On September 27th, 2010 I wrote an article mentioning that uranium miners and molybdenum miners were poised for a breakout. I wrote in the article, "There have been some recent breakouts in some uranium and molybdenum plays which I will be telling my premium readers about in the next couple of days." Since that article the molybdenum and uranium miners have made huge gains due to supply concerns globally. While investors are concerned of a global currency devaluation, a global race is occurring to control molybdenum and uranium assets.
The primary molybdenum miners such as Thompson Creek(TC) and General Moly(GMO) are up today on speculation that China will curb molybdenum production as they classify the metal as a natural resource. General Moly (GMO) released their earnings today and mentioned that China remains a net importer of 5.5 million pounds year to date. This development will have a huge impact on the global supply of molybdenum as China is the largest producer and supplier of over one third of the global supply. These primarily molybdenum producers will receive a premium as molybdenum is usually a byproduct of copper production which is usually fixed. Primary molybdenum producers will receive a premium for their assets as demand accelerates.
The price of molybdenum is more than 50% off pre credit crisis highs yet demand is seriously exceeding supply. China has imposed mining quotas in the past and is expected to curb exports again in 2011. China has also a need for high strength steel. Even though it produced 50% of the world's steel, China only consumed 30% of global supply. If they consume more molybdenum similar to other producers they will demand a much higher amount of imports. They have a need for high strength steel which requires molybdenum. China's recent stimulus which focussed on infrastructure requires a large supply of molybdenum as it is needed for bridges, power plants and pipelines.
This trend has a huge impact on many emerging markets which was relying on the Chinese supply. Korea and the Japanese are under pressure to find supply for their own needs. Other growing economies which require high performance steel are going to look for ways to control future supply.
Recently the Chinese Government accelerated and approved funding through Hanlong Investments for General Moly's Mt. Hope project accelerating the funding and showing their commitment to the project. Mt. Hope is the largest and highest grade primarily molybdenum project in development. Shares have soared on the news and the enthusiasm from the Chinese Government.
I expect to see more transactions to occur in natural resource stocks in 2011 especially in molybdenum and uranium. Buying these assets provide investors with a hedge against currency devaluation and leverage to emerging market growth. As many nations will be forced to devalue their currency to increase economic growth, major natural resource assets will gain interest from countries experiencing economic growth. Shareholders in these key junior mining companies which control these world class assets may receive a premium in 2011 and beyond.
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