TALK TO AN EXPERT: Catherine Virga Makes The Case For Molybdenum
only investor in the sense that you’re not going
Catherine Virga
Senior Commodities Analyst
CPM Group
Commodities market research, consult-
ing, asset management, and investment
banking are all in high demand. And
what all these have in common is that to
be successful in each requires a person
with a specific skillset. To consult some of
the wealthiest people and institutions in
the world on commodities and invest-
ing requires a profound understanding
of economics, politics, world issues and
perhaps most importantly, people. Our
next guest is an expert in each of these
arenas. Catherine Virga is a senior analyst
at CPM Group and is involved in client
consulting services for major mining
companies, a full range of institutional
investors, and commodities consuming
companies.
R
esource Intelligence: In 2009, there were enor-
mous jumps in the prices of working metals.
Lead was up 135%, copper 134%, and so
on. Are we going to continue to see this trend?
Catherine Virga: We are forecasting that we are going
to continue to see strength in industrial metals in
2010. In 2009, there was a rather linear approach
to the recovery and that should be expected, given
base metals historic trends during an economic
downturn.
For 2010 I think it’s going to be a more inter-
esting year for your savvy investor, because there
are going to be periods of profit taking that are
going to lead to buying opportunities for other
investors. It won’t be as attractive for your long-
18
to have this continued upward trend, but there
will be a kind of choppy upward fashion to the
continued recovery in base metal prices for many
of the metals.
RI: Are there any specific base metals that you feel
are under priced?
CV: Industrial metals have good demand funda-
mentals, but more important are tight supply
fundamentals. There are several metals that fall
under this category such as copper, zinc, molyb-
denum and on the precious side, platinum and
palladium could be interesting this year.
RI: Putting on your investment management hat
for a moment, where should the investor be going
right now if they want to play in the base metals
area?
CV: The commodities that were most positive in
the base metals would be copper and molybden-
um in the nearer term. Zinc I think would be
much more positive going into 2011. I do think
that there are some interesting primary plays for
molybdenum where investors can gain exposure
and also with copper. While there are a lot of
diversified companies there, you do have some
smaller projects that you can take part in.
RI: Given the economic landscape we’re seeing,
do you think 2010 and into the coming decade
may been seen as spawning ground for mergers
and acquisitions as opposed to developing new
projects?
CV: Absolutely. The one thing that we saw in 2009
was a dramatic slash in exploration budgets. This
is a great time period to move forward with ex-
pansion plans and growth plans by acquiring
some of the juniors that already have very decent
Supply Falls Short of Expectations
Global Molybdenum Mine Production
Annual data, projected through 2012
Million lbs.
660
600
540
Actual
480
420
360
300
240
180
120 By-product
60
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009p 2010 2011 2012
See page 96 for Disclosure, Disclaimers & Info on Mineral Resource and Reserves
projects. There has been some appreciation with
these juniors over 2009 if they had a good project.
But they are still vastly undervalued from what we
saw in 2007 or 2008. There is still a lot of good
opportunity for growth through mergers and ac-
quisitions along those lines. I think that 2010 is
going to see a definite uptake in that.
RI: What are the underlying macroeconomic driv-
ers behind the surge in moly?
CV: It particularly has to do with the end uses of
molybdenum. Molybdenum is an industrial metal
and about 70% of it is used in the steel market.
We’ve already seen a tremendous jump back into
manufacturing in China followed by expansion
and manufacturing in Japan, the US, and Europe.
So there already has been a fairly significant recov-
ery there, but for the steel market it has really been
China that has shown the most recovery so far.
China’s fiscal and monetary stimulus have really
boosted Chinese steel production. This year alone
we saw new loans in China increase two and a half
fold. This year we’re looking to see restocking pick
up in the developed markets, which will continue
to boost molybdenum demand.
The other big end market for molybdenum is
its use in the energy industry as a steel catalyst
in super alloys. There is a range of end uses for
Million lbs.
660
Expected Projected
Pre-Recession 600
Production
540
480
420
360
Primary 300
240
180
120
60
...The Case For Molybdenum
ducers? Now that we’ve had this rise in base metals prices,
moly that are used in the energy industry, so as we
we are seeing there is potentially more financing
see oil prices tick up we will continue to see the
CV: For molybdenum historically about 60% of out there for base metal companies. However,
increased demand for infrastructure that typically
the production is from byproduct producers. That base metals projects tend to have much higher ex-
contains molybdenum bearing material.
is primarily copper producers that produce mo- penditure cost projects, so it’s primarily the lower
RI: What about the use of molybdenum in nuclear lybdenum as a byproduct and the remaining 40% cost projects that are going to make it on line.
waste repositories? is primary producers. The latter are companies
like Thompson Creek and Freeport-McMoRan. We’re also seeing some mine expansion plans go-
CV: This is something that is going to continue So there are opportunities to play on the equity ing forward, which could be companies that al-
to present growth opportunities for molyb- side and primary producers have full exposure to ready have existing cash flows.
denum. Molybdenum can be used in the steels the molybdenum prices.
RI: Will there be
that are used in
any significant new
the waste facilities.
316 stainless steel Event-Driven Molybdenum Prices mines coming on,
or mothball mines
contains molyb-
Platts Mean Molybdenum Prices coming into the
denum and that
market that are go-
is one of the most Monthly, Through Dec. 2009
China imposes tighter ing to all of a sud-
common steels export quotas & a
US$/Lb. US$/Lb. den take the air out
out there. Other decline in by-product
output of prices?
specialty steels will
Mine closures in the
potentially contain Huludao area in CV: There have been
molybdenum and China projects that were
that would be of Fiscal stimulus not attractive 20
course, very bullish Temporary mine closure,
fuels restocking years ago that are
for molybdenum & China
increased demand from
becomes a net more positive to-
demand prospects. Chinese steel producers &
importer of day. So, there are
delay in Chinese exports Sharp increase in steel demand
molybdenum. opportunities for
RI: You’ve said that & insufficient roasting capacity De-stocking in Followed by
the steel market weak demand some larger scale
the price of moly
& high grading and a seasonal projects to come on
is event driven. A surge in copper mine production by-product slump in steel
and satiate some of
Could you elabor- producers production.
the demand needs.
ate on that?
Forced inventory selling Again, this could
& weak steel production be two to three
CV: Well, molyb-
denum is actually a 1992 1994 1996 1998 2000 2002 2004 2006 2008 years out from
very small market. where we are right
We are seeing a shift in the market fundamen-
Compared with nickel, which is also primarily now. Industrial metals and base metal projects are
tals in the sense that we’re going to have 50% of
used in the steel market, moly is roughly 1/6 the very capital intensive. We can have projects that
the market produced from byproduct and 50%
size, with only 422 million pounds mined last exceed $1 billion and require a significant amount
produced from primary molybdenum players. So
year. As a result, particular events on the supply of work to even receive the project financing to
increased market share for primary producers as
and demand side can have a significant impact. move forward on these projects. So again, it’s
we become more dependent on their supply, but
We have seen from the industrialization and build these smaller expansions that are expected in the
you have the opportunity for full exposure to the
out of emerging markets, particularly in China, a next two to three years. The larger projects might
commodity prices when you do invest in these
real boost in molybdenum prices and that is be- start to trickle in by 2014 or 2013 possibly.
primary operations.
cause these markets command such a significant
RI: Dr. Copper had a huge gain in 2009. Some
share of the molybdenum market. In the past we Copper is a little bit different. There are such di-
people are saying $4 per pound for the coming
have seen particular changes in Chinese policy versified players. There are juniors that primarily
year. Do you agree?
that have been market drivers for molybdenum rely on copper fundamentals and prices, but that
prices. Last year China produced about 38% of is a market that you are able to have some physical CV: We are bullish on the copper market because
the world’s molybdenum supply, so when China exposure through futures or ETFs. These are not there are strong fundamentals, particularly with
makes changes to the supply and demand of mo- as popular for base metals as they are for precious supply. We are expected to be approaching a very
lybdenum it’s going to have a significant impact metals, but they do afford some opportunity to narrow balance between supply and demand. We
on prices. have retail exposure into base metals. see a very small surplus in 2010, but I do know
some analysts are forecasting a deficit already oc-
RI: So you’re really calling for moly to continue go- RI: Are you witnessing new mines coming into
curring. We are starting to see that demand is
ing north? production?
picking up in developed economies, but supply
CV: We are forecasting continued strength in mo- CV: We’ve already seen investment flowing into can’t respond quite the same. There is really a lag
lybdenum prices. We have the market moving precious metal projects and that should eventu- in the supply response. So in that case we are go-
into a tighter surplus this year and then a multiple ally be the case for base metals, as well, but new ing to see inventory drawdowns and some pres-
year deficit starting in 2011. It could be quite in- project financing for base metal companies is still sure on supplies in both scrap and primary supply.
teresting for the molybdenum market. fairly limited. There are a couple of projects that We are looking to have a firmer price in 2010, not
will be trickling out, but a lot of this has been quite $4, but we do think that prices could get up
RI: Would you be buying shares in juniors or pro- to about $3.30 for the year on the annual average.
pushed out several years.

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