From aging oil and gas pipelines to new pipeline projects, the next decade is likely to see a large number of pipeline projects across the globe. Because of China ’s scramble to obtain sufficient oil and gas for its ‘emerging’ economy, Russia ’s ambitions to supply Europe and others with its oil and gas and dozens of other projects proposed, planned or under construction, molybdenum should remain in favor for longer than many analysts have forecast. Global pipeline projects could account for as many as 73,000 miles of pipe over the course of the next two decades.

On the high side, if 1,600 tons of pipeline steel were required for every mile of pipeline (52-inch diameter, high pressure), the energy industry would need more than 600 million pounds of molybdenum. That’s about 150 percent of the world’s current production, which would draw away from the many other uses of molybdenum. Just a handful of large pipeline projects would create sufficient price upside to encourage further molybdenum mining project developments.

About 65 percent of molybdenum production is a byproduct of copper mining. Produced at a far lower cost, the moly byproduct must be upgraded with the higher grade molybdenum mined at primary mines. William Cook, North American representative of Derek Raphael & Company, told StockInterview, “Primary moly production is a necessary component in the market due to its higher quality, which is necessary to blend with what is often an off spec product coming out of the byproduct mines.”

The minority molybdenum product mined by primary producers helps blend up the lower spec moly concentrate from the byproduct mines. The minimum industry spec is 50 percent moly sulfide. Primary molybdenum mines will have more than 50 percent, but many of the byproduct mines won’t. Ideally, once the roasting process is completed, the roasted moly will yield 56 percent molybdenum oxide and 0.5 percent copper in oxide. This helps explain why Cook told us, “I believe the cost of new primary production will determine the benchmark price or base price for moly in the future.”

That doesn’t mean bigger is always better. Cook told us, “I do not believe we will see any of the moly mega deposits developed in the foreseeable future. The capital costs, reclamation liabilities and operating costs for these projects are considerable. And in order to make them economically viable, they require an annual production of perhaps 25 to 30 million pounds of molybdenum.” Cook pointed us to the small higher grade primary molybdenum deposits, where he believes is from where future moly production will come, along with byproduct and Chinese production.

Maria Smirnova of Sprott Asset Management

Sprott Asset Management Research Associate Maria Smirnova, who follows molybdenum for the Toronto-based money manager, believes this strategic metal was bright prospects for the next few years. “We see demand growing, while there are not many new sources of supply,” she observed. “In a market where 16-20 million pounds of new supply is required every year to keep up with demand, we are aware of less than 10 million pounds coming on-stream next year from new mines.”

Smirnova also agreed with Cook and Michael Magyar of the USGS, who discussed moly byproduct mines in Part One of this series, and said, “Existing mines are struggling to grow/maintain production.” She pointed to Kennecott’s copper/molybdenum mine in north central Utah , “For example, the Bingham Canyon mine is expected to produce 10 to 15 percent less metal next year due to lower grades.” She included Chile ’s mammoth copper/moly producer in her assessment, “Codelco has stated they will not repeat the record levels of 2005 due to ‘conditions of the deposits and availability of molybdenum.’”


As Cook pointed out, the mega projects could spell trouble. Smirnova added to his comments, “In the longer term, there are a number of large projects that could provide over 100 million pounds of new mine supply by 2010. Unfortunately, most of these are low-grade projects requiring large amounts of capital investment.” What will happen to these promises of abundant new supply? Smirnova responded, “We think that at least some of this expected supply will get delayed or mothballed altogether due to permitting issues and financing difficulties.”

On October 26th, Blue Pearl announced closing on its acquisition of the Thompson Creek assets, which include the Thompson Creek mine and concentrator in Idaho, a 75% interest in the Endako mine, concentrator and roaster in British Columbia and the Langeloth metallurgical refinery plant in Pennsylvania. The U.S. roasting facility has a capacity of approximately 35 million pounds per year. The transaction, literally, transformed the junior molybdenum company into the world’s largest publicly traded stand-alone moly company. Smirnova told us, “Blue Pearl now ranks in the top five of the world’s moly producers.”

According to Smirnova, the company is preparing a feasibility study with the expectation it will be completed later this year or in early 2007 for the company’s Davidson molybdenum deposit in northwestern British Columbia . She explained there were a number of milestones before the company could begin production in 2008.

As for the already producing Thompson Creek mine, she said, “The mine had almost 170 million pounds of contained molybdenum in proven and probable reserves at the end of 2005, giving it a minimum mine life of ten years. This could potentially be doubled by converting some of the measure and indicated resources to reserves – total resources at the mine were 370 million pounds at the end of last year.”

Editor’s Note: Sprott Asset Management Inc, through its funds, has investments in Blue Pearl.

Roca Mines Inc.
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