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

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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.

Monday, April 12, 2010

Is Miss Moly Ready for $20 Shoes?


Morning Miners!

It is 5:57 AM. Grab a cup and let's get to work. While we're waiting for U.S. markets to open, let's see what we might expect for the week. On Friday European leaders used soothing words to reassure the world that there wouldn't be a Greek financial tragedy and world markets bounced (A Little Greenback with Your Greek Salad?). The S&P closed at 1194.37, a new high topping my prediction of 1193 by Memorial Day. That deserves a Colonel Yee-ha!

Over the weekend they put a little walk with their talk by unveiling a massive €30 billion aid plan for Greece. Predictably, the word "possible" crept into the finance ministers' description of a low-interest (5%) three-year loan program for their ailing euro-zone partner. Nonetheless their plan is expected to lift markets again today.

To bring all this bubbly-bubbly to something we can relate to in Eureka, the ole Colonel decided to take a bird's-eye view of the steel industry - a primary driver of molybdenum prices.

Steel Business Briefing reports today that European steel producers should be able to absorb the higher cost of raw materials later this year. Mathias Carlson, a Deutsche Bank research analyst, said, "We are positive on the European steel fundamentals. I think that 2010 earnings will be driven by volumes and not by the high prices that just offset the higher raw material costs."

OK, that's cool. The big part of raw material costs has been iron ore this year but the producers have been passing those costs on to customers through higher steel prices. Here are the price increases for steel billet in Europe and Asia since February 22, the day molybdenum futures were launched on the London Metal Exchange (LME):

LME Mediterranean steel billet (3-month seller's contract) up 38.0%
LME Far East steel billet (3-month seller's contract) up 32.6%

Again, I believe most of this increase is due to a rise in iron ore. How have some of the specialty metals used in steel alloys fared?

LME molybdenum (3-month seller's contract) up 6.5%
LME nickel (3-month seller's contract) up 19.6%
LME cobalt (3-month seller's contract) up 18.8%

And how much have moly spot prices moved over the same period?

Western moly oxide up 1.4%
European moly oxide up 5.9%

What's your point Colonel? It appears that global steel production is indeed on the mend as predicted by the experts last year. Although input prices have risen there seems to be no significant resistance (yet) to higher steel prices in Europe or Asia. Miss Moly, however, is lagging her metallic cousins in both the spot and futures markets. Although supply and demand set the price for individual metals, I question whether any price can withstand the "reflation" spirit of markets lifting on improved European financial news. I believe there could be a catch-up in moly spot prices in the next several months if global conditions continue to improve. That puts Miss Moly in $20 shoes in my crystal ball, pardner.

Let's have a Colonel beer bet on her new heels (Colonel's Beer Derby, lower right column of this blog):

Western Moly Oxide will break $20/lb before Summer Solstice

OK, the markets are now open and guess what? The S&P 500 is flirting 1200 and the "fear index" is in the 15s, levels not seen since July 2007! (what's a "fear index"?). Fearless markets buckaroos, come on Miss Moly - kick your heels.

Here is a complete summary of last week's moly price action:

Western Moly Oxide (FeMo65) $17.50/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $18.00/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

3-Month (Buyer) $39,000/metric ton $17.69/lb
3-Month (Seller)$41,000/metric ton $18.60/lb

15-Month (Buyer) $39,000/metric ton $17.69/lb
15-Month (Seller)$41,000/metric ton $18.60/lb

Here is the price action of the LME 3-month contract (seller) from the February launch:



Enough moly-talk, let's walk the walk:

4-WD is OFF - smoother markets return; the VIX or "fear index" is in the 15s for the first time in many moons, far below 25 which is terrific; metals & miners are happy with benchmark FCX comfortably above $74, 10-year Treasurys are below 4% preserving a low-interest 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 up $0.12 in early trading to $85.04 (May contract, most active); Gold is down $0.7 to $1161.2 (June contract, most active); Silver is up $0.074 to $18.425 (May contract); Copper is up $0.0265 to $3.6165 (May contract); Western Molybdenum Oxide sits at $17.50, LME moly 3-month & 15-month seller's contracts move up to $18.60

The DOW is up 14.89 points to 11012.24; the S&P 500 is up 2.35 to 1196.72. The miners are whistling their way to work:

Barrick (ABX) $41.67 up 0.92%
Newmont (NEM) $54.31 up 0.18%
US Gold UXG) $3.23 up 2.86%
General Moly (Eureka Moly, LLC) (GMO) $3.53 unchanged
Thompson Creek (TC) $14.30 up 2.22%
Freeport-McMoRan (FCX) $85.83 down 0.19% (a bellwether mining stock spanning copper, gols & molybdenum)

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

ArcelorMittal (MT) $46.11 up 0.72% - global steel producer
POSCO (PKX) $121.11 down 0.81% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.83% to $1,445,557.98 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus

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