Sprott’s Moly Fund Is Done

Falling molybdenum prices have ended the Sprott Molybdenum Participation Corp. (MLY-T) fund.

Toronto-based Sprott Asset Management announced that the closed-end fund will liquidate its holdings and distribute its assets to shareholders less than two years after it was first established.

In a statement, the company said the move comes, “in view of the unfavourable 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 idea of a molybdenum fund was considered pioneering. The brainchild of the company’s founder and chief executive Eric Sprott, it offered investors a way to physically hold an industrial metal alongside the stocks of its producers. Molybdenum is used to make stainless steel more corrosion- resistant for intense industrial uses like pipelines and offshore 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 $1.51 per share was in cash and short-term securities.

In Toronto on Jan. 9 — the day the news was announced — shares in the fund 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 2007, but had been on a steady decline since then, reaching a low of 72¢ in late November 2008.

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

At the time, 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 2008, but then crashed in November. At presstime, it sold for just over US$10 per lb.