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I
introduced General Moly (GMO)
to my subscribers in May
of 2009. At that
time, the permitting process
was not paramount, as financing was the critical consideration as we were still
emerging from the depths of the mining sector crash during the 2008 credit crisis. At the same time, China was embarking on a search for potential mining acquisitions in the West. It was
inevitable that a plum such as General Moly would catch Beijing’s eyes.
General Moly sits atop a massive mountain of molybdenum in
Nevada called Mt. Hope, the largest
and highest grade asset
in North America. Nevada happens to be one of the world’s most friendly mining jurisdictions. The union between
China and GMO was inevitable.
In order to make steel out of iron ore, molybdenum needs to be introduced into the mix. Ore can not be catalyzed into steel without
the addition of molybdenum.
Mt. Hope’s
high grade ore could be mixed with China’s low grade moly to
produce a desired mixture
which is needed for China’s
massive infrastructure plans. China cast covetous eyes on this American bonanza as steel demand has increased. China has major infrastructure plans, such as building 27 nuclear reactors and 10 million social housing
units, requiring a lot of
steel. China has also classified molybdenum as a
national resource, curbing
its own domestic production and forcing banks
to look overseas.
Moly is
still trading below $20/lb way off its pre-credit crisis highs of over $30/lb. Chinese demand is increasing as the percentage of its usage of alloyed steel products are way below that of its neighbors like South Korea and Japan. As China competes with its neighbors
and invests in its own infrastructure, its use of molybdenum as an alloying agent
will also expand.
Several weeks ago, China plunked millions of
dollars into the waiting arms of GMO. It's confident that water rights will be granted
and that the requisite permits would follow. So confident is it in anticipating regulatory success that it fast-tracked
the funding.
Today, GMO received
the water rights which were expected back in March.
This is a long-awaited milestone for those who have been patiently following this niche mining company.
Significantly, other
institutions have purchased shares
of GMO, namely Posco (PKX), the giant steel company
from South Korea, and Sojitz (SZHFF.PK), the major Japanese
trading company. For years, China has been the main supplier
of the forenamed entities.
Now China is experiencing a supply-demand shortage of its own concerning molybdenum. General Moly is one
of the only pure moly developers
with significant partners.
In addition to Mt. Hope, GMO
has the Liberty Project, also in Nevada, which the market is giving little
value. GMO announced drill results
recently from Liberty.
The company is planning
to release an updated resource
estimate on this project in the third quarter
and plans to update the 2008 pre-feasibility in 2012.
Recently, institutions are scrambling
to pick up vital molybdenum
assets. Mercator Minerals
(MLKFF.PK) paid a
38% premium for Creston Moly, which is far less advanced
than General Moly in the mining
process. General Moly has revealed
how an analogous buyout
of its assets would be worth
at least $7 a share. Additionally, the
Mercator buyout of Creston is
a continuation of the trend of consolidation; Hudbay
Mineral is taking over Norsemont Mining for millions of dollars.
As GMO de-risks
Mt. Hope as it trudges through the final stages before
building the mine, it is quite important for investors
in mining stocks to exercise
patience and fortitude. There are sometimes bureaucratic and regulatory delays which might make GMO’s
price tend to base over several
months and then return to
its upward trend. However, many major
institutions such as Posco,
Hanlong, Arcelor Mittal (MT) and Sojitz have done their due diligence in this asset and are confident. One other
consideration: General Moly is
the only pure molybdenum play on the major U.S. exchanges. Thompson Creek (TC), the former pure play, has expanded into precious metals and has diversified away from molybdenum.
General Moly has been in a downtrend for most of 2011 as it has awaited the recent ruling.
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