Is moly on brink of being mining megastar?By ANDY HOFFMAN AND...

Is moly on brink of being mining megastar?
By ANDY HOFFMAN AND SINCLAIR STEWART , Globe and Mail Update

It's rare, difficult to trade and next to impossible to pronounce. But thanks to the surging interest in all things metals and mining, molybdenum is about to get its own investment fund.

Moly, as it's most often called, is set to join a growing list of commodities including gold, silver and more recently, uranium, with a new fund that will give investors direct exposure to the price of the metal.

Resource guru Eric Sprott is preparing an initial public offering for the Sprott Molybdenum Participation Corp., which will buy and sell actual molybdenum and invest in companies that explore for, mine and process the silvery white material used in furnaces, pipelines and aircraft engine parts.

The offering of shares, which will trade on the Toronto Stock Exchange, will attempt to raise roughly $75-million, according to sources, and comes as the mining world turns its attention to Toronto for the 75th annual Prospectors and Developers Association of Canada (PDAC) conference.

Few investors had given much thought to moly before the recent surge in commodities. But the metal, often found alongside copper and used to make high-grade stainless steel, has drawn interest as its value has increased.

“No one's ever paid much attention to it, [but] it has margins as good as nickel or better. These prices are going to be with us for a couple more years,” said a person familiar with the offering.

The moly fund is the latest attempt to cash in on soaring demand for fresh mining-related investments that will be front and centre at the PDAC show, which kicked off Sunday. More than 15,000 people from international mining and investment are expected to attend the four-day event. In just a year, the sector has undergone a massive transformation as Canada's Inco Ltd. and Falconbridge fell to mega-miners CVRD of Brazil and Swiss-based Xstrata PLC.

Like the soaring nickel prices that inspired the Inco/Falconbridge bidding wars, uranium emerged as a red-hot commodity last year, spawning the creation of hundreds of new junior explorers and a recent trend toward sector consolidation. Last month, sxr Uranium One and UrAsia Energy Ltd. agreed to merge in hopes of creating a new producer with a $5-billion (U.S.) market value. Neither company existed four years ago.

David Davidson, an analyst with Paradigm Capital, said that despite last week's drop in most metal prices and a corresponding stock selloff on concerns of slowing demand from China and the United States, most investors and industry players believe the mining boom is far from over. At PDAC, they'll be searching for a fresh way to play it.

“People are going to be looking for new ideas. The coppers and the nickels have had a pretty good run so things like uranium and specialty metals like molybdenum or tungsten — those are all going to be well-attended,” Mr. Davidson said.

Many expect the new moly fund to impact the price of the commodity by purchasing stockpiles of the metal that is already in short supply, with roughly 400 million pounds produced a year.

“This will have an actual effect on the moly market,” said another mining industry source who warned that trading in the metal is “massively illiquid.”

Unlike, for example, copper or nickel, there is no forward trading in moly and it does not change hands on metals exchanges. Its price is based largely on supply and demand and set by traders and dealers who deal directly with customers. Moly has performed well recently, remaining at above average levels for the past few years. Due to tightening supplies, spot prices soared to above $40 (U.S.) a pound in mid-2005 and have since settled back to between $25 and $27 a pound, well higher than the 1994 to 2004 average of $4.50 a pound.

“The key here is, it's an extremely volatile commodity. So you make hay while the sun shines and you never know how long that will be,” said one investor, who predicted the new moly fund could give a lift to prices and to moly miners.

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