Wednesday, January 19, 2011
Buy Barrick (ABX)? Buy Newmont (NEM)?
It is 5:49 AM. Have a cup of hump day brew and help me console Old Miner Wooden. He's feeling a little unloved these days. He's moved back into the hi-bay this morning, 86'd from senior housing and no sweethearts to chase. The sheriff says he got back into the mead with Thor at the Keyhole - what's a Colonel to do? Speaking of the unloved, what's going on with Barrick and Newmont?
Buy Barrick (ABX)? Buy Newmont (NEM)?
With the broader markets on a tear and the U.S. dollar heading down the mineshaft (again), you'd think our big gold miners would be hotter than their molten product. Of course gold has been pretty cold in the mold lately, a subject of this report since COMEX gold pegged a Pearl Harbor Day record of $1432.5/oz last December. Trading at $1,375.6/oz this morning, there is not much to cheer for folks with short memories. If you recall being excited when gold broke $575/oz a few years ago or the breach of the impenetrable $1000/oz barrier, you may be a little less distraught about living in the $1,300 neighborhood.
There are plenty of professional "explainers" around talking about gold's demise on a better than expected domestic recovery, bursting bubbles and the phase of the moon. One popular line is that "gold doesn't generate income" like a Treasury note or even better these days, a big dividend-paying stock that has moved with the rising tide of the DOW or S&P 500. When things get like this and you need a little something to lift your spirits, read a gold bug article. Here's a good one on John Embry's thoughts from the successful Canadian hedge fund Sprott Asset Management:
Gold stocks "to blow the roof off this year" (Sprott Asset Management's John Embry, Mineweb, 01/19/2011)
Hmm...$2,000/oz gold this year, now don't you feel better? The ole Colonel has hung his hat on $1570/oz before the Fourth of July but things could get messy for the metals & miners in the short term. I always like to buy stocks when they are unloved and our big gold miners have been as down on their luck as Old Miner Wooden.
Here's a 1-year chart of Barrick Gold (ABX) and Newmont (NEM) plotted against their 200-day moving average (green line):
This chart shows a comparison of Barrick and Newmont over the same time peiod:
OK, so what? Even though they are presently in the tailings, both Barrick and Newmont have done well over a one-year period with returns of roughly 16% and 22% respectively. Both are below their 50-day moving averages (MVA) and Newmont is below its 200-day. Here are the numbers:
Barrick Gold (ABX) $48.00 (AM today) $51.23 (50-day MVA) $45.88 (200-day MVA)
Newmont (NEM) $56.69 (AM today) $59.97 (50-day MVA) $58.74 (200-day MVA)
Both are presently paying a 1% dividend with the following price-to-earnings (P/E) ratios:
Barrick Gold (ABX) $0.12/share or 1% dividend; P/E = 19.8
Newmont (NEM) $0.15 0r 1.06% dividend; P/E = 14.9
If you think Barrick looks a little pricey with a P/E of nearly 20 you may choose Newmont as the better deal. Of course their latest performance has been bearish and both could go a lot further down from here on either lower gold price or a turn in the broader markets. I threw a few a few shares of Barrick in the buckboard when it dropped below $50 the other day. If you believe gold is headed higher in 2011 and prefer something that pays an income better than a money market account (presently 0.64% on a national average), you may want to think about owning some of our big boys, pardner.
Daily Market Roundup
Enough talk, let's walk the walk:
Eureka Miner's Index(EMI)
This morning the Eureka Miner's Index(EMI) is above-par at 703.36, down a bit from yesterday's 718.81. We are now just above the 1-month moving average of 691.94 - tricky territory. The upward trend of the EMI remains under considerable pressure.
The record high for the EMI is 816.78 set 01/04/2011; 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 which is under considerable pressure.
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 are OK but there could be rough roads ahead; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the high-$110s well above its 200-day average of $83.07 (our new warning level, 01/05 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 ORANGE light is turned on our Fuel Gauge with oil above $90
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 up $0.37 in early trading at $92.68 (March contract, most active); Gold is up $7.4 to $1375.6 (February contract, most active); Silver is up $0.523 to $29.435 (March contract, most active); Copper is up $0.0095 to $4.4375 (March contract, most active)
Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $17.28; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.92
Stock Market Morning Update
The DOW is up 2.92 points to 11,840.85; the S&P 500 is down 4.55 at 1290.47. Miners are mixed:
Barrick (ABX) $48.00 down 0.33%
Newmont (NEM) $56.69 up 0.23%
US Gold (UXG) $7.25 down 0.55%
General Moly (Eureka Moly, LLC) (GMO) $6.12 down 0.33%
Thompson Creek (TC) $15.01 down 0.13%
Freeport-McMoRan (FCX) $118.04 down 0.47% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $36.47 up 0.77% - global steel producer
POSCO (PKX) $105.96 up 1.16% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.51% at $1,887,377.82 (what's this?).
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus