Metals, Ores, Stocks, and Prices

As I said in my article last week, mineral commodities have been going through the roof, primarily driven by increased demand from emerging economies such as China and India, but also from established economies such as the US. This has been good news for the world's poor folk, as the emerging economic boom has lifted millions out of poverty in China ( see my past post on this subject, and links therein; see also the links at the end of this article). Ahh, the power of the free market. What about the average working folk here in the US? Need some investments for retirement? Read on.

Of course, oil is up, but so are prices for heating coal, coking coal, iron ore, copper, and many metals. Whether metal prices and the stocks of mining companies will continue to rise is anyone’s guess, but the interrelationships among the various commodities, their prices, their stocks, and their geology are both fascinating and informative.

Copper, the Prince of the Base Metals: All of the copper mined, up to about 1995, would fit into a cube 550 meters on a side (a meter is just under 40 inches). That is considerably more than the total amount of gold, which would fill a cube only 20 meters on a side. Of the copper that is mined, 55% is mined from ore deposits that formed under volcanoes [click here for a cartoon of this], most within the last few tens of millions of years. These deposits are called porphyry copper deposits, and are large tonnage, low grade deposits usually mined by open pit methods.

Gold and Molybdenum play follow the Leader - And the Composition of the Ore is controlled by the Geology: Ore metals almost literally boil out of the molten rock that feeds the volcano [in this figure, some of the bubbling gas filters out of the "magma column" and into the surrounding rock, forming ore], and copper is not the only metal that boils out. The copper is commonly accompanied in the ore by gold and molybdenum, as well as a host of other minor elements, like silver. Molybdenum is a rare metal that occurs in ores as the sulfide, molybdenite, and is an important constituent in specialty steels. In times when the copper price is low, the more gold-rich, porphyry copper deposits may be economic only because of the gold. The copper-molybdenum subclass of porphyry deposits are richer in molybdenum, and, generally, poorer in gold. Further, there is another subclass, the porphyry molybdenum deposits, that are almost exclusively deposits of molybdenum, with little to no copper or gold.

Metal Prices - be sure to click on the graphs: So much for the geological interlude; let's re-enter the real world of GDP’s, politics, and money. The price of copper [graph] has doubled over the past two years, and copper mining is now a rather lucrative venture. As the dollar falls, the gold price rises [graph], so companies that mine gold-rich porphyry deposits are doing well. What about molybdenum? The price of molybdenum has grown by a factor of ten over the past two years [graph]. But what goes up rapidly, can come down rapidly. According to Dave Forest, writing in 321 Gold, the continuing expansion of the Chinese economy, the recovery of the US economy in 2003, together with the fact that the molybdenum industry was in mothballs prior to this time, as well as the fact that China had just cut exports of the metal, created a short fall in molybdenum supply in 2004 that caused the spike in price.

Show Me the Money? But do not rush out to buy stock in companies that possess molybdenum mines. Rather, Forest points out that the shortfall in molybdenum will be made up by increased production from deposits like the molybdenum-rich porphyry copper-molybdenum deposits, already being mined for their copper, that do not require a significant capital investment to jack up their molybdenum production. Any large closed, “molybdenum-only” porphyries are likely to remain in moth balls.

If you are interested in mining stocks, go with the large diversified mining companies that mine a wide variety of metals. Producers with significant porphyry copper properties would be attractive now also, especially those with significant holding in copper-molybdenum or copper-gold deposits.

Individ

Related link:

Why we are not "running out of oil" or other commodities.