BHP Billiton Goes Hostile - LME Moly Takes Another Leg Up

Wōdnesdæg

Morning Miners!

It is 5:59 AM. I've certainly had my share of break room guests in the wee hours of the morning this week. Yesterday it was sweet Ruby T from Elko; this morning, Old Miner Woden dropped by. He's been camping out by the headframe on the northwest side of Lone Mountain and was grateful to share a hot cup of joe. He swears there's more gold in them thar' hills and will keep at it until winter brings him back to town. By the by, he left you miners a morning greeting, "Happy Woden's Day!"

BHP Billiton Goes Hostile

Yesterday was such an exciting day for the metals & miners that we probably shouldn't expect much more zip today. Australian mining giant BHP Billiton's bid for Canadian Potash really got the sector rocking. Imagine a $38.6 billion cash offer - it would take a fair size haul truck to move that much moolah to the bank. Apparently the takeover, which was rebuffed by Potash yesterday, will go hostile today. This will be an interesting battle of the elephants. The buzz is that both companies are undervalued (hence the all-cash offer from BHP) with respect to their near to medium term prospects. This bodes well for all miners in this uncertain global environment. Skip the next three paragraphs if this is enough to make your day, pardner.

What is Oil Telling the Metals & Miners?

In markets there is always something to worry about. You might be surprised at what has the ole Colonel scratching his head this morning - the price of oil. Every good miner prays that the price of his (or her) metallic product goes up and that the price of oil goes down. The former boosts profits and the latter lowers operational cost. This may be the wrong prayer for 2010. With the health of global recovery in question, the price of oil, like the price of copper, is a measure worldwide demand. If we see gold, oil and copper all trending higher it is a pretty safe bet that we are back on track and good evidence that deflation is at bay.

With oil trading around $75/bbl we can hardly say that fuel prices are dropping off a cliff. What is troublesome is that oil price remains negatively correlated to gold price; for the past several months moves in oil and gold have been in opposition. This Report has discussed at length a similar relation between copper and gold (Will Gold & Copper Ever Make Up?). Fortunately, recent price movements of the red metal have suggested that a positive correlation is returning, a bullish sign for the metals & miners (Gold & Copper Back in the Swing).

The same can not be said for oil. The 3-month rolling oil/gold correlation has been negative since May 13th. Today, both 1-month and 3-month moved further back into negative territory (-0.1960 & -0.1380) although the peak inversion occurred for the 3-month on June 24th (-0.7216). In contrast, copper remains on the mend with today's 1-month and 3-month at +0.2989 & -0.4725 respectively. We need everyone in this herd to start moving towards the same pasture or there may still be some bumpy roads ahead. The Colonel is on the watch, enough nervous nellie numbers for now.

LME Molybdenum Bounces Twice

To end on a positive note, London Metal Exchange (LME) 3-month molybdenum futures took another leg up to $16.32/lb ($36000/metric ton). This exceeds both the Colonel's mid-range target of $15.71/lb for 2010 and last year's target of $16.00/lb. That ain't all bad buckaroos. We're roughly double-up from the bottom of 2009 and halfway to the top of 2008. Here's the LME moly action for the last seven days:



Daily Market Roundup

Enough talk, let's walk the walk:

The Eureka Miner's Index(EMI) is above-par at 133.24, a tad down move from yesterday's 134.50 and a big improvement from the 6/7/10 low of 50.7. Importantly, the high and low trends remain positive since the EMI high on 6/25. Remember an EMI greater than 100 is good times (or at least better times) for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners are on firmer timber with bellwether Freeport-McMoRan (FCX) in the low-$70s and closing on its 200-day average of $75.3 (our new warning level, 8/05 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.

The YELLOW light is turned back on for Commodity Reflation. Although copper is trading above $3/lb, the 10-yr T-Note is solidly below 3.00%

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

The YELLOW light is turned on for Inflation/Deflation Watch as the Federal Reserves resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%

The YELLOW light is turned back on for Investor Confidence as the bond markets signal trouble ahead

The GREEN light is 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 $0.85 in early trading to $74.92 (September contract, most active); Gold is down $2.0 to $1226.3 (December contract, most active); Silver is down $0.170 to $18.425 (September contract, most active); Copper is down $0.0045 to $3.3340 (September contract, most active)

Western Molybdenum Oxide is $14.75; European Molybdenum Oxide is $15.55; LME moly 3-month seller's contract is $16.32, LME cash seller is $16.05

The DOW is down 39.05 points to 10,366.80; the S&P 500 is down 2.75 to 1089.79. The miners are down:

Barrick (ABX) $44.19 down 0.23%
Newmont (NEM) $57.96 down 0.73%
US Gold (UXG) $4.90 down 1.21%
General Moly (Eureka Moly, LLC) (GMO) $3.23 down 0.62%
Thompson Creek (TC) $9.14 down 0.87%
Freeport-McMoRan (FCX) $72.35 down 0.66% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $30.94 down 1.28% - global steel producer
POSCO (PKX) $105.43 down 0.33% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.83% to $1,382,790.33 (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