A Look Back - The Best & Worst Days for the Eureka Miner

Morning Miners!

It is 6:00 AM sharp. Grab a cup of Tuesday brew and take a seat in the break room's new La-Z-Boy forecaster. As you may remember we fitted this old armchair in early July with a windshield and rear view mirrors so we could better see where we're headed in the markets and where we've been (The Death Cross & Armchairs). The ole Colonel said then:

"Rear view mirrors are great for historians but the rest of us need to look out the windshield occasionally or we're going to going to crash. I believe a predictive measure like the Eureka Miner's Index(EMI) should be used in combination with backward looking averages to achieve a balanced view of where we're headed in the marketplace." (The Eureka Miner's Market Report, 7/6/2010)

Lately the metals & miners have been bouncing down some pretty rough county roads and the Report has updated the EMI on a daily basis to gauge what lies ahead. Today I thought it might be useful to look in the rear view mirror for a moment to remember how good (and bad) things have been over the past several years.

If you are a miner and live in Eureka, you're probably recalling your best and worst days after reading the title of today's blog. Chances are they don't coincide with the peaks and valleys for local mining companies but their performance in the marketplace may very well affect your future.

The Great Recession started officially in December 2007. There's some debate about whether it's really over and some economists are predicting the dreaded double-dip. To date there have been some wild rides for the metals & miners; I've picked four dates to review these extremes and calculate a corresponding EMI. The dates correspond to the high and lows for copper prices and the broader market (S&P 500). We can use these numbers to better understand how far we've come as well as the depth of the market's mineshaft.

Things didn't get too bad for the metals & miners until after the collapse of Lehman Brothers in the Fall of 2008. Copper prices plummeted along with Freeport-McMoran (FCX) share price until both hit bottom early that December, roughly one year from the beginning of the recession.

Freeport is not one of our local mining companies but it is a very good bellwether since they mine not only copper but also gold and molybdenum as by-products. Freeport is also very well managed so their stock performance typically reflects marketplace reality and not the consequences of poor management decisions. Their worst day in the past three years occurred on 12/5/08. This is where FCX together some of our favorite miners, commodities, VIX and interest rates stood on that dark day (200-day moving averages are shown for the miners included in the EMI):

12/5/2008 (near the COMEX copper bottom):

COMEX copper $1.30/lb
COMEX gold $745.2/oz
COMEX silver $9.40/oz
NYMEX oil $35.00/bbl

Freeport-McMoran (FCX) $16.80 (200-day average $83.74)
Barrick (ABX) $25.14 (200-day average $37.45)
Thompson Creek (TC) $2.70 (200-day average $14.98)
General Moly (GMO) $0.97

VIX 59.93 (fear index > 25 is scary)
Au:Ag ratio 79.28 (gold/silver ratio, alternative measure of market fear)

10-year Treasury 2.657%

Eureka Miner's Index (with Au:Ag) = 1.30

Considering that an EMI of 100 is the dividing line for good & bad days for the metals & miners, an EMI of 1.30 on 12/5/08 was a bad-bad day, pardner!

Before we get too teary-eyed let's look at where things sat this spring when COMEX copper hit an intraday high of $3.5840 on 4/12/10:

4/12/2010 (at the COMEX copper top):

COMEX copper $3.5840/lb
COMEX gold $1163.4/oz
COMEX silver $18.440/oz
NYMEX oil $86.02/bbl

Freeport-McMoran (FCX) $84.40 (200-day average $76.00)
Barrick (ABX) $40.76 (200-day average $39.60)
Thompson Creek (TC) $14.00 (200-day average $12.40)
General Moly (GMO) $3.59

VIX 15.58 (fear index > 25 is scary)
Au:Ag ratio 63.09 (gold/silver ratio, alternative measure of market fear)

10-year Treasury 3.843%

Eureka Miner's Index (with Au:Ag) = 259.35 (that's more like it!)

From the ones to the two-hundreds, that's an EMI on the move buckaroos. Let's see how everyone fared during the broader market highs and lows. The S&P 500 hit a closing low of 676.53 on March 9th of last year:

3/9/2008 (S&P 500 bottom):

COMEX copper $1.70/lb
COMEX gold $905.7/oz
COMEX silver $12.7/oz
NYMEX oil $60.00/bbl

Freeport-McMoran (FCX) $32.32 (200-day average $83.74)
Barrick (ABX) $27.96 (200-day average $37.45)
Thompson Creek (TC) $2.84 (200-day average $14.98)
General Moly (GMO) $0.71 (near its 3-year low)

VIX 49.68 (fear index > 25 is scary)
Au:Ag ratio 71.32 (gold/silver ratio, alternative measure of market fear)

10-year Treasury 2.819%

Eureka Miner's Index (with Au:Ag) = 6.76 (horrible but better than 12/5/08)

To complete our comparison these are the numbers for the S&P 500 intraday high of 1219.8 on 4/26/2010:

4/26/2010 (at the S&P 500 top):

COMEX copper $3.5840/lb
COMEX gold $1155.3/oz
COMEX silver $18.370/oz
NYMEX oil $86.47/bbl

Freeport-McMoran (FCX) $80.4 (200-day average $76.00)
Barrick (ABX) $40.46 (200-day average $39.60)
Thompson Creek (TC) $13.80 (200-day average $12.40)
General Moly (GMO) $3.62

VIX 17.47 (fear index > 25 is scary)
Au:Ag ratio 62.891 (gold/silver ratio, alternative measure of market fear)

10-year Treasury 3.806%

Eureka Miner's Index (with Au:Ag) = 215.06 (less than 4/12/08 but still durn good!)

That's a lot of numbers to digest, pardner, but it might make you feel a little better about where we are today. The EMI has struggled to stay above par lately but is far and away better than the dark days of yore. The markets are open now and the EMI is 84.57, let's get back up in the two-hundreds and pray we never see single-digits again!

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI)) remains sub-par at 84.57, up from yesterday's 81.30 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is above 25; metals & miners remain on shaky timber with benchmark FCX trading in the mid-$60s well below its 200-day average of $76 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment

The YELLOW light is turned back on for Commodity Reflation with copper trading below $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The YELLOW light is on for Investor Confidence as further market corrections are possible.

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, U.S. House committee debates miner workplace safety bill

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

NYMEX/COMEX: Oil is down $0.48 in early trading to $76.42 (September contract, most active); Gold is up $2.1 to $1184.00 (August contract, most active); Silver is up $0.057 to $17.600 (September contract, most active); Copper is up $0.0345 to $2.9725 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.25; LME moly 3-month seller's contract is $14.74, LME cash seller is $14.52

The DOW is down 83.93 points to 10,070.5; the S&P 500 is down 6.67 to 1064.58. The miners are up except for Thompson Creek:

Barrick (ABX) $41.68 up 1.29%
Newmont (NEM) $58.67 up 1.12%
US Gold (UXG) $4.48 up 2.99%
General Moly (Eureka Moly, LLC) (GMO) $3.02 up 1.00%
Thompson Creek (TC) $8.66 down 0.69%
Freeport-McMoRan (FCX) $62.89 up 3.34% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.83 up 0.61% - global steel producer
POSCO (PKX) $103.71 up 2.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.04% to $1,322,024.82 (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