Friday, April 23, 2010
Greece Cries Uncle - GMO, Hanlong & POSCO Updates
It is 6:04 AM. Scott Raines resupplied the break room last night with a fresh can of his very best TGIF coffee, Premium Red Label. Grab a cup and let's see what's crossing the wires. Greece finally cried "uncle" this morning which will hopefully bring some stability to global markets. As reported in the Wall Street Journal:
Greek Prime Minister George Papandreou said Friday that 'the time has come' for Greece to request aid from the euro zone and IMF, following months of turmoil. Speaking from the island of Kastellorizo, Papandreou described the bailout package as 'a necessity. It is an extreme necessity, it is a national necessity.' (WSJ, 4/22/2010)
Yesterday we learned that Greece's debt crisis was even worse than anyone believed (well, except the Greeks). This no doubt sets in motion a combined IMF and euro-zone bailout package. The tipping point was the increase of the budget deficit estimate to 13.6% of gross domestic product for 2009. The old estimate was 12.7%. To give this some perspective, European countries that use the euro for their currency are supposed to maintain deficits below 3%. If that's not bad enough, Ireland is in worse shape than Greece by this measure. Here is the roundup of the deficit desperadoes across the pond (see note 1):
And why do we care in Eureka? If more bailouts are on the way, the euro is weakened which strengthens the U.S. dollar. A strong dollar puts pressure on commodities and the metals & miners suffer. A strong dollar is fine if our economy is robust but it's not (yet). Presently the dollar is less ugly than the two other reserve currencies of the world, the euro and yen, but has shown considerable weakness against the Canadian dollar. So it goes, I hope Papandreou has a nice sail back to the mainland in his yacht.
Let's see what else is in the news. Even with all the ups and downs General Moly (GMO) stock has suffered from European news, it remains in great shape fundamentally. Let's compare GMO to our bellwether Freeport-McMoRan (FCX) and benchmark moly miner Thompson Creek (TC), both miners who have had tougher sailing in the Mediterranean lately. Here are all three with this morning's share price compared to their 50-day and 200-day averages:
General Moly (GMO) $3.79 (today) $3.22 (50-day) $2.75 (200-day)
Freeport McMoRan (FCX) $79.78 (today) $80.20 (50-day) $75.00 (200-day)
Thompson Creek (TC) $13.09 (today) $13.59 (50-day) $12.80 (200-day)
The rule-of-thumb is that an attractive stock for investors maintains its share price above it's 50-day average which should lie above its 200-day. GMO meets this criterion with healthy margins. Both FCX and TC have fallen below their 50-day averages and should be watched in relation to the longer 200-day level. If FCX approaches $75 (the old warning level was $74) the entire mining space may be in trouble.
The relative strength of GMO versus FCX & TC may say that investors are more willing to put new money in a company preparing for future production than two producers facing a wobbly near-term marketplace for their metals (although copper and molybdenum have stood up fairly well to date, further pressure on commodities may cause a slump in metal prices in the coming months).
These three charts may give you a visual idea of what has been going on. The GMO spike-up coincides with their landmark Hanlong announcement (A Game Changer for General Moly & Eureka County) and the green line indicates the moving 200-day average for each stock.
Speaking of Hanlong, they have completed their deal to acquire Moly Mines Ltd. as flagged by the Report in March (Hanlong Invests in Another Moly Miner, 3/25/2010). Here's the latest:
Chinese group confirmed as Moly Mines big brother (Mineweb, Ross Louthean, 4/23/2010)
Finally two items on South Korean steelmaker POSCO and 20% owner of our Mt. Hope Project:
POSCO hikes steel prices; 1st rise in nearly 1 yr (China Mining, 4/23/2010)
And a tidbit from the Wall Street Journal...
"Posco (PKX) has decided to join the final bidding for a stake in a South Korean trading and resources development company [Daewoo International Stake] that was previously an affiliate of the now-defunct Daewoo Group, the company said Friday." (WSJ, 4/23/2010)
A busy steelmaker that has the ability to raise the prices of its product and bid for other interests sounds good to me. Ironically, an analyst on CNBC Business News today cited POSCO's price increase as an early warning sign of inflation.
Enough talk, let's walk the walk:
4-WD is OFF - cautious markets; the VIX or "fear index" is back in the 16s comfortably below 25; metals & miners are looking a little better with benchmark FCX in the high seventies but still above $75 (our new warning level), 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 $0.34 in early trading to $83.36 (June contract, most active); Gold is down $4.4 to $1138.5 (June contract, most active); Silver is down $0.074 to $17.935 (May contract); Copper is down $0.0045 to $3.4820 (May contract); Western Molybdenum Oxide sits at $17.00, LME moly 3-month seller's contract remains at $18.14
The DOW is up 8.32 points to 11142.61; the S&P 500 is up 0.63 to 1209.30. The miners are all down:
Barrick (ABX) $40.07 down 0.25%
Newmont (NEM) $52.47 up 0.06%
US Gold (UXG) $3.11 down 0.32%
General Moly (Eureka Moly, LLC) (GMO) $3.79 down 0.26%
Thompson Creek (TC) $13.09 up 3.23%
Freeport-McMoRan (FCX) $79.78 down 0.89% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are down, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $42.21 down 0.12% - global steel producer
POSCO (PKX) $118.61 down 0.23% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.21% to $1,420,335.14 (what's this?).
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market
Note 1: In fairness the total national debt to GDP ratio is also important. The ratio for Greece exceeds 100% whereas Spain has a ratio below the euro-zone average of roughly 80%. In this example Greece presents a much more difficult deficit and debt problem than Spain.
Headline photograph by Mariana Titus