Texas, The Chevrolet 409 & Korean Rebar

Morning Miners!

It is 6:01 AM and time for an old timer story, grab a cup. I don't know about you but this global recovery is starting to feel like a long drive across Texas. I've made that trip on Interstate 10 more times than I care to admit to carry my sweetheart of 32 years back to her beloved Louisiana. By the way, Go Saints!


Traveling east, it is 857 miles from El Paso to Orange, Texas; 880 miles border-to-border until you cross the Sabine River into bayou country. Somewhere in the middle of that grand state my mind wanders and the ole Colonel plays a little game to keep alert. When the mileage markers hit the high 200s, I start thinking of car engines with a displacement equal to the highway "yardsticks" as the truckers call them. Now if you're not a car buff, this probably sounds like a lot of gibberish (hold that thought, we'll apply it to markets in a moment). Whatever your automotive background, allow me to continue. Just east of Ft.Stockton is mile marker '265', Chevrolet's first small block V-8 first introduced in their highly popular 1955 Bel-Air. After that we have the Chevy '283', the Ford '312' and the Chevy '327' just before you cross the Pecos River; get the picture, pretty bored driver. Between Sonora and Junction I pass my all time favorite engine, the big block Chevy '409' which propelled America into the "muscle car" era under the hood of a 1962 Impala. Life was never so fine then, but you still have 471 more miles to drive in Texas.

OK Colonel, where are we going with all this? Well pardner as far as our trip down global recovery road we are somewhere past '409' and coming up to the Oldsmobile '442' in Roosevelt, Texas. Maybe we should stop for lunch and try to figure out some stuff. For the first part of the new year, it has been hard as the devil to understand how this trip is going other than it will be a long one. Year-to-date we've watched metals soar and crash and then pickup a little. Miner's fell in a deep shaft and yesterday saw a few rays light from above. We are hearing all sorts of gibberish (see, I promised) about the solvency of the PIGS (euro-zone countries Portugal, Italy, Greece and Spain), the true pace of the Chinese economy and whether the Fed's Uncle Ben is going to drop the hammer on interest rates sooner than later this year. All of this buzz has whipsawed commodities as we still try to figure out true demand from stocking and speculation in a conflicting news environment.

Let's look at three snippets of today's news from the steel industry to illustrate just how confusing everything has become. Steel production is a good example because it creates demand for molybdenum which is important to General Moly (GMO) to maintain investor enthusiasm for the Mt. Hope Project. Here we go:

Korean Domestic Rebar Demand

Steel Business Briefing reports today:

"Local consumers led by distributors increased their purchase volumes to accumulate stocks until last week, but the upcoming [Lunar New Year] holiday and a lack of demand quickly undermined the brief upturn, a local dealer says.

Due to speculative buying from consumers, January’s high rebar stocks held by Korea’s seven major producers plunged by 120-130,000 tonnes early last week from 220-230,000 t a month ago. But stocks have begun to climb again, reaching 300,000 t this week."

Is this good or bad news for South Korean steelmaker POSCO (20% owner of Mt. Hope)? You got me, their stock price is down 1.8% in early trading; yesterday morning it was up an impressive 5.4%.

US Steel Production

A second report from Steel Business Briefing:

"US output continues slow climb - US mills produced an estimated 1.6m short tons last week, up less than 1% from the prior week. Capability utilization was also flat at about 67%...While still low, these levels are substantially above the industry’s performance during the first week of February last year. Output is up 52% from a year ago when the weekly total was just 1.06m s.t from 45% capability utilization."

This sounds like we're stopping for gas in Roosevelt, Texas. The car is running but we still got a lot of highway ahead.


Arcelor Mittal (MT) First Quarter Profit Guidance

Bloomberg News reports today on ArcelorMittal, another investor in General Moly:

ArcelorMittal Falls on First-Quarter Profit Guidance

"Feb. 10 (Bloomberg) -- ArcelorMittal, the world’s biggest steelmaker, dropped the most in six months in Amsterdam trading after saying first-quarter profit will fall short of analyst estimates as prices slump and costs rise."

and,

"In the fourth quarter we had price drops which affected the global steel industry," Chief Financial Officer Aditya Mittal said on a conference call. "Global sentiment was weak and people were a bit concerned that perhaps the recovery is not as strong and therefore prices fell."

Hmmm...maybe we better check the air in our tires while we get some gas. Today MT is down a lousy 7.8%; yesterday morning they were up a respectable 5.0%.

So there you go buckaroos. I believe my job is to help you connect the dots to Eureka County on the Global Recovery Travel Map. This morning, the ole Colonel wanted to give you a sense for how confusing that task can be in this very young 2010.

Say, how about a cheeseburger and fries? Roosevelt has a great little spot. It's a long way to the Economic Promised Land, we better eat now and build up our strength. Say, did I ever tell you about my 1958 Bel Air...

Enough cross-country driving, let's walk the walk:

4-WD is ON - the VIX or "fear index" remains above 25, rougher markets are expected to continue (what is this?)

Yellow light is ON for concerns about commodity reflation given a stronger dollar (U.S. Dollar Index DXY remains above 80).

Yellow light is ON for diminished investor confidence in the metal and mining sectors.

Yellow light is ON for possible adverse regulation/legislation: Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.07 in early trading to $73.82 (March contract, most active); Gold is down $2.3 to $1074.9 (April contract, most active); Silver is down $0.100 to $15.335 (March contract); Copper is down $0.0180 to $2.9690 (March contract); Molybdenum is steady at $15.00

The DOW is down 64.77 points to 9983.87; the S&P 500 is down 8.02 points to 1062.50. The miners are feeling blue today:

Barrick (ABX) $35.13 down 1.51%
Newmont (NEM) $44.42 down 3.06%
US Gold UXG) $2.22 down 2.21%
General Moly (Eureka Moly, LLC) (GMO) $2.16 down 1.82%
Thompson Creek (TC) $12.23 down 0.89%
Freeport-McMoRan (FCX) $69.35 down 3.12% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels called in sick today, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $36.37 down 7.83% - global steel producer
POSCO (PKX) $112.47 down 1.83% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.89% to $1,157,707.87 (what is this?).

Cheers,

Colonel Possum