Thomas Paine and Miner's Pain - What's Next?

Morning Miners!

It is 6:00 AM sharp and time to get to work. Have a Monday cup of java and let's try to figure out what's down the road for our favorite miner's. I received my hard-copy annual report for Thompson Creek Metals (TC) this weekend and it is a dandy. Maybe the Colonel is old fashioned but I'd rather sit in my favorite rocker with something good to read than look at this infernal computer screen. Both our moly miners, Thompson Creek and General Moly (GMO), reported earlier this month and you can find links to their annual summaries in our blog General Moly & Thompson Creek Report.

If you want a great bird's-eye view of the moly mining world, checkout the Thompson report one-page pictorial summaries, "Molybdenum Market Developments" and "Molybdenum Products and Uses". Molybdenum is a versatile alloying agent for a variety of steels but did you know that ammonium molybdates are used in smoke suppressants or that sodium molybdates are used in health micronutrients (see note 1)? It's all there, pardner.

Kevin Loughrey, Chairman and CEO, begins his Letter to Shareholders with a quote from American writer Thomas Paine. Paine began his 1776 pamphlet, The Crisis, with the memorable words, "these are the times that try men's souls." Amen, brother - 2009 was a rough-tough for a lot of folks...especially miners. However, most mining companies have had a stellar recovery since the March lows of last year. With the latest ups and downs, it's not unreasonable to doubt whether this trend is in trouble for the remainder of the year. This morning's headlines from across the pond set the stage. First, from one of this Report's favorite London correspondents, Claudia Carpenter:

Commodities Decline for a Third Day, Led by Metals, on Outlook (Claudia Carpenter, Bloomberg News - LONDON, 5/17/2010)

And from the floor of the London Metal Exchange (LME)...

"Base metals started the week under severe downward pressure, with many plummeting to new multi-month lows amid a broad market sell-off." (Perrine Faye, FastMarkets, 5/17/2010)

Or new Canadian jitters about the Chinese...

China could be the next big challenge for Canadian resources stocks (Ka Yan Ng, Reuters - TORONTO, 5/17/2010)

Times that try our miner's souls at the very least, buckaroos. But we still have a mixed bag compared to similar fears this January (Freeport "Broken", Miners in Correction, 1/29/2010) when all six of our miners in the Eureka Miner's Grubstake Portfolio were in a bearish correction (i.e., greater than 20% decline from recent highs). From Friday's close we only have two of the six in bear country - unfortunately, they are our bellwether Freeport-McMoRan and moly benchmark Thompson Creek. Here are the latest intraday highs and closing price as of last Friday, 5/14/2010:

Freeport-McMoRan (FCX) $88.3 (4/6/10) $69.72 (5/14/10) -21.0%
Thompson Creek (TC) $14.65 (4/5/10) $10.50 (5/14/10) -28.3%

And our other four are looking fairly chipper by comparison:

General Moly (GMO) $4.45 (5/13/10) $4.01 (5/14/10) -9.9%

Barrick (ABX) $47.21 (5/12/2010) $45.62 (5/14/10) -3.4%
Newmont (NEM) $59.57 (5/12/2010) $57.68 (5/14/10) -3.2%
US Gold (UXG) $4.31 (5/12/2010) $4.12 (5/14/10) -4.4%

Friday's S&P 500 was down 6.9% from its closing high of 1219.8 on the 26th of April. The gold miners are beating the broader market high-to-close spread; General Moly lags by only 3%.

This split in the herd was discussed at the beginning of this month (Black Hats & White Hats - The Colonel's Miner's Roundup for May). I'd like to see everyone crossing the same river but the risk trade of commodities and commodity-sensitive stocks is D.O.A. with the VIX or "fear index" remaining in the 30s this morning. If marketplace fear diminishes, money will return to the metals & miners as long as the U.S. maintains a low interest rate environment (e.g., unchanged Fed target rate, 10-year Treasury below 4%).

I am confident that we still have a shot above S&P 500 1,251 this year in concert with a metal & miner sector rebound. Wishful thinking? Investment strategist Abby Cohen of Goldman Sachs told CNBC Business last Thursday (5/13) that S&P 1,250 was in the cards based on fundamentals alone. Regardless how you might perceive Goldman, they are still the smartest kids (or little devil's) in the Wall Street schoolyard. The Colonel is betting our miner's pain is temporary - there is a growing world out there seeking resources my friend.

Molybdenum Weekly Roundup

Miss Moly mostly whistled past last week's continuing euro-drama:

Western Moly Oxide (FeMo65) down $0.50 to $17.25/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.25/lb unchanged (the price reported in the Metals Bulletin)

LME Futures Contracts

3-Month (Buyer) $38,000/metric ton $17.24/lb
3-Month (Seller)$40,000/metric ton $18.14/lb

15-Month (Buyer) $38,000/metric ton $17.24/lb
15-Month (Seller)$40,000/metric ton $18.14/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Enough talk, let's walk the walk:

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is in the low 30s, well above our 25 level threshold; metals & miners are back on shaky timber with benchmark FCX trading in the high $60s well below its 200-day average of $75 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment

The YELLOW light returns for Stable Markets with the VIX above the 30 level (what's this?)

The YELLOW light returns for Investor Confidence with the possibility of a 10% correction in the broader markets possible and more likely

The GREEN light remains turned on our Fuel Gauge with oil below $80 (although this may only be a brief respite)

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions &
General Moly Mt. Hope Water Rights

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

NYMEX/COMEX: Oil is down $0.44 in early trading to $71.17 (June contract, most active); Gold is up $1.3 to $1229.1 (June contract, most active); Silver is up $0.095 to $19.320 (July contract); Copper is down $0.0515 to $3.0825 (July contract)

Western Molybdenum Oxide moves down to $17.25, LME moly 3-month seller's contract remains at $18.14

The DOW is down 28.49 points to 10591.67; the S&P 500 is down 2.43 to 1133.25. The miners are mixed:

Barrick (ABX) $44.85 down 1.69%
Newmont (NEM) $57.42 down 0.45%
US Gold (UXG) $4.12 unchanged
General Moly (Eureka Moly, LLC) (GMO) $4.07 up 1.50%
Thompson Creek (TC) $10.08 down 4.00%
Freeport-McMoRan (FCX) $67.64 down 2.98% (a bellwether mining stock spanning copper, gols & molybdenum)

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

ArcelorMittal (MT) $32.20 down 1.11% - global steel producer
POSCO (PKX) $97.03 down 2.64% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.79% to $1,399,336.46 (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

Note 1: (Wikipedia) Micronutrients are nutrients needed throughout life in small quantities. They are dietary minerals needed by the human body in very small quantities (generally less than 100micrograms/day) as opposed to macrominerals which are required in larger quantities. The Microminerals or trace elements include at least iron, cobalt, chromium, copper, iodine, manganese, selenium, zinc and molybdenum. Note that the use of the term "mineral" here is distinct from the usage in the geological sciences.

Headline photograph by Mariana Titus