"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.

Thursday, April 22, 2010

General Moly - $3.15 or $4.25? Ask Helen of Troy


Morning Miners!

It is 6:18 AM. I'm on my second cup of Thor's thunderous java. Although Thursday derives its name from that Scandinavian god, my thoughts are on Greek gods this morning. Grab a cup and let's see what's going on in the market heavens. Not since the abduction of Helen has Greece so dominated world events. The world was smaller when the daughter of a god could launch a thousand ships with her lovely smile but the news of her attempted rescue from Troy survives today. Hopefully the news of Greece's modern day profligacy and national debt won't be as enduring as their mythology of yore.

This morning another headline of Greek financial woes cratered the euro, surged the U.S. dollar and produced the usual casualties in the commodity space. Gold dropped $14, oil is down $1.71 and copper stumbled below its key $3.50/lb level (again). We'll check to see what impact this has on our miners when the markets open in a few minutes - any guesses?

While we're waiting, the ole Colonel has some interesting numbers to show you on General Moly (GMO). I compared the share price of GMO to the S&P 500 for the last 12 months. The S&P is a great benchmark for the broader markets since it represents the performance of 500 of America's best companies. This first thing I looked at was the correlation of GMO with the S&P - positive correlation means our moly miner moves with the broader markets in price; negative indicates that GMO moves in opposition. As you might guess, most of the time GMO and other miners follow the S&P in direction if not in degree. A correlation of 1.0 implies a lockstep tracking of individual stock price with the S&P. GMO has only had one negative correlation period in 12-months, from early November to mid-January (see note 1).

Lately GMO has a very high positive correlation with the broader market. The 3-month correlation yesterday was 0.9274 and it's been greater than 0.8 for all of April. This is important because it implies that the headlines that take down the S&P, take down GMO. The affairs of Greece presently have more to do with this miner's day-to-day market capitalization than the price of molybdenum (which has been fairly constant for the month) or orders of equipment to begin the mining of Mt. Hope. Nuts.

On the positive side, the broader markets have been mostly in rally mode since early April and all the miners have enjoyed a lift from improving investor sentiment. The Hanlong announcement also caused a jaw-dropping spike in GMO share price in early March (A Game Changer for General Moly & Eureka County) so there is much to be happy about. Headlines, however, do push around the day-to-day price action. Here's an example. I modeled the price of GMO stock for the last 3-months to derive its fair value and range with respect to the S&P 500. For an S&P level of 1200 these are the numbers:

The fair value of GMO stock is $3.706 in a range of $3.153 to $4.259

Yesterday, the S&P closed at 1205.94 and GMO at $3.66 indicating that General Moly is slightly undervalued with respect to the broader market. Whether we get north of $4 has a lot to do with where the markets head next since our correlation is nearly unity.

Let's see where we are this morning. Yup, the S&P is down nearly a percent and all of our favorite miners are in the red. Greece and jitters about the fate of our own financial reform legislation have done their job to poop the party. GMO presently is trading at $3.58 after touching $4 in intraday trading just one-week ago. I'd say anything below $3.20 represents a buying opportunity. Will we break $4.25? Ask Helen of Troy, pardner!

Here's something to look forward to if you're interested in what's going on in the molybdenum biz besides headlines:

Thompson Creek schedules first-quarter 2010 financial results conference call/webcast at 8:00 a.m. and webcast of Annual Meeting of Shareholders at 10:00 am Eastern on May 6

Enough talk, let's walk the walk:

4-WD is OFF - cautious markets; the VIX or "fear index" has moved up to the 17-18s closer to 25; metals & miners are looking a little shaky with benchmark FCX in the high seventies but still comfortably above $74, 10-year Treasurys are safely below 4% preserving a low-interest rate environment (what's this?)

The YELLOW light is switched back on our fuel gauge with oil above $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

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

NYMEX/COMEX: Oil is down $1.72 in early trading to $81.96 (June contract, most active); Gold is down $14.6 to $1134.2 (June contract, most active); Silver is down $0.273 to $17.805 (May contract); Copper is down $0.0615 to $3.4735 (May contract); Western Molybdenum Oxide drops to $17.00, LME moly 3-month seller's contract remains at $18.14

The DOW is down 83.73 points to 11041.19; the S&P 500 is down 9.98 to 1195.96. The miners are all down:

Barrick (ABX) $39.23 up 0.68%
Newmont (NEM) $51.68 down 0.44%
US Gold (UXG) $3.08 up 0.96%
General Moly (Eureka Moly, LLC) (GMO) $3.58 down 2.17%
Thompson Creek (TC) $12.69 down 1.91%
Freeport-McMoRan (FCX) $78.17 down 0.31% (a bellwether mining stock spanning copper, gols & molybdenum)

The Steels are down, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $41.67 down 3.41% - global steel producer
POSCO (PKX) $117.35 down 1.31% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.31% to $1,390,179.67 (what's this?).


Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Note 1: three-month sliding correlation taken over a 12-month record

Headline photograph by Mariana Titus

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