"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.

Thursday, June 3, 2010

Copper Holds $3 - Freeport & Thompson Creek Stabilize


Morning Miners!

It is 6:10 AM. Have a cup of Thor's triple-lightning brew and let's check on our canaries in the global mineshaft. COMEX Copper, our boldest bird, has few feathers left in her wings but is still flying above the key $3/lb level at $3.0005/lb (July, most active contract). That's a pin feather above $3/lb, pardner. Yesterday at this time she was two pin feathers higher at $3.0010/lb. Hmm...now you know why traders call $3/lb a "psychological level" - they are just not willing to let go. Futures data are notoriously inaccurate as you move further out in time but it is interesting the July 2011 contract is now resting at $3.0995/lb - that's a flat market for a red metal that was north of $3.50/lb just a short while ago. The two largest copper producers, Freeport-McMoran (FCX) and Codelco tell a good back story for what's going on:

Freeport, Codelco See Risk to Copper Market From China Economy (Bloomberg, Matt Craze and Sara Eisen, 6/3/2010)

By the by, isn't Matt Craze reporting from Santiago a terrific name for someone trying to make sense out of these crazy markets? Yesterday we peeked into the depths of what may lay ahead for metals & miners with a stern market warning from Dennis Gartman, the "Commodity King" (Where Do Metals & Miners Go From Here?). Today, we see the future through the eyes of two copper giants. As reported by Bloomberg in two interviews:

Codelco Chief Executive Officer Diego Hernandez

The copper market will be “volatile” for as much as another year after China took measures to cool its property market

Freeport CEO Richard Adkerson

The Asian nation [China] is a “risk to the world’s market place in the near term...”

and,

“It’s positive” that China’s government is working to minimize inflation...It will likely lead to a more sustainable situation going forward.

OK, a flat but bouncy market for ole red - no wonder the 12-month spread in COMEX futures prices is only 10-cents. I think between Richard Adkerson, arguably one of the world's best mining chiefs, and Dennis Gartman, commodity savant, a picture is beginning to emerge. Adkerson must see in the future 12-months or more to plan for mining operations. Gartman, a trader, is more shortsighted with a time horizon (by his own admission) of no more than two months. A flat market moving forward with big scary dips and flips, that's how I read these two gurus taken together. David Thurtell, an analyst at Citigroup Inc. in London, puts it all in few words:

“China is cooling from very strong levels, the European recovery threatens to stall, and the U.S. is leveling out...” (Bloomberg, Matt Craze and Sara Eisen, 6/3/2010)

So what is the outlook for miners? I think bellwether miner Freeport, whose stock price fell from grace while copper was still on a tear, is a proven early indication of where miners go next. Here's their 12-month chart:


In the first week of April, FCX fell down the mineshaft while everyone in the markets was drinking bubbly-bubbly. Now after breaking it's 200-day average (solid line) it is showing signs of stability in a range of $65 to $70. Our benchmark moly producer, Thompson Creek (TC), was another harbinger of the May commodity massacre dropping from grace about the same time as Freeport. Here's the TC chart:


Now, like Freeport, TC appears to be stabilizing in a range of $9 to $10. Flat and bouncy from here on? The ole Colonel just threw a few shares of FCX in the buckboard - that's my answer. I'm holding back on moly miners until I see where molybdenum prices go next. Stay tuned buckaroos.

Enough flying around the mineshaft, let's walk the walk:

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" remains in the low 30s, still above our 25 level threshold; metals & miners remain on shaky timber with benchmark FCX stabilizing buttrading 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 GREEN light remains on for Commodity Reflation with copper trading just slightly above $3/lb

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

The YELLOW light remains on for Investor Confidence with the possibility of a greater than 10% correction in the broader markets

The GREEN light remains turned on our Fuel Gauge with oil below $80

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 up $0.35 in early trading to $73.21 (July contract, most active); Gold is down $2.3 to $1220.3 (August contract, most active); Silver is up $0.055 to $18.370 (July contract); Copper is down $0.0400 to $3.0005 (July contract)

Western Molybdenum Oxide is at $16.00; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.20

The DOW is up 21.31 points to 10,270.85; the S&P 500 is up 3.19 to 1101.57. The miners are down except for Thompson Creek:

Barrick (ABX) $42.20 down 2.09%
Newmont (NEM) $54.38 down 2.39%
US Gold (UXG) $3.97 down 1.49%
General Moly (Eureka Moly, LLC) (GMO) $3.57 down 2.19%
Thompson Creek (TC) $9.53 up 0.11%
Freeport-McMoRan (FCX) $67.78 up 1.94% (a bellwether mining stock spanning copper, gols & molybdenum)

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

ArcelorMittal (MT) $29.24 down 2.47% - global steel producer
POSCO (PKX) $97.59 up 0.50% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.38% to $1,333,371.43 (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 and series photographs by Mariana Titus

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