Tuesday, April 13, 2010
General Moly & US Gold Lead the Pack
It is 5:56 AM. Have a cup and let me tell you about the most recession-proof job in America. Eureka County, at the heart of North American gold country, has weathered the "Great Recession" much better than most counties but there is no private sector job under our big sky more secure than working for the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) in Cambridge, Massachusetts.
These are the guys that date the beginnings and endings of big economic events like recessions and in better times, economic expansions. In NBER's words, "Founded in 1920, the National Bureau of Economic Research is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works." Here's their website:
National Bureau of Economic Research
Now, here's the problem. The propeller heads on the panel responsible for deciding when U.S. recessions begin and end said yesterday it’s too soon to declare the current slump is over. Nuts.
It is a similar quandary for the chief executives of major companies as they look down a rough road of sputtering recovery. My favorite big mining boss is Richard Adkerson who runs copper giant Freeport-McMoRan (FCX). He often declares himself an optimist but said in a recent meeting of copper chiefs that he's concerned enough about the US economic recovery to hold off ramping his operations back to full speed. As reported by Reuters Insider TV:
"[What] we are facing is a world where China is very strong and has created a copper price that would justify all of our capital expenditure, but two-thirds of the world's copper markets -- the US, Europe and Japan -- remain weak...And so, when you have the price supported solely by China, we are just not real comfortable in going all out right now." (Mining Weekly, Miners united on copper, split on spending, 4/8/2010)
Alcoa (AA), the largest U.S. aluminum producer, kicked off the quarterly earnings season with similar reflections on the future as they reported lower-than-expected first-quarter sales that show the nation’s recovery remains shaky. As reported by Bloomberg News today:
Alcoa’s Sales Miss Shows U.S. Recovery Isn’t ‘Robust’ (Bloomberg News, 4/13/2010)
POSCO (PKX), South Korean steel producer and 20% investor in our Mt. Hope project, also reported and had a brighter outlook for the steel industry. As reported by the Wall Street Journal, POSCO President Choi Jong-tae said, "Robust demand from carmakers and electronics firms helped buoy the [quarterly] net result but to offset rising raw material costs, we will continue cost-cutting efforts..." Analysts said they expect POSCO to continue its strong run in the next quarter, helped by an expected increase in product prices. Hey, that's good for General Moly and good for Eureka County.
I think that's how you maintain your sanity in this up-and-down recovery - look at the health of those companies that affect your community directly. The Colonel's not aware of any nearby aluminum mines and you've got to head over to Ely to find copper but we've got a lot of gold and molybdenum, pardner. If the future is looking bright for those metals what do investor's think about our local miners?
I thought it might be fun to check our favorite miner's stock performance against benchmarks from two months ago when we reported, Moly Jumps, Metals Dip, Barrick & POSCO Expand, 4/12/2010). Here are the results:
S&P 500 up 12.0%
Alcoa (AA) up 7.3%
Freeport-McMoRan (FCX) up 13.9%
POSCO (PKX) up 5.5%
Copper up 17.2%
Gold up 5.0%
Molybdenum up 9.4%
Barrick (ABX), benchmark miner - up 10.8%
Newmont (NEM) up 13.3%
U.S. Gold (UXG) up 29.0%
Thompson Creek (TC), benchmark miner - up 8.5%
General Moly (GMO) up 51.5%
What's the takeaway, Colonel? Major producers Alcoa and POSCO have lagged the S&P 500; bellwether miner Freeport-McMoRan has maintained a leading edge boosted by a rise in copper prices.
The rise in gold and moly prices has been less dramatic than copper. Barrick and Newmont have beat gold price but are roughly in line with the broader markets. Benchmark moly miner Thompson Creek lags both the S&P and the price movement of its product.
So who are our winners? Junior miners General Moly and US Gold have handily beat the broader markets, benchmarks and the price of their metal by wide margins. Of course, neither is in production in Eureka County...yet. That tells you a lot about investment sentiment in our neck of the woods. Investors, hopeful but skittish about the near term, see great promise several years down the road when General Moly and (hopefully) US Gold enter early production (see note 1). That's enough to keep the ole Colonel happy about the future.
Enough talk, let's walk the walk:
4-WD is OFF - smoother markets return; the VIX or "fear index" is in the 16s far below 25 which is good; metals & miners are good with benchmark FCX comfortably above $74, 10-year Treasurys are 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
An ORANGE light is ON for possible adverse regulation/legislation: 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 $0.63 in early trading to $83.71 (May contract, most active); Gold is down $7.0 to $1155.2 (June contract, most active); Silver is down $0.159 to $18.225 (May contract); Copper is up $0.0230 to $3.5875 (May contract); Western Molybdenum Oxide sits at $17.50, LME moly 3-month & 15-month seller's contracts remain at $18.60
The DOW is down 13.38 points to 10992.59; the S&P 500 is down 4.63 to 1191.85. The miners are down except for US Gold:
Barrick (ABX) $39.91 down 2.09%
Newmont (NEM) $52.82 down 1.36%
US Gold UXG) $3.09 up 0.32%
General Moly (Eureka Moly, LLC) (GMO) $3.54 down 1.39%
Thompson Creek (TC) $14.30 up 2.22%
Freeport-McMoRan (FCX) $84.03 down 0.26% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $45.66 down 0.04% - global steel producer
POSCO (PKX) $119.10 down 1.71% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.91% to $1,419,039.31 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market
Note 1: In fairness, General Moly (GMO) is much further down the path to production than US Gold (UXG) in terms of permitting, financing etc. US Gold, however, sits on the Eureka-Carlin trend with properties that become more and more valuable as domestic gold production declines in older mines. Whether UXG moves to production from exploration/development or is eventually acquired by a gold major is anyone's guess. In either case, investor's have lately reacted to some positive development they sense down the road for UXG.
Headline photograph by Mariana Titus