| Molymania has Just Begun |
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| Written by Jason Hommel | |
| Wednesday, 08 February 2006 | |
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Why am I, a silver investor, so interested in molybdenum? Because moly prices have risen further, higher, faster, than any other major commodity, (from $2/lb., to up to $40/lb.) which is a sign of the hyperinflation that I expect as a silver investor, and may actually bring on major hyperinflation if the moly shortage gets significantly worse! Further, I own a lot of Idaho General Mines (IGMI), which I think is the world's best moly stock. So, the irony here, as a silver investor, is that perhaps the production of moly will help to slow down the death of the dollar, and may actually slightly reign in a major rise in gold and silver prices! Since many investors in IGMI and other moly companies are also silver investors, it's almost as if it is our wisdom that may help to hold the world economy together! How ironic! And if not enough moly is produced, and if moly prices rise too high, this could literally be the bottleneck that chokes off China's and the world's continued industrialization, and could cause many people to wake up, and invest in gold and silver instead! The world economy, fueled by paper money, is like a bodybuilder on steroids who overdoes it, and pulls a tendon. The high moly prices may be something like the broken tendon! Fixing it, by investing in moly production, may prove to be enormously profitable. So, why should we bother to care about the world at all? Because the Bible tells us to "love your enemies", and Capitalism is all about providing what others need. The rise in moly prices is telling us that people need moly! Some people have a ministry of providing water to distressed people. Other people have a ministry of providing food, or clothing, or Bibles, or all sorts of Bible teachings. My ministry is providing investment advice based on fundamentals and Biblical guidelines, and IGMI aims to enter a ministry of providing moly. minister verb 1 : to function as a minister of religion, 2 : to give aid or service Moly prices are back up again, from $23.50 to $25.75-$27/lb. For prices, see: http://www.adanacmoly.com/ --$25.75/lb http://www.indianmetals.com/prices/prices.php?state=showforminor --$27/lb How big is the moly market, compared to other markets? 380 million pounds of moly per year demanded: times $27/lb. = $10.3 billion annual world market. 180 million pounds of uranium per year demanded: times $37/lb. = $6.7 billion annual world market. 850 million ounces of silver per year demanded: times $9.50/oz. = $8.1 billion annual world market. Lead at $.60/lb = $9.7 billion annual world market. Nickel at $7.13/lb. = 20.5 billion annual world market. Zinc at $1.08/lb. = $25.8 billion annual world market. Copper at $2.32/lb. = $87.7 billion annual world market. The world moly market is now bigger than uranium, silver, or lead, and nearly half as much as nickel or zinc! Now, the copper market is much bigger than the moly market, but with rising moly prices, many major copper/moly producers switched their mining emphasis to moly, from copper, thus slighly lowering copper supply, and thus helping to cause a rise in copper prices! It's like moly is the tail wagging the dog of higher copper prices, and so you can see how crucial it is for the world economy to have more moly. And moly prices are expected to continue to rise substantially. (And I believe the numbers below are conservative.) From http://www.infomine.com/index/companies/INTERNATIONAL_MOLYBDENUM_PLC.html MOLYBDENUM World Supply and Demand  A study prepared by CRU*, commissioned by the Company, (International Molybdenum PLC) projects continued growth in molybdenum demand to 2009 of between 3.5% and 4.1% per year based on conservative and upside macroeconomic growth assumptions respectively. Using these growth rates, world demand for molybdenum in 2009 is projected to reach 443 to 475 million lb. The major primary molybdenum producers are located in the USA (e.g. Phelps Dodge’s Henderson Mine), Canada (e.g. Endako) and China (a large number of mainly small mines). The major by-product producers are located in Chile (e.g. Codelco’s copper mines), the USA (e.g. Sierrita, Bingham Canyon) and Mexico (e.g. La Caridad). CRU project that production of molybdenum in all forms should reach 438 million lb in 2009. The industry has been slow to respond to current growth in molybdenum demand and low inventory levels with the consequent rise in prices. Several new molybdenum projects, both primary and byproduct, have been promoted in recent months. However, given the need for financing, environmental approvals and long lead times, it is uncertain whether any of these projects will be in production before 2009. CRU maintain that supply will be mainly constrained by the lead time of building new primary molybdenum mines and that higher demand for copper is not expected to increase the supply of byproduct molybdenum. Notwithstanding growth in supply of molybdenum in the short term, CRU project a molybdenum deficit of between 6 and 26 million lb molybdenum by 2009 on base case and upside case scenarios. In either scenario the market is expected to tighten significantly and will be short of material in the absence of new primary molybdenum capacity. * CRU is an independent business analysis and consultancy group focused on the mining, metals, power, cables, fertilizer and chemical sectors. Founded in the late 1960s and still privately owned to ensure its independence, the group employs more than 150 experts in London, Beijing, Sydney and key centres within the United States. So, what about all the industry experts who predicted that moly prices would come crashing back down to $3/lb.? I don't think any of them predicted that moly would rise to the heights that it did, either. And about a year ago, there was another subset of experts at the mining shows, who were very keen on investing in moly projects. Some of those with the greatest foresight were putting together moly properties as early as 2003-2004, such as with Idaho General Mines. Further, several moly stocks have skyrocketed several hundred percent in the last few months. Rising moly prices, and rising moly stocks both go to show that this is real, not just hype from a newsletter writer like myself. See the three month chart of BLE.TO, up 300-400%, IGMI.OB up nearly 200%, and AUA.V up nearly 100%, here: http://finance.yahoo.com/q/bc?t=3m&s=IGMI.OB&l=on&z=m&q=l&c=aua.v%2C+ble.to Blue Pearl drilled a high grade moly intercept, and their stock took off like a rocket.. Blue Pearl intersects 48.8 metres grading 0.46% MoS2 at Smithers B.C. --Feb. 3rd I suppose the rock in that one drill hole is worth about $250/tonne, but only 60% of MoS2 is payable/recoverable. Also, that drill hole is 300 meters down, away from the current proposed area to be mined. Blue Pearl's costs are expected to be high because they are to be an underground mine, not an open pit, like IGMI's plan. Blue Pearl has perhaps a $25 million cost to build a mine, and is about 2 years away from production, still needing permits. A feasibility study is due in the second quarter, 2006, so they only have rough "back of the envelope" type numbers so far: Very preliminary operating costs may be about $39/tonne, and they are estimated to have 7.5 pounds moly/tonne of rock. Since grades at Blue Pearl vary widely, and there is not yet a feasibility study, there is no "average cash cost" yet. But if I assume their lowest grade of .19% moly/tonne, that's 4.2 pounds of moly/tonne. Assuming that only 60% is recoverable, that's 2.5 lbs/tonne recovered, and at $30/lb. moly, that's $75/tonne at a cost of $39/tonne. Thus, their cash costs may be about $15/lb. of moly produced, or lower, with higher grades. In contrast, IGMI's cash costs are projected to be $3.15/lb., and are so much lower than Blue Pearl's approximate $15/lb. cost, because IGMI is an open pit plan. Now, because I write, I get offered various opportunities. One man, who made money in IGMI and MMGG offered me the following opportunity, a private placement in a company with a current $20 million Market Cap, and about $4 billion dollars of minerals in the ground. Well, if that is a good deal, then IGMI that has about $40 billion dollars of minerals in the ground, should be worth about $200 million Market Cap. ($200 million / 36.8 million shares gives a comparable target price of $5.43/share for IGMI!) Isn't it nice to know that IGMI at current prices is better than an "insider/sweetheart" deal that I get offered? IGMI is better than the other deal in several other ways, too, in that IGMI has much lower production cash costs, and the other deal had much higher cash costs, was not yet a public company, and did not have a feasibility study! But the other deal was a uranium stock, and the comparison that the company made was to PALADIN RESOURCES LTD (PDN.TO). Paladin has about $4 billion worth of uranium in the ground in some obscure foreign nation, and has a market cap of about $1.1 billion dollars! 473 million shares fully diluted x $2.79 x .87 = $1.149 billion dollars! WHAT??!! That means that the other uranium stock, that I was offered, could go up by a factor of 57 times!??!! That's a great deal, but still not as good as IGMI! I had no idea we were in a uranium "bubble", because PALADIN is overvalued! I wonder if any of the Uranium gurus are doing the seventh grade math to show how overvalued PALADIN is! Why pay $1.1 billion dollars for $4 billion worth of minerals in the ground? What kind of leverage is that? There's practically none left! If you expect Uranium prices to continue to go up, you'd likely do better owning Uranium itself. Besides, molybdenum is a bigger market, and has risen in price further and faster than uranium anyway. So who's to say that the moly mania won't be bigger than the uranium bubble? Guess what? They need moly in the steel for the pipes that carry the water in nuclear reactors! I wonder how many pounds of moly are used in the construction of a nuclear reactor? I don't know, but I'd love to find out. If Paladin is any indication, then my moly stock could rise to become an $11 billion company, with a target price of nearly $300/share (assuming no dilution), or $110/share, assuming a dilution to 100 million shares. I've already shown how and why IGMI could rise to over $100/share, using simple P/E ratios of about 10. Now, I've also shown that IGMI may raise the $400+ million that they need to develop their mine, by issuing shares, at about $10/share, after permitting. So, I was thinking that $10-$15/share for IGMI might be an upper limit on the share price in the near term, in the next 1.5 to 2 years until they get a permit. However, the stock recently rose to $4/share, and I had to wonder: "Is the market telling us something, such as that they expect IGMI's Mt. Hope to easily be permitted?" And I suppose that the answer is "Yes!". Think about it: The world economy needs moly so badly, that prices have risen, from $2 to $40/lb., 20 times over! Limited moly with high prices could put a strain on the dollar (as this is evidence of hyperinflation). If the U.S. is willing to go to war on Iran to protect the dollar (because Iran is saying they wish to sell oil for Euros), then the U.S. ought to be willing to do crazy things like finance the IGMI moly project directly out of loan from the Federal Reserve! Yes, that's exaggeration, but I'm just trying to make a point. I don't expect that to happen, but moly is crucial to the developing world economy, more than oil, given the higher relative rise in price! The point is that the government ought to not stand in the way of the permitting process, and I suppose that the market may be realizing that, too. To do further research on IGMI, take a look at the company presentation linked in the middle of their web site at http://www.idahogeneralmines.com/ Or call the company directly, at (509) 838-1213 Or, you can look over the discussion board at stockhouse.com. http://stockhouse.com/bullboards/forum.asp?symbol=IGMI&table=LIST There are several other little moly stocks, that may be much closer to production, such as Golden Phoenix Minerals Inc. (GPXM.OB), United Bolero (UNB.V), and Roxmark Mines http://www.roxmark.com/, but you won't see me analyse those companies in depth (none of which I own) because I think the projects are too small, in general. For a list of other moly stocks, I really suggest you head over to the moly discussion board at siliconinvestor.com. How long will molymania last? I think this may well be a ten to twenty year long trend. After all, the commodity boom cycle is just getting underway, and China and India will be growing for decades. When will molymania end? Watch the price of moly. Final Disclaimer: I own shares of IGMI, and nobody has paid me to write this email. (I cannot sell any stock for at least one week after a promotion such as this one.) My emails are now going out to 18,800 email addresses, and the emails are opened by about 5000 people. Typically, about 1000 click on the links. I continued to buy IGMI stock until about 9% of my portfolio was in IGMI, and now just under 15% of my portfolio is invested in it, since IGMI has outperformed my silver stocks. Sincerely,
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