"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.

Wednesday, December 15, 2010

Buy POSCO (PKX)? Miss Moly Gets Some Giddy-Up



Wōdnesdæg
Morning Miners!

It is 5:54 AM. Have a cup of holiday hump day java. Poor Old Miner Woden is looking a little unloved today. Ruby dropped him off at midnight so he could fire up Wednesday. That went OK but he's not looking forward to setting camp back up in the Colonel's hi-bay. I can't wait to tell him that he has been accepted into senior housing for the winter! Speaking of the unloved, what's up with POSCO?

Buy POSCO?

As the broader markets set new highs for the holidays, it is sad that the steelmakers missed the Christmas party. This Report follows steel giant ArcelorMittal (MT) and South Korean steelmaker POSCO (PKX) on a daily basis. They both have an investment interest in General Moly (GMO) and POSCO is a 20% owner of the Mt. Hope molybdenum project. Molybdenum is a key alloy in the hi-grade steels produced by both. Early in 2010, the steels had fire in their furnaces setting highs for the year in January. Here is a comparison of those highs and yesterday's closing price:

ArcelorMittal (MT) 52-wk high high $49.41 (1/8/2010)
Yesterday's close $37.07, down 25.0%

POSCO (PKX) 52-wk high high $140.34 (1/11/2010)
Yesterday's close $104.54, down 25.5%

Ouch! The European sovereign debt crisis soon cooled their January metal and the steels followed the miners down the shaft in May-June. Neither ArcelorMittal nor POSCO has fully recovered even though global growth seems to be back on track for 2011 with healthy prospects for the emerging world and at least slow positive recovery for the big western economies.

Yesterday, on CNBC Business News, "Commodity King" Dennis Gartman was bullish on steel for 2011 calling it the most "basic commodity" of global growth. He often reminds us that it is good to invest in things that hurt when you drop them on your foot.

The markets are now open and there are new jitters about Spain with Moody’s Investors Service expressing concern that it could follow Greece and Ireland in seeking a bailout. Predictably the metals & miners are taking a hit. POSCO is down another 1.5% but somewhat surprisingly ArcelorMittal is up 0.5%.

We can fret about Europe but in all honesty AreceloMittal has a very large global footprint and POSCO sells primarily to Asia. We can worry about building tensions on the Korean peninsula or remember that when others fear it may be a good time to invest. Warren Buffet has a major stake in POSCO and I haven't heard that he's headed for the lifeboats yet. Heck, I ain't scared either - the ole Colonel just threw a few ingots of POSCO into the buckboard at $102.89, the 200-day average price is $107.31.

For the folks that like charts, here is ArcelorMittal and POSCO share price for the past year. The green line is the 200-day average price:




This is the 1-year price comparison for both steelmakers:


Miss Moly Gets Some Giddy-Up

Often derided for its price volatility, molybdenum has been one of the steadiest metals for 2010 staying in a range of roughly $30,000 to $40,000 per metric ton for most of the year ($13.61/lb to $18.14/lb). By comparison, copper prices have had about 50% more variability than moly oxide over the same period (see note 1).

Spot prices in the West and Europe just nudged up a bit breaking a mild contango with the London Metal Exchange (LME) 3-month seller contract. The 15-month contract remains higher than the spot prices and 3-month seller.

All this mumbo-jumbo suggests near term demand is increasing and long term price stability is expected - not a bad state of affairs for Miss Moly. Here is a comparison with yesterday's and last weeks spot and futures prices:

Moly Oxide Spot Prices

Western $16.00/lb (was $15.75/lb) up 1.6%
European $16.15/lb (was $16.05/lb) up 0.6%

LME Futures

3-month seller $15.88/lb (unchanged)
15-month seller $16.46/lb (was $16.75/lb) down 1.7%

The Colonel's 2010 mid-range price target for the LME 3-month contract is $15.71/lb.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

The Eureka Miner's Index(EMI) is above-par at 623.34, down from yesterday's 681.57. The 1-month moving average is 539.61. The 2010 record high for the EMI is 739.13 set 12/7/2010; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County, the EMI re-established an upward trend on Friday, 12/3.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is OFF - Markets remain in Christmas rally mode; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the low-$100s above its 200-day average of $79.39 (our new warning level, 12/06 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 comfortably above $3.50/lb

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

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

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?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.99 in early trading at $87.29 (January contract, most active); Gold is down $15.3 to $1389.0 (February contract, most active); Silver is down $0.658 to $29.130 (March contract, most active); Copper is down $0.0585 to $4.1505 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.15; LME moly 3-month seller's contract is $15.88, LME cash seller is $15.65

Stock Market Morning Update

The DOW is up 16.05 points to 11492.59; the S&P 500 is down 0.28 to 1241.30. Miners are down:

Barrick (ABX) $53.07 down 0.15%
Newmont (NEM) $61.33 down 0.66%
US Gold (UXG) $7.28 down 0.27%
General Moly (Eureka Moly, LLC) (GMO) $5.35 down 0.74%
Thompson Creek (TC) $13.51 down 0.59%
Freeport-McMoRan (FCX) $113.63 down 1.04% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.25 up 0.49% - global steel producer
POSCO (PKX) $102.98 up 1.49% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.39% to $1,836,692.08 (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

Note 1: There is a quick back-of-the-envelope way to compare copper and moly price variability for 2010. The mid-range moly oxide price is one-half the trading range of $30,000 to $40,000/tonne or $35,000/tonne. Copper has been in range of roughly $2.75/lb to $4.25/lb over the same period with a mid-range of $3.50/lb. Comparing their mid-range to range limit difference we have:

copper/moly oxide = ($0.75/$3.50)/($5,000/$35,000) = 1.5 or 50%

Headline photograph by Mariana Titus

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