The Steely Side of Moly Miners: POSCO (PKX) & ArcelorMittal (MT)

Up on the hill
They think I'm okay
Or so they say
Chinese music always sets me free
Angular banjos
Sound good to me
Aja
When all my dime dancin' is through
I run to you - Steely Dan

NEW FORMAT for 2012

Daily Commentary
Daily Market Roundup
- Gold & Silver Report
- Copper & Molybdenum Report
- Oil Watch
- Debt Crisis Watch
- Stock Market Morning Update
- Eureka Miner's Million Dollar Grubstake Portfolio

My Latest International Business Times commentary: Gold and Silver “Together Again” (12/05/2011)

My latest Kitco commentary:
What does CRS© tell us about Gold, Copper & Oil? (11/28/2011)

This morning's...
COMEX Gold price = $1655.1/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 90.92 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,521.1/oz
COMEX - VAGP = $134.0/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels


Wōdnesdæg
Morning Miners!

It is 6:07 AM. Have a cup of Steely Dan. Old Miner Woden has been whistling Aja all morning long. Why someone his advanced age would be singing that song is a mystery to me - maybe he's thinking about the steely side of moly miners...

The Steely Side of Moly Miners: POSCO (PKX) & Arcelor-Mittal (MT)

This report has been looking at moly miners General Moly (GMO) and Thompson Creek (TC) this week. Because molybdenum is a common alloy in high-grade steels, it is only natural to wonder how steelmakers are doing that use their product. We track the stock performance of steel producers POSCO (PKX) and ArcelorMittal (MT) on a daily basis. South Korean POSCO is a 20% owner of our Mt. Hope molybdenum project with an Asian market emphasis that includes Australia. ArcelorMittal is a global steel giant with a presence in Europe, Asia, North and South America and Africa.

The latter part of last year was hard on steel makers as well as moly miners as we can see in the following 6-month chart of share price performance for PKX (blue line) and MT (green line):

Fortunately, PKX has been in rally mode for eight out of the last market days closing fast on its 200-day moving average (orange line). So far this morning is a down day in the broader markets but PKX is up a full percent at $92.55 just below its 200-day average of $94.16. We noted yesterday that Thompson Creek (TC) was enjoying a similar move upwards to its average; bullish signs for both the steelmaker and benchmark moly producer. ArcelorMittal has struggled more to recover share price due in part to its greater exposure to European markets. Over six-months MT is down a full 35%; PKX only 18%.

Here is a chart that compares the relative performance of POSCO, Thompson Creek and General Moly over that same period:

Thompson Creek is down 14% to PKX's 18% and GMO lags 32%. The Report noted yesterday that General Moly's flat line performance may be building a base for a breakout to join benchmark Thompson Creek.

So far, it looks like things are improving in the land of moly and steel - at least in the East and possibly North America. European moly oxide got a bid up to $13.98/lb yesterday so perhaps the outlook there is not as grim as expected earlier this month (see the Copper & Molybdenum Report below).

Please do your own research, this report could be dead wrong about the future of moly miners and steelmakers. As the Colonel said yesterday, all bets are off if Europe goes into a tailspin or the Persian Gulf explodes into conflict. Stay tuned.

Aja
When all my dime dancin' is through
I run to you

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $45.44 down 0.09%
Newmont (NEM) $57.31 down 0.30%
US Gold (UXG) $5.10 down 2.30%
General Moly (Eureka Moly, LLC) (GMO) $3.25 down 1.52%
Thompson Creek (TC) $8.28 down 0.48%
Freeport-McMoRan (FCX) $43.40 down 1.27% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.55 up 0.89%
Timberline Resources (TLR) $0.48 unchanged

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

ArcelorMittal (MT) $20.73 down 3.13% - global steel producer
POSCO (PKX) $92.55 up 0.99% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is above-par at 154.75, up from last report's 150.75 and above the 1-month moving average of 111.48. The new record low for 2010-2012 was set Oct. 4, 2011 at 22.88. The 1-month average is currently above the key 100-level.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record 2010-2012 high for the EMI is 816.78 set 01/04/2011; the low was set 10/4/2011 at 22.88. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

Gold & Silver Report

This morning's...

COMEX gold is down $9.4/oz at $1,655.1/oz (February contract, most active)

COMEX silver is down $0.230/oz at $31.745/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 52.137 oz/oz

Silver 1-month CRS© is 2.80% (bullish level); stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 90.92, down from last report's 91.30 and below its 1-month average of 92.18. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,521.1/oz which is $134.0/oz below the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil derivatives are a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX price is less than the VAGP, then gold is undervalued; if above, overvalued.

Copper & Molybdenum Report

This morning's...

COMEX copper is down $0.0215/lb at $3.7860/lb (March contract, most active)

The gold-to-copper ratio is 437.16 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish)

Copper 1-month CRS© is 2.68% (bullish level); divergent (Cu bearish)

The latest molybdenum oxide spot and futures prices (courtesy of Thompson Creek Metals):

Metals Week Average:
US$13.875
As of January 23, 2012
(updated weekly)

Ryan's Notes Average:
US$13.80
As of January 24, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$13.98/lb

London metal Exchange (LME) molybdenum 3-month seller's contract:

US$14.29/lb (US$31,500/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices (click this link)

On February 1st, 2011, we identified North Sea Brent crude oil as a good barometer for the crises in the Middle East and North Africa (MENA). The next conflict could be in the Persian Gulf. Brent remains above $100/bbl maintaining a spread above the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX.

Here are the key front-month contracts this morning:

NYMEX light sweet crude $98.11
ICE North Sea Brent crude $109.51
Spread (ICE- NYMEX) = $11.40 (last report, $11.28)

Here are the May contracts* with a narrower spread:

NYMEX light sweet crude $98.86
ICE North Sea Brent crude $109.48
Spread (ICE- NYMEX) = $10.62 (last report, $10.48)

* NYMEX futures contracts have rolled forward, we now show March and May for a 2-month look-ahead

NYMEX WTI 1-month CRS© is 2.77% (bullish level); weak convergence (Oil neutral)

Prices are off their crisis highs and we have $105+ Brent and $95+ NYMEX in May favoring high oil prices this spring.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 89.2 down from last report's 92.4. A level above 200 is time for serious concern. We are now well below that level.

Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011 and continuing into 2012.

Stock Market Morning Update

The DOW is down 68.95 points to 12,606.80; the S&P 500 is down 3.24 points at 1311.41

The Eureka Miner's Grubstake Portfolio is down 0.73% at $1,495,882.52 (what's this?).

Cheers,

Colonel Possum

Headline photo by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market