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business newsChina Moves on Nevada's Molybdenum Supply
Mt. Hope, America's largest supply of molybdenum, will be key to China's massive infrastructure plans.
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General Moly sits atop a massive mountain of molybdenum in Nevada called Mt. Hope, which is the largest and highest grade asset in North America. Nevada happens to be one of the world’s most friendly mining jurisdictions. Mt. Hope’s high grade ore could be mixed with China’s low grade moly to produce a desired mixture needed for its massive infrastructure plans. China cast covetous eyes on this American bonanza as steel demand is increasing. The country has major infrastructure plans, such as 27 nuclear reactors and 10 million social housing units, requiring a lot of steel. China has also classified molybdenum as a national resource, curbing its own domestic production and forcing banks to look overseas.
Moly is still trading below $20/lb, way off its pre-credit crisis highs of over $30/lb. Chinese demand is increasing as the percentage of their usage of alloyed steel products are way below its neighbors like South Korea and Japan. As China competes with its neighbors and invests in its own infrastructure their use of molybdenum as an alloying agent will also expand.
Several weeks ago China plunked millions of dollars into the waiting arms of GMO, confident that water rights will be granted and that the requisite permits will follow. So confident are they in anticipating regulatory success, they fast tracked the funding.GMO received the water rights on Friday, which were expected back in March. This is a long awaited milestone.
Significantly, other institutions have purchased shares of GMO. Namely giant South Korean steel company Posco (PKX) as well as Sojitz, the major Japanese trading company. For years, China has been the main supplier of the forenamed entities. Now the country is experiencing a supply-demand shortage of its own concerning molybdenum. General Moly is one of the only pure moly developers with significant partners.
In addition to Mt. Hope, GMO has the Liberty Project, also in Nevada, which the market is giving little value. GMO announced drill results recently from Liberty. The company is planning to release an updated resource estimate on this project in the third quarter and is planning to update the 2008 pre-feasibility in 2012.
Recently institutions are scrambling to pick up vital molybdenum assets. Mercator Minerals paid a 38% premium for Creston Moly, which is far less advanced than General Moly in the mining process. This is a continuation of the consolidation trend, which also includes Hudbay Mineral (HBM) taking over Norsemont Mining for millions of dollars. General Moly has revealed how an analogous buyout of its assets would be worth at least $7 a share.
As GMO de-risks Mt. Hope and trudge through the final stages before building the mine, it is quite important for investors in mining stocks to exercise patience and fortitude. There might be bureaucratic and regulatory delays which would make GMO’s price tend to base over several months and then return to its upward trend. However, many major institutions such as Posco, Hanlong, Arcelor Mittal (MT), and Sojitz have done their due diligence in this asset and are confident. One other consideration, General Moly is the only pure molybdenum play on the major US exchanges. Thompson Creek (TC), the former pure play, has expanded into precious metals and has diversified away from molybdenum.
General Moly has been in a downtrend for most of 2011 as it has awaited the recent ruling. Stay tuned for any upside breakouts.
Editor's Note: Read more from Jeb Handwerger at Gold Stock Trades.
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