The thermite reaction of nanoscale aluminum and molybdenum trioxide particles has revealed a paradoxical relationship between Al particle size and mixture bulk density. Specifically, with micron-scale Al particles, the thermite demonstrates an expected growth in flame speed with increased density, but nanoscale-Al-particle mixtures exhibit an opposing trend. This paper presents new experimental measurements of the thermal properties of this thermite as a function of Al particle size and applies a new oxidation mechanism in an effort to explain the paradoxical results between Al particle size and mixture bulk density. Results show that the nanocomposite's behavior is consistent with a new melt-dispersion oxidation mechanism and convective mode of flame propagation. Compaction-induced damage of the oxide shell and distortion of the shape of spherical particles, as well as reduced free space around Al nanoparticles suppress the melt-dispersion mechanism and reduce flame speed. An additional mode of energy transfer is proposed that is associated with molten Al clusters from the melt-dispersion mechanism that advance faster than the flame velocity. Micron-scale particle reactions may be governed by diffusion such that increased bulk density coincides with increased thermal properties and increased flame speeds.