Good Golly Miss Mol(l)y!

If you've been keeping up with the financial news you'll know that infrastructure has been a hot topic in the past year or so. The reason for this is that emerging markets especially and China in particular are hastening to construct new roads, buildings, communications, etc. Their appetite for construction materials, natural resources, and equipment has been voracious and is expected to continue unabated for the foreseeable future. The stocks of companies engaged in providing these resources and services have, for the most part, been stellar performers and their names have become common via the financial media. But what hasn't been covered much (at least to my knowledge) are the companies engaged in the mining and refining of molybdenum, affectionately known as “moly” in the metals industry.

What is molybdenum and why should we consider it from an investing point of view? Molybdenum is a metal similar in appearance to lead. It's number 42 on the periodic table and has the sixth highest melting point of all the elements which makes it perfect for use in high-strength steel alloys. It's mined in sulfide form as molybdenite. It can be mined as the principal ore but it's also recovered as a by-product of copper and tungsten mining. Canada, the US, Russia, and China are the largest producers of moly. The metal trades as a commodity as molybdenum oxide. Only five years ago, the commodity was trading around $8 per pound. It hit a high of $40/lb several years ago, traded down to a low of around $25/lb and has been rising steadily since then. It's currently trading in the $33-$34/lb range.

Molybdenum has replaced tungsten in steel alloys because of its cost-effectiveness and effectiveness as a corrosion inhibitor. Because of its chemical and physical properties, it's used in other alloys that operate under severe conditions such as aircraft engines, heavy equipment, and high-speed drills. It's also used as a catalyst, lubricant, and pigment.

Currently, the supply of moly is meeting demands, but a shortfall is imminent according to some reports. Western demand is increasing by about 3% annually; globally, it's about 4.5%. The projection for demand in China is for a 10-20% annual increase. Add to that the fact that there are 48 nuclear reactors scheduled to be built by 2013 and 100 by 2020 which will require between 500,000 - 800,000 pounds of moly (used in the steel alloy) depending upon reactor design. One thing is for sure, if mines don't step up production there will be a shortage in the near future.

So what publically traded companies are actively engaged in moly mining? There are two companies devoted exclusively to moly mining:

Thomson Creek (NYSE; TC): Owns and operates mines in the US and Canada. It changed its name from Blue Pearl late last year.
General Moly (AMEX: GMO): Changed its name from Idaho General Mines in 2006. Owns moly mines in the US and also holds gold, silver, and copper properties.

Other companies that engage in moly mining are Freeport-McMoran (FCX), Rio Tinto (RTP), and to a lesser extent Southern Copper (PCU), and BHP Billiton (BHP). There are two foreign-based moly miners that trade over the counter: Grupo Mexico (GMBXF) and Antofagasta (ANFGY) which is based in Chile.

All of the above mentioned stocks have been doing very well. My picks of the litter are Thomson Creek and Rio Tinto, but I don't think you can go wrong with any of them. (Just be careful of the OTC stocks as they are very thinly traded.) Since February, Thomson Creek is up 43% and is trading at a new high; Rio Tinto has gained over 50% since January and is also threatening to make a new high. (Note that Rio is not cheap at $477. Has anyone suggested a split?)

If you're loathe to buy just one or two stocks, there's a basic materials ETF (AMEX: PYZ) which includes PCU and FCX among its top ten holdings. Although this isn't a pure moly play, you do get the benefit of diversification across the materials sector.

So let's make some profits from Miss Moly, by golly!