Current market conditions favor the three metals uncovered in the Pebble project operated by Northern Dynasty Minerals Ltd. in southwestern Alaska. Not only are gold and copper fetching good prices, but a recent run-up in molybdenum prices could deliver a nice bonus for the project.

Little known metal makes big contributions

Molybdenum, pronounced "meh-LIB-deh-nem," is mainly a byproduct of copper mining but some standalone molybdenum mines do exist.

The element was discovered by Carl Welhelm Scheele, a Swedish chemist, in 1778 and isolated from a mineral compound by Peter Jacob Hjelm in 1781. Today, molybdenum is obtained from molybdenite (MoS2), wulfenite (PbMoO4) and powellite (CaMoO4).

The word molybdenum is derived from the Greek "molybdos," which means "lead like." A soft, gray metal, molybdenum is known as "moly" in the mining industry.

In its pure form, moly is used as an alloy additive, a lubricant and a catalyst, as well as in compounds used in the chemical industry.

The element also has a high melting point and is used to make electrodes in electrically heated glass furnaces.

Some electrical filaments are made from molybdenum.

The metal is used to make missile and aircraft parts; in the nuclear power industry; and in refining petroleum.

Its main application, however, is as a versatile and cost-effective alloying element in steel.

Added as a molybdenum oxide or as an alloy with iron - ferromolybdenum - moly enhances the strength, hardness, weldability, toughness, elevated-temperature strength and corrosion resistance of steel.

Steel enhanced with molybdenum can withstand pressures up to 300,000 pounds per square inch.

That's roughly six times the strength of steel typically considered to have moderate- to high-strength characteristics.

The United States Geological Survey has said Pebble is the most extensive mineral system of its type in the world. It includes a central deposit and several porphyry gold-copper-molybdenum deposits and gold occurrences spread over an area two miles long by 1.2 miles wide about 86 miles west of Cook Inlet.

Price climb energizes mining sector

Until two years ago, molybdenum had offered little to excite the mining industry for more than two decades. After a price spike in 1979 in which moly climbed to US$35 per pound, the price plummeted to near US$5 per pound and eventually bottomed out near US$2 a pound in 2002, analysts say.

But global market conditions sent moly prices soaring in 2004. The metal jumped to US$15 a pound by April 2004 and then more than doubled between October and December, to peak just below US$35 a pound by the Christmas holidays - a 1,300 percent run-up from the humble price of US$2.40 per pound in 2002. Analysts say this makes molybdenum the third biggest metal gainer in the market, just behind little known selenium and germanium in the past two years.

Earlier this year, molybdenum prices slipped nearly 10 percent and by mid-March had settled in at about US$29 a pound.

New demand sparked moly's price rally

A booming steel industry driven by stainless steel makers who use about two-thirds of the world's molybdenum is an important factor in the recent leap in moly prices. Analysts predict demand for steel will continue to grow upwards of 6 percent annually over the next few years, with China, Chile and the United States consuming about three-quarters of global molybdenum output.

U.S. demand for molybdenum rebounded in 2003 after a nearly 19 percent drop by 2002 to 66 million pounds. That demand reduction led to the nosedive molybdenum prices took that year to about US$2 a pound. This, in turn, caused global molybdenum producers to mothball a lot of mine capacity, analysts say.

When the U.S. economy revived in late 2003, so did western demand for molybdenum. But the impetus for the sharp climb in molybdenum came when China cut its exports of the metal by about 6 million pounds early in 2004. Analysts say the sudden reduced supply, combined with increasing demand from the United States, created a short-lived 5-million-pound deficit in the first quarter of 2004. China boosted its molybdenum exports by 5 million pounds in the second quarter of 2004 and late in the year, analysts say supply again exceeded to demand, creating a surplus of the metal in the market.

This pattern of increasing demand and prices quickly generating new supplies is the historical norm for the molybdenum market. The highest level of output from primary western molybdenum mines came in 1980, the year after the last great price spike, with production reaching over 130 million lbs. When the price crashed soon afterward, production fell to less than 10 million pounds by 1983.

Analysts and industry officials say there's every reason to believe this pattern will continue.

For Northern Dynasty, this isn't necessarily bad news.

The molybdenum market, for one thing, is tiny, less than 1 percent as big as the copper market, so a little shortfall in demand goes a long way in pumping up the price. Unlike copper, which trades on exchanges in London, New York and Shanghai, molybdenum is bought and sold only over the counter, so the price has the tendency of moving up and down like a roller-coaster, analysts say.

U.S. imports of molybdenum for consumption increased an estimated 34 percent from those of 2003, while U.S. exports rose 51 percent from those of 2003, according to the USGS. The increase in exports reflects the return to full production levels by the end of 2004 by some copper companies after reduced byproduct molybdenum production in 2003. The USGS reported consumption increased 7 percent from that of 2003 and mine capacity utilization was about 53 percent.

China continued its high level of steel production and consumption, thus providing a stable demand for molybdenum, the USGS said.

Industry responds to higher moly prices

Strong copper prices and a deficit of refined copper allowed the Bagdad and Sierrita Mines in Arizona to return to full production capacity, thus increasing byproduct molybdenum production. The Continental Pit operation in Butte, Mont., resumed mining activities and was expected to produce about 3,200 tonnes (7 million pounds) of molybdenum in 2004. With the continuing high price of nickel-bearing stainless steel in 2004, consumers increasingly considered use of duplex stainless steel, which has higher molybdenum content, the USGS said.

In 2004, molybdenum, valued at about US$1.18 billion (based on average oxide price), was produced by seven mines in the United States, according to the USGS. Molybdenum ore was produced at three primary molybdenum mines, one each in Colorado, Idaho and New Mexico, whereas four copper mines (two in Arizona, one each in Montana and Utah) recovered molybdenum as a byproduct.

Iron and steel, cast and wrought alloy, and super-alloy producers accounted for about 75 percent of the molybdenum consumed.

Although molybdenum is not recovered from scrap steel, recycling of steel alloys is significant, and some molybdenum content is reutilized. The amount of molybdenum recycled as part of new and old steel and other scrap may be as much as 30 percent of the apparent supply of molybdenum.

The United States also imports ferromolybdenum from China, 78 percent; United Kingdom, 20 percent; and other countries, 2 percent; and molybdenum ores and concentrates from Mexico, 58 percent; Canada, 38 percent; Chile, 2 percent; and other, 2 percent, according to the USGS.

The world's biggest copper miners are appreciative of molybdenum's increased popularity. The world's second-largest producer of the red metal, Phoenix-based Phelps Dodge posted outstanding earnings in 2004, thanks in part to high molybdenum prices. In the fourth quarter of 2004, molybdenum sales added US$32 million to the company's operating income. To put things in perspective, Phelps Dodge produced 16.5 million pounds of molybdenum and then sold it for an average price of US$25.92 per pound. That compared with 14.4 million pounds sold in the fourth quarter of 2003 for an average of US$6.35 per pound.

Molybdenum's rising star also boosted earnings at Vancouver-based Teck Cominco. Output of the gray metal from Teck Cominco's Highland Valley copper mine in British Columbia added substantially to the major's C$162 million in fourth-quarter operating profits from the mine, up 440 percent from C$30 million for the same period in 2003. Sales of 3.2 million pounds of molybdenum at an average of US$30 per pound during the fourth quarter contributed C$110 million to Teck Cominco's revenues. This was up sharply from sales of 1.5 million pounds at about US$6 per pound, which added C$10 million to comparable revenues a year earlier.

While copper producers are reaping the rewards of high molybdenum prices today, several junior companies are using the surging price to bring back to life the prospects of primary molybdenum mining.

In Canada, Adanac Gold Corp. is looking to advance the Ruby Creek project in northeastern British Columbia. Ruby Creek was first drilled in 1969 and Adanac recently completed 9,022 meters of drilling aimed at upping the resource from its 1971 figure of 104 million tonnes grading 0.16 percent MoS2.

Fellow junior Roca Mines is looking to work the Max molybdenum project in southeastern British Columbia where Newmont Mining outlined 49 million tonnes grading 0.19 percent MoS2.

Moly's good fortune bodes well for Pebble

Molybdenum is more commonly associated with copper porphyry deposits, especially in the United States, Chile and Peru, and copper miners often produce the metal as a byproduct. Because molybdenum and copper are both processed by flotation, it is easy for copper miners to turn on or off the molybdenum tap. Thus, such operations generally fare better throughout the ups and downs of the molybdenum market, analysts say.

In fact, unlike the cyclical production numbers seen from primary mines, molybdenum production from secondary mines has increased more or less steadily throughout the last 25 years, from about 100 million pounds in 1980 to a forecasted record of 195 million pounds in 2004.

Analysts say this means that there's a lot more secondary molybdenum out there today - a supply that requires relatively little capital cost to bring to production -competing with supplies from primary mines that either have to be developed from scratch or restarted after months or years on standby.

In recent months, numerous secondary producers have announced plans for new copper-moly mines or expansions of existing operations.

The Pebble project is such a venture. It has the potential to become a huge secondary producer of molybdenum. But Pebble is also rare because of the presence of copper, gold and molybdenum, says Ron Thiessen, president and chief executive of Northern Dynasty. "Generally, this style of porphyry deposit, contains copper and (either) gold or molybdenum, but not both," Thiessen told North of 60 Mining News March 14.

A new independent mineral resource estimate of Pebble pegs the porphyry gold-copper-molybdenum deposit in southwestern Alaska as a much larger find (see related story in this issue). Prepared by Roscoe Postle Associates Inc., a leading geological and mining consultant, the new estimate of Pebble's moly resources - measured and indicated resources of 3 billion tonnes, containing 993 million pounds of molybdenum, with an additional inferred resource of 1.1 billion tonnes, containing 361 million pounds of molybdenum - is roughly 50 percent bigger than previously believed, according to Thiessen.

"Moly is a saleable metal, and as such adds to the value of the ore," he said. "So the more value in the ore the better the margins of profitability."

Thiessen said Pebble's molybdenum will be treated as a byproduct and any revenues generated from its sale will be credited to the cost of production for gold and copper, thereby reducing the mine's cash operating costs and improving profit margins. "Higher moly grades, which are something else we're seeing in some of the new regions, again means higher value ore, and improved margins," Thiessen said. "More moly is better, as is more copper, gold or silver."

Thiessen said current spot prices for molybdenum on the London Metal Exchange are US$30 per pound and on some days even better. "At this point in time, there is a shortage of moly, a shortage of moly smelting capacity, and a strong demand for steel products that have combined to create an environment where moly prices have spiked upward," he said.

But he cautioned that one must be constrained by history and conservatism in planning for mine development, though current moly prices are "phenomenal."

Thus, all of Northern Dynasty's planning, at this point, is based on a long-term price of US$6 per pound for moly, he said.

Added Thiessen: "I would not anticipate that today's moly prices would persist in the longer term, two-plus years or more. But let's enjoy them while they last."