Part of the reason for the rise is weakness in the dollar. People often say that oil is denominated in dollars. But maybe it is the other way around; dollars are denominated in oil. A dollar is worth how much oil it can buy. Part of oil’s rise is simply marking down the value of the dollar. Weak dollar means higher oil prices.

People will blame the higher oil price on speculators, but something interesting is happening in the markets for minor metals like molybdenum. Prices are rising, too. The silvery metal, used to strengthen steel, is now $15 a pound — nearly double the $8 and change it fetched in April. This is significant, because there is no futures exchange for moly. It trades on a physical spot market. Speculators play a very small role here. The buyers of the metal use the metal.

So there is a demand story shaping up here, too, mostly focusing on a fragile recovery of some sort and mostly centered on China and the emerging markets. The market is looking ahead.

For instance, over the weekend, South Korea reported numbers that show signs of a recovery in that country. Industrial output fell less than expected, and trade volume surged to $60 billion. That was its best showing since last October. Also, South Korean companies have been reporting better-than-expected results.

The biggest buyer of South Korean goods is China. Still, it’s a confusing time because of all the stimulus money that governments around the world have been spending. So it’s hard to say what’s real and what’s just an illusion created by a temporary spending binge.

Another piece of the puzzle from last week: Spot iron prices in China (meaning iron ore for immediate delivery) topped $100 per ton. That’s the highest level since October 2008. The other breakthrough in iron ore last week came when BHP Billiton, the world’s largest miner, announced that a third of its customers were moving to prices linked to the spot market.

This is big news for the industry. The old way was to have annual contracts with a negotiated price. This was bad for iron ore companies because the contracted price lagged the increase in iron ore prices. And when iron ore prices fell, steelmakers just reneged on their contracts. As the iron companies found out, having contracts was a great way for iron ore producers to cap their upside and leave them with all the downside. Not so good.

The industry now looks like it is moving toward more spot pricing, which is a good thing for the producers. Iron ore prices have rallied too, along with crude oil and moly.

Every rally, like every bottle of beer, has a finite life span. There will be lots of bumps along the way, but the prices of many commodities — such as oil, iron ore and moly — will tack higher, in my view. Intelligent small-cap investors would be wise to pick up shares of their favorite companies in these sectors.

Sincerely,
Chris Mayer

August 4, 2009

Oil and Molybdenum Are Poised for Future Gains was originally featured in the Penny Sleuth.

You see, even in the worst of times, there are winners and losers. We know the losers of the day — Lehman Brothers, Bear Stearns, and AIG. But, let’s take a look at how others are faring for a change.

There are always opportunities to find the next big winner when you least expect it. Take Emergent BioSolutions Inc (EBS: NYSE) for instance. The company IPOed at the end of 2006 at $11. Shares fell over the next 14 months to a low of $4.64 in the first week of trading this year.

Since then, shares are up a miraculous 242%! That’s 242% this year — the year being compared to 1932, the height of the Great Depression, on every financial network in the world.

You can also look at Genelabs Technologies (GNLB: NASDAQ). GlascoSmithKline bought it out for about five times its previous share price. In one day, share jumped from 23 cents to $1.22. That was just last month.

So, there are profits to be had in this market, just like any other. The problem is knowing where to look. Today, we have one place to find some guidance…

Over the past few years, one theme continuously pops up here at Penny Sleuth — insider buying.

It just makes since. If the people running a company think it’s cheap, chances are it is. After all, they know their own companies a lot better than any individual investor ever could. Not even a Warren Buffett can give you as much information about a company than the people running it.

Recently, one particular sector is seeing a spike in insider ownership…commodity-based companies.

In our premium letter, Penny Stock Fortunes, we track the fastest growing penny stocks across a whole spectrum of industries. Over the past three weeks, we’ve seen a remarkable amount of insider buying in our commodity plays.

We currently have a silver miner, a molybdenum miner, and an oil producer. All three are tiny, ready-to-pop companies. Businesses this small don’t usually have much going on as far as insider trading goes. November 2008 doesn’t seem to fit the mold.

So far this month, these three tiny companies saw a combined $1.4 million worth of insider buying — most of which came from the company’s CEOs and presidents.

We can only conclude that the executives and directors of these companies view them as cheap. Those are the people that know these companies better than anyone else.

Maybe even better than knowing that insiders are betting prices will go up, is the fact that they are investing with you — your money right along theirs. It’s a pretty sweet deal.

Instead of blinding throwing your money at some giant like Exxon Mobil, you can take solace in knowing that your money is just as valuable to the company as the CEO’s, which you can sure as heck bet will be taking good care of shareholder interests.

Of course, insider buying isn’t a 100% foolproof way to strike it rich. But, it does prove that you are on the right track.

Until next time…

Sincerely,
Jim Nelson
November 24, 2008

Insiders Buying up Penny Stocks was originally featured in the Penny Sleuth.

Molybdenum is not traded like copper, zinc, or nickel. It’s such a rare element; it is actually bought by steel and fertilizer companies straight from miners. There’s simply not enough of it to be traded on a commodities exchange like other base metals.

Because many projects have been cut and expenses are tight worldwide, demand for many metals has temporarily slipped in recent months. That’s why copper, zinc, and nickel are down 50% to 55% since July.

Since molybdenum goes months without new bids, its price hasn’t budged from its $34 rate. That’s why, when the most recent contracts came in, the negotiated price was slashed.

While that doesn’t sound like a positive for molybdenum miners, it may prove to be the best possible development for many juniors. You see, most juniors aren’t actually selling any molybdenum yet. So, they don’t have to take this price. Others, however, are taking a beating.

Freeport-McMoran Copper & Gold Inc., for instance, has a few molybdenum mines in Colorado, where they are cutting production and closing up shop. This drop in prices makes these mines uneconomical to run. The company said they plan on reopening the mines when prices climb back up. But, it’ll take 12-18 months for Freeport to get them back to full capacity.

Shut downs like these should bring the price of molybdenum back up to where it was trading before and eliminate some competition. But there is a second development here…

Governments all over the world are tackling the current economic crisis in different ways. One approach is starting to emerge in many countries. President-elect Barack Obama has repeatedly stated that the best way to fight through a crisis like this is by implementing more building projects. Referring to the Tennessee Valley project under FDR during the Great Depression, Obama claims that infrastructure projects offer the best for both the country and its citizens.

Other world leaders are jumping on to this approach. China just unveiled a $586 billion economic stimulus plan that will invest heavily in the country’s growing infrastructure needs. When there’s infrastructure in the works, demand for molybdenum goes through the roof. Steelmakers require molybdenum for building everything from pipelines to construction equipment.

Developments like these will surely boost the price of the metal by the time juniors’ mines come online.

Unfortunately, there aren’t too many players in this field. Here’s a short list of a few that should benefit:

• Quadra Mining Ltd (QUA: TSE) has a 211-million pound molybdenum mine with planned development program through mid-2009.
• Roca Mines Inc (ROK: CVE) operates a 191-million pound molybdenum mine already in production with planned increases during the next several quarters.
• Augusta Resource Corp (AZC: AMEX) has a 190-million pound molybdenum mine scheduled for initial production in 2011.

None of these are recommended for the faint of heart. We aren’t suggesting you purchase shares of any of these three. But as the Chinese proverb goes. “A crisis is an opportunity riding the dangerous wind.” The crisis wind may be blowing…

Sincerely,
Jim Nelson

November 11, 2008

P.S.: If you think 200 million pounds of molybdenum is enticing, you need to check out our latest find, which is sitting on 1.3 billion pounds of molybdenum and is set to begin production in 2010. That’s the largest pure play in the business, and one of the cheapest price tags.

Juniors Benefit from Falling Molybdenum Prices was originally featured in the Penny Sleuth.

Of course, he really didn’t “discover” it in the usual sense. Local Chinese had known about the arch for hundreds of years. It just escaped Western notice until Shipton’s arrival. Shipton had a long resume of climbing mountains all over the world, from Mount Kenya to India’s Kamet. In his book Mountains of Tartary, though, he got the location of the arch mixed up. So when a team from the Guinness Book of World Records set out years later to verify the existence of the arch, they couldn’t find it. So the arch was “lost” again.

It wasn’t until 2000 that a National Geographic team found it again. As National Geographic Adventure reports: “It beggars belief that a significant wonder of the world could remain missing in an age of satellite imagery, but there it is.” So we discovered the arch, lost it and discovered it again. Of course, it hadn’t moved all the while.

And that gets us to element 42. It’s called molybdenum, or “moly” for short (pronounced “molly”). It’s a metal that, like other natural resources, has been around a long time. People thought it was some sort of lead compound. It was, however, officially “discovered” by German-Swedish chemist Carl Wilhelm Scheele in 1778. Even then, it took a while before we figured out what to do with it. So essentially, moly was lost yet again.

Fast-forward a bit into the modern, smoke-belching world of steel and oil. Steel producers and energy companies know all about Scheele’s discovery. Steel producers use it to strengthen steel. But only recently, due to a number of factors, has the market rediscovered this metal — in a big way. In fact, some are now heralding moly as the “energy metal.”

The moly market has long been one marked by sleepy indifference. The price of moly wandered under $5 per pound for most of the ‘90s and in the first couple of years of this century. But this once-drowsy backwater has suddenly become a frenzy of deal-making and price spikes. At work are the usual suspects, supply and demand.

Moly has many uses. For the most part, it’s used to reinforce steel of all kinds. It has a growing use in oil and gas pipelines. It takes about 1.6 million pounds of moly for every 1,000 kilometers of pipeline. Just for a frame of reference, there is something like 80,000 kilometers of pipeline in the planning stages globally. That’s a lot of moly.

Moly’s big push toward new highs will come from booming energy markets. All of the trends in the energy world play well in moly’s favor. Deeper drilling and longer pipelines to find and access more remote oil and gas will consume a lot of moly. Then there is ocean exploration. Just think of all those deep-water platforms sitting out there in the rolling, watery plains of the Gulf of Mexico and the North Sea. They need moly, too. The increasing reliance on heavy oils and tar sands, which are corrosive fuels, is good for moly — which has anti-corrosive properties.

Oil refiners use moly as a catalyst to reduce the sulfur content in crude oil. Government mandates require lower sulfur content in gasoline and diesel fuels — which bodes well for moly demand. About 95 percent of all oil refineries use moly in this way.

Nuclear plants also use moly for pipes. In fact, mandates now require moly on all pipe refits to existing plants. The majority of existing plants are about 22-44 years old, so refits will be big. Plus, there are hundreds more on the drawing board worldwide. A nuclear plant requires about 400,000-500,000 pounds of moly. So I certainly don’t see demand weakening there.

Plus, there are many more uses of moly. It’s used in cars to build lighter, stronger and more fuel-efficient vehicles. In a way, moly is a “green metal” — if such a thing is possible — because of its role in reducing “greenhouse gases.” It has other unique properties valuable in making pigments, corrosion inhibitors and lubricants.

The neat thing about this is that substitution is difficult. So even though the price of moly is up a lot, it has not affected demand much. That’s also due to the fact that most applications require a relatively small percentage of moly relative to overall cost. So its cost to, say, a refinery, is a lot more than it was, but is still small compared with overall costs.

And there are few substitutes for moly. I expect the moly market to remain tight at least through 2009.

Regards,

Chris Mayer
May 21, 2008

The Secret Metal That’s Used in Almost Every Drill Bit, Pipeline, Refinery, and Power Plant was originally featured in the Penny Sleuth.