"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.

Monday, August 2, 2010

PMI Lifts Metals & Miners - Oil Breaks $80

Morning Miners!

It is 5:55 AM. Have a cup of Caesar Augustus Monday java and let's not wish this summer away. Yes, it is August but we're still one canyon away from Labor Day, pardner.

Caesar Augustus started the census to figure out how many folks there were in the Roman World. He wasn't counting noses just for the shucks of it, Caesar wanted to know whom to tax. It was probably the first "global measurement" ever taken for economic reasons. Now we have all sorts of ways to tell how many people are on the planet, what they're doing and whether they are contributing economically.

One modern indicator of economic activity is the Purchasing Managers Index (PMI). It gives the percentage of manufacturing purchasing managers that report better business conditions than in the previous month for a certain economic sector . A PMI index over 50 indicates that the economy is expanding while anything below 50 means that the economy is contracting. This is important to the metals & miners because it is another "tell" on the health of our global recovery.

As a model of global cooperation, the PMIs are updated at roughly the same time every month. China's rolled in last night, Europe followed and the United States just reported this morning. The results appear to be giving the markets around the world an overall lift. Some PMIs are down from the previous month including China and the United States but the decrease is being judged reasonable given lower expectations for global growth this year. Europe surprised to the upside with an overall rising PMI for the 11-country euro-zone even though some countries were down. Here are the results so far:

China: July 51.2 down from June 52.1
Euro-zone: July 56.7 up from June 55.6
United States: July 55.5 down from June 56.2

In the euro-zone Germany scored a three-year high of 61.2 over June's 58.4; the U.K was a little wobbly dropping to 57.3 from 57.6 but still quite decent. The bad boys of Europe did reasonably well too - Italy and Spain picked up, while the decline in Greek manufacturing activity slowed.

"Why should I care, Colonel?" This news has further strengthened the euro ($1.31) against the dollar which lifts dollar-denominated commodities. All our favorite metals got a boost including gold. Remember for a sustained copper rally, we need gold to jump back in the saddle with copper (Will Gold & Copper Ever Make Up?). Of course oil is up today too breaking the key $80/bbl level but I'm not going to let this ruin my day. Global PMIs above 50 are a very positive sign.

There is one small ding in the China news. HSBC separately computes a China PMI to compare with the official government numbers given above. The HSBC Index fell to 49.4 in July from 50.4 in June, dropping for the first time in 16 months below the all-important 50-point level. As reported by the Wall Street Journal this morning, Credit Suisse economist Dong Tao is not too worried and doesn't expect Beijing to either tighten or relax its policies:

"Although the latest policy PMI data has added downside risk to the growth outlook, we don't believe it is bad enough to force a significant policy change in the near future," (WSJ, 8/2/2010)

Let's cross our fingers. Stay tuned buckaroos.

Here's how our Miss Moly fared last week:

Weekly Molybdenum Roundup

Molybdenum prices remain in a stable range with European moly and LME futures contracts moving higher from Western moly oxide which remains stubbornly at $14.00/lb. The LME 3-month and 15-month seller contracts are now $15.20/lb ($33,500/metric ton). The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) sits at $14.00/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) moves higher to 14.85/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $33,050/metric ton $14.99/lb

3-Month (Buyer) $32,500/metric ton $14.74/lb
3-Month (Seller) $33,500/metric ton $15.20/lb

15-Month (Buyer) $32,500/metric ton $14.74/lb
15-Month (Seller)$33,500/metric ton $15.200/lb/lb

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

Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) through Friday's close. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.

The Eureka Miner's Index is above-par at 138.6, a nice pop from Friday's 127.12 and a big improvement from the 6/7/10 low of 50.7. Importantly, the high and low trends (dotted lines) are still positive since the EMI high on 6/25. Remember an EMI greater than 100 is good times for metals & miners.

Enough talk, let's walk the walk:

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX trading in the low-$70s and closing on its 200-day average of $75.4 (our new warning level, 7/27 update), 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 GREEN light is turned back on for Investor Confidence as investors return to equities.

The YELLOW light is turned on our Fuel Gauge with oil above $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 up $1.82 in early trading to $80.77 (September contract, most active); Gold is up $2.3 to $1186.2 (December contract, most active); Silver is up $0.467 to $18.470 (September contract, most active); Copper is up $0.0515 to $3.3630 (September contract, most active)

Western Molybdenum Oxide is $14.00; European Molybdenum Oxide is $14.85; LME moly 3-month seller's contract is $15.20, LME cash seller is $14.99

The DOW is up 129.80 points to 10,595.74; the S&P 500 is up 13.95 to 1115.55. The miners are happy:

Barrick (ABX) $41.36 up 0.63%
Newmont (NEM) $56.32 up 0.75%
US Gold (UXG) $5.00 up 0.94%
General Moly (Eureka Moly, LLC) (GMO) $3.44 up 3.60%
Thompson Creek (TC) $9.48 up 1.94%
Freeport-McMoRan (FCX) $73.74 up 3.08% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $31.86 up 3.78% - global steel producer
POSCO (PKX) $106.17 up 2.08% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.95% to $1,401,838.31 (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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