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


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

Wednesday, July 14, 2010

Maybe Things Aren't So Bad After All - POSCO Pours Steel

Morning Miners!

It is 5:57 AM. Have a soda cracker with your first cup of hump day coffee. You may think you need it with all the headlines of doom that we lived through over the past several months. The ole Colonel would like to provide a counterpoint to all this double-dip-here-comes-the-next-depression talk. At the end of the day economic growth is the only elixir that will cure rising national deficits and debt; there are few if any examples of countries taxing themselves back to prosperity. The pistons in the engine of growth and job creation are businesses large and small and they have plenty of excuses for not performing in the present environment. Uncertainty about new taxes, health care and financial reform are enough reasons for a business to call in sick or just call it quits.

Fortunately we are not a nation of quitters and the early corporate earnings reports paint quite a different picture of American business response to hard times. We started the week with Alcoa surprising the gloomy-doomers with an upbeat earnings and forecast report. The numbers were not terrific but good enough to keep the aluminum giant on his feet and walking down the global recovery highway. Maybe the giant can soon afford to buy one of those new cars his product helps to manufacture and cruise in the hammer lane again - sure beats kicking rocks on the shoulder.

This Report rarely looks at the Technology Sector to gauge how things are going in the metals & miners' mineshaft. Yesterday may prove an exception when Intel reported the best quarter since their creation:

"Intel Corp. provided dramatic proof that businesses have joined consumers in snapping up new computers, as the chip maker posted the strongest quarterly results in its 42-year history." (WSJ, 7/14/2010)

How is it possible to set records like this if businesses truly believe we're on the path to Western economic collapse? Why would you upgrade your IT infrastructure if it's time to run for the lifeboats?

For some examples a little closer to our mill site, base metal prices have risen across the board in the last several days and inventories are in decline. There is some pullback in the commodity space today on less than rosy news that U.S. retail sales tumbled a second straight time in June. Is this any surprise? We've got a whole lot of folks out of work and that's going to take some time to change. However, if businesses are on the mend, new jobs will follow. We can expect metal price sensitivity to headline news and continued volatility - the question becomes, what's the trend?

Copper is bravely holding above the key $3/lb as inventories at the London Metal Exchange (LME) decline. The warehouse levels for aluminum, nickel, zinc and lead are also down although lead is showing signs of bottoming. Here is a 30-day chart for copper:

Yesterday's inventory is down a full 22% from an inventory peak of 555,575 tons last February (2/19/10). There is always great argument about what LME inventories really mean but it seems awkward to point to these multiple supply declines and make a strong case for a stagnant global economy.

My last example this morning for "maybe things aren't so bad after all" comes from POSCO, the South Korean steelmaker and 20% owner of Mt. Hope. Here's a newswire from yesterday:

POSCO (PKX) is mulling issuing dollar denominated global bonds in order to raise approximately KRW 1 trillion ($831 million), which would be used for acquisitions and to boost liquidity, according to industry sources

and another this morning...

POSCO (PKX) reported earnings results for the second quarter ended June 2010. For the quarter, the company's net profit had almost tripled to KRW 1.19 trillion ($981 million) due to price rises and growing demand. The April-June figure compares with a net profit of KRW 431 billion in the second quarter of 2009. Sales jumped 25% to KRW 7.93 trillion over the same period and operating profit surged to KRW 1.84 trillion from KRW 170 billion.

A steelmaker thinking about further acquisitions and making healthy profits doesn't sound like a corporation with prospects in decline to me.

We'll close with an update on pending mining safety legislation reported by MineWeb:

U.S. House committee debates miner workplace safety bill (Dorothy Kosich, MineWeb, 7/14/2010)

Get ready for a new law followed by the natural law of unintended consequences. I'm adding this one to the adverse regulation/legislation warning light on the Eureka Outlook Dashboard. I think this light is destined to remain ORANGE for a long time, hopefully it never turns red.

Enough talk, let's walk the walk:

Our newly minted Eureka Miner's Index (EMI - what's this?) remains just above-par at 100.88, slightly down from yesterday's 106.58 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 slightly above 25; metals & miners remain on shaky timber with benchmark FCX trading in the 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 GREEN light is turned back on for Commodity Reflation with copper trading above $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 Investor Confidence as further market corrections are possible but less likely

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 $0.44 in early trading to $76.71 (August contract, most active); Gold is down $4.3 to $1209.2 (August contract, most active); Silver is down $0.032 to $18.225 (July contract, most active); Copper is down $0.0015 to $3.0160 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $14.52, LME cash seller is $14.30

The DOW is down 16.88 points to 10,346.14; the S&P 500 is down 3.36 to 1091.98. The miners are resting after yesterday:

Barrick (ABX) $42.86 down 0.63%
Newmont (NEM) $61.42 down 0.42%
US Gold (UXG) $4.69 down 1.68%
General Moly (Eureka Moly, LLC) (GMO) $3.17 down 1.25%
Thompson Creek (TC) $9.56 down 0.52%
Freeport-McMoRan (FCX) $63.24 down 1.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.94 down 1.19% - global steel producer
POSCO (PKX) $102.00 down 1.92% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.05% to $1,361,917.94 (what's this?).


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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