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July 21, 2009 / Jeb

Indexes are Rallying, Economy Shows Signs of Strengthening, Molybdenum Assets On Sale (GMO)

I gave a warning last week for investors to change from being defensive on the indexes and commodities to going long.  The reason being was the head and shoulders pattern which many traders saw did not break decisively and  the SP 500 never broke the 200 day moving average which showed support. Failures of head and shoulders lead to explosive rallies.

Now institutions are buying up stocks on poor announcements which is showing that the major buyers are expecting a recovery sooner than later.  Caterpillar came out with earnings and the CEO said they are seeing that the stimulus is improving the economic situation especially in China.

I see a great opportunity in a select stock which has great molybdenum assets in North America.  Moly has been rallying especially since it is an industrial metal used in high strength steel for drilling since Moly has the 5th highest melt point of all elements.  Drilling has been down but if you see the results from Halliburton and BJ Services the worst is definitely behind us.

General Moly (GMO) has two of the largest low cost undeveloped molybdenum mines in North America.  They have a $1 a share worth of cash and major partners such as POSCO and Arcelor Mittal.  The permitting is in a great location with no opposition.  These mines will come into production when the economy will be stronger and molybdenum prices higher.  This is a great opportunity to get a high demand metal for pennies on the dollar.  Look for a buyout or JV partner in the next couple of weeks.

Let’s look at the chart.

GMO

General Moly has been under performing the producing molybdenum play Thompson Creek.  I sold out my position in Thompson Creek as it made a huge run.   GMO is a much better buy at these levels and presents better leverage to the price of molybdenum.   By the end of 2009 GMO will have one of the largest long producing moly mine coming into production just as the economy really comes out of recession.  Demand will be increasing and supply of already producing mines will be decreasing.

Notice the support GMO is making and the huge volume that came in right after my recommendation.  Then GMO came right back into support and is now ready to make another move.  I believe the move will come shortly as emerging markets who are building pipelines and drilling for resources need molybdenum in their future.

Disclosure: I personally own shares of GMO and do not currently own TC.

Correction: I wrote coming into production at the end of 2009.  It should of said mid 2010.  Thank you to one of my subscribers for pointing it out.

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5 Comments

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  1. Arizona Miner / Jul 21 2009 11:19 pm

    The article suggests production will decrease from existing mines. Not true. FCX, the largest moly producer in the world, has shut off the moly circuit in some of their SA mines and has one pure moly mine in CO at 60% that easily go to 100% production. Also, they have another pure moly mine in CO on hold right now but is 18 months from producing once the project gets a green light.

    For the record, I’m long GMO and TC.

    Arizona Miner

    • Anticipate Opportunities / Jul 22 2009 7:16 am

      Arizona,

      I wrote the “supply from producing mines will decrease.” Good point on fcx that they are not going at full strength now. This only emphasizes the supply of molybdenum issue going forward.

    • Ellen / Jul 22 2009 10:41 am

      I think what might be meant from “production will decrease from existing mines” is that ore grades from existing by-product moly producers around the world are declining at rapid rates. Your right about FCX but most of todays moly comes from by-product mining and the long term trend with ore grades in most of the existing mines is undeniable and long-term bullish towards keeping supply tight and supporting higher moly prices.

  2. Ellen / Jul 22 2009 4:00 am

    I fully agree with everything you have to say here. Right now GMO is trading at a huge discount relative to TC after TC’s recent run. Like you, I expect another leg up for GMO to begin any day now and assume the next leg will bring new highs (relative to recent price) just like we’re seeing in TC right now. I expect GMO’s next leg up to bring shares to at least the $3.05-$3.50+ range. I also expect that shorts will be forced to cover as it becomes increasingly obvious that the global economy is on the mend. IMO, everything points to higher near term and longer term prices for GMO. Moly prices are heading higher at a rapid clip, TC’s share price (which tends to lead GMO’s) is making new highs (relative to recent prices)and economies and markets around the globe are turning bullish. I believe the day that GMO’s shares are once again priced based on higher moly prices and the asset values of Mt. Hope and the Liberty Mine is rapidly approaching and when that happens investors will want to be fully invested because anyone who has done the fundamental valuation work on GMO can tell you, it’s pretty hard to figure how GMO shares are worth less than $8+ on a fundamental basis even when using the most conservative model inputs. Since the economic collapse and cratering of global markets, GMO has been priced (fairly enough) at deeply distressed levels, but now that the tide is turning it shouldn’t be long before there is no longer cause for an apocalyptic discount and the shares will once again be priced based on fundamental value which, as mentioned, is in a range far above current levels. I hope the higher prices come soon and that patient shareholders are rewarded. Best of luck and keep your GMO commentary coming!

    • Anticipate Opportunities / Jul 22 2009 7:19 am

      Thank you for your comments.

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