It is one of the most important industrial metals of the last 50 years…
In fact, this metal is so central to our economy 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.
It’s molybdenum…
[ad#Google Adsense 336×280-IA]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 (NYSE: GM) 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 forces.
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 corrosive environments…
But to really understand the molybdenum market, 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 Great Recession. 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 beyond.
When that happens, I’m expecting molybdenum producers to be in the driver’s seat.
One of my favorite molybdenum producers right now is Thompson Creek Metals (NYSE: TC) (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 completition. 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 $1.2 billion.
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 debt load 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.
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.
Good investing!
Nathan Slaughter
Russian Nuclear Crisis to Hit the U.S. in 2013 [sponsor]
There is an energy crisis looming in the U.S. In case you haven’t heard, in six months a major event will take place that could cause 10% of America’s electric energy supply to dry up. As the country scrambles to react, one company could shoot up by hundreds of percent. For more information on how to profit from the coming crisis, click here.
Source: StreetAuthority