Metals Soar - What's Up (or Down) with Miners?

Navajo Nation Series First in a series of headline photographs taken by Mariana Titus on a trip through Navajo Nation with the Colonel - November 2010


Wōdnesdæg
Morning Miners!

It is 5:50 AM. Have a cup of hump day java and join us by the stove. Old Miner Woden and I were just looking through some travel pictures that Mariana took in Navajo country this fall. It seems my sidekick Loquita is as interested in that old red rock as much as the photographer. Speaking of the color red, that red metal copper is off setting records again...

COMEX copper sets yet another record

COMEX copper bested yesterday's record in the early hours touching $4.5620/lb, the 13th record since the Pearl Harbor Day highs of last December. COMEX gold remains wishy-washy at $1337.2/oz barely budging from its price yesterday at this time and a long way down from its record high in December. Does this all seem a bit déjà vu?

For the record keepers, here's where we stand for the big three:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $31.275/oz 08:15:00 ET 01/03/2011, March contract most active
COMEX Copper $4.5620/lb 02:45:00 ET 02/02/2011, March contract most active

Even though gold can't get out of its own shadow, all the base metals have been in rally mode with copper and tin setting new records daily. Respected commodity trader Bill O'Neill, partner of LOGIC Advisors, says, "We just have a base metals blitz to the upside...In a certain sense, it's similar to the agricultural commodities in that it's a demand-based rally, and there's nothing more bullish than a cyclical demand rally."

Gee, that's great. I just wish the miners would get a little more zip, we'll check on them in a minute when the broader markets open.

Stainless Steel on the move

Miss Moly should be happy to read this article in Kitco News:

World Stainless Steel Output Hits Record High In 2010; Another Expected in 2011: MEPS (Kitco News, Montréal, 02/02/2011)

Molybdenum is a key alloying metal in the production of stainless steel. Kitco reports, "Countries on a global scale all increased output significantly after shaking off the remnants of the 2008 economic crisis." Global crude stainless steel output hit an all-time high of 30.45 million metric tons in 2010 and 31 million metric tons is forecast for 2011 by the U.K.-based steel consultancy MEPS.

Moly prices haven't rallied like the base metals but have been climbing steadily up in the last few months. As we reported in the Monday roundup, spot moly prices are now in $17/lb territory out West and in Europe. CPM Group is estimates an average price of $21.75/lb for 2011; the Colonel's mid-range target is $20.21/lb.

So what's up (or down) with the miners?

The broader markets are now open and it looks like a pretty crummy day for the poor old miners. By the way, don't have a heart attack when you see the share price for copper giant Freeport-McMoRan (FCX). They just had a 2:1 stock split so today's price is roughly half of yesterday's. This is just zero-sum accounting my friend, if you invest in these guys you now have twice as many shares at half the price.

Since FCX is an input to the Eureka Miner's Index(EMI), I've adjusted the calculation to compensate for the split.

OK, the EMI is down a bit today from yesterday at 541.7 (see below) and a whole lot down from the January high of 816.8. The Index has been trending south since January 4th. The gold miners have an excuse because their product has lost some shine but what about Freeport and General Moly (GMO)? Copper is in a major rally mode and things are positive for molybdenum prices - what's up?

Freeport is coming off its 50-day average ($56.34 versus $56.22) but GMO is still below at $5.36 compared to an average of $5.77. Similar to FCX, benchmark moly producer Thompson Creek (TC), is just above the 50-day at $14.01 versus $13.8. All three are looking better than Barrick Gold (ABX) which is barely making it above its 150-day average of $47.24 at this morning's price of $47.66. Here's how the three EMI benchmark miners and General Moly compare to their January 3rd share prices:

Freeport-McMoRan (FCX) $59.79 (1/3/2011) $56.34 (today) down 5.8%
Barrick Gold (ABX) $52.59 (1/3/2011) $47.66 (today) down 9.4%
Thompson Creek (TC) $15.38 (1/3/2011) $14.01 (today) down 8.9%
General Moly (GM0) $6.48 (1/3/2011) $5.36 (today) down 17.3%

As the broader markets and base metals hit new highs the miners are still in correction, pardner. There is some signs of hope seeing Freeport and Thompson creek moving up from there 50-day averages but there is a lot to go from here to reach the highs of early January. I'm still long term bullish on this sector but we may not get back to the promised land until later this spring. As I have said before - rising copper prices on falling gold is a red flag in my world. More on this when we do our metals outlook for February, stay tuned.

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 541.72, down a bit from from yesterday's 559.19. We are below the 1-month moving average of 610.67 and the the EMI is now trending down from the high set on January 4th.

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.

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 ON - The metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just above its 50-day moving average but still well above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 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

SPECIAL NOTE: The Report will track both NYMEX Western Texas Intermidiate and ICE Brent crude oil prices until things settle down in the Middle East. WTI is a benchmark for North America; North Sea Brent, for Europe (see note 1).

NYMEX/COMEX: WTI Oil is down $0.04 in early trading at $90.73 (March contract, most active); Gold is up $2.8 to $1337.3 (April contract, most active); Silver is up $0.181 to $28.350 (March contract, most active); Copper is up $0.0365 to $4.4950 (March contract, most active)

Brent Crude is down $0.01 at $101.73(March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.50; LME moly 3-month seller's contract is $17.69, LME cash seller is $17.51

Stock Market Morning Update

The DOW is up 2.42 points to 12,042.58; the S&P 500 is down 1.67 at 1305.92. Miners are down:

Barrick (ABX) $47.66 down 1.24%
Newmont (NEM) $56.00 down 0.90%
US Gold (UXG) $6.42 down 3.02%
General Moly (Eureka Moly, LLC) (GMO) $5.36 down 0.92%
Thompson Creek (TC) $14.01 down 1.34%
Freeport-McMoRan (FCX) $56.34 down 1.22% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.46 down 1.98% - global steel producer
POSCO (PKX) $105.24 up 0.49% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.01% at $1,712,716.28(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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