Move over nickel and uranium. Here comes molybdenum.

The same fundamentals that have been driving up prices of the better known metals are spilling over onto their exotic cousin, molybdenum. Over the past couple of years, the price of this “energy” metal has more than tripled from its 10-year average of US$10 a pound.

With concerns about future supply in an already tight market and bottlenecks at smelters, analysts say, molybdenum’s historically high prices are here to stay — at least, until the end of the decade.

David Charles, mining analyst at Toronto-based GMP Securities LP, is calling for the hard white metal to average US$26.50 a pound in 2007, increasing to US$28 in 2008, before dropping back to US$18 in 2010 and US$9 thereafter. But he thinks these estimates may be understated in the long term.

“We believe our long-term price is conservative and some of the planned molybdenum projects may not be economical at US$9 a pound,” he says in a May report.

Molybdenum provides strength and corrosion resistance for many types of steel and stainless-steel alloys, especially in high-temperature environments. Its main uses are in furnaces, high-temperature applications in the lighting and glass industries, electronics, nuclear energy and aerospace.

Growing applications for the metal include flue-gas desulphurization at coal-burning power plants, oil and gas pipelines, condenser tubes in nuclear plants and catalysts in the petroleum refining sector. In some of these applications, it is difficult to substitute molybdenum with other substances such as vanadium because of the former’s unique attributes.

Although just 10 companies currently control about 65% of global molybdenum mine production, some of the more forward-thinking players in the mining industry are already capitalizing on “moly mania” by creating publicly traded entities with a molybdenum focus, giving investors an opportunity to participate in the metal’s bull run.

For instance, Toronto-based Sprott Securities Inc. recently launched Sprott Molybdenum Participation Corp., hoping to replicate the success of a similar vehicle launched two years ago called Uranium Participation Corp. While UPC invests strictly in uranium, the moly fund invests not only in molybdenum oxide but also its related equities, which tend to appreciate faster than the underlying commodity.

As of April 30, Sprott’s moly fund had a net asset value of $220 million, or $5.27 a share, up $34 million from Jan. 1.

Sprott’s top holding is Thompson Creek Metals Co. Inc., recently acquired by Blue Pearl Mining Ltd. Toronto-based Blue Pearl was just another tiny junior focusing on exploration of the Davidson molybdenum property in British Columbia before it raised US$575 million — US$402 million of that in debt securities — to buy privately owned Thompson Creek and its North American assets, last year.

Now Thompson Creek is the largest publicly traded, stand-alone molybdenum producer in the world. Thompson Creek recently traded at $18 a share, up from a 52-week low of $1.70, making it the TSX’s best performer for the year ended June 8.

According to London-based Roskill Information Services, global consumption of molybdenum was about 400 million pounds in 2005 and is forecast to grow to about 490 million pounds by 2010. Meanwhile, mine production totalled 410 million pounds last year, about 76% of which is produced as a byproduct of copper mining.

According to Charles, production has grown at an annual rate of 5.3% a year since 2001, but increased by almost 16% in 2004 as Western copper producers ramped up production to take advantage of higher molybdenum prices.

He expects this growth to stabilize at 4.3% because most of the new copper mines coming onstream in Latin American or the Congo do not recover molybdenum.

Supply from China, which controls an estimated 39% of the world’s molybdenum reserves, could also plummet as the Chinese government reduces exports.

“They view themselves as funding the development of the Western world with their natural resources at prices they consider too low,” says Thompson Creek president and CEO Kevin Loughrey, who just returned from a fact-finding mission to China. “They want to marshal their own resources for their own consumption.”

China just raised its tax on molybdenum exports to 15% from 10%. Loughrey sees quotas and export licences becoming the norm as China cracks down on the amount of metal leaving the country. This choke on supply would, in turn, drive up the molybdenum price.

@page_break@Like uranium but unlike other metals such as nickel and copper, molybdenum inventories are far from transparent. Rather, the metal’s price is dependent on direct transactions between producers and consumers, who respond to supply/demand fundamentals dictated by global economic conditions. The metal is unhedged and there is no forward market.

The lack of transparency, especially in supply from China, is partially responsible for a volatile molybdenum price. For instance, global inventories fell to historical lows in mid-2005, driving the price up to a peak of US$37.44. But higher prices, in turn, lowered demand and increased supply, resulting in a small surplus by the end of 2006 and a more stable price of US$25-US$30 a pound.

At that price, Thompson Creek — which has survived a few down cycles in its 15-year history — can make very good money. UBS Securities Canada Inc. recently revised its 2008 earnings estimate for the firm to US$2.12 a share from US$2. Net income is expected to be US$164 million in 2007, rising to US$279 million in 2008.

Thompson Creek owns the namesake mine and concentrator in Idaho; 75% of the Endako mine, concentrator and roaster in B.C.; the Langeloth roasting facility in Pennsylvania; and the high-grade Davidson deposit, also in B.C.

A handful of junior mining companies that have strong exposure to molybdenum and potential for near-term production are also listed on the Toronto Stock Exchange.

Loughrey says that, because the molybdenum price is volatile, deposit grades are key, allowing higher-grade producers to ride out the tough times. At historical molybdenum prices, anything higher than 0.1% molybdenum would be considered a good grade, while lower-grade deposits may be economical at today’s prices.

He adds that because the conversion of molybdenum sulphide into salable product is difficult, investors should be wary about how companies state their resources.

“It’s a fairly complex thing to turn moly sulphide in the ground to moly oxide out of the roaster,” he says. “It’s worth being very careful about the numbers people tout about the size of their deposit.”

Vancouver-based Columbia Yukon Explorations Inc. holds the rights to explore the Storie molybdenum deposit in B.C. The historical resource estimate for Storie is 100.5 million tonnes graded at 0.077% molybdenum.

The deposit has potential for growth. Columbia recently raised $3.2 million to investigate the deposit’s extensions in preparation for a pre-feasibility study next spring.

Toronto-based Virgin Metals Inc. has two advanced exploration-stage molybdenum/copper porphyry properties in northern Mexico: Los Verdes and the less advanced Cuatro Hermanos.

The Los Verdes property is a historical molybdenum producer with resources of 10.5 million tonnes graded at 0.124% molybdenum. The company estimates the deposit could produce as much as 2.5 million pounds of molybdenum and nine million pounds of copper a year.

Another potential winner is Roca Mines Inc., which intends to be the first new Canadian molybdenum producer when its 100%-owned MAX deposit southeast of Revelstoke, B.C., begins operations this summer.

Roca will initially focus on a high-grade core containing 280,000 tonnes graded at 1.95% molybdenum sulphide. Then — if prices permit — it will expand to a larger deposit of 43 million tonnes graded at 0.20% molybdenum.

White Rock, B.C.-based Adanac Molybdenum Corp. has also been an investor darling, doubling to $2 a share from $1 earlier this year. Adanac owns the Ruby Creek deposit, a low-grade bulk-tonnage deposit in B.C., and three moly or moly/copper projects in Nevada. Adanac expects to begin producing from Ruby Creek in early 2008. IE