the money managers acquire abhorred investments in several molybdenum juniors.
Smirnova told us, "Both Blue Pearl and Roca are acceptable agency for an broker to accretion acknowledgment to molybdenum." She referred to Blue Pearl Mining and Roca Mines, both of which barter on the Toronto Venture Exchange. "They are both in a abiding political environment, Canada, and are run by competent managers." (As a amount of disclosure, Sprott Asset Management has investments in both companies aural its assorted funds.)
Smirnova commented on both companies.
"Blue Pearl is advancing their Davidson activity abreast Smithers in British Columbia. We accede Blue Pearl to be bargain on a independent metal amount base and on a abeyant balance basis. The company's bazaar cap is about C$110 million. Application a 0.10 percent MoS2 blow grade, the drop contains an NI 43-101 adjustable ability of 588 actor pounds Mo. That agency investors are paying 19 cents for something that trades at about US$25 per pound. Currently, Blue Pearl is apprehension the after-effects of a achievability abstraction on mining the deposit's high-grade core, which would advance the aftereffect for the project. We do not apprehend the abundance to be in assembly until at atomic the end of 2007."
"Roca Mines is planning to activate assembly from their MAX activity in the abatement of this year utilizing their baby mines permit. The aggregation affairs to aftermath about 1.5 actor pounds of moly per year from a high-grade area allocation 1.95 percent MoS2. The abundant account is that the baby mining admittance is already in abode and the aggregation has purchased the comminute components. As well, Roca just appear an off-take acceding for 100 percent of their apply assembly in 2006 and 2007. Roca is trading at 2x abeyant banknote breeze at accepted moly prices."
We were analytical about Roca Mines, which backward Monday appear an acceding with United Kingdom-based Derek Raphael to acquirement all of the company's molybdenum concentrates produced through 2007. The British metals banker is a affiliate of the Minor Metals Barter Association, based in Gloucestershire. According to an industry website, "Molybdenum, in all its forms, is the arch artefact of the company." Our concern grew because the Blue Pearl website appear it was "Developing Canada's Next Molybdenum Mine." We heard contrarily so we anesthetized this one by.
We talked with Scott Broughton, Chief Executive of Roca Mines, to get some accomplishments on his company. From beginning came the MAX molybdenum property? Having acquired the acreage in 2004, Broughton told us, "It's a drop that was explored abundantly by big companies, Newmont and Esso Minerals, aback in the backward 1970's and aboriginal 1980s." He mentioned, "They absent ascendancy of the key claims, but captivated ascendancy of the added surrounding arena and all of the aboriginal analysis and engineering data. It took us the blow of 2004 to accommodate a accord with Newmont, whereby we acquired the rights to their actual acreage and, chiefly for us, all of that engineering abstracts in its aboriginal form."
What did Broughton get for his money? "Drill abstracts bases and lots of metallurgical plan was done on this site," he told us. "Newmont spent about $15 actor dollars (in 1980 dollars), developed an analysis adit, or tunnel, that goes appropriate to the affection of the deposit." Roca aswell got a acceptable accord of the baseline abstraction and ecology plan as allotment of the package. "We acquire bought a actual absolute engineering, mine, metallurgical, environmental, and baseline abstracts set, as able-bodied as the property, from Newmont," Broughton explained.
"We acquire about 43 actor tonnes of molybdenite," Broughton told us. Molybdenite is the by itself occurring molybdenum sulfide mineral. "That is not an conspicuously ample deposit." But, it is a primary molybdenum deposit. There aren't any added bread-and-butter ethics in the bedrock added than moly. "What we now apperceive from our own conduct is that there are actual connected and abundant zones of top grade," Broughton suggested. "That presents an befalling for us to go aback to the archetypal way to advance a mine."
So what is Roca Mines doing? "We're absorption on baby scale, baby basic amount project," he answered. That reduces the risk. "We got it acceptable at the end of endure year, and we consistently acquainted that starting baby and starting top brand was the way to go." Broughton believes this is the archetypal way to body a mine.
How baby is small? "What we acquire acceptable now can aftermath about three actor pounds of independent molybdenum, starting at the end of this year, through to the aforementioned aeon in 2007," Broughton told us. At $24/pound, that's $72 actor in about about 14 months. What's the amount to aftermath this moly? "We apperceive this operation has a breach even amount of $5/pound," he responded.
But it never works out that altogether in the absolute world. How did Broughton acknowledgment that challenge? "I am an engineer. We acquire got aloft contingencies congenital into all our operating costs, but it's aswell why we've focused on abbreviation our basic cost. It's why were are starting with a small, cool top brand bulb here."
And what about amplification plans? Broughton didn't bat an eye, "When we aggrandize from our antecedent mine, we can steadily aftermath three actor pounds per year for advanced of 10 years. That's if we aggrandize to a 1000-ton-per-day scenario. We intend to do that by 2008." So, baby agency 500 bags per day.
Is that the accomplished story? On the face of it, this is a acceptable adventure of mining assembly and constant banknote flow. While molybdenum prices may acquire some accident at these levels, our analysis confirms the next year's amount levels should abide able-bodied aloft assembly costs. A analysis of the National Instrument 43-101 animadversion fabricated about the moly drop were encouraging: 42, 940,000 tonnes allocation 0.2 percent MOS2 assorted by 0.59 (the molybdenum equivalent) equals 111,368,000 pounds. According to the certificate filed with Canadian regulators, the gross amount of the molybdenum drop is admired at added than $2.7 billion (using $25/pound moly prices).
Of course, any adept accustomed ability broker knows bigger than to buy that at face value. First, there are basic costs and operating costs. Then, no ability will be mined entirely. At best, the aggregation ability balance conceivably 90 percent. That would alone appear about should the moly abide top brand and if the metal's amount sustains aloft $10/pound. Most U.S. molybdenum is produced as a byproduct at little amount to the mining company.
But, there are some ablaze abandon to this. The world's greatest absorption of molybdenum occurs in the Western Cordillera - the mountains forth the eastern bisected of the geological Pacific Rim of Fire, from the tip of North America to South America. The world's bigger molybdenum affluence are in the United States (about 40 percent). Roca Mines has the appropriate geological ambience (as does Blue Pearl Mining). Another aspect of the company's aegis filing on their property's geological estimates above down to the alone who able the abstruse report. Terry MacCauley who provided the appraisal for Roca Mines had been the analysis administrator for Newmont amid 1976 and 1982. He had aswell done the antecedent geological mapping and geochemical analysis in 1975. We readily acquire MacCauley's ability appraisal in ablaze of one who is abreast in the property's potential.
Which brings us aback to the big question: area does Roca Mines go afterwards it has amorphous mining moly? "We acquire a actual absorbing analysis archetypal in the Henderson mine," Broughton told us. "The Henderson was a drop that was explored by Amax. They basically had an top deposit, in a mountainside that from a concrete point of appearance is about an identical accompanying to what we acquire at MAX."
Broughton connected his comparison, "It's alleged Urad. It has agnate size, agnate tons, and agnate grades to what we have. Amax empiric there was multiphase mineralization. There was such a top brand in some of these zones aural the drop that they doubtable a actual ample mineralizing antecedent at depth." So began the success of one of the world's bigger molybdenum-producing mines. The geologists went added to acquisition the source, which was about 700 actor bags of ore.
"They went from something that is about the admeasurement of a MAX project," said Broughton. Does he accept he will echo Amax's success at Henderson, "I anticipate the archetypal is actual able-bodied founded, and we're in fact accumulating an advising lath to advice us focus on that analysis model," he concluded. "Once we're in assembly and cash-flowing, we wish to do some added analysis and to assignment at depth."
For the time being, Roca Mines will acquire Canada's newest molybdenum mine, possibly as aboriginal as this year. Shares outstanding and absolutely diluted, even with a costs appear afore the summer alteration arrived, would be beneath than 100 actor shares. If the aggregation ceremoniousness its affiance and produces 300,000 pounds of molybdenum apply account at its MAX project, starting afore the end of this year, and continues into 2007, again Roca will acquire affluence of banknote breeze from which to analyze the base of its molybdenum drop to ascertain whether or not its "Henderson model" materializes.
Roca Mines and Blue Pearl may absolutely become two cars for investors to play the molybdenum ancillary of this activity balderdash market.