With demand for molybdenum at a steady increase, and not much in the way of new supply prospects on the horizon, Thompson Creek Metals chairperson and CEO Kevin Loughrey expects that prices for the metal will approach historical highs over the next two to three years.
“We think the future looks very bright for our business, and for the moly industry in general,” he said in Toronto on Thursday.
The price of molybdenum, which is used to strengthen steel and prevent corrosion, has risen from around $10/lb in 2004, to a peak of around $40/lb a year later, and is currently at about $33/lb.
“We think for right now, for the short to mid term...the supply demand fundamentals look very positive for moly producers,” Loughrey said, on whether prices were likely to return to the high levels seen in 2005.
Global molybdenum demand rose to around 440-million pounds last year. The metal is used to strengthen high-end stainless steel, in steel pipes and drills, and other extreme high- or low-temperature applications, as well as to prevent corrosion.
Assuming a demand growth rate of between 4% and 5% a year – which Loughrey believes is conservative – this would require an additional 20-million pounds a year of supply to meet the increased demand.
“It's hard to see where that supply is going to come from,” he commented.
About 55% of the world's molybdenum is produced as a by-product from copper mines, although this percentage has shrunk considerably over the last few years, and can be expected to continue to do so, as a growing number of new copper mines don't contain molybdenum.
The balance is produced by primary molybdenum mines, like Thompson Creek's Endako and Thompson Creek mines, in British Columbia and Idaho respectively.
The company is working on expanding output from both the openpit mines, and will present a feasibility study on a new underground mine, the Davidson deposit, to its board for a decision during this quarter, with initial production scheduled to begin towards the end of 2009.
However, from 2008 to 2010, there is very little prospect of significant new supplies of molybdenum entering the market.
Apart from the usual difficulties in bringing new mines on stream, supply is constrained by the lack of a forward market for molybdenum, which can make raising funds for capital projects difficult.
“It's hard to finance a billion-dollar-plus project in a market when you can't tell your creditor what the price of your product is going to be three, five, seven years down the road.”
Additionally, China, a key source of the metal, is reducing its export quotas, and will soon be consuming all of its own molybdenum within a few years, said Loughrey.
With prices of what is essentially an industrial metal at high historical levels, and expected to rise even further, one might expect that demand would decline, as users substitute other, more cost effective materials.
However, molybdenum's unique properties – it has one of the highest melting points of any known element – mean that substitution in many applications is simply not viable.
“In 2005, when moly was selling for a short time at around $40/lb, we saw very little resistance to price and we didn't see any substitution at all,” Loughrey said.
In around 40 customers that he had held talks with since late 2006, “one of them mentioned price to me, all of the others have talked about reliability of supply”.
Thompson Creek announced earlier this month that it had completed a feasibility study for a mine at the Davidson deposit, in British Columbia, which envisages building a four-million pounds a year underground operation, at a cost of C$109-million.
Assuming the go-ahead is received from the Thompson Creek board, the company hopes to receive permits for the mine by November this year, and is targeting first output in August 2009, followed by full production in April the following year.
The company expects to fund the project, as well as expansions and exploration at its Thompson Creek and Endako mines, from internal cash flow, Loughrey said.
The firm was on the lookout for potential acquisitions, but had not identified any targets.
"We're just looking right now," he told Mining Weekly Online.