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Marbles in Your Mouth and Profits in Your Pocket

Written By Brian Hicks

Posted May 10, 2007

Molybdenum is a mouthful. But this important transition metal and alloy component should be in your commodity vocabulary.

In the middle of the periodic table of elements, the transition metals are often underdogs of the base-driven metal bull market. Even uranium, separated from most of the chart down in the boondocks called the actinide series, gets more attention than many of the middle metals.

This March, as I looked out over the business district of Santiago, Chile from the office windows of investment powerhouse Celfin Capital, I spoke with analyst Cristian Gardeweg about Chile’s abundant copper wealth. Chile, Cristian told me, has been able to keep its national debt in check as copper prices soared from 75 U.S. cents to nearly 4 dollars per pound in the past five years.

Chile’s copper production constitutes 35% of the world’s total, and the red metal similarly contributes about a third to the country’s gross domestic product.

He also mentioned a word in Spanish that sounded familiar, but only from conversations with our resident base-metal bull, Luke Burgess.

Meet Molibdeno

Now, half of the time I think Luke is speaking another language when he gets worked up about the mine he’s visited most recently, or the new 52-week highs his metal plays are setting. Much of his expertise is Greek to me.

But Luke doesn’t speak a lick of Spanish.

Funnily enough, it was good that the metal game is all Greek to me.

Molibdeno is molybdenum, or "moly" as many call it, and it is Greek for "lead-like." This grayish metal is often used as a catalyst in chemical reactions, but it is also important in a wide range of energy applications.

As an alloy, moly is extremely helpful to add durability to steel. In one kilometer of crude oil pipeline, about a ton of molybdenum is used.

In deep-depth oil exploration (which is becoming the only kind as gushers die and companies have to delve ever-deeper for hydrocarbons), molybdenum is used to strengthen drill stem steel, as it prevents corrosion and melting in the toughest perforation operations.

Moly can also be used in the intense heat of nuclear power operations, and with nuclear plant construction ramping up to offset fossil-fuel power around the world, demand will continue to increase.

After a quadrupling of prices per pound between 1994 and 2004, moly consumption growth estimates of around 5% per year to 2010 spell a new bull run.

And luckily for investors, not all of the world’s molybdenum belongs to the Chilean national copper company Codelco, which is not publicly traded.

After acquiring Phelps Dodge this spring to create the world’s largest publicly traded copper company, Freeport-McMoRan Copper and Gold, Inc. (NYSE:FCX) became the owner of Phelps Dodge’s moly-only mine in Colorado, as well as Chilean properties that produce moly along with copper.

FCX chart

FCX’s 2007 sales volume is expected to rack up 70 million pounds of moly including Phelps Dodge stocks, with $20 per pound assumed as an average for the rest of the year.

After a major dip a year ago, FCX is back up at a 52-week high today, above $73 per share. Molybdenum will certainly contribute to FCX’s added value along with its main copper operations, and its upside will be strengthened by moly just as the metal itself fortifies international industry.

This story is far from over.

Kind Regards,


Sam Hopkins

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