|
One of my readers wrote to me last week
inquiring about a stock that I have long coveted named General Moly (GMO). I
wrote to her on Wednesday that while there was some good news in the resource
reports from their second property called the Liberty project that the stock
was being heavily shorted and the spot price of molybdenum on the London
Mercantile Exchange had fallen to $14.40 a pound. I told her that I concluded
those were the reasons that GMO had not performed well lately. I also told
her that I felt these reasons were transitory in nature. I also told her that
GMO was still waiting for the water rights to be granted and this was adding
fuel to the shorting of the stock. Indeed, for a company that had been
trading an average of 1 million shares a day as reported on the AMEX
Bi-Monthly Short Interest Trading site as of June 15th GMO
had 7.8 million shares trading short. I told her not to fear this but to look
at it as an opportunity to pick up more shares at a bargain price. I told her
that while China is the biggest exporter of Rare Earth Elements (REE’s)
they are net importers of molybdenum. I also reminded her that the Chinese
firm Hanlong had invested heavily in GMO and had recently extended the time
limit for the 765 million dollar loan that GMO would receive once the permits
were acquired. There were also whispers that could not be confirmed that
Hanlong had come up with a several million dollar advance on the loan. I also
reminded her that two other companies had substantial stakes in the company namely
the South Korean giant steel company, Posco and the Japanese trading company,
Sojitz.
I
have often written that I believe the market is the sum total of human
emotion, frailty and wisdom. I also believe the market is smarter than I am
and that it never lies. This is not an original thought. It is part of the
teachings of Richard Russell who I learned about from a friend I met on the
GMO chat board who I think is one of the smartest, savviest investors I know.
Well
on Friday, as the battle of the shorts raged, I had bought another 30
thousand shares between $4.10 and $4.15 from three different accounts. I had
beefed up my position in the stock with an eye on swing trading the stock as
I had in the past. It was at about 1:15PM that GMO trading was halted. I knew
something was up and immediately sent an en masse email to all of my readers
that trading had been halted on GMO and to stand by for an alert. It was then
that I received an alert that the water rights had been granted by the state
engineer and General Moly who always “plays nice in the sandbox”
in fairness of full disclosure to all parties had halted trading so they
could issue a press release. I immediately notified my readers but it took
about a half hour for trading to resume. Once trading resumed I watched as
the stock raced up 7% as I had expected. At this point the strangest thing
happened. The stock started to sell off. What was even more disconcerting was
the volume which on a normal day is about 1 million shares had not even
reached that point and it was after 2:00PM. I was lucky enough to
get Seth, the head of Investor Relations on the phone and asked him what was
going on. He told me he had no idea what was going on and he was as surprised
as I was to see the stock start to sell off. We concluded that the big boys
were in their South Hampton homes getting ready for this delicious New York
summer weekend. He also reminded me that final permitting by the BLM is still
about nine months away and it might be too soon to start taking victory laps.
While that seemed plausible enough it did not sit well with me and I
immediately fired an email to my buddy and asked him what he thought was up
but he also had no clue.
It was
then that I remembered that the market will always do what the market does
– confuse and confound. I had the strangest sense of ease come over me.
What are you worrying about? You bought 30,000 shares this morning
at around $4.12 so relax. As soon as the feeling hit me GMO turned around and
closed up at $4.45 or 5% with 1.67 million shares traded. By no means what I
expected on this news but all in all a pretty good day. Let’s also not
forget that it was only last December that this stock was trading at $7.25
when they ran into the problem with the water rights.
So
in conclusion there are two possible scenarios that I can see this playing
out next week. One will be that the stock market takes the short sellers out
to the woodshed and beats them senseless and the stock rises to the $5.03
level of resistance (the 200 Day Moving Average) or the market sells off en
masse thanks to our elected officials playing the latest adult game in
Washington called “Brinksmanship.” If this happens GMO could go
lower than $4.10 giving every one another shot at buying this stock at a once
in a lifetime price.
When
speaking of stocks I never use the word hope. I think hope goes better with
gambling or dating a beautiful girl. With the market I find it better to deal
in probabilities. So while none of us can predict the future or the emergence
of “Black Swans” I think the probability of this project being
permitted is high. I will use what I consider evidential proof to back up my
assumption. CEO, Bruce Hansen has amassed first rate management team and they
have followed the letter of the law “chapter and verse.” There
have been no shortcuts taken and no mistakes made. They have built an amazing
amount of good will within the community of Eureka and the state of Nevada
towards this project and I will give a mention to an unsung hero in this
effort, Zach Spencer. Add to this that this project will be a tax windfall
for the city of Eureka the state of Nevada and finally consider the thousands
of jobs that will be created by GMO on the project and the ripple
effect this will have as real stimulus is added to the community of Eureka
and the State of Nevada.
While
there may be some dark days ahead I believe that I finally see the light at
the end of the tunnel. I believe that nine months from now we will be
rewarded for or patience and fortitude.
|
