MO is a necessary component of steel and industrial products. It's not a precious metal, it was nearly so when it sold for $40 per pound several years ago, but an industrial metal selling at about $16 per pound today. Recently the London Metals Exchange started trading MO, but the price is mostly determined by industrial usage. That could change.
I generally don't speculate in commodity prices, but inflation and currency debasement concerns gets me thinking about protection. The best way for a value investor to participate in commodities is through a reasonably priced company. I found Thompson Creek Metals (TC) awhile ago and like the company even more now than before as it is about to go from a pure moly miner to a mining company that also has gold and copper interests. The latter come through the acquisition of Terrane Mines which should close yet this year. Terrane brings diversification and a precious metal component.
Thompson Creek is a solid operation, not some "junior" mining operation that could go away tomorrow. TC has a market cap of $1.5 B, over $600M of cash, and no debt. Before you get too excited, much of that cash and about 25MM shares will go to Terrane shareholders, but the company gets significant mining assets and a revenue stream. Pre-acquisition it is trading at a forward P/E of 7X and EV/EBITDA of 4.5X. Trailing twelve months ROE is 16%.
If the world economy plods along, TC will do well. If it craters, they won't fail. If central banks weaken international currencies like I think they will, molybdenum and other industrial commodities will explode and TC will participate. Beyond central bank mischief, MO will be in demand because China has now entered an import phase and is no longer an exporter. If China builds stocks like they have in copper and other industrial metals that should encourage LME activity and price rises. TC is an efficient miner and roaster that will certainly benefit from rising prices of their product.
Current pricing of TC is attractive and even though it will go down if the world economy slows, a several year out time horizon will be rewarded.
About the author:
Bill KabourekRavi Nagarajan is a private investor and Editor of The Rational Walk website. Ravi focuses on applying value investing techniques to find securities trading well below intrinsic business value. Ravi has over 15 years of experience in the financial markets and started investing on a full time basis in 2009. From 1996 to 2009, Ravi held a number of technical and executive level positions in the commercial software industry. Ravi graduated Summa Cum Laude from Santa Clara University with a degree in finance. Visit his website The Rational Walk