Wednesday, August 12, 2009
A Chinese Dragon Hungry for Miners?
It is 5:53 AM, the ole Colonel is on his second cup and there is a dragon at my door. Oh, it's just Loquita coming in from her morning pee. There was a dragon at the door of Canadian Royalties Inc. yesterday as China launched a hostile bid to takeover the distressed nickel miner. This chilling report comes from the Toronto's Globe and Mail:
China Makes Unexpected Grab for Canadian Miner
This might be a game changer in China's insatiable appetite for natural resources marking the first time they have attempted a hostile acquisition. Typically, China has sought a friendly agreement with management before taking the seat at a foreign mining company. Nickel is a key ingredient in steel production and China apparently went after the weakened miner to capture its Nunavik project which contains approximately 20 million tons of ore, grading about 1 per cent nickel and 1 per cent copper. Because of its small size, the bid would not require Ottawa's approval under the Investment Canada Act.
Ironically the takeover bid came as Canadian Finance Minister Jim Flaherty is in Beijing on a trade mission to encourage Chinese investment in Canadian companies. The other disturbing report on China and miners comes from the Wall Street Journal this morning:
BEIJING -- China formally arrested four executives of Rio Tinto Ltd. on suspicion of stealing commercial secrets, but backed away from more serious espionage accusations in a move that the Australian miner said demonstrated that its employees had done nothing wrong. Previously, the four faced accusations of stealing state secrets, a grave criminal offense that can result in a possible life sentence. (WSJ, 8/12/09).
Phew, a little dragon repellent at the doors of Eureka Moly might be a prudent precaution (just kidding...).
The other story that has my interest is the official statement from Uncle Ben's Federal Open Market Committee at roughly 11:15 AM (PDT)today. The key thing to watch is the dollar index or "Dixie" (DXY) which tracks the greenback against a trade-weighted basket of six major currencies.
Mantras are OK for religions but not for investing. When you hear everyone talking about inevitability of the dollar's decline it may be time to swim upstream. Two weeks ago, the Colonel bought some UUP ("Oooper"), an exchange traded fund (ETF) that is bullish on the dollar. If the dollar goes up you make money; if it continues to go down, you get out of Dodge. The UUP ETF is a nice way to hedge a gold position because the dollar and gold typically move in opposite directions. Lately gold has lost some luster and the "Oooper" has enjoyed a bounce. If the "Dixie" breaks 80 today after the Fed announcement, "Oooper" is a good bet bukaroos:
"Many economists expect the Fed to allow its program of buying as much as $300 billion in Treasurys to expire when that amount is reached, likely sometime in September. While not equivalent to lifting interest rates, confirmation of the end of the program could be seen as a step toward a less accommodative monetary policy, and would likely be viewed as supportive for the dollar..." (WSJ, 8/10/09)
Enough fortune cookies, let's walk the walk:
Oil is up $1.26 to $70.71 (September contract); Gold is up $2.9 to $950.5 (December contract, most active); Silver (London spot) is $14.50 (see note); Copper is up $0.0365 to $2.7740 (September contract); Molybdenum is holding at $18.25 (The Colonel's commodity source is on the blink, no silver futures data this morning)
The DOW is up 123.33 points to 9364.78; the S&P 500, up 12.16 points to 1006.51. The miners are happy again:
Barrick (ABX) $33.83 up 0.59%
Newmont (NEM) $40.37 up 0.42%
General Moly (Eureka Moly, LLC) (GMO) $2.65 up 1.15%
Freeport McMoran (FCX) $62.22 up 0.55% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are mixed, (a "tell" for General Moly):
Nucor (NUE) $46.20 up 0.57% - domestic steel manufacturing
ArcelorMittal (MT) $35.27 up 0.63% - global steel producer
POSCO (PKX) $95.72 down 1.32%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.68% to $1,093,743.75