Molybdenum: Old and New Infrastructure

It’s not just new and replacement pipelines, which might create an avalanche of demand for the silvery metal. Molybdenum’s applications are wide, diverse and expanding. The metal is used in paint pigments, lubricants, catalysts and prosthetic legs; the radioisotope Molybdenum-99 is used in cancer treatment. Six-percent molybdenum is also used in stainless steel (S31254) for higher pressure piping in more than 30 desalination plants (sea water reverse osmosis) now operating in ten countries. As abrupt climate change impacts fresh water supplies, a great demand for desalination plants could emerge.

Because of the nuclear energy renaissance, condensers in the hundreds of planned and proposed nuclear power plants may need up to one million meters of four- to six-percent molybdenum stainless steel. The number of power plants under construction, planned or proposed rises weekly or monthly, and now approaches nearly 300. Aging U.S. reactors could require replacement over the next two decades. About 30 new reactors are in various stages of being moved forward in the United States. Not all will be of the size requiring a vast quantity of molybdenum, but sufficient growth in the nuclear sector should firm demand for the metal.

According to a recent article published by IMOA, “Molybdenum containing alloy sales for FGD applications are booming.” The U.S. Clean Air Interstate Rule (CAIR) set a deadline of 2010 for many coal-fired power plants to install FGD, or Flue Gas Desulfurization, systems. Basically, there are air pollution systems, which remove acid-causing sulfur dioxide from the exhaust gases of coal-fired electrical plants.

The nickel-based Alloy C-276, which includes 16 percent molybdenum, is a corrosive-resistant component in piping and component upgrades in Flue Gas Desulfurization (FGD) systems. During 2006, it was estimated more than $1 billion was spent on molybdenum bearing alloy. IMOA believes that FGD systems could rack up $168 billion in worldwide sales between 2006 and 2020, of which about $15 billion would be used for moly-bearing alloys. This assumes two-thirds of the world’s coal-fired generators install the FGD systems by 2020.

On the books, the U.S., China and India propose to build another 800 coal-fired power plants to meet energy needs before 2020. New plants would likely require the FGD systems, which could potentially increase the amount of molybdenum necessitated in the alloy-making process. As energy needs grow, more molybdenum production will be required to bring about increased energy production.

Molybdenum has corrosive resistance to many acids – such as sulfuric, hydrochloric, hydrofluoric and many organic acids. Because its melting point exceeds 4700 degrees Fahrenheit, molybdenum acts as a strengthener in the turbine blades and discs of jet engines. It is because of these factors that higher molybdenum percentages may provide the world’s first line of defense against pipeline corrosion in conjunction with the new generation of corrosion inhibitors.

Will There Be Sufficient Molybdenum Mined to Meet the Increased Energy Demand?

Blue Pearl Mining executive chairman Ian McDonald recently reported that molybdenum prices should remain strong for a “number of years to come.” He cited increased demand and cited underinvestment in the molybdenum sector for a lengthy period. It also costs a fortune to build a new mine – some $500 to $700 million, according to McDonald. “It’s kind of a risky proposition for a commodity you can’t sell forward.”

Still the potential hazards – financial, environmental or otherwise, could provide a lucrative proposition for molybdenum mining companies. McDonald’s company forecasts annual demand by 2020 to surpass the 700 million pound level. This is more than double the amount of molybdenum mined just a few years ago, when the industry was in the pits and primary molybdenum projects were not economically feasible.

The biggest threat to the molybdenum mining industry is ‘price vulnerability,’ which Adanac Molybdenum Corp executive chairman Larry Reaugh warned us in a recent interview. This may help explain why some of the emerging moly mining participants walk on eggshells over the weekly blips on the commodity’s price chart. (The molybdenum price was last trading on March 2nd at $28.25/pound.)

Despite the rising molybdenum price, now stabilized above US$20/pound, so few realistic molybdenum mining projects appear on the horizon. Many of the junior molybdenum miners fret about price vulnerability and the re-appearance of the behemoth Phelps Dodge Climax molybdenum mine in Nevada by 2009.

One small-scale imminent Canadian molybdenum miner isn’t fazed by the anticipated molybdenum production coming into the market by 2009. His company plans to plow back cash flow after mining operations commence this spring, in hopes of expanding his molybdenum deposit in British Columbia, Canada. “We are going to move forward with further exploration as we mine the Max molybdenum deposit,” said Scott Broughton, chief executive of Roca Mines. As are some of the other near-term primary molybdenum producers, Broughton is bullish on the metal’s price.

According to the January 2007 issue of the IMOA newsletter, the following companies represent some of the new primary molybdenum mine projects, starting this year and running through 2009.

Roca Mines (TSX: ROK) should open the Max Moly mine in Canada this spring. The mine site is currently under construction with a small mine permit and should annually produce up to three million pounds.

Blue Pearl Mining (TSX: BLE) is presently the world’s largest publicly traded primary molybdenum miner. Its next mine, the Davidson, in Canada is currently going through a feasibility study, and could open as early as 2007. Announced annual capacity could run as high as 10 million pounds.

Australian-based Moly Mines (TSX: MOL; ASX: MOL) hopes to commence mining operations by the end of 2008. The Spinifex Ridge deposit is currently undergoing a feasibility study and could produce up to 20 million pounds annually.

Adanac Molybdenum Corp (TSX: AUA) has been advancing the company’s Ruby Creek deposit in Canada’s Yukon, and is nearing the end of its permitting stage. The company’s executive chairman hopes to commence construction this summer, having announced the deposit might produce between 12 and 15 million pounds. The Climax molybdenum mine, a subsidiary of Phelps Dodge (NYSE: PD), is conditionally approved and could commence mining operations in Nevada as early as 2009. Annual production capacity could range between 20 and 30 million pounds per year.

Idaho General’s Mt. Hope deposit in Nevada is in the permitting phase. The company may be mining in 2009. Estimates indicate the Mt. Hope deposit may produce as much as 35 million pounds per year.

In a previous article we reported University of Montana’s Professor Courtney Young’s remarks, “The public doesn’t know where their energy comes from.” We’ll add to his comments – very few Americans know how this energy is transported into their homes, or how great a risk they have of being left out in the cold

(Editor’s Note: Special thanks should go to Adanac consultant Ken Reser and Roca Mines corporate development manager Doug Fosbrooke in providing strong research assistance in compiling this report.)

COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.

James Finch contributes to StockInterview.com and other publications. His focus on the uranium mining and nuclear fuel sector resulted in the widely popular “Investing in the Great Uranium Bull Market,” which is now available on http://www.stockinterview.com and on http://www.amazon.com