It is one of the most important industrial metals of the last 50
In fact, this metal is so central to our
that JP Morgan has singled it out as one of the five key
commodities for the 21st century (along with cobalt, lithium,
indium and helium).
And no, it's not aluminum, copper, nickel or even palladium.
Few people can even pronounce its name (muh-lib-duh-nuhm) -- let
alone discuss its important industrial uses.
But without molybdenum, our world would be quite different today...
Molybdenum is a critical raw material found in everything from
trucks and ships to bridges and drill bits. In fact, the versatile
element has so many metallurgical applications that it is often
referred to as the "Wonder Metal."
Considering the stock of one top molybdenum producer spiked 269%
from the beginning of 2009 through the end of 2010, I'd say it can
also work wonders for your portfolio.
I'll tell you about this stock in a second, but first you need
to know why manufacturers can't live without molybdenum.
Five physical traits make this metal irreplaceable
The key to the metal's timeless popularity lies in five physical
attributes that will be just as critical in the next fifty years as
they were in the past fifty.
The first two are light weight and extreme hardness. Much like
titanium, this rare combination results in a superior
strength-to-weight ratio, which allows manufacturers such as
General Motors (
to build frames that use less metal without sacrificing strength.
As for the third physical property, molybdenum is extremely
resistant to compression and thus well-equipped to handle external
Fourth, and perhaps most important, it also has a melting point of
4,750 degrees Fahrenheit (sixth highest of any element) and is
highly resistant to both cold and hot temperate extremes.
If all that weren't enough, molybdenum even performs well in
But to really understand the molybdenum
, it's important to know who's using it.
On a sector basis, the chemical industry is the biggest molybdenum
user (15% of consumption), followed by oil and gas (12%),
automotive (12%), and mechanical engineering (10%).
Look back at all the themes that have played out in the economy
over the past few years and molybdenum makes perfect sense.
Increasing demand for automobiles, expansion in the nuclear energy
industry, and the explosion of shale gas and offshore oil
production are all catalysts for the metallic metal.
Add it all up, and you'll see why demand from this diverse customer
base is expected to climb from 500 million pounds today to 800
million pounds by 2020, which means consumption is slated to
increase by approximately 35 million pounds per year, on average.
So the world needs to find (and develop) the equivalent of a new
mine capable of producing 35 million pounds each year just to keep
pace with demand.
That won't be easy.
Thanks to a lack of financing and other roadblocks, there is really
only one new molybdenum mine coming online over the next 24 months.
Like most other commodities, molybdenum tumbled in the wake of the
. After peaking near $35 per pound, prices collapsed 70% and fell
to less than $10 per pound.
But demand from steelmakers has improved markedly since then.
Global molybdenum consumption rebounded 18% in 2010 and then rose
another 14% in 2011. That recovery is primed to strengthen in 2013
as the global economy picks up steam.
My latest check of the global inventory-to-consumption ratio shows
a sharp decline, always an encouraging sign. I believe it's only a
matter of time before molybdenum prices return to $20 per pound and
When that happens, I'm expecting molybdenum producers to be in the
One of my favorite molybdenum producers right now is
Thompson Creek Metals (
(the stock in the graph above).
With over 520 million pounds of molybdenum reserves, Thompson Creek
is one of the largest players in the business.
As an added bonus, one of the company's biggest projects -- Mt.
Milligan -- is just months away from completion. Once its finished,
the new mine will produce prolific amounts of gold and copper,
doubling the company's size from $600 million in annual sales to
Let me warn you though, this stock isn't without risk. The Mt.
Milligan project is a costly endeavor, as reflected by a declining
cash balance and rising
over the past three years.
But that said, Thompson Creek's molybdenum assets are easily worth
double the current $4 share price... and Mt. Milligan is worth at
least $16 per share, under very conservative assumptions.
Action to Take -->
So at this level, there is a very wide
margin of safety
coupled with tremendous upside potential... and if molybdenum soars
back to $20 per pound again like I think it will, this is a stock
you'll want to own.
-- Nathan Slaughter
Nathan Slaughter does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of TC in one or more if its "real money" portfolios.