Sprott’s molybdenum fund is done

Falling molybdenum prices have spelt the end of the Sprott Molybdenum Participation (MLY-T) fund.

Toronto-based Sprott Asset Management announced that the closed-end fund will liquidate itself and distribute its assets to shareholders not even two years after it was first established.

In a statement the company says the move comes, “in view of the unfavorable outlook for the price of molybdenum and for issuers involved in the production and sale of molybdenum…”

Sprott says the timing and specific steps to be taken in the closing out of the fund are still under consideration and will be announced at a future date.

Only a short time ago the Sprott’s founder and chief executive Eric Sprott’s idea of a molybdenum fund was considered pioneering for its ability to offer investors a way to physically hold an industrial metal alongside the stocks of its producers.

Molybdenum is used in stainless steel to make it more corrosive resistant for intense industrial uses like pipelines and off-shore platforms.

But with the global economic slowdown, demand has dropped, stockpiles have grown and prices have fallen.

The fund’s net assets were valued at $1.75 per share on Jan. 7, of which C$1.51 per share was in cash and short-term securities.

In Toronto on Friday Jan. 9 the fund’s shares were up roughly 14% or 19¢ to $1.58 on 4.2 million shares traded. It had closed as high as $5.48 back in October of 2007, but had been on a steady decline since then and reached a low of 72¢ in late November of 2008.

The fund raised roughly $200 million in April of 2007 when it was launched.

When established the price of molybdenum was roughly US$25 per lb. It quickly began to climb to the US$35 range where it remained until late October of last year. On October 24th the metal was trading for close to US$35 per lb. It is currently selling for just over US$10 per lb.