Moly mines recently signed an offtake agreement here is part of an article I believe "Arthurlittle" had came across. This is a very good read!

Moly Mines [TSX:MOL; ASX:MOL] announced on Wednesday a 10-year offtake agreement with German company ThyssenKrupp Metallurgie for all molybdenum production from the Spinifex Ridge project. Construction is under way at Spinifex Ridge, located in Western Australia’s Pilbara region, scheduled for completion in the second half of 2009. The mine could have a life of up to 30 years.

Investors and purchasing agent’s take note: This transaction was nothing less than the creation of a 21st century hedge against non-availability of future supply and to insure the end user that it will obtain the material at less than market at the time of delivery and in exactly the form it needs for direct use.

I perhaps should have called this article “How molybdenum has been hedged,” because I want to elaborate for you the straightforward financial and product management techniques by which an end-user of molybdenum set up a hedge with a junior about-to-be-if-it-is-funded producer of molybdenum so that the end-user could guarantee his supply of molybdenum in the future as well as lock in a price that will always be below market. This transaction should be a model for all end-users and all junior molybdenum miners on how to finance the development of a mine.

The first 21st century virtual hedge contract for molybdenum, the outline of which has been publicly disclosed, is as follows:

1. ThyssenKrupp will take delivery of and purchase 100% of the molybdenum product from Moly Mines’ Spinifex Ridge as oxide and ferro-molybdenum, after it has been processed by Moly’s strategic partner, the Chilean metallurgical group Molymet;

2. Pricing will be determined according to market prices and conditions at the time of sale, currently at $33.50/lb;

3. Moly Mines’ Spinifex Ridge project is in Western Australia’s Pilbara region and construction is scheduled for completion in the second half of 2009;

4. ThyssenKrupp has also agreed to participate in the equity financing component for the Spinifex Ridge project, subject to final board approvals.

So, in summary, an off-take agreement has been concluded that allows the end-user to obtain at a time certain for a market determined price a specific form of a metal in consideration of the end-user either collateralizing loans from a third party financing institution to be converted into purchased equity in the producer or to purchase such equity directly and, in either case, finance the development of the mine.

Currently there are no central market or futures contracts for the delivery and sale of moly. For now offtake agreements provide the only way for a steel company to protect themselves against price volatility and interruption of supply. Steel companies are loaded with cash and therefore now is the perfect time for them to go shopping for a good stable supply of moly so they can ensure any contracts they make into the future will be delivered. The way I see it for those steel companies who do not actively look for a secure supply of moly they could fall victim to very high prices and basically cannot remain competitive with those companies who have indeed signed agreements.

No doubt the Moly mines agreement will be the template for all others. A steel company without moly is like Kellogg’s without corn.

BBOB