The Mergers Continue for the Base Metal Producers

Three weeks ago I woke up to a 10% hair-cut as Canadian Government decided to impose a tax on income trusts.  Today I woke up to a 27% gain as Freeport McMoRan made a bid for Phelps Dodge.  Needless to say, today was more fun.  If you are keeping count Phelps Dodge is the 3rd company in the Big-Build Out Portfolio to be acquired this year.  Xstrata’s acquisition of Falconbridge and CVRD’s acquisition of Inco were both just completed –  Falconbridge in October and Inco last week.  It is always to fun to own stock of the company being acquired.  Falconbridge and Inco closed out their existence as stand-alone companies with gains of 88% and 71% for the year.  With today’s bump, Phelps Dodge is now up 67% year to date. I am expecting consolidation to continue next year.  It is less expenses to acquire resources than to explore and produce.

Dennis Gartman, a well-known newsletter writer, was on CNBC today.  He has been betting heavily that cooper prices are coming down.  Instead of shorting the commodity, he used Phelps Dodge as a proxy for copper and shorted it.  Shorts are the people on the opposite side of your stock purchases.  They profit by a stock going down instead of up.  So, when a stock goes up – the shorts have to pay the piper.  Gartman and his clients lost a boat load of money today.  I have to give him credit.  He faced the music and appeared on CNBC today to talk about it. 

The reason I choose to mention this is that he said the first thing he did today was to unwind the position.  He didn’t try to rationalize that Freeport was paying to much for Phelps or that tomorrow would be a better day.  He immediately closed his position.  That is the exact same thing I did with Canadian income trust fiasco.  Traders act and ask questions later.

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