I first mentioned Roca back in February when it was trading at $1.35 canadian and had a market cap around $80 million. For a stock expected to have earnings over $50 million for 2007, how could you go wrong?
On Friday Roca closed at $2.90 canadian and if you bought when I first mentioned it, you'd be up 115%.
You'd think the market cap would also be up 115%, to say around $175 million, but that is not the case.
Since I first mentioned Roca there have been stock options and warrants issued. Here's the list:
Date Issue type Number Exercise Price/Notes Feb 9, 2007 shares 3,171,429 Hold till June 10, 2007 same warrants 3,171,429 Exp Aug 9/08 @ $2.25 same warrants 18,750 Exp Aug 9/08 @ $2.25 Feb 19, 2007 Stock Options 2,600,000 @1.45/share for 5 years Mar 6, 2007 shares 7,142,857 Hold till July 7, 2007 same warrants 7,142,857 Exp Sept 6/08 @ $2.25 Mar 28, 2007 shares 1,212,121 Hold till July 29, 2007 same warrants 1,212,121 Exp Sept 28/08 @ $2.25 . Total 25,671,564 .
Additionally, with eventually 23,071,564 new shares directs are entitled to the issuance of another 2,307,156 stock options for a total dilution of 28 million shares.
Check the web site and as of March 9th it shows 91,745,986 shares fully diluted. The last funding was announced March 14th and closed March 28th. They are not included in that total. With them included there are 94.1 million shares, and remember, there is the 10% options that get issued at a later date.
So, with 94 million shares the fully diluted market cap is more like $273 million, an increase of 240% from when I first reported on Roca.
Mining 3 million pounds will make Roca $45-55 million, and that's their plan for 2007. This is about 16-20% of the fully diluted market cap for moly at $25-30/lb.
Saturday, March 31, 2007
I first mentioned Roca back in February when it was trading at $1.35 canadian and had a market cap around $80 million. For a stock expected to have earnings over $50 million for 2007, how could you go wrong?
Wednesday, March 28, 2007
"Around 2000 I left my job and cashed out my pension and put it into commodities," was what a colleague was saying. "I had $14,000 and it is now a quarter of a million."
The commodities bull run created an enormous leverage of earnings. Take Northern Orion, a junior start-up company around the beginning of the bull run and now it has $230 million in the bank. The big players have reported billions of dollars of earning.
Eastern Platinum has gone from a junior start-up to a company with a $1.5 billion dollar market cap. Its earnings are a little on the low side for the market right now, but with 700% expansion of mining production over 5 year planned, high grades of platinum resources and demand for platinum as both an industrial metal and a precious metal, they will have good growth in earning..
Roca is a new start-up that if moly prices remain where they are should make in the range of 25-30c/share in either Q3 or Q4 this year.
Blue Note is also building a new mine and should have earnings of 2-4c by Q3 or Q4 this year. Blue Note will perform nicely this year.
Aur Resources has gone from a $2 stock in 2000 to $23 today with 2006 earnings of $3.23 per share, and 60-70% growth in production planned over the next 2 or so years.
To have been there at the beginning of the bull run, at the period when earnings exploded.
There is one stock I've recently looked at that an unfortunate hedge decision reduced its earnings to about 20-25% of what they would have had without the hedge. The company's earnings were 87c/share for 2006, and with only 40 million shares, taking a $144 million dollar loss and still making money is amazing. $144 million is about $3.60/share of cash flow that they didn't have to put to earnings. There is a thing called taxes that they would have to pay on that, so it isn't quite that good, but it is very sweet overall.
The stock is Quadra and this stock is in a position to see a leverage of earnings much like the early bull run days, indeed, 2007 will be Quadra's bull run.
Quadra's hedge which limited them to an average of $1.72/lb of copper for 2006 hit them at both end, earnings and costs. There is a thing called "price participation" where as the price of a commodity increases, smelter companies get a cut of that increasing price. Quadra had hedged at $1.60 and copper went as high as $3.99/lb on the LME. So, not only did Quadra forfeit 60% of the potential income, they had to pay smelter costs as if they were getting $3.99/lb. So Quadra paid the full costs of the bull run, but had none of the benefits. The average LME price for copper for 2006 was $3.05/lb. Quadra didn't get an average of $1.32/lb of "free" money.
Quadra has even more leverage of earning to come. They ran into a few problems with production and produced 117 million pounds of copper. They believe they've worked out those issues, certainly towards the end of Q4 their recovery rates improved considerably, and they've given guidance of $125 million pounds, an small increase of 7%. But, they are in the process of building a second mine which is planned to start producing late 2008 and will add 75 million pounds of production per year, so a two year growth in production rate of 67%. There are a couple downsides, increased debt to pay for building the new mine, but that is highly preferable over dilution that would limit earning potential forever.
2007 is going to be Quadra's year for stellar performance.
QUA Toronto, QADMF.PK in the US.
Wednesday, March 21, 2007
Quadra is a $350 million, fully diluted, market cap mining company with a producing mine with 2007 production guidance:
- 125 million pounds of copper,
- 60,000 ounces of gold,
- no guidance on molybdenum, 260,000 lb in 2006.
Last year copper prices peaked at $3.99/lb and they have come down, slaughtering the earnings for most copper mines. Take Goldcorp, market cap 19.7 billion, earnings crumbled to 11c/share in Q2 from 50c/share in Q4 -- in Q2 Goldcorp's copper earnings accounted for 65% of their total earnings, and enabled them to claim -$123/oz production costs on gold, all from a mere 46,700 lbs of copper sales.
For 2006 Quadra's eps was a mere $0.87, indeed, while Goldcorp was producing its record earnings, Quadra was losing money. Quadra made a hedge, and the hedge ended up costing Quadra $143.9 million in derivative expenses. The average LME price for copper in 2006 was $3.05, but Quadra's average price was $1.32/lb less, $1.73/lb, because of the hedge. $143.9 million in lost income amounts to $3.53/share. After taxes it means that $2.18/share of earning potential was lost to a bad hedge. Without the bad hedge, eps for 2006 would have been in the $3+/share range.
Quadra has shipped the last of its hedged copper and will clear the last of its hedge loss this quarter.
Think of the end of the hedge as an enormous cut to costs. Their income for 2006 was $393 million, and out of that came this enormous $144 million hedge cost, or 37% of their revenue.
Another problem that Quadra had was lower than expected recovery rates, a mere 61% on copper until the last two weeks of December, where it increased back to the 70-80% recovery rate. This problem appears to have resolved now, but it also lowered overall production for 2006.
So, Quadra is going into 2007 with a double leverage potential on earnings, an enormous reduction in expenses, and improved production rates. At $3/lb for copper, $375 million, at $650 for gold, $39 million, and perhap $5 million for their molybdenum, for 2007 revenue of about $419 million, and no $144 million hedge expense.
Monday, March 19, 2007
Wednesday, March 14, 2007
Blue Note is a little known near term producer. It is building a new mill to commence operations in June and will start mining the ore for the mill in April. The metals are zinc, lead, copper and silver.
Blue Note will be a commodity winner due to their choice to develop their mine and cash in on the commodity prices rather than to drill, and drill, and drill their property. An educated look at the property told them they have these metals at depth. An existing mine in the area has been mining for over 20 years and has mined to incredible depth. The geology of the area is similar.
A difference between Canadian and Australian philosophy in mining is that Canadian companies and investors have become more concerned with showing the resource is there rather than making money. Australian companies look at this policy of premature drilling when you have good reason to believed the resource is there as wasteful of capital. Spend $10 million today to establish a resource you won't use for another 20 years means you have spent $10 million that will gain no return for 20 years. Their mines work on a philosophy of having about 5 years of reserves always established. It maximizes the use of capital.
Blue Note has followed this type of philosophy in choosing to put the resource to work by building a mine and earning money sooner rather than later and also tying up capital to establish a reserve that won't be used for 20 years.
Their forecasted 2007 cash flow numbers look very good. At prices of $1.44 for zinc, $0.52 for lead, $2.80 for copper, and $12.50 for silver they expect $15.3 million cash flow. They also expect costs net of byproduct credits to be $0.76. Currently the price on lead means this cash flow estimate is low by about $10-$12 million. They are most price sensitive to zinc, then lead, then silver. Copper has little influence on their cash flow as it will only contribute perhaps 2% of the total.
The number get impressive for 2008. They have adjusted their prices way down, $1.17 for Zinc, $0.44 for lead, $2.29 for copper, and $11.65 for silver. The costs also decline, to $0.55 net of by product credit, and it gives them about $58 million in pre-tax cash flow. After taxes I calculate 2008 eps of about $0.14, exceptionally impressive for stock currently trading at $0.47-$0.48, and those earnings strongly take into consideration the price of commodities coming down. The IRR on the mine is 126.3%.
As a near term producer, Blue Note is one that will win big time for its investors.
Tuesday, March 06, 2007
Attached is a link for yet the previous article about why molybdenum is a good investment right now, but it has some excellent pictures and graphs. I can't say it enough, molybdenum is a very good investment right now.
The fundamentals for molybdenum make it stronger than other metals. The need to get energy to the consumer means that it is not subjected to say a housing slow down, and it means the demand is going up faster than other metals.
And while you are at it, check out why nickel has strong fundamentals.
The article has 6 different links for molybdenum companies. I favor Roca because it still doesn't have the same valuation as the others. It has recently added strong investment partners, for example Sprott, and I understand there are other ones in the new private placement. This will give Roca a greater profile and allow its valuation to catch up to its peers.
End of post, ignore the read more.
Monday, March 05, 2007
Attached is yet another article on Molybdenum and how bullish Eric Sprott is on moly. Canada’s legendary natural resource investor, Eric Sprott, has got moly fever! His eponymous management firm is now preparing a molybdenum participation fund, which will buy and sell physical molybdenum. The Sprott Molybdenum Participation Corp will also invest in companies that explore for, mine and process the metal. Sound familiar? Uranium Participation Corp (TSX: U; Pinks: URPTF) debuted in late 2005, accumulating physical uranium for as low as US$20/pound range. Shares in the uranium fund nearly doubled in 2006 in tandem with the spot uranium price. We interviewed Eric Sprott in October 2004, when he forecast the steep rise in uranium and offered his selection. As usual Sprott Asset Management had entered the uranium market through large, very speculative investments in complete unknowns. Since then, those unfamiliar penny stocks have begun boasting market capitalizations well above $1 billion. Examples include SXR Uranium One (TSX: SXR), which recently announced a $5 billion merger with UrAsia (TSX: UUU), and Paladin Resources (TSX: PDN), which once traded at for three cents, and is now capitalized around C$3 billion. We followed many ‘Sprott stocks,’ some trading sub-$1/share in 2004, and which have recently traded above $12/share – such as Energy Metals (NYSE: EMU). At one point, the Sprott family of funds held more than 20 percent of the shares in uranium companies such as Energy Metals and Strathmore Minerals (TSX: STM). In late February, Jim Cramer recommended Energy Metals on his ‘Mad Money’ television show. Last summer’s big question in Canada’s financial circles and in the media was: ‘What will be Eric Sprott’s next big thing?’ We concluded it would be molybdenum stocks and reported on that in late July. We interviewed Sprott Asset Management research associate Maria Smirnova and discussed how investing in molybdenum stocks might be another way to ride the energy bull. While nickel, zinc and uranium prices have soared, molybdenum lagged behind in 2006. After a stellar 2005, during which moly prices jumped to a record $40, increased byproduct mining from copper producers brought the moly price back into the twenties. But that may not last long. Changes in China’s export laws may help the molybdenum price firm up, according to Ken Reser, one of the early molybdenum mining commentators. In our email exchanges, Reser strongly believes the molybdenum price could go much higher. He’s backed Adanac Molybdenum Corp (TSX: AUA), a company which hopes to bring its large Ruby Creek deposit into production in 2009. Early Sprott favorite, Blue Pearl Mining (TSX: BLE; Pinks: BLEFF), has since become the world’s fifth largest primary molybdenum producer and is the world’s largest publicly traded primary molybdenum company. The key word is “since.” After Eric Sprott began backing the company, Blue Pearl announced the acquisition of privately held Thompson Creek Metals Company for US$575 million. The acquisition brought the then-tiny company into the molybdenum mining spotlight. During 2007, the company plans to produce about 21 million pounds of molybdenum (gross value at Friday’s closing price: US$593 million). That’s about five percent of global molybdenum mining production! Another Sprott favorite, Roca Mines (TSX: ROK; Pinks: ROCAF) hopes to commence molybdenum mining operations this spring as a small-scale producer in British Columbia. The company hopes to expand its molybdenum deposit by pouring in some of the cash flow from its mining production during the first year in hopes of building a much bigger moly mine. Judging from Eric Sprott’s keen investment eye, the molybdenum price may soon be rising again. And, of course, so will the moly stocks his fund invests in. (We have no relationship with Sprott Asset Management.) 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
The article mentions Roca mines, Rok on venture. Roca should mine about 3 million pounds this year. At $25 US/lb, I calculate a 2007 eps of about $0.44 taking into consideration the most recent private placement that Roca offered. That private placement has given an excellent buy-in opportunity for investors. For each extra dollar/lb, add about 2 cent eps.
The private placement was to fund immediate construction for Phase II of the Roca's mine. This construction will take place simultaneously with mining, or perhaps during the built-in shut down periods. The current limitations of the Phase I mine is that because of ventilation concerns, new areas of the mine can not be prepared during mining, so it must shut down for 1-2 weeks after a section is mined out to get the next section ready. With the phase II construction, the next sections to be mined can be prepared at the same time mining is happening and it makes Roca a continuous producer.
For 2007 Roca is permitted to mine 150,000 tonnes, which at 1000 tonnes per day is 150 days. For 2008 Roca once permitting is in place, Roca can mine continuously. With the lower grade, I calculated about 4.8 million pounds and at $25/lb eps of about $0.65.
The previous two article explain the amazing fundamentals that support molybdenum demand to remain strong for many years, most likely stronger than most base metals.
Note: Roca is my largest portfolio holding.
Canada’s legendary natural resource investor, Eric Sprott, has got moly fever! His eponymous management firm is now preparing a molybdenum participation fund, which will buy and sell physical molybdenum. The Sprott Molybdenum Participation Corp will also invest in companies that explore for, mine and process the metal.
Sound familiar? Uranium Participation Corp (TSX: U; Pinks: URPTF) debuted in late 2005, accumulating physical uranium for as low as US$20/pound range. Shares in the uranium fund nearly doubled in 2006 in tandem with the spot uranium price.
We interviewed Eric Sprott in October 2004, when he forecast the steep rise in uranium and offered his selection. As usual Sprott Asset Management had entered the uranium market through large, very speculative investments in complete unknowns. Since then, those unfamiliar penny stocks have begun boasting market capitalizations well above $1 billion. Examples include SXR Uranium One (TSX: SXR), which recently announced a $5 billion merger with UrAsia (TSX: UUU), and Paladin Resources (TSX: PDN), which once traded at for three cents, and is now capitalized around C$3 billion.
We followed many ‘Sprott stocks,’ some trading sub-$1/share in 2004, and which have recently traded above $12/share – such as Energy Metals (NYSE: EMU). At one point, the Sprott family of funds held more than 20 percent of the shares in uranium companies such as Energy Metals and Strathmore Minerals (TSX: STM). In late February, Jim Cramer recommended Energy Metals on his ‘Mad Money’ television show.
Last summer’s big question in Canada’s financial circles and in the media was: ‘What will be Eric Sprott’s next big thing?’ We concluded it would be molybdenum stocks and reported on that in late July. We interviewed Sprott Asset Management research associate Maria Smirnova and discussed how investing in molybdenum stocks might be another way to ride the energy bull.
While nickel, zinc and uranium prices have soared, molybdenum lagged behind in 2006. After a stellar 2005, during which moly prices jumped to a record $40, increased byproduct mining from copper producers brought the moly price back into the twenties.
But that may not last long. Changes in China’s export laws may help the molybdenum price firm up, according to Ken Reser, one of the early molybdenum mining commentators. In our email exchanges, Reser strongly believes the molybdenum price could go much higher. He’s backed Adanac Molybdenum Corp (TSX: AUA), a company which hopes to bring its large Ruby Creek deposit into production in 2009.
Early Sprott favorite, Blue Pearl Mining (TSX: BLE; Pinks: BLEFF), has since become the world’s fifth largest primary molybdenum producer and is the world’s largest publicly traded primary molybdenum company. The key word is “since.” After Eric Sprott began backing the company, Blue Pearl announced the acquisition of privately held Thompson Creek Metals Company for US$575 million. The acquisition brought the then-tiny company into the molybdenum mining spotlight. During 2007, the company plans to produce about 21 million pounds of molybdenum (gross value at Friday’s closing price: US$593 million). That’s about five percent of global molybdenum mining production!
Another Sprott favorite, Roca Mines (TSX: ROK; Pinks: ROCAF) hopes to commence molybdenum mining operations this spring as a small-scale producer in British Columbia. The company hopes to expand its molybdenum deposit by pouring in some of the cash flow from its mining production during the first year in hopes of building a much bigger moly mine.
Judging from Eric Sprott’s keen investment eye, the molybdenum price may soon be rising again. And, of course, so will the moly stocks his fund invests in. (We have no relationship with Sprott Asset Management.)
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.comTaken from http://www.theconservativevoice.com/article/23251.html
Sunday, March 04, 2007
Rusty Pipelines to Drive Up Moly Price
As long as air conditioners keep us cool in the summer and central heating warms us in the winter, all is well in the world. In order to keep this gas and electricity continuously flowing into our homes, molybdenum has emerged as an essential metal to help preserve challenging energy transportation network. The anti-corrosive qualities found in molybdenum could also help prevent the collapse of the U.S. energy infrastructure.
Tucked beneath our streets, farms, deserts and forests lays a multi-million mile network of mostly aging pipelines supplying our energy needs. Meanwhile, hydrogen sulphide, carbon dioxide and common oxygen corrode the energy transportation system we rely upon to fuel our cars and power our computers. Corrosion annually costs the U.S. economy about $276 billion, more than three percent of the GDP, according to Technology Today (Spring 2005).
Unacceptably high percentages of two key energy-providing vehicles, such as nuclear power plants and the U.S. pipeline network, have begun aging beyond their original design life. About half of the nation’s 2.4 million miles of oil and gas pipelines were built in the 1950s and 1960s. And the composition of the liquids flowing through those pipelines has deteriorated over the past half century.
According the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) website, “Corrosion is one of the most prevalent causes of pipeline spills or failures. For the period 2002 through 2003, incidents attributable to corrosion have represented 25 percent of the incidents reported to the Office of Pipeline Safety for both Natural Gas Transmission Pipelines and Hazardous Liquid Transmission Pipelines.” Industry sources note corrosion is also a leading cause of pipeline leaks and ruptures.Corroded Prudhoe Bay Pipeline Rupture
Corrosion makes each of us vulnerable to price shocks. On August 7th, public awareness about the impact of corroded pipelines in the energy infrastructure registered when prices shot up at the gasoline pump. BP shut down about eight percent of U.S. oil production. The international oil company cited ‘unexpectedly severe corrosion’ in its Alaska oil pipelines. This was the first shutdown ever in America’s biggest oil fields. According to BP, sixteen anomalies were discovered in twelve separate locations on the eastern side of the oil field. Earlier in the year, a pipeline spill was reported from the western side of the field.
Immediately following the corroded pipeline rupture, the industry introduced legislation, hoping to prevent a recurrence. Signed into law in December, the Pipeline, Inspection, Protection and Enforcement and Safety Act, affected low-stress crude oil pipelines, and included provisions for the improved controls and detection of pipeline corrosion. During Senate committee hearings, trade representatives pointed to the Department of Transportation’s Integrity Management program, implemented in 2001 and which was reported to have demonstrated a reduction of leaks and releases resulting from corrosion from high-stress inter-state gas pipelines in ‘high consequence areas.’
Official statistics published by the PHMSA Office of Pipeline Safety disagree. In the twenty-year period of 1986 to 2006, 2883 incidents resulting in 1467 injuries, 349 fatalities and nearly $860 million of property damage were reported by distribution operators at U.S. natural gas pipelines. In the five-year period ending in 2006, 25 percent of the incidents, about 20 percent of the fatalities, nearly 19 percent of the injuries and more than 69 percent of the property damage occurred compared to the previous fifteen years, before legislation was enacted. Similar percentages were reported by natural gas transmission operators.
Faced with aging, out-dated infrastructure, the pipeline industry aimed legislation toward the lowest-cost solution – detection of corrosion and piecemeal pipeline replacement – rather than addressing the separate issues which led to the problem.Older Pipeline Steels Vulnerable to Corrosion
During its massive build up phase, U.S. pipeline infrastructure relied upon carbon and low-alloy steels for natural gas and petroleum transportation. As oil fields have aged, the risk of pipeline corrosion and pitting has increased. The Prudhoe Bay oilfield now produces more water than oil. This is a common occurrence in numerous U.S. oil fields and around the globe.
In the absence of water, hydrogen sulphide is non-corrosive to pipelines. However, increased moisture in pipelines is problematic, because it activates the corrosive capabilities of hydrogen sulphide. A combination of tensile stress, susceptibility of low-alloy steels and chemical corrosion will lead to sulfide stress cracking. Hydrogen ions weaken the steel. Over time, pressure causes the embrittled steel in the pipeline to rupture.Similar problems have emerged in the natural gas sector. As deeper wells are drilled in hot, high-pressure gas deposits, the probability of hydrogen sulphide in gas can increase. An entire industry has sprung up around decontaminating sour gas. U.S. sulfur production from gas processing plants accounts for about 15 percent of the total U.S. production of sulfur.
Sour gas is a naturally occurring gas containing more than one per cent hydrogen sulphide (H2S) and sometimes above 25 percent. It is typically identifiable by a strong ‘rotten eggs’ smell. Commonly found in the foothills of western Canada’s Rocky Mountain region, sour gas comprises more than one-third of the gas produced in Alberta. It is ‘sweetened’ at more than 200 plants in this province to bring the gas up to pipeline quality.
The one-to-two percent of the H2S remaining in the gas is considered pipeline quality. But the interaction of the hydrogen sulphide with water can accelerate the pipeline corrosion process. Potentially, the combination of the old gas pipeline material and the rise of sour gas could pose the greatest risk to gas pipeline safety. Molybdenum is crucial in defending against hydrogen sulfide environments as reported in a metallurgical journal study and published by the Defense Technical Information Center.High Strength Low Alloy Steels
Long running cracks, some stretching more than six miles, first began fracturing gas pipelines in the 1960s. The industry’s solution was the development of, and encouragement to use, High Strength Low Alloy (HSLA) steels. Older pipelines, built in the 1920s (or earlier), of 500mm or less, could only handle an operating pressure of about 20 bar. Annual capacity of gas transportation long those pipelines stood at about 650 million or less. Because of today’s high energy content of compressed gas at 80 to 100 bar and an annual transportation capacity of 26,000 million or more, pipelines require modern HSLA steel to prevent them brittle fracture behavior or ductile cracks.
HSLA steels capable of building large diameter pipes came about from the introduction of the thermomechanical rolling process in the 1970s, which maximized grain refinement. By increasing the strength of the steels, one could sustain the high operating pressure and reduce the wall thickness of the pipe. Steel manufacturers could use less steel, reduce the pipe weight and double the yield strength. Transportation costs from plate and pipe mills to construction sites were also reduced. Delivering a lighter-weight pipe to remote or arctic areas became more economical.
Steel is vulnerable to acids and is generally stable with pH values above 7. Acidity-causing corrosion comes about when magnesium and calcium are hydrolytically converted to form hydrochloric acid. Hydrogen sulphide and carbon dioxide are also acid-forming gases corroding steel. Molybdenum’s corrosive-resistant properties served beyond its original scope in manufacturing modern steel.
Initially, molybdenum was included to harden steel and increase weldability, while reducing the carbon content previously utilized. Higher toughness, but lower tensile strength, was required. By adding molybdenum in the range of 0.15 to 0.30 percent, depending upon the pipe wall’s thickness, carbon content in the steel could be reduced to 0.07 percent. The metal has played a key factor in oil and gas development projects as pipes continue being used in arctic, sour and sub-sea environments. Apparently, the more rugged the climate, the better the more recent gas projects have panned out. One example would be the Sakhalin oil and gas project in Russia’s Far East, where on- and off-shore pipelines in excess of 1,000 miles would transport some of the world’s largest natural gas reserves.Steels for natural gas pipelines require higher standards than those used for oil. These pipelines must carry compressed gas at minus 25 degrees centigrade to minus 4 degrees centigrade. Crack growth and brittleness intensify in the severe arctic environment. Achieving low-temperature notch toughness, grain size control, and low sulfur content were some of the problems solved while developing this modern steel.
Since the 1970s, more than two million tons of molybdenum-containing HSLA steels for pipelines were manufactured. We checked with the world’s largest pipeline manufacturer Tenaris (NYSE: TS), which offers steel with high resistance to Sulphide Stress Corrosion Cracking (SSCC), to confirm continued interest in molybdenum. In a phone call to the company’s Houston office, we discovered the company had purchased $65 million of ferromolybdenum in the six-month period ending January 31, 2007 for use in its new pipeline steels. As an aside, the company representative, having checked with company’s central purchasing ‘sister company’ in Argentina, pointed to the rising cost of ferromolybdenum and anticipated paying $80 kg in the coming year. (This could help explain why the moly price has remained high through 2006 and could rise higher in 2007.)Pipeline Projects on the Horizon Confirm Moly Demand
We talked with Rita Tubbs, managing editor of Pipeline and Gas Journal (P&GJ), about molybdenum content to be used in the construction of gas pipelines outside of the United States. “Most will adhere to the standards used in North America,” she told us. According to Adanac Molybdenum Corp consultant, Ken Reser, the new standard has grown to 0.5 percent moly content.
In a December 2006 worldwide pipeline construction survey, compiled by Rita Tubbs, she observed “81,593 miles of new and planned oil and gas pipelines under construction and planned.” She pointed out North American pipeline construction plans nearly doubled to 28,314 miles. In these figures, Tubbs spotlighted Canadian activity, which is expected to increase overall North American pipeline construction mileage. She wrote, “By 2008, contractors expect to see a workload that has not been seen in Canada for nearly three decades.”
Tubbs explained in her report, “Much of the activity will be generated by the massive oil production that will come from the oil sands in northern Alberta which contain the largest deposits of hydrocarbons on earth. Terasen and Enbridge plan to move oil sands by pipeline.” Molybdenum is likely to play a vital role in pipelines carrying the material, which is a mixture of sand bitumen and water – with high sulphur content.
An unexpected addition to the P&GJ report came on February 26th. Shanghai Daily newspaper reported a boom for China’s energy pipelines. The world’s most populous country plans to add another 15,000 miles of oil and gas pipelines to its existing infrastructure of 24,000 miles by 2010. In three years, the country hopes to extend its mileage by nearly 63 percent as China races to raise its energy mix for gas to 10 percent.
Perhaps the greatest number of new pipeline growth will occur in the United States – the world’s largest energy consumer. By 2025 EIA expects the US will need 47 percent more oil and 54 percent more natural gas. To transport this energy, transmission and distribution line mileage is expect to increase by approximately 30 percent. This implies pipeline projects on the order of some 600,000 miles.
Whether this would include the nearly one million pipeline miles sorely in need of replacement since the introduction of molybdenum in the 1970s to the steel in pipes is not known. However, whether one calculates the number of new pipeline miles potentially constructed or the number of replacement pipeline miles, one arrives at a staggering quantity of molybdenum required to more strongly protect the steel from future corrosion.
Depending upon the diameter of the pipe, wall thickness and environment, each pipeline mile could require between 600 and 1000 pounds of molybdenum. About one-half of the U.S. oil and gas pipeline network could call for replacement. In the United States alone, and solely to upgrade the out-dated portion of America’s pipelines, more than 300 million and as many as one billion pounds of molybdenum could potentially be required. While this should be considered a speculative extrapolation, based upon available data, it may not be that far off the mark. Pipelines aged more than thirty or forty years could very well be replaced before 2020. Chemical changes in the material passing through U.S. pipelines could accelerate pipeline corrosion. Based upon future natural gas incidents, future legislation could hasten the remediation process of America’s energy transportation infrastructure.
By comparison, the number of new pipeline constructions now on the books might require between 50 and 100 million pounds. This could be upwardly revised as the rest of the world, especially Russia and Europe, suffer from the similar aging pipeline problems found in the United States.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 MolybdenumMined 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.)
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I've pasted the link at the bottom, but because these links tend to change I've also just pasted the story:
Is moly on brink of being mining megastar?
It's rare, difficult to trade and next to impossible to pronounce. But thanks to the surging interest in all things metals and mining, molybdenum is about to get its own investment fund.
Moly, as it's most often called, is set to join a growing list of commodities including gold, silver and more recently, uranium, with a new fund that will give investors direct exposure to the price of the metal.
Resource guru Eric Sprott is preparing an initial public offering for the Sprott Molybdenum Participation Corp., which will buy and sell actual molybdenum and invest in companies that explore for, mine and process the silvery white material used in furnaces, pipelines and aircraft engine parts.
The offering of shares, which will trade on the Toronto Stock Exchange, will attempt to raise roughly $75-million, according to sources, and comes as the mining world turns its attention to Toronto for the 75th annual Prospectors and Developers Association of Canada (PDAC) conference.
Few investors had given much thought to moly before the recent surge in commodities. But the metal, often found alongside copper and used to make high-grade stainless steel, has drawn interest as its value has increased.
“No one's ever paid much attention to it, [but] it has margins as good as nickel or better. These prices are going to be with us for a couple more years,” said a person familiar with the offering.
The moly fund is the latest attempt to cash in on soaring demand for fresh mining-related investments that will be front and centre at the PDAC show, which kicked off Sunday. More than 15,000 people from international mining and investment are expected to attend the four-day event. In just a year, the sector has undergone a massive transformation as Canada's Inco Ltd. and Falconbridge fell to mega-miners CVRD of Brazil and Swiss-based Xstrata PLC.
Like the soaring nickel prices that inspired the Inco/Falconbridge bidding wars, uranium emerged as a red-hot commodity last year, spawning the creation of hundreds of new junior explorers and a recent trend toward sector consolidation. Last month, sxr Uranium One and UrAsia Energy Ltd. agreed to merge in hopes of creating a new producer with a $5-billion (U.S.) market value. Neither company existed four years ago.
David Davidson, an analyst with Paradigm Capital, said that despite last week's drop in most metal prices and a corresponding stock selloff on concerns of slowing demand from China and the United States, most investors and industry players believe the mining boom is far from over. At PDAC, they'll be searching for a fresh way to play it.
“People are going to be looking for new ideas. The coppers and the nickels have had a pretty good run so things like uranium and specialty metals like molybdenum or tungsten — those are all going to be well-attended,” Mr. Davidson said.
Many expect the new moly fund to impact the price of the commodity by purchasing stockpiles of the metal that is already in short supply, with roughly 400 million pounds produced a year.
“This will have an actual effect on the moly market,” said another mining industry source who warned that trading in the metal is “massively illiquid.”
Unlike, for example, copper or nickel, there is no forward trading in moly and it does not change hands on metals exchanges. Its price is based largely on supply and demand and set by traders and dealers who deal directly with customers. Moly has performed well recently, remaining at above average levels for the past few years. Due to tightening supplies, spot prices soared to above $40 (U.S.) a pound in mid-2005 and have since settled back to between $25 and $27 a pound, well higher than the 1994 to 2004 average of $4.50 a pound.
“The key here is, it's an extremely volatile commodity. So you make hay while the sun shines and you never know how long that will be,” said one investor, who predicted the new moly fund could give a lift to prices and to moly miners.
The creation of commodity-specific exchange traded funds have made an impact on metal prices before. Anticipation of a silver exchange traded fund created by Barclays PLC's Barclays Global Investors unit helped silver prices rise 13 per cent last March. The ETF fund now holds approximately 111 million ounces of silver or more than 10 per cent of the 815 million silver ounces produced annually, BMO Nesbitt Burns Inc. analyst Geoff Stanley said in an interview.
In late 2005, Sprott Securities Inc. led the deal to create Uranium Participation Corp., a fund managed by Denison Mines Corp., which buys physical uranium, giving investors exposure to the price of the radioactive commodity. Uranium prices doubled last year and recently hit $85 a pound, partly because of buying by financial players, who now account for roughly a quarter of spot uranium purchases. Uranium Participation Corp. now has a market value of $678-million (Canadian) and its shares have gained 92 per cent over the last year.
Mr. Sprott, who divested his ownership of Sprott Securities in 2001, now heads resource-focused money manager Sprott Asset Management Inc., which will manage the molybdenum fund in exchange for a 2-per-cent annual fee.
Toronto-headquartered Blue Pearl Mining Ltd. will serve as a consultant to the fund, and will market, buy and sell the physical moly holdings. Blue Pearl became the world's largest publicly traded pure-play moly miner last year with the acquisition of the Thompson Creek mine in Idaho. It also owns a moly processing plant in Pennsylvania, a 75-per-cent interest in the Endako mine in B.C. and the Davidson development project.
Blue Pearl shares have surged 160 per cent over the past year, as investors piled into the company after it pulled off the $575-million (U.S.) acquisition of the privately held Thompson Creek Metals Co., giving it roughly 5 per cent of the world's annual moly production. GMP Securities LLP is the lead underwriter on the moly offering. Heenan Blaikie LLP is providing legal advice.