Hedge funds have never been this bearish on commodities
Frik Els | November 23, 2015

“According to the Commodity Futures Trading Commission’s weekly Commitment of Traders data, five weeks of selling has seen 13 of the 24 commodities tracked pushed into net short positions.

Thos include the major commodities like crude oil, gasoline, gold, copper, soybeans, corn and wheat where speculators are betting that these commodities will be cheaper in future.

Sentiment on commodity markets have not been this bearish since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.”

http://www.mining.com/hedge-funds-have-never-been-this-bearish-on-commodities/

Fantastic Jim. Thanks, I’ll definitely add it. I realized I didn’t put up Nevsun Resources either and just found a whole other watchlist with many copper gold companies too. Some of Gold/copper or Silver/base metal plays I also have in the Gold and Silver mining watch list. It’s hard to categorize some of these when they are poly-metallic.

Thanks again for the recommendation. I’ll post an updated list in a few minutes….

Here’s the first part of the article posted above because it is a nice summary:
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Study shows copper price fall matches previous down-cycles going back to 1975, but expect a long painful slog before a sustained recovery

It’s been a brutal November for copper which despite a nice bump on Tuesday is down more than 10% during the month.

In New York on Tuesday copper gained 2.5% to $2.06 a pound after coming dangerously close to dropping through $2.00 on Monday, the lowest since March 2009.

Copper traded below the $2-level for a brief seven months at the height of the global financial crisis. It took just 18 months to climb its way back to a record of nearly $4.50.

Is today’s big bounce off the psychologically important $2-level (in the absence of any really positive development on commodity markets) the first signs of a bottom in the copper market?

Barclays recently put out a research report that compared copper and crude oil cycles going back to 1975.

Compared to previous downturns – the 1980s global economic slump, the late 1990s Asian crisis and the global financial crisis of 2008-2009 – the current bear market in oil and copper is already more severe.

Relative to their rolling five-year averages, the November average price for copper is down 36% (and at today’s price it’s just over 40%) and more than 50% below for oil. Copper’s decline matches the average maximum decline of 36% during the previous downcycles while oil is clearly overshooting on the downside, according to the study.

But the depth of this bear market is just one half of the story.

Comparing the length of time trading at cyclical lows compared to previous periods indicated the copper market may be “bumping along the bottom” for a while still.

Take China out of the picture and global demand has actually been flat or declining
Copper has now traded at 20% or more below its prevailing five-year average for 10 months. According to Barclays during previous downturn the red metal spent 15 months in a bear market.

Put another way – copper (and oil) should be performing much better and not making fresh lows if we were witnessing a sustainable recovery….”

Here’s the first part of the article posted above:
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“More than 18,600 km from Beijing, in copper-rich northern Chile, beleaguered miners are barely coping with the impact of China’s economic slowdown.

The situation is worse than many think, according to the country’s mining industry group Consejo Regional Minero de Coquimbo (Corminco), which represents some of Chile’s top miners in the copper sector, including Antofagasta (LON:ANTO), Glencore (LON:GLEN) and Teck Resources (TSE:TCK.A, TCK.B) (NYSE:TCK).

Its president, Juan Carlos Sáez, told El Día newspaper (in Spanish) that a “majority” of the group’s members are already unable to make a profit.

“We hope this is already the lowest level,” said Sáez referring to current copper prices. “Because it’s below the limit of exploitation for the majority of miners in the country.”

Another great suggestion with Trevali Jim. Yes, I am familiar with their story and have them grouped in with my Silver miners watchlist. You are correct that what is unique about them is their “Zinc focus”, so they may be better suited here the other base metal companies than with Silver companies.

My thought was that there are number of companies like:
– Americas Silver corp’s: Nuestra Señora (silver-zinc-copper-lead project)
– Alexco: Flame & Moth, Bellekeno, and Lucky queen projects that are (silver-gold-lead-zinc)
– Great Panther Silver: Guanajuato Mine Complex, San Ignacio mine, and Topia Mine, that are (silver-lead-zinc)
– Fortuna: Caylloma mine, which produces silver, gold, zinc, and lead

etc….etc….. there are a number of Silver-Gold-Lead-Zinc companies that fall into the “Silver miner” category, and that is why I had Trevali in with that crowd.

It is definitely and interesting company to keep an eye on Jim, and I appreciate that you brought it up into the mix today. Cheers!
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Trevali reports third quarter 2015 financial results and provides Caribou commissioning update: Q3 EBITDA(1) $3.9 million, Revenues $27 million and Net Loss of $3.4 million
November 16, 2015

Q3-2015 Highlights:
• Santander concentrate sales revenue of $27 million
• EBITDA(1) of $3.9 million
• Income from Santander mine operations of $1.5 million
• Santander Q3 site cash costs(2) of US$0.28 per pound of payable Zinc Equivalent (“ZnEq”)(3) produced or US$38.67/tonne milled, ahead of the Company’s revised year-end guidance of US$46-48 per tonne milled
• Santander Q3 production of 14.8-million payable pounds of zinc, 7.8-million payable pounds of lead and 285,962 payable ounces of silver
• Santander Q3 sales of 15.2-million pounds of zinc, 8-million pounds of lead, and 290,228 ounces of silver
• Realized selling prices for zinc, lead and silver of US$0.78 per pound, US$0.73 per pound and US$14.80 per ounce respectively at Santander
• Santander mill recoveries remain higher than design at 90% for Zn, 89% for Pb and 77% for Ag
• Net loss of $3.4 million or ($0.01) per share

http://www.trevali.com/i/pdf/2015-11-16_NR_TV.pdf

Hey Chartster, glad to get your thoughts, and I’m always glad to share ideas.

Yes, COPX is a great way to get exposure to the copper miners. I’m not crazy about their weighting inside the ETF, because there are companies with a high weighting that I’d reduce, and some with a small weighting that I’d increase. Overall though, it is an easy way to play the copper and some base metal recovery over a great smattering of companies.

Here are the Holdings inside of COPX for anyone curious:

Stock Weight Amount
Cst Mining Group Ltd 6.536% $1,076,885
OZ Minerals Ltd 6.268% $1,032,688
Sandfire Resources NL 5.392% $888,370
Jiangxi Copper CO Ltd-h 5.329% $878,031
Grupo Mexico Sab DE Cv-se 5.136% $846,089
Antofagasta Plc 4.862% $801,060
Kghm Polska Miedz SA 4.701% $774,575
Glencore Plc 4.572% $753,230
Teck Resources Ltd-cls B 4.388% $722,979
Vedanta Resources Plc 4.165% $686,171
Kaz Minerals Plc 3.867% $637,115
Imperial Metals 2.31% $1,160,923
Cudeco Limited 2.301% $379,105
Hudbay Minerals 2.18% $1,094,887
Lundin Mining 2.11% $1,060,963
Copper Mountain Mining Co. 1.90% $956,992
Southern Copper 1.81% $910,548
Turquoise Hill Resources 1.78% $892,424
Capstone Mining 1.67% $839,111
First Quantum Minerals LT 1.63% $820,841
Freeport-mcmoran 1.31% $658,230
Copper Mountain Mining Co. 0.024% $4,034

As for SILJ, I almost picked some up today. It has a great allocation of quality Silver Jrs and a great weighting in most of the companies included. Whatever team of analysts is doing the research behind SILJ is doing a great job. The only challenge with it is less liquidity, but I still expect it to outperform both Silver and likely SIL when we have Silver prices above $18-$19 again.

IPI – Intrepid Potash is a great company, and fertilizers will do fine in the next few years. I really like Mosaic (MOS), (ICL) Israel Chemicals, and (CF) CF Industries for the mid to long-term. Lastly, there is the ETF (SOIL), that is an easy way for investors to get exposure to the Potash and Agricultural space. (MOO) and (JJA) are other good Agricultural-focused ETFs.

Here’s my Fertilizer & Agricultural Watchlist. If there are any other agricultural companies you recommend, please post them below:
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Fertilizer, Potash, Agricultural
Company Name Symbol

AFRICAN POTASH LIMITED APOTF
Adecoagro S.A. AGRO
AGRIUM INC AGU
IPATH PURE BETA COFFEE ETN CAFÉ
TEUCRIUM SUGAR ETF CANE
CF INDUSTRIES HOLDINGS INC CF
COMPASS MINERALS INTERNATIONAL CMP
FMC CORPORATION FMC
GLOBAL X FERTILZERS/POTASH SOIL
INCITEC PIVOT LTD INCZY
INTREPID POTASH INC IPI
iPath® Bloomberg Agriculture Subindex JJA
ISRAEL CHEMICALS LTD ICL
Market Vectors AGRIBUSINESS ETF MOO
MOSAIC COMPANY (THE) MOS
NUFARM LTD NUFMF
PJSC URALKALI URAYY
POTASH CORPORATION OF SASKATCHEWAN INC POT
SYNGENTA AG SYT
TERRA NITROGEN COMPANY L.P. TNH
YARA INTERNATIONAL ASA YRAIF

OK we covered Copper, Silver, Fertilizers, and you also brought up REE. Let’s talk Rare Earths…….

Rare Earths were part of a series of pump & dump marketing campaigns, that peaked around the same time that many commodities like gold, silver, & base metals, but go over-hyped like graphite, lithium, niobium, and tungsten. The valuations got way to far into the stratosphere, and the expectations were to grand and predicated on what China would or would not produce, use, or share.

Now, having said that, like investors do so often…..everyone threw the baby out with the bathwater, and sold down the entire sector to decimated levels.

It didn’t help fledgling Rare Earths space that 3 first main contenders to the market (Molycorp, Lynas, and Great Western) all cratered and that the price declines hit right at the wrong time in their development cycles. What a mess!!

#1) Molycorp turned into Molycrap and did one of the most epic nose-dives I’ve ever seen in almost any stock. What a tragedy, and the company they acquired before falling off the cliff (Neo-Materials), was world class and had all kinds of supply contracts into China. I believe it became the Magnetic Materials and Alloys division. Again, they had great assets, infrastructure, and promise, but the management made a series of bad decisions, had bad timing, and the pricing just pulled out the rug from under their feet. Now they are in the final death throws and mired in lawsuits about which kind of Chapter 11 to file.

2) Lynas – Lynas has great assets, supply contracts and offtake agreements, and things were going great, but they diluted the snot out of investors, and starting slipping compared to Molycorp (and at the time many up an coming Rare Earth projects that were seen as gaining fast). The real back-breaker (besides the price slide) was when they went to build their processing plant in Malaysia and got stuck in years of riots, protests, and political posturing from radical environmental groups. It stalled the project for too long, swallowed up time & money, and resulted in many more expenses to keep the public happy with their environmental security protocols. Also, they had to start with trial production for a long ramp up, due to public outcry. When they finally started producing their first concentrates, the pricing had tanked.

What I will say about Lynas is that their share price has spiked up lately on the news that Molycorp is even more a of trainwreck than it already was.

#3) Great Western Minerals – Here was the RC cola to the Coke (Molycorp) and Pepsi (Lynas) in the Rare Earths space. Great Western had a really unique factory in the US and in London with their Less Common Metals division, where they worked with all kinds of specialty metals, made magnets for wind turbines, and produced many variations of rare earth metals for targeted application. In an effort to have an integrated supply chain, they took over a majority ownership of the are Earth Extraction Co and Steenkampskraal Project in S. Africa. Well eventually, when prices came off in REE’s, the market only traded them based on this mine and exploration play, but totally discounted their 2 factories which were making great strides. The debt got out of control as they expanded the factories right before the prices fell off a cliff. Now they are currently selling all the components of the company and breaking it up. Another tragedy, as this company had so much potential, and now it is roadkill.
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As for the remaining survivors and zombie Rare Earths, I have a big list of over 40 companies, but there are only a handful I feel remotely hopeful for, and the pricing route may last so long that none of them are still in business in a few years, but here are the gems in the rough:

REE – Rare Earth Element – (I used to like it, but the divergence between rare earths and precious metals seemed like 2 different companies sandwiched together). There are companies I like more.

My favorites in the new paradigm are:

Alkane Resources, Arafura Resources, Avalon Rare Metals, Commerce Resources, Frontier Rare Earths, Pele Mountain Resources, IBC Advanced Alloys, Matamec Explorations, Quest Rare Minerals, Tasman Metals, and Ucore Rare Metals.

Again, the space is just decimated, so I’ve steered clear of it the last 2 years. I still hold trapped and underwater positions in Lynas, IBC Advanced Alloys, Arafura, and Pele Mountain because I rode them down into the ground.

The most likely companies to make it out alive in a few years are Avalon, Tasman, Ucore, Matamec, Arafura, Pele Mountain, and Frontier Rare Earths.

I’m keeping the door open for Lynas, as lately, there has been the first glimmer of hope in years, and their production is finally getting close to where they promised it would be 2 years ago. Lynas is hanging on by a thread, but it just may survive, and has a big jump-start on any of the other companies listed.

Also, the restructured or partially restructured Molycorp may have certain divisions that get spun out to new endeavors, so it will be interesting to watch that play out.

For now I don’t give rare earths much time, but they will eventually have their time.

Best of luck to all in their investments.