"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Tuesday, August 4, 2009

Moly Hits Magic Number, Dr. Doom Speaks to Miners

Morning Miners!

It is 5:52 AM and coffee like the family dog is always there to make you happy. Before we let Dr.Doom put a damper on our first cup, let's talk about a magic number. Suppose you walk up a mountain and stop at a point where you've doubled the altitude of the valley below but realize you are still only halfway to the top. This might remind you of the glass half-full, glass half-empty analogy (for number geeks there is a subtle difference, see note below). Whether you are happy that you've come so far or sad that you've got twice as far to go has a lot to do with your general outlook on life. The Colonel is an optimist and he was delighted to see molybdenum price hit the magic number of $16.50. Here is how to calculate a magic number often used in markets:

Magic number = square root (last year's high $34 X this year's low $8) = $16.50

I hope I'm not giving you a headache with all this blasted number crunching; just believe me that $16.50 is a very cool place for moly to be at this point in our economic recovery. Yee-ha buckaroos!

OK, what is Dr. Doom up to these days? We first talked about Nouriel Roubini last month in the blog, Dr. Doom Speaks, End of Recession in Sight. You may remember that he earned his moniker by predicting our present economic plight several years ago with nearly 100% accuracy. I tend to listen to folks with that kind of track record. Roubini recently addressed miners down under at the Diggers and Dealers mining conference in Western Australia:

"The recession will continue to the end of the year," and he added, "As the global economy moves toward growth as opposed to a recession, you are going to see further increases in commodity prices, especially next year."

Hmm, that's doesn't sound too gloomy-doomy. Oh-oh, there's more:

"In the short term there has been a massive stockpiling of commodities by China," Dr. Doom continued, "My concern is that China might have accumulated an inventory of commodities that is probably excessive to the growth of their own economy."

Reuters, who covered the conference, reviewed China's buying spree after the collapse in demand for oil, metals and other industrial staples:

"China's refined copper imports, at 1.8 million tonnes in the first half, were up 160 percent on the same period a year earlier, while primary aluminum imports rose a stunning 16-fold. Chinese buying has helped drive up both Shanghai and London Metal Exchange prices this year, by around 80 percent on both LME and Shanghai copper and 75 percent on LME lead, 40 percent on zinc and nearly 20 percent on aluminum." (Reuters, 8/3/2009)

Roubini concludes:

"The risk in the second half of this year is that the rate of accumulation in China must slow down -- one of the factors that a downside correction in commodity prices, however modest, may occur."

I wonder if Dr. Doom would find any happiness in molybdenum's magic number? The Colonel does. Even if he's right, let's not take this guy hiking.

Enough eco-magicians, let's walk the walk:

Oil is down $0.46 to $71.12 in early trading (September contract); Gold is up $5.9 to $964.7 (December contract, most active); Silver is up $0.318 to $14.570(September contract); Copper is down $0.0100 to $2.7375 (September contract); Molybdenum is rocking at $16.50.

The DOW is up 6.05 points to 9292.61; the S&P 500, up 0.84 points to 1003.47. The miners are mixed today:

Barrick (ABX) $36.31 up 0.55%
Newmont (NEM) $42.23 up 0.93%
General Moly (Eureka Moly, LLC) (GMO) $2.89 up 0.70%
Freeport McMoran (FCX) $64.26 down 1.31% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed today, POSCO breaks $100 (a "tell" for General Moly):

Nucor (NUE) $46.77 down 1.04% - domestic steel manufacturing
ArcelorMittal (MT) $37.91 down 2.15% - global steel producer
POSCO (PKX) $103.43 down 0.65%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.19% to $1,137,257.16


Colonel Possum

Roubini Photo: Reuters

Note for number geeks:

The so-called magic number is more accurately called the "geometric mean" which is related to but different from the "arithmetic mean" or simple average. The former is the square root of the product of two numbers; the latter, the sum of two numbers divided by 2. In molybdenum's case the geometric mean of the 52-week high and low is $16.50 and the arithmetic mean is $21.00. The ole Colonel finds the geometric mean to be the more important metric to gauge benchmarks in volatile commodity price swings. When you are at the geometric mean you're n times up from the low and 1/n th from the top. For moly, n=2.06155 and our hiking example of "double the bottom and half the top" is roughly correct.

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