DETROIT (ResourceInvestor.com) -- I have written here on Resource Investor about “molybdenum myopia” on multiple occasions (see here and here), by which I mean the tendency of prospectors and miners to overlook any metal or mineral other than the one they are specifically seeking.
Seekers of gold are notorious for this practice, on the American west coast in particular, and written reports and assay office records abound of gold prospectors and miners discarding heavy minerals of the ‘wrong’ colour that appeared in their (placer mining) pans or centrifuges. Minerals such as Scheelite (the principle ore of tungsten) and platinum iridium were particular irritants to those seeking gold coloured flakes and nuggets in northern California and southern Oregon.
Today more and more ‘serious’ mining companies are employing fresh faced well-manicured recent graduates of Wharton and Harvard to comb through assay office records, and ‘rock’ shops for mentions of, or provenanced samples, of these ‘worthless’ byproducts. These young ladies and gentlemen have become the latest prospectors to appear on the American scene.
The current interest in molybdenum as evidenced by the well attended seminar on that topic at the last Las Vegas Hard Assets Conference caused a sharp eyed reader to send me the following news item about ASARCO molybdenum production for 2007 that he found reported on a blog, quoting a Platts article posted on 24 Sept. 2007.
Reporter Bob Matyi reports that U.S. copper producer Asarco will not meet its goal of producing approximately 450,000 pounds of molybdenum in 2007, according to a company official.
"We're at about half of our projected levels," said John Low, Asarco vice president of mining operations. "It just wasn't in the ore. It didn't turn out as we projected," he added.
Asarco resumed moly production last December at its Mission complex in Sahurita, Arizona, where molybdenum is produced as a byproduct of Asarco's copper operation. The article highlights how molybdenum is getting into a shortfall situation as a by product of copper mining and therefore this could cause the molybdenum price to firm. Although the blog story is entitled “Molybdenum Price to Firm,” and that indeed may well be a result of the events in the story, it is not the story.
Investors at all levels from entry level small individuals to giant corporate entities can learn an important object lesson from this report of the failure to meet a production target for molybdenum by a company, which was formerly (In the days before the Chinese- demand driven commodity boom) one of the world’s largest and most sophisticated mining companies, ASARCO.
The risk of non performance, it is assumed by investors, is much less for large presently or formerly sophisticated companies than for juniors with limited resources to do feasibility studies. Not true, it seems, in the case of the amount of byproduct molybdenum planned to be produced at ASARCO’s copper property in Arizona.
What went wrong? Could it have been predicted? What does this say about the 60% of American molybdenum production planned to be mined next year as a byproduct of copper production from porphyry deposits? The answer to this is in the text of the news article. ASARCO always knew that its copper contained a recoverable, with current technology, concentration of molybdenum. However the price and demand for molybdenum were so low in 1996 that ASARCO shut down in that year the circuit for its separation and recovery at their Arizona copper mine. Note that molybdenum rich tailings must have still been produced, because ASARCO was not delivering molybdenum bearing copper.
Between 1996 and today, ASARCO decided to go into bankruptcy to try to eliminate or at least quantify the value of the mounting and relentless environmental claims against it, not just from its copper mining operations in Arizona but mainly from its copper smelting operations, particularly in Texas.
I am certain that when the Federal Bankruptcy Judge decided to agree to place ASARCO’s operations under the protection of the Federal bankruptcy statutes he or she never was informed of or took into account the future value of the molybdenum formerly produced by ASARCO or of any rhenium that might have been produced as a byproduct of the molybdenum or of any gold, silver or platinum group metals (PGMs) produced as a byproduct of the copper. Nope, it was as a copper producer and smelter that ASARCO went broke. The judge didn’t do anything wrong or anything foolish; he or she couldn’t take into account any revenues from byproducts that weren’t mentioned or emphasized by the knowledgeable experts from the company and appointed by the court.
Last year, apparently, the ASARCO management decided that since molybdenum’s demand has pushed its price up to as much as 10 times its 1996 price it might be a good idea to again recover it.
However, and here is what I want to emphasize, ASARCO didn’t need to, before recommencing molybdenum production, file for an IPO and thus deliver to investors a detailed study, with legally attached criminal penalties for negligence or intentional failure to disclose negative information, of their copper properties’ molybdenum mineralization and the feasibility and cost of its recovery as they would be required to do in the U.S. and be required to do in even greater detail in Canada. They may have simply looked over their yellowing studies from 1996, and before, and projected a recovery from those studies apparently made before modern analytical chemical techniques and current geochemical theories of ore body extent were available. One wonders if they calculated the influence on recovery of pollution controls now mandated?
Interestingly enough the molybdenum market is not displeased by ASARCO’s misstep. The molybdenum shortfall will directly put upward pressure on price as ASARCO customers scramble to replace ‘firm’ and contingent purchases.
ASARCO itself may not benefit from this failure, because its banks may now have to review and possibly down value feasibility studies from the company upon which the bankability of the company’s debt and borrowing is based. On the bright side though is the possibility that new studies will emphasize byproducts such as rhenium, gold, silver, PGMs, tellurium, selenium and so forth.
I note that the ASARCO website lists molybdenum as a product of the company, but does not have a hot link to a molybdenum page! This is even though the company’s much smaller bismuth selenide production (for use in lead-free solders, the site says) is hot linked. I don’t want to discuss the byproducts tellurium and selenium typically found in primary copper, because I want to discuss bismuth and selenium separately in a future article.
I will also write next time about rhenium found economically only as a byproduct of molybdenum (itself produced from copper sulfide [porphyry] deposits). The price of rhenium has recently gone ballistic. Some are calling rhenium the 7th platinum group metal, and I have seen it quoted at $9,000 per kilogram even though it was at 10% of that not so very long ago.
Note that due to its current use and high demand as a critical material by the U.S. Department of Defense, and the new discovery that an easily made compound of rhenium and boron can replace diamond in industrial uses because of its hardness I am adding rhenium to my list of peak metals. The only way rhenium can ever revert to non-peak status is for its critical non-substitutable uses to lessen to the point where supply exceeds demand. Details on all of this next week.
Keep in mind that no matter what the truth to the speculative community any shortage of molybdenum, produced either as a secondary or primary mining product, automatically entails a rhenium production shortfall.
The object lesson to be learned from this molybdenum story is that investors must try to understand the production and financial history of a (currently) producing company as well as the economics of the latest mining and refining technologies and the simple geochemistry of the metals being investigated to avoid making financial missteps.
Gee whiz, or something like that, you will say to this. How can I find much less understand all of that information?
The answer, my friends, is simple: Keep reading Resource Investor and download and print articles about specific metals and minerals. Watch for updates as new information comes in and RI will keep you informed. And remember, when you are considering an investment in a natural resource, ask the proponents of the investment basic questions that arise from your own investigation though the use of RI, for example, not from what the flacks tell you is important.
