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Interesting read on Molybdenum

MOLYBDENUM
Pipe Dreams or Reality

Ken Reser

Feb. 24/06

Pipe dreams? A pipe dream is exactly what the majority of the hoard of junior mining companies are chasing if they believe they have the next world class "Primary" Molybdenum mine. Like being late at the bunkhouse dinner table, the first to arrive get seated and fed steak and the latecomers get cold beans and crackers. Worldwide Oil & Gas Pipelines on the other hand are not pipe dreams and are going to have a very important impact on the one or two Moly juniors that do become world class mines in the next two years. After having just finished an editorial on Molybdenum about four weeks ago, and not intending to write about Moly again so soon, I found a newswire headline capturing my attention and soon had numbers running across my calculator that were so mind numbing that I had to redo the calculations 4 or 5 times to be sure of what I was doing and seeing.

"Alaska Pipeline" 3600 miles of 52 inch dia, thick walled, high pressure pipe. 10,000,000,000 lbs or more of pipeline Steel. (5 to 6 Million T of Steel needed in all, for the entire pipeline) If the billions number doesn't get your attention it sure got mine after I turned tons into pounds. Not yet knowing the exact specifications called for on this project I used the old rule of thumb for high pressure gas pipelines whereby 0.5% Mo content has been utilized. Here is how it all started and led to this short Molybdenum report update:

Alaska, Energy Firms Agree On Pipeline

By MarketWatch
Last Update: 11:47 PM ET Feb 21, 2006

SAN FRANCISCO (MarketWatch) -- .Alaska has reached a tentative agreement with three of the world's largest energy companies to build a new pipeline to transport natural gas from the North Slope to the lower 48 states, Gov, Frank Murkowski's office said Tuesday. The agreement with the North Slope's major oil and natural gas operators - BP Plc (BP : was announced Tuesday by Murkowski, who brokered the deal).

When the pipeline is completed, no earlier than 2012, it could transport 4.5 billion cubic feet per day from the North Slope primarily to Chicago for distribution throughout the United States, The Wall Street Journal reported in its online edition. See Wall Street Journal story (subscription required) The agreement hinges on a massive engineering project - building a 52-inch-diameter pipeline from several hundred miles above the Arctic Circle to the U.S. heartland - and the Alaska Legislature accepting both the deal and Murkowski's proposed changes in the state's oil production tax structure.

The pipeline was estimated in 2001 to cost at least $20 billion, but steel prices have risen dramatically since then, and no steel company currently makes a 52-inch pipe, The Journal said. BP, Exxon Mobil and ConocoPhillips have storing natural gas extracted from oil wells while they've waited for a pipeline and financial terms acceptable to the oil giants.

An Alaskan state agency filed an antitrust suit against BP and Exxon last year, claiming the companies were conspiring to withhold gas from U.S. markets by not building a pipeline. The federal government has estimated there may be 100 trillion cubic feet of gas, equal to U.S. demand for five years, in North Slope fields, The Journal said.

Murkowski's office reported on the state's Web site that the governor's proposed tax system would be based on a percentage of the net profit, or revenues minus capital and operating expenditures. Under the system, the producers will pay a 20% tax rate and receive a 20% tradable tax credit, Murkowski's office said.

Tax revenues would be lower when initial large capital investments are made and, consequently, higher as the production increases, according to the governor's office. (end)

Subsequent to reading and absorbing this news release I started thinking about the vast amounts of Molybdenum that would have to be used in alloying these billions of pounds of steel, adding the necessary strength and anti corrosive qualities that all Oil and Gas pipelines must have, especially in high pressure lines such as this 52 inch diameter behemoth. The impact on the Moly market of just this one massive pipeline I realized would be huge. Now consider that the average low pressure crude or refined oil line uses from 0.2 to 0.3 percent Mo in the alloying of the steel for the pipe. From what I can ascertain so far from the pipe and metallurgical people I've spoken with, this line will invariably use 0.5 percent Mo due to extreme pressure (2500 psi) from 24 pumping stations and approximately 1.2 to 1.4 Million horsepower needed to push the product from Alaska to the Chicago hub. Then it was back to the calculator because at first, 0.5 % Mo did not sound like one should get overly excited, even if you are involved in the Molybdenum market. "Wrong" This percentage may not mean alot if we were dealing with a couple hundred miles of pipeline, or even a million pounds of steel. When it came to ascertaining what it translated into in terms of 10 Billion pounds of steel it is extremely exciting. At 0.5 % Mo content, the huge quantity of pipeline steel to be smelted and formed would use approximately 50,000,000 pounds of Molybdenum.

Pipeline Update with stats and maps etc.
www.arcticgaspipeline.com/Reference/Documents&Presentations/ ProducerInformation/5-02AlaskaProducerUpdate.ppt

50 M lb of Mo represents as much Moly as some primary Molybdenum mines like Endako or the near future Adanac Moly, Ruby Creek project can and will produce over the course of 4 or 5 years. This will undoubtedly be one of the largest private construction projects that North America has ever seen and it will invariably require Steel and or Pipe fabrication from other parts of the world. Possibly even some of the needed Molybdenum may also come from abroad, as much of future North American Moly production is already forward sold and contractually spoken for by various traders and end users in world markets.

Now for the grand finale in the reality of this Pipeline of dreams. It is also noteworthy (as I had already researched this recently), that there are planned and on the drawing boards or in construction for 2006 over 81,000 miles of Oil and Gas pipelines worldwide. Granted most of them will only use 0.2 or 0.3 % Molybdenum alloy, BUT, that is still one phenomenal amount of Molybdenum and I really have to wonder why I often read how various pundits and analysts tell us that Molybdenum demand is about to tumble. To that end all I can simply advise, is do some more homework, it isn't going to happen anytime soon, especially when you take into account all the other uses like the Catalyst market for Crude refineries, as well as NG, CTL, & GTL plants and all else I have addressed in my previous editorials. We can't all be right all of the time and especially myself personally, but there's a lot of misguided writers and accredited analysts in the metals markets and most give little to no coverage of Moly in their prognostications and eventually they and their followers will find they have missed the action and financial rewards in a big way.

Here's a little proof of the world pipeline stats for you:

Publication: Pipeline & Gas Journal
Publication Date: 01-JAN-06
Format: Online - approximately 3114 words
Delivery: Immediate Online Access
Author: Tubb, Rita

Article Excerpt
The pipeline industry, a truly international business, is gaining more importance as natural gas markets expand globally. These trends are strongly reflected in P&GJ's 2006 Worldwide Pipeline Construction Survey which shows 81,593 miles of new and planned oil and gas pipelines are either under construction or planned.

Entire Article can be read here for free.
www.redorbit.com/news/science/375227/pgjs_worldwide_pipeline_construction_ preview/index.html?source=r_science

This relationship between pipelines and Molybdenum has not gone unnoticed by everyone either, lest I mislead you with my distrust of many analysts reports. From North of 60 Mining News. Apr /05

MINING NEWS: Natural Gas Pipelines Could Hold Promise For Molybdenum Miners

The multi-billion dollar plans for northern gas pipelines could generate some profitable spin-offs in the mining sector. The Arctic lines will create a heavy demand for molybdenum, which enables high-value steel alloys to withstand extreme temperatures and pressures.

Things aren't always as they seem, and as some often like to tell us, Molybdenum is an opaque and secretive market. Noone wants to let the goose that laid the golden egg out of its cage for all to see and yet it already is, judging by the hoard of junior mining companies chasing molybdenum plays. Whether or not you find me biased as I consult for one of them or not, I only know of one Primary Moly project in the running for production in late 2007 (that's why I accepted their offer for the Consulting job in the first place) and they are applying for mine permits in the next week or so and that is Adanac Moly Corp. with their Ruby Creek mine in Atlin BC. Their Final Bankable Feasibility is only a couple weeks away as well. My advice is "Don't miss the action ahead with Molybdenum over the next few years and definitely pay close attention to the rate and state of progress being made by Adanac". The opportunity to participate as a shareholder in a mine in the making comes along very seldom in most of our investing careers. The worldwide Oil & Gas boom and for lack of a better phrase the "Energy Bull Market" won't be going away anytime soon, and as I have outlined a few times in previous reports "every aspect of this long term energy scenario places large demands on Molybdenum".

My hat is off to the good fortune of the hard working men they call pipeliners. I've worked alongside many of them in the oil patch in my younger cat-skinner days and if anyone deserves this coming bonanza of many years of work and financial gain they do. Keep the pipelines rolling along, the Moly miners, Iron miners and Steel companies are ready for the years of good fortune ahead as well.


http://www.gold-eagle.com/editorials_05/reser022406.html