World-renowned chemist Carl Wilhelm Scheele discovered it only two years after the U.S. declared independence from Britain. But it took another 116 years for someone to find a use for it, when a French armor company recognized its remarkable hardness and durability and used it to strengthen its steel armor plates.

Over the next century, captains of industry and chemists alike toyed with the element in hundreds of different applications. Eventually, these experts introduced molybdenum into the manufacturing of aircraft parts, electronics and power generation, along with many other applications.

Characteristics of a Super Metal

The metal’s unique properties make it the indispensable element it is today. Molybdenum is harder than chromium, lighter than tungsten and more resistant to compression than graphite. It also has a higher melting point than boron and reacts less to temperature changes than vanadium. These characteristics still make alloy makers and scientists marvel at molybdenum’s advantages.

It’s these advantages over lesser metals that let molybdenum contribute to the world’s infrastructure. One of the most important industries that use molybdenum is pipeline manufacturing. Manufacturers use it to strengthen their main assets, the actual metal that carries oil and gas throughout the world. We’ve been working on this with Mayer’s Special Situations editor Chris Mayer for months. Here’s what he writes:

“It takes about 2.6 million pounds of moly for every 1,000 miles of pipeline. Just for a frame of reference, there are something like 50,000 miles of pipeline in the planning stages globally.”

In just this one industry, current demand dictates at least 128 million pounds of molybdenum. At current prices, that puts us in the ballpark of $4.4 billion. But many other industries require this truly precious metal…

Moly’s the Word from Clean to Green

Molybdenum’s anti-corrosive properties make it crucial to the production of the oil in tar sands and offshore drilling. Crude oil refineries use it to remove sulfur. Government mandates to reduce the amount of sulfur in oil make this even more attractive.

But many other energy companies have to rely on molybdenum for its unique properties. One up-and-coming energy source, geothermal, needs it for drill bits. To drill deep into the Earth’s crust takes a very hard metal to rip apart the rocks and mantle. This small industry is taking off and will continue to increase the demand for molybdenum. But other renewable energies use this metal.

The solar power industry uses molybdenum’s conductivity to form strong electrical connectors that make the whole process work.

The rapidly growing windmill industry takes advantage of molybdenum’s hardness and durability to strengthen the massive propellers that must endure all kinds of wear and tear from Mother Nature.

The nuclear industry, which is once again growing at a rapid pace, is required to use only the most radioactive-resistant and strongest materials to build its pipes and reactors. Molybdenum is the only thing that fits.

Even the “green car” revolution uses molybdenum’s comparative lightweight to boost fuel-efficiency and overall safety. The list goes on and on…

Molybdenum also has a few other special characteristics that make it irreplaceable at any price. One contribution of the remarkably important element is to plant growth. Fertilizer companies incorporate it into their products to ensure the required assimilation of the plants to nitrogen — an essential element of plant growth.

Molybdenum’s most important application, however, is in the production of steel. We already stated this element’s outstanding strength. To make durable steel, you need to add molybdenum to the alloy. With tremendous growth in China and India, tons and tons of steel are produced to erect the massive skyscrapers and factories we read about on the front page of the business section every day.

But no metal is worth investing in if it’s going to stay cheap. So we have to look at molybdenum’s supply and demand…

A 1,000% Jump Is Just the Beginning

With so much demand coming from just about everywhere you look, it wears on the metal’s suppliers. Molybdenum production is growing at only a 3% clip annually. Compare that with China’s 10% annual demand growth and it’s clear that new mines need to open for the producers, which have been shipping the metal out as fast as they can pull it out of the ground.

This imbalance between supply and demand has caused molybdenum’s price to skyrocket. Just a few years ago, you could buy a pound of the metal for $3. Today, it costs around $34. That’s quite a run-up for an element few have heard of.

As you can see, the metal’s price sharply increased between 2004–2005 as production slipped and roasters (essentially the same as refineries for the oil industry) met full capacity. But industry experts expect the start of a multiyear bull market for molybdenum prices next year as supply falls lower than demand.

Current molybdenum producers are looking high and low for new mines to produce this metal. Unfortunately, it doesn’t grow in our backyards. It is almost always mined alongside copper, but not in high grades.

So finding a pure molybdenum play isn’t easy. However, there are significant mines throughout parts of China, Chile, Canada and the U.S. In fact, back in 1978, oil giant Exxon stumbled on the world’s largest and highest-grade molybdenum mine in Nevada. But the metal’s price wasn’t worth the hassle of development.

Today, we have quite a different story. And this month’s Penny Stock Fortunes recommendation happened to pick up this undeveloped mine while prices were still in the basement. Now this tiny junior miner is on the verge of production, and you are on the verge of huge profits…

Sincerely,
Jim Nelson
September 18, 2008

Investing in Molybdenum was originally featured in the Penny Sleuth.