 Mollycoddling
Moly
Bob Molyarty
(oops,
I mean Moriarty)
Archives
March 14, 2005
When I
first wrote about moly last summer in Good
Golly, Miss Moly,
no one was interested in the metal. Why should they be, the price
was only up 200% in the last year. But times change. John Kaiser
wrote a brilliant report on moly in early January called "Will
MolyMania Hit the Juniors in 2005?" It was probably the best piece of research
I've ever seen in the mining business. But again, why should
anyone be interested? Moly was only a double since my piece four
months earlier. I think the last primary moly mine opened was
the Henderson mine; opened in 1976. For most of the period since,
molybdenum has been the worst metal to invest in.
Dave Forest of Casey Research did an article discounting the
future of moly earlier this month called Molybdenum's
Perfect Storm.
I suspect that if he could eat his words, he would.
I suspect John
Kaiser has a far better understanding of the market than does
Dave Forest. Forest suggests that a six million pound drop in
supply from China has somehow driven the price of moly up 600%.
I doubt it. The moly market is tight but hardly that tight. According
to Forest, moly was actually in surplus in the second half of
2004. Well, after touching $34.50-$37 in January, moly made a
perfectly normal correction to $26.20 in February, taking the
shares in all the moly juniors into the tank with it before rocketing
higher lately. In the last week moly shot from $29.50 to $35.50.
[chart].
I believe moly
will remain in short term deficit and prices will continue to
be strong as long as Chinese demand continues. Of course a banking
crisis in China would decrease demand for all commodities. And
it's possible, their banking system is your basic disaster waiting
to happen with up to 40% of all loans non-performing. But at
least China produces something, the US has transferred millions
of manufacturing jobs overseas under the Bush fiasco. One day
soon Americans will wake up and realize slapping two beef patties
on a sesame seed bun isn't really manufacturing.
In any case,
moly juniors have been up and down like a bride's nightie and
I believe are back in the sweet spot, where reward greatly outweighs
risk. I am invested in several moly juniors and that should give
you an idea of where I stand.
My favorite
moly junior is Adanac Moly Corp. - (AUA-V $.61 Canadian
31,000,000 shares outstanding, about $18 million market cap ANCGF-OTCBB
website) CEO Larry Reaugh has added on several
interesting moly projects in Nevada to the core project at Ruby
Creek in BC amounting to just under 200 million pounds of moly
based on the prior numbers. Reaugh is bringing the resource up
to 43-101 standards by the end of March, 2005.
Ruby Creek appears to me to be the most advanced large moly project
around. As I said in August, this is a race to the finish line.
Moly projects are springing up like mushrooms in springtime and
many of them will never go into production. John Kaiser makes
a very valid point that there is no long term shortage of moly.
I suspect moly prices will eventually in a few years settle down
in the $10 range. But the odds are we could see $50 a pound before
we see $25.
I wrote a a
piece about Roca Mines in January, the same time John Kaiser came up with
his excellent report. Roca Mines Inc (ROK-V, $.35 Canadian
31.8 million shares outstanding market cap $11.1 million Canadian;
website) In the piece I was
very critical about the management of Roca and their unwillingness
to fully communicate with their shareholders. The critism remains
valid and the shares have gone nowhere at all. That's a problem
they should and could have solved and haven't and it reflects
in their share price. But they have filed for a small scale mining
permit and still could be in production within six months. If
moly prices stay up, Roca will find windfall profits. I just
wish they would share the news with their shareholders. They
have a good story, they just don't tell it clearly.
Another project
with incredible potential but management problems beyond belief
is the Ashdown project in Nevada. Toronto junior Win-Eldridge
sat on the property for 21 years and never considered going into
production even though even at $5 moly the project was robust.
Finally, last year, 81 year-old CEO Rubin Brandt literally gave
the project away to Golden Phoenix for the grand sum of
$5,000 a month (GPXM-OTCBB $.131 120 million shares outstanding
website).
I understand
that the project is still stuck at the Letter of Intent stage
and the two companies have failed to actually sign a formal contract
even though Golden Phoenix seems to have bet their financial
future on the project finally going into production.
I own shares in Win-Eldridge but it's the longest of long shots.
Win-Eldridge did the worst job of negotiating on this project
I have ever seen and face a 10% NSR which could be purchased
for $250,000. Brandt refuses to raise the money to buy it out
in the very real fear of disgruntled shareholders tossing him
out of office on his bum. He has made no plans for retirement
even though the company hasn't done anything for the shareholders
in his entire 21 year reign. I've seen and talked to management
of hundreds of mining companies and Win-Eldridge is easily the
worst managed company in the entire lot. He's clueless, and at
81 if he believes he has a long future in mining, he is the world's
greatest optimist.
Golden Pheonix
stands to earn 70% of the project by investing no more than $5
million or by going into production. With ore now valued at up
to $4,000 per ton or equilivant to almost 10 ounce to the ton
gold, GPXM should be highly profitable, Win-Eldridge far less
so, based on initial production between 100-200 tons per day.
If the management
of Win-Eldridge had the sense God gave a goose, they would buy
out the outrageous NSR and insist on a more equitable share in
the profit but don't hold your breath. Brant has no interest
in the welfare of his shareholders, his sole interest in the
agreement was to find enough money to keep the doors open.
Down the list
of possible, moly companies is United Bolero. (UNB-V $.22
Canadian 19 million shares, market cap of about $4 million Canadian
website) UNB has purchased
one Montana moly project and optioned another totaling almost
500 million pounds of moly. The projects are still early stage
but UNB plans an aggressive drill program in 2005 to verify historical
results.
Investing in
moly is not for the faint of heart. It's common knowledge in
the industry that there is no long term shortage of moly and
obviously opinions vary as to just how long prices will remain
high. My opinion is that shortages will last longer than most
investors believe and those moly juniors swift of feet will profit
greatly. But investing in moly isn't a case of buying shares
and sitting on them until they hatch. If you buy shares in a
company and the shares rocket higher remember that no one ever
went broke taking a profit. If any sector ever suggested trading
on a regular basis, it would be the moly juniors.
We own shares
in Adanac, Roca Mines, United Bolero and sad to say, Win-Eldridge.
Adanac and United Bolero are advertisers. Since
we have an obvious vested interest, investors should make up
their own minds as to the merits of investing in any stocks.
March 14, 2005
Bob Moriarty
President: 321gold Inc
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321gold Inc
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