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XMFSinchiruna (26.55)

The Ultimate Commodity Update



March 06, 2009 – Comments (10)

Here is the broader commodities analysis spawned from the Joy Global earnings release referenced in a previous blog post. Enjoy, and as always, please tell me what you think. :P



10 Comments – Post Your Own

#1) On March 06, 2009 at 7:19 PM, GeneralDemon (26.32) wrote:

Very nice article Chris. Do you have any data regarding gallons of refined crude consumed per tonne of extracted ore or refined for the basic metals? I would love to see a comparison graph back to just prior to 1971 (you know what I mean).

Also, were you tempted to throw in a chart of the fifth wave? You know those candlesticks are acting up...

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#2) On March 06, 2009 at 9:12 PM, djemonk (< 20) wrote:

That was pretty ultimate.  Thanks for the legwork in collecting this kind of information.  Looks like I've got a lot of annual report reading to do this weekend!

I'm glad to hear your assessment of the various parts of the mining industry.  It's an area that I've targeted for investment in 2009 and I share your long-term bullishness in copper, coal, and iron.

I think we're in the early part of an economic winter here in the US, and I am expecting that commodity demand in China would be an area of profit over the next decade.  If it takes a year or two to get started, that's fine and it gives me extra time to gather these acorns, so-to-speak.  

I really like the idea of FCX, since I think that will do well if/when gold spikes and should also do well once copper demand starts to recover.  I think I'm going to have to check out their annual reports this week.

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#3) On March 06, 2009 at 10:42 PM, XMFSinchiruna (26.55) wrote:


I haven't scrutinized FCX's balance sheet in a while... how's their debt load?

Look into derivative contracts on copper, currency hedges, fuel hedges, etc... and make sure there are no red flags there.

Drawback for FCX (even though I'm long FCX and have been for quite a while): reliance upon the Grassberg mine in Indonesia, which is not as geopolitically predictable as, say Australia, where BHP has so many operations. I think BHP also makes a very compelling play for the long-term emerging market commodity demand recovery.

Disclosure: I'm also long BHP, and have been for a similarly extended period. [i.e. - I'm in the red on these and holding strong for the long-term, since "long-term"will be shorter than in any other sector of the global economy.

Oil, coal, copper, coal, iron ore, and perhaps even select steel companies will enjoy a substantial rally IMO once the impacts of China's stimulus plan kick into gear... sparking relative recovery through much of Asia over the coming years as the U.S. and Europe continue to manage the fallout from their fiat experiments gone awry. Read the links within the article for a more complete explanation of my views on the subject. As a resource-rich nation, Brazil will again find demand stoking limited growth of its own. Petrobras and Vale are excellent possibilities IMO, and both super-cheap here! [Disclosure, long RIO, but not PBR].I just added RIO for a second time for my silverminer portfolio.

Also added PXD, ACI, VLO, and CLF last week on that crazy down-day those CAPS picks. I'm long ACI, CLF, and VLO in real life.

Notice that since gold and silver are not commodities, I do not include them within the same discussion. They are completely distinct asset classes, with a touch of overlap. After all, this is a currency event rather than a jewelry and computer-chip event. :)


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#4) On March 06, 2009 at 10:52 PM, XMFSinchiruna (26.55) wrote:


;) Maybe I'm just weary from a long week, but you'll have to spell out for me the wink and the nod from paragraph 1.

Technical analysis on gold is woefully insufficient as a data source at this stage. The primary drivers of gold and silver presently are fundamental developments and the ever-looming reversal of the USD rally. Gold could skip to $1,200 on a dime before long, or it could correct further to touch $900 or $880... no one can predict the short-term movements of gold and silver right now.


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#5) On March 06, 2009 at 11:32 PM, GeneralDemon (26.32) wrote:

Chris, I am not interested in the data for TA use. I use charts to gauge relationships (the old fashioned way). I am interested in the relationship of crude oil consumed by mining operations (x variable) to the base metal produced (either ore extraction or preferably, refined product - function of x). I am sorry I wasn't clear in my 1st. post -

I am a believer in the theory that the price erosion experienced now by demand destruction is soon to be replaced by the realization of pending dollar devaluation (your view too, correct?)

There might be some interesting fluctuations in the graph at key times that could portend what will happen shortly - the mining companies must hedge their oil, right? Maybe there is too much info needed that can't be assertained?  Can an mining company conserve oil by modifiying operations?

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#6) On March 07, 2009 at 8:16 AM, oversea (< 20) wrote:

Quite interesting.

I own some FCX since the end of last year, at first they went down a little, but now they are on the upswing since the beginning of February. So it would be very kind of you if you could post some infos about FCX's financials. I have some other base metals mining stocks (RIO, TIE) because in my opinion they'll be among the first to rise after this mess. I've added also a few shares of a small cap, GMO, because molybdenum's ores are rare in the US. Next on my wish list are TECK, CCJ, PCU. I'm wandering if not buying also USAC, another small cap, since antimony is another rare metal in the US. Now it seems that also lithium has good perspectives, but I don't know any good stock for it. Could you kindly give us the name of a reliable informations site about commodities? I believe there are some real bargains to be made right now also for an old fashioned buy and hold guy like me. Unfortunately most financial advisors seem to be scared by mining stocks, or to ignore them, so they aren't a reliable source of infos.  




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#7) On March 08, 2009 at 4:36 PM, Tastylunch (28.70) wrote:

As usual d@mn good article Sinchi. The Fool is lucky to have you.

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#8) On March 09, 2009 at 4:00 PM, kaskoosek (30.24) wrote:


Gold is the most overvalued commidity.

I really do not understand all the fascination. Just because other people are buying it means I should too.


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#9) On March 09, 2009 at 4:05 PM, XMFSinchiruna (26.55) wrote:


Gold is not a commodity. I'm sorry that you don't understand. :)

On what basis do you stake your claim that gold is overvalued??

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#10) On March 10, 2009 at 7:11 AM, Xciteddon (66.64) wrote:

Thank you so much for all the information you have written about these last few blogs! I have really enjoyed them. I agree that for the long haul metals are a good buy. I think copper will really go. I also agree that China will be the first indicator of the market. Thanks again so much and please keep it comming!


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