Molybdenum golden for PD bottom line

Copper's strong rebound in the last year has made lots of investors smile. Producers struggled to stay in business in recent years when inflation-adjusted prices scraped historical bottoms near 60 cents a pound.

Things started to look up last year as prices rose through the $1 mark and recently hit $1.40.

But copper's price performance is positively sluggish compared with its metallic cousin molybdenum.

Molybdenum's price has doubled in the last month to a nine-year high of more than $16 a pound.

"Moly" is the familiar term for this slick, silvery element best known for use in steel alloys for strength and resistance to corrosion. It also is used as a lubricant and for its chemical properties in oil refining.

As it happens, copper and moly are closely related in some Arizona mines, including the Phelps Dodge Sierrita facility near Green Valley.

In fact, Sierrita probably never would have been developed as a working copper mine without its substantial molybdenum content. The copper values alone from this mine couldn't pay the freight for the long haul.

Phoenix-based Phelps Dodge is the world's No. 2 copper producer, with about 12 percent of global production.

But PD is No. 1 in the world for moly production, accounting for about 18 percent of global output.

PD's Bagdad mine - between Wickenburg and Kingman in Western Arizona - and Sierrita produce more than half the company's moly. The rest comes from PD's Henderson mine near Empire, Colo., the world's largest moly mine.

Before its 1999 acquisition of Cyprus Amax Minerals Co., PD produced about 2 million pounds of moly a year as a byproduct of copper mining. In 2001, moly production was 55 million pounds. The Cyprus properties were rich in moly.

That's only the start of the good news for PD, its investors and workers.

Whereas the price of copper has just about doubled from lows in recent years, moly prices since 2000 have shot up nearly eightfold, from just above $2 a pound to more than $16.

China plays a role in the sharp increase in prices. The Asian manufacturing beehive is the world's third-largest consumer of molybdenum, and its demand for stainless steel rose more than 50 percent in 2003, Bloomberg News reported.

Improving copper prices spurred PD earlier this year to ramp up production at Sierrita and Bagdad. That, in turn, will lead to increased moly production and, at these prices, some handsome returns.

As production returns to full tilt, Sierrita employment is expected to hit about 650 workers later this year after falling below 500 at the end of 2002.

PD's 2003 moly production was about 52 million pounds, down from prior years as a result of reduced copper mining during the downturn. This year it could approach 60 million pounds. PD's goal for copper is 2.3 billion pounds.

For Sierrita, moly played a big role in the mine's development. Now it is helping the company cash in on global commodity prices.


° Contact Richard Ducote at 573-4178 or [email protected].

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