More Mining Please

Hey Influence Traders,

It’s Monday, the first day of February, and I’m expecting a wild week in the markets.

We’re coming off last week’s Reddit run, but unlike other rallies that impact one sector, this one is trying to move around the Ouija Board.

The Next Target
Are commodities like Gold and Silver next?

We are certainly starting to see some movement, particularly in silver names. BlackRock reported on Friday that its iSHares Silver Trust (Ticker: SLV) has seen almost $1 billion in inflows.

First Majestic Silver (Ticker: AG) and Pan American Silver (Ticker: PAAS) are both up in pre-market activity.

Does the Reddit crowd want to recreate the 1979-80 move that saw silver jump 713% in a year?

It might not be as easy as the Redditers hopes … commodities don’t always trade like company stock and there are big off-market exchanges that banks use to trade commodities.

Also, after the Hunt brothers tried to corner the silver market in 1979 and ran up the price, the COMEX adopted “Silver Rule 7” which put restrictions on the purchase of commodities on margin.

But that doesn’t mean it can’t be done – there is short interest in some of these names, and we saw what that meant for GameStop.

Like I said, it should be a wild week.

DC Response?
The SEC is going to be under pressure to look into GameStop and the Reddit phenom.

You’re going to hear lots of questions coming from Washington:

  • “What happened?”

  • “Was their market manipulation?”

  • “Is the system flawed?”

Gary Gensler is still waiting to be confirmed as SEC Chairman. His first days should be lively.

The SEC is used to going after manipulation by the big guys. it will be interesting to see how it addresses a merry band of Reddit users going after the kings …

Particularly when their motivation was more about sticking it to hedge funds than making money.

Gensler has a background in stopping market manipulation. As the head of the FTC he brought dozens of cases against big banks for manipulating key interest rates.

But going after small investors is not what the SEC is used to doing … and it will be a political landmine.

Many on both sides of the aisle are cheering the actions of the Reddit mob and are calling for Robinhood and hedge fund heads to roll.

I anticipate a lot of long and drawn out investigations that will make it look like a lot is being done.

I will be monitoring the rhetoric about “fundamental problems with the system” as that will have the potential for long-term impacts.

Enough With The Noise
Let’s get back to mining. Last time I talked about global mining companies that could do well.

But what about domestics?

Well, Joe Biden has instituted a Buy America program.

His intent is to help strengthen union jobs and domestic production by requiring more goods and services to be made in America when purchased for government contracts.

Biden has set a 180-day timeline for revamping the procurement process to meet this goal.

He is also going to institute massive infrastructure spending on traditional and green policy projects.

This will benefit mining companies.

Domestic Mining
Many of the biggest global mining companies are located in Australia, Canada, China and South America.

But the U.S. has its fair share as well.

Here are the leading U.S. mining companies based on 2020 revenue (in billions of U.S. dollars):

 

There are also a number of high-quality operations in the U.S. that should benefit from traditional infrastructure and green deal spending policies.

I’m keeping my eye on these two:

  • Freeport McMoRan (Ticker: FCX): This Phoenix-based company is one of the world’s largest copper producers with operations in the Americas and Indonesia. It also produces gold and silver. Over 70% of its sales are from U.S. operations. FCA just beat its EPS by 33%, yet saw its stock price slide with the rest of the market in the closing weeks of January.

  • Albemarle (Ticker: ALB): This Charlotte-based company is a global leader in lithium and bromine and recorded a 36.4% increase in sales in 2020 over 2018. I like that just 25% of its sales currently come from North American operations (there’s room to grow in the U.S.). ALB is a little rich with a 45 P/E ratio, but it recently topped its quarterly consensus EPS estimate of $0.78 by $0.31, despite a year-over-year decrease in revenue. Like FCX, it saw its stock price slide in January. I’m going to keep an eye on its next quarterly earnings report which is set to be published on Feb. 17.

I think that these two could be real gems.

Cutting Through the Noise for You,

Frank

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