Barrick, General Moly Ride the Global Tide

Photo by Reuters

Morning Miners!

It is 5:23 AM and the coffee is hot! We had the ranchers in the break room yesterday and kicked off the new "Rancher's Corner" to your right. Gary McCuing gave me a holler after the meeting and reminded me that I forgot one link and then he added another. You'll find the Fallon Livestock Exchange, Inc. and the Livestock Marketing Information Center in the new list for a total of nine links to great market information for farming and ranching in our area. Thanks Gary!

By the by, one of the ranchers brought us over a new can of Folgers from Raine's. While you're enjoying that cup of joe, just remember that Eureka pulls out of this downturn when miners, farmers and ranchers pull together.

Enough preaching, how is that recovery coming along? I thought we'd look at Barrick and General Moly together this morning since both are riding the global tide. There is a lot of ebb and flow and each is pulled by different currents. In this context; gold price pulls Barrick, the health of international and domestic steel producers (and therefore, the price of molybdenum) pull General Moly.

Both have had impressive runs in stock price from their March lows:

Barrick (ABX) up 34.5%
General Moly (GMO) up 217%

That beats the return on a bank CD buckaroos, but can it last? Here are the price movements of the underlying metals compared to their 2009 lows:

Gold up 15.1%
Molybdenum up 28.1%

Yesterday, two key ratings agencies gave their 12-month price predictions for both miners:

Barrick (ABX) raised to $47.50 from $40 by BMO Capital markets; yesterday's close $36.80

General Moly (GMO) cut to $2.00 from $2.50 by the Bank of Nova Scotia; yesterday's close $1.90

The gold price argument has broken into two basic camps: inflationistas versus the deflationistas:

...'there are still plenty of problems out there, and I think you are going to continue to see flight to safety be an important factor,' said Bill O'Neill, one of the principals with Logic Advisors. He suggested that by year-end, gold will again test $1,000, which it topped for the first time in 2008...'Inflation seems to be an inevitable development,' he said. 'I think demand for hard assets will continue to be strong, and gold will slowly but surely benefit from that.' (WSJ, 5/25/09)

and,

Among the skeptics is Leonard Kaplan, president of Prospector Asset Management. He said he expects gold to decline in the months ahead as the global economy remains soft, dismissing ideas that signs of growth may be emerging in the economy. "In a deflationary recession," he said, "everything goes down. (WSJ, 5/25/09)

Then there is a middle-of-the-road view:

But before gold hits $1,000, it could dip below $900, some analysts say. Prices could head toward $800 as seasonal weakness sets in from mid-June to the end of the summer, said CPM Group analyst Carlos Sanchez. (WSJ, 5/25/09)

The Colonel sticks with his prediction: $973 by the Fourth of July, $1050 by Christmas!

Now for General Moly, there is a lot of activity in the world of steel:

The China Iron and Steel Association has said Chinese mills want a price cut of between 40% and 45% to reflect weaker market conditions, and that if the benchmark was set offshore, China wouldn't accept a cut of less than 40%. When contacted, a POSCO [20% stakeholder in Mt. Hope] official in Seoul said the Korean steel maker is yet to agree on prices with any of the miners. "Iron ore talks for this year are not over yet," company spokesman Kim Dong-ho said, without elaborating. (WSJ, 5/26/09)

Don't you wish you could demand a 40% discount from WalMart the next time you went shopping for Chinese goods? Some miners have already caved to price pressure:

MELBOURNE -- Rio Tinto Ltd. said it has struck a deal with Japan's Nippon Steel Corp. for a 33% to 44% drop in iron ore term prices for the 2009-10 contract year that started April 1. (WSJ, 5/26/09)

Lots to think about folks. The ole Colonel will try to sort it all out for you in the coming months. I'm still bullish on gold, Barrick and General Moly. Go with the flow, ride the tide!

Enough talk, let's walk the walk:

Oil is up $0.49 in early trading at $62.94 (July contract). Gold is down $0.4 to $952.9 (June contract); Silver is up $0.030 at $14.630; Copper is up 0.0615145 to $2.1265 (July contract); Molybdenum holds at $10.25.

The DOW is down 2.39 points to 8471.10; the S&P 500, up 0,31 points to 910.64. The miners are so-so:

Barrick (ABX) $36.63 down 0.46%
Newmont (NEM) $46.88 down 0.66%
General Moly (Eureka Moly, LLC) (GMO) $1.88 down 1.05%
Freeport McMoran (FCX) $50.67 up 1.36% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are up (a "tell" for General Moly):

Nucor (NUE) $41.89 up 1.80% - domestic steel manufacturing
ArcelorMittal (MT) $31.04 up 2.07% - global steel producer
POSCO (PKX) $79.13 down 0.09%- South Korean integrated steel producer

The venerable Eureka Miner's Grubstake Portfolio is up 0.32%

Cheers,

Colonel Possum