"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Wednesday, September 30, 2009

Massive Moly Deposit Found in Utah


Morning Miners!

It is 5:56 AM and the Colonel made the coffee double-strong this morning, we've got breaking news buckaroos. Before we tackle that, James Hayter, Marketing Director for Western Lithium, contacted and thanked the Report for Monday's article on their Kings Canyon operation (The Next Big Thing in Northern Nevada?). I have added their link to the Miner's Corner to your right. The lithium story may take a while to develop but could be a tremendous opportunity for our state as demand picks up in the wake of fossil fuel propulsion alternatives. Who knows? There may be some open pit lithium carbonate mining in your future! Stay tuned.


Now for another big story. Reuters reported this morning that Rio Tinto has discovered a massive molybdenum deposit below its open pit Bingham Canyon copper mine southwest of Salt Lake City, Utah. There is not much information but here is the link:

Rio Tinto announces massive molybdenum deposit

I checked the Rio Tinto website and they have not yet posted this in their media releases. According to Reuters, the discovery could be "the world's biggest deposit of molybdenum". This will no doubt be a matter of interest for Eureka Moly and our own Mt. Hope project. The Colonel will do some checking and report back as things unfold. In fairness, the Reuters' report gives no information on the moly concentration, time frame or economic viability of this find. One encouraging sign is that General Moly stock is unchanged in early morning trading at $3.18 in an otherwise down market.


Now that we've caught our breath look who just came in the break room, it's the Duke! Yup, it is the end of the month and time to walk the walk in the savings and credit markets. The Report started this check in the blog, Where's The Duke When We Need Him?. The Report plans to continue this monthly review so you can track where we're going as time marches on. Here are today's national averages compared to last month's numbers (WSJ Market Data, 9/30/09):

10-yr Treasury Note 3.291% vs 3.449%, down
Money Market 1.11% vs 1.17%, down (52-wk low, 1.10%)
5-year Bank CD 2.71% vs 2.66%, up (52-wk low, 2.59%)
30-yr mortgage, fixed 5.29% vs 5.32%, down (52-wk low, 5.06%)
15-yr mortgage, fixed 4.66% vs 4.80%, down (52-wk low, 4.66%)
New-car loan, 48-month 7.36% vs 7.43%, down (52-wk low, 6.52%)
Home-equity LOC, $30K 5.74% vs 5.82%, up (52-wk low, 5.03%)


It is a remains discouraging that money market rates are near their 52-week low but CD rates have bottomed and are slowly inching up. The good news for home buyers are lower fixed mortgage rates than last month. In fact, the 15-year rate is sitting at its 52-week low. The 10-yr Treasury hovering around 3.3% tells us that Uncle Ben is still doing a pretty good job in keeping interest rates low and the credit markets stable. As we noted last month, Ben is keeping savers on the Slim-Fast plan.

Let's checkout the Eureka Miner's Million Dollar Grubstake. At the market close yesterday, the readers (yup, that's you) made $191,322.97, that's a 19.1% return on your money since we started May 10th! General Moly still leads the pack, here's the top four out of twelve stocks:

General Moly (GMO) up 72.8%
Freeport-McMoran (FCX) up 31.9%
ArcelorMittal (MT) up 31.9%
Caterpillar (CAT) up 30.2%

Here's the bottom four (worst first):

ConocoPhillips (COP) down 3.6%
Newmont Mining (NEM) down 0.1%
EOG Resources (EOG) up 6.2%
Nucor (NUE) up 7.4%

Strong steel and copper performance and a positive international outlook for Caterpillar have helped the top four although that trend may be weakening for the remainder of the year. Oil has been range bound for sometime now and has limited our two energy companies, although EOG has benefited from the recent rally in natural gas. Barrick (ABX) has come up to the middle of the pack with a 10.3% gain.


Enough talk, let's walk the walk:

CAUTION: 4-WD is ON (the VIX or "fear index" is back above 25, I'm going keep the warning set until we get past Friday's employment report. So for now, off-road conditions for markets possible (what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.34 in early trading to $67.05 (November contract); Gold is up $5.6 to $1000.0 (December contract, most active); Silver is up $0.162 to $16.340(December contract); Copper is up $.0500 to $2.7790 (December contract); Molybdenum is steady at $14.00.

The DOW is down 101.57 points to 9640.63; the S&P 500, down 11.60 points to 1049.01. The miners are mixed:

Barrick (ABX) $37.55 unchanged
Newmont (NEM) $43.61 down 0.27%
General Moly (Eureka Moly, LLC) (GMO) $3.18 unchanged
Freeport McMoran (FCX) $68.58 up 0.38% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $46.90 up 0.21% - domestic steel manufacturing
ArcelorMittal (MT) $37.19 down 1.72% - global steel producer
POSCO (PKX) $103.50 up 1.61% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.05% to $1,190,914.77 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Tuesday, September 29, 2009

Good News: Houses, Gasoline & Propane



Morning Miners!

It is 5:58 AM and we're nearly at September's backdoor. Grab a cup and let's look at a some things that may prove good for the economy and your wallet. There are few heroes left standing on the battlefield of our recent financial crisis, Professor Robert Shiller of Yale University is one. Shiller clearly saw the housing balloon rise to the heavens and accurately predicted its rapid descent to earth. His prediction was assisted by something of his own invention now called the "S&P Case-Shiller Home-Price Index". The index tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the nation and has become one of the most revered indicators for economic recovery. The latest index performance was announced this morning:

Home prices climbed in July from a month earlier, according to the S&P Case-Shiller home-price indexes, with just two of 20 metropolitan areas -- Las Vegas and Seattle -- showing declines. Every region posted year-over-year declines. David M. Blitzer, chairman of S&P's index committee, said the rate of annual decline in home price values continues to decelerate, "and we now seem to be witnessing some sustained monthly increases across many of the markets." (WSJ, 9/29/09)


This is good news; as housing goes, so goes the economy buckaroos. There are some other encouraging signs, the wholesale price of gasoline is headed south reacting to a present glut in crude oil inventories. Crude oil futures are in the mid-sixties again and RBOB has come down from its August highs...what's RBOB you say? Try saying "Reformulated gasoline Blendstock for Oxygenate Blending" the next time you stop by Marge's Chevron. RBOB is the wholesale price of gasoline traded on the New York Mercantile Exchange and this is where we stand:

August RBOB contract (high) $1.9363/gal
September RBOB contract (9/29) $1.6328/gal (down 15.6%)

That's more good news. Although a lot of other factors affect the retail price, you should see a savings for the rest of this year (unless Iran does something stupid!).


To close let's look at wholesale propane prices. They've come up some from the last time we looked in July but that is typical as we approach winter. The encouraging sign is that we are a lot better off than last year:

2008 August Propane contract $1.70/gal
2009 August Propane contract $0.80/gal (down 53%)
2009 November Propane contract $0.99/gal (down 42%)

Keep in mind that our Propane suppliers hedge their wholesale contracts so you can't expect to see dramatic decreases but the home should be a bit cheaper to heat this winter. Stay warm.

Enough talk, let's walk the walk:

CAUTION: 4-WD is ON (the VIX or "fear index" has been above 25 for the last several days and took a nice dip below today. I'm going keep the warning set until we get past Friday's employment report. So for now, off-road conditions for markets possible (what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $0.51 in early trading to $66.33 (November contract); Gold is down $1.0 to $993.1 (December contract, most active); Silver is down $0.015 to $16.180(December contract); Copper is down $.0105 to $2.7165 (December contract); Molybdenum is steady at $14.00.

The DOW is down 21.38 points to 9767.98; the S&P 500, down 1.34 points to 1061.64. The miners are mixed:

Barrick (ABX) $33.24 up 2.64%
Newmont (NEM) $43.94 up 2.98%
General Moly (Eureka Moly, LLC) (GMO) $3.2481 down 0.37%
Freeport McMoran (FCX) $69.79 up 1.20% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down, (a "tell" for General Moly):

Nucor (NUE) $46.95 down 0.93% - domestic steel manufacturing
ArcelorMittal (MT) $37.89 down 1.12% - global steel producer
POSCO (PKX) $102.00 down 0.58% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.14% to $1,192,550.86 (what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Monday, September 28, 2009

The Next Big Thing in Northern Nevada?


Morning Miners!

It is 6:00 AM sharp. Grab a cup and and help the ole Colonel mount a tire so we can get this week on the road. First let's chat about some exciting news a bit north of here. This may take a while to develop but the mission of the Report is look beyond our foothills and peek in tomorrow's canyon every chance we can.


Although lithium is our lightest metal it is making a heavy footprint in modern energy storage devices. As costs come down, lithium batteries are competing more and more with the commonplace nicad and NiMH (nickel metal hydrate) variety. On a small scale this includes computers, game-playing devices and eventually power tools. Larger applications include production and future prototype electric and hybrid-electric vehicles. With the push to reduce fossil fuel emissions, the demand for lithium will no doubt increase dramatically as electric propulsion alternatives become more practical and affordable.


This August, The Report talked about the world's largest lithium reserve in the Uyuni Salt Flats of Bolivia (Not So Hotsi in Potsi, Cap and Trade Stumbles, 8/18/09). The Colonel expressed concern then that the Chinese may grab this resource in a part of South America not too fond of the United States. Here's where some of today's good news begins. Brine extraction is the technique used to recover lithium from salt flats such as the Uyuni. Although Bolivia has the most known reserves it has a fairly poor magnesium-to-lithium ratio. This ratio is used to assess the economic viability of the process with 11:1 and 12:1 considered good (lower ratio is better). The Uyuni ratio is 30:1 which is a real challenge for developing low cost lithium not to mention the political instability in the area.

The only producer of lithium in North America has a good ratio and is right here in our state. The Foote Mineral deposits, currently operated by Chemetall, are close to Silver Peak in the Clayton Valley just west of Goldfield. This site has operated since 1967 and other mining companies such as Rodinia Minerals Ltd. and Amerpro Resources are exploring for new deposits in the valley to meet future demand.


That's encouraging but the story gets even better in Northern Nevada. There is a second lithium extraction process that involves mining lithium carbonate from close to the surface hectronite clay formations. The best approach is open pit mining and that deserves a Colonel Yee-ha! Chevron did the original explorations in Humboldt County's Kings Valley which is being continued with gusto by Western Lithium. This area promises to hold the largest lithium reserve in North America. There is an exciting video about Kings Valley and the mining prospects on the Western Lithium Web site (select the "projects" tab):

Western Lithium

MineWeb carries a terrific Gold Report overview on the future of lithium:

Lithium leading the charge

And finally, Rodinia Minerals has a brief discussion on the lithium future in Clayton Valley:

Clayton Valley, Nevada

Lots of stuff to do on your Monday break buckaroos!

Enough futurama, let's walk the walk:

CAUTION: 4-WD is ON (the VIX or "fear index" above 25 for the third day, off-road conditions for markets possible, what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.79 in early trading to $66.81 (November contract); Gold is up $3.5 to $995.1 (December contract, most active); Silver is up$0.115 to $16.175 (December contract); Copper is up $.0335 to $2.7070 (December contract); Molybdenum is steady at $14.00.

The DOW is up 126.21 points to 9791.40; the S&P 500, up 15.94 points to 1060.32. The miners are happy:

Barrick (ABX) $36.97 up 2.29%
Newmont (NEM) $43.44 up 1.43%
General Moly (Eureka Moly, LLC) (GMO) $3.20 up 3.66%
Freeport McMoran (FCX) $68.38 up 2.53% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are happy too, (a "tell" for General Moly):

Nucor (NUE) $47.16 up 1.42% - domestic steel manufacturing
ArcelorMittal (MT) $38.32 up 3.65% - global steel producer
POSCO (PKX) $102.42 up 2.61% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 2.01% to $1,192,586.38(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Hybrid vehicle photo: Newsoxy, Hybrid Electric Vehicle Advantages

Kings Valley, Nevada, photo: Western Lithium

Friday, September 25, 2009

Is Dr. Doom Right Again?



Morning Miners!

It is 6:27 AM, a little late for the Colonel but we had to make coffee the old fashion way this morning. The Bunn blew a heating coil and it was back to paper, funnel and water on the stove. At least we're pouring boiling water on that famous Raine's TGIF coffee. Hey, here's a tip. Next time you go there to pickup your own TGIF, ask Scott for their red label brand. I think it has a little more zing for closing out the week than his standard blue label. Give him a hey-howdy from the ole Colonel!

If you have been following lately, you may have tired from all the attention I've been giving metals. They may hold the key to the health of global recovery but the message has been a toughie to read. While gold has gone up and the dollar weakened, most metals have remained pretty soft. Yesterday we looked at the base industrial group and there seemed to be some signs of life. That read probably springs from the my eternal optimism more than any startling break to the upside. Today's news doesn't help. Thanks to MineWeb, I found an interesting article on copper in yesterday's China Daily:

Shanghai copper prices fall


Here's some thoughts from Yingxi Yu, analyst at Barclays Capital:

"We are seeing early signs of demand picking up in the world outside China, but I won't say that there is conclusive evidence that this is happening at a pace that is significant...Our view is copper is well supported, but to drive the next leg of the rally, it's going to take much more than China and the dollar."

According to this article, China's apparent copper demand fell 13.9 percent in August from July, following a slide in imports by the world's top consumer of many base metals. The China Daily notes further:

"Analysts expected the drop in Chinese copper imports after record purchases in the first half, but had anticipated demand elsewhere would pick up fast enough to offset the slack.

LME copper stocks have climbed around 30 percent from early July to 331,775 tons on Tuesday, while inventories of the industrial metal surged to more than five-year highs at 104,248 tons in Shanghai last week." (China Daily, 9/24/2009)


Ouch. This reminds me of what economist Nouriel Roubini (aka Dr. Doom) told miners at the Diggers and Dealers mining conference in Western Australia earlier this August. You may remember that he earned his moniker by predicting our present economic plight several years ago with nearly 100% accuracy. We covered his remarks in the Report (Moly Hits Magic Number, Dr. Doom Speaks to Miners):

"In the short term there has been a massive stockpiling of commodities by China," Dr. Doom continued, "My concern is that China might have accumulated an inventory of commodities that is probably excessive to the growth of their own economy."

Roubini concludes:

"The risk in the second half of this year is that the rate of accumulation in China must slow down -- one of the factors that a downside correction in commodity prices, however modest, may occur."

Here we are buckaroos, well into the second half of the year and the metals picture isn't all that rosy. If copper truly is our biggest canary in the global recovery mineshaft, it looks like she might be taking a break at the bottom of her cage. Fortunately, Roubini predicts a rise in commodity prices next year. Molybdenum, a byproduct of copper mining, took another small notch down to $14 yesterday. Ironically, moly hit $16.50 when Dr. Doom was speaking to miners down under. I stuck my neck out yesterday and made a beer bet that it would return to that level before Christmas (Where Do We Go From Here? Ask the Metals). Will the Colonel be buying Dr. Doom a beer? Stay tuned.

Gold is getting battered again today.

Enough gloomy-doomy, let's walk the walk:

CAUTION: 4-WD is ON (the VIX or "fear index" pushes above 25 for the second day, off-road conditions for markets possible what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.32 in early trading to $66.21 (November contract); Gold is down $10.2 to $988.7 (December contract, most active); Silver is down $0.245 to $16.050 (December contract); Copper is up $.0035 to $2.7130 (December contract); Molybdenum drops to $14.00.

The DOW is down 23.43 points to 9684.01; the S&P 500, down 3.90 points to 1046.88. The miners are mixed:

Barrick (ABX) $36.06 down 1.01%
Newmont (NEM) $42.86 down 0.97%
General Moly (Eureka Moly, LLC) (GMO) $3.12 up 1.63%
Freeport McMoran (FCX) $68.26 down 0.23% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down, (a "tell" for General Moly):

Nucor (NUE) $47.08 down 1.57% - domestic steel manufacturing
ArcelorMittal (MT) $37.17 down 2.70% - global steel producer
POSCO (PKX) $101.65 down 1.72% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.49% to $1,180,349.71(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Roubini photo: Reuters

Thursday, September 24, 2009

Where Do We Go From Here? Ask the Metals


Morning Miners!

It is 6:07 AM, the coffee is hot and September is the Colonel's favorite month! Yesterday we looked to the Fed to signal where we're headed next. They are going to maintain their target interest rate at 0%-0.25% for sometime to come until they are certain that the economy has some real legs. Most interpret that to mean after unemployment peaks and job creation returns with some gusto. That probably won't occur until sometime next year and estimates range from mid-2010 to 2011 before we'll see interest rates move north again. Markets have been reacting favorably lately because they look down the road 6-9 months, discounting bad news and anticipating a solid recovery. Well, at least until the following hit the wire this morning:

"Realtors said that sales of existing homes fell 2.7% in August to a seasonally adjusted annual rate of 5.1 million homes, snapping a four-month streak of rising activity that analysts expected to continue in the latest reporting period." (WSJ, 09/24/09)

Nuts, the "fear index" (what's this?) spiked above 25 on the news, markets dropped, the dollar rallied, oil and precious metals took a nose dive. Haven't we seen this movie before?


My guru Dennis Gartman, the "Commodity King", has often said that the base metals taken collectively have a PhD in economics. I thought we'd ask them for their opinion since the metals are good leading indicators for things to come. In mining and economics, base metals are the industrial non-ferrous group that includes copper, nickel, aluminum,lead, tin and zinc (see note 1).

The Report has been following copper for sometime since it is broadly viewed as a bellwether for global recovery. For the last several weeks we've tracked nickel together with molybdenum since they are both key ingredients to steel production which is important for General Moly (Why is that?). To date copper has been worrisome since it appears stuck below $3, has received little lift from dollar weakness and is presently undervalued with respect to gold. Dennis Gartman said on CNBC yesterday that he too is worried about copper price performance and fears it might be "broken". Molybdenum caught our eye earlier this month because it began to staircase down to lower and lower prices. We discovered that its buddy nickel was following it down to the cellar when things started to stabilize last week. Let's ask the whole class of base metals what they think. Here is a one-month chart of copper, aluminum and tin:


The next chart shows the remaining three; nickel, lead and zinc:


It is dangerous to draw too much from this snapshot, but it does appear a "bottom" formed mid-September and the base metals (with the possible exception of copper) are on the march higher. The glass-is-half empty crowd would say that the metals are all range bound waiting for something to happen on the world stage.

Here is our daily chart of nickel and molybdenum:


Although moly hasn't budged from its $14.75 level, the Colonel will bet it moves higher soon with its other classmates. A mixed picture? Yes, but we'll keep our eye on these fellers and the picture will be clearer soon. What the heck, I'll stick my neck out...here's a beer bet for the Colonel's Beer Derby (what's this?):

Molybdenum sees $16.50 before Christmas

Good golly Miss Moly, let's walk the walk:

4-WD is OFF (the VIX or "fear index" spiked this morning but the Colonel will watch another day before declaring off-road conditions what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $2.77 in early trading to $66.20 (November contract); Gold is down $16.9 to $997.5 (December contract, most active); Silver is down $0.550 to $16.360 (December contract); Copper is down $.0995 to $2.7085 (December contract); Molybdenum holds steady at $14.75.

The DOW is down 35.52 points to 9713.03; the S&P 500, down 8.26 points to 1052.61. The miners are down:

Barrick (ABX) $36.18 down 0.96%
Newmont (NEM) $43.24 down 0.79%
General Moly (Eureka Moly, LLC) (GMO) $3.11 down 6.89%
Freeport McMoran (FCX) $68.73 down 3.32% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down, (a "tell" for General Moly):

Nucor (NUE) $47.86 down 1.87% - domestic steel manufacturing
ArcelorMittal (MT) $38.45 down 2.29% - global steel producer
POSCO (PKX) $103.88 down 2.05% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.77% to $1,188,600.63(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Note 1: The chemistry definition of "base metals" is slightly different. The term base metal is used to refer to a metal that oxidizes or corrodes relatively easily, and reacts variably with diluted hydrochloric acid (HCl) to form hydrogen. Examples include iron, nickel, lead and zinc. In the mining and economic terminology copper and aluminum are added to the base industrial group and iron is the building block of ferrous metals.

Wednesday, September 23, 2009

Uncle Ben, the Dollar, Gold & Copper


*** BREAKING NEWS *** (Fed Announcement included after the Colonel's sign off below)

Morning Miners!

It is 5:56 AM buckaroos, grab a coffee and let's figure out what's going on in the world. Let's stick to markets, that's confusing enough. Today at 11:15 AM (PDT) Ben Bernanke and the Federal Open Market Committee will make a statement on interest rates and their latest read on the economy.


Just to make your head spin with something more than caffeine, Uncle Ben is expected to announce whether they will continue with a program to buy $1.25 trillion worth of mortgage-backed securities. They have already purchased about two-thirds of that amount. Whatever happened to millions? I remember when folks thought a million dollars was a lot of dough, now we put twelve zeroes behind every government number. Maybe all this will work out honk-dory in the end.

With all the talking heads and experts these days, it is getting harder to find anyone that can express a complete idea in a few words. I found an exception today in the Wall Street Journal. Here is an explanation of recent world markets in three simple sentences:

"Confidence that the Fed and many of its overseas counterparts will keep rates low has fueled this recent stock rally. Low interest rates effectively increase the supply of money in the global economy. That dynamic helped to weigh on the dollar, which in turn boosted the prices of commodities traded globally in dollar terms." (WSJ, 9/23/2009)

That's all you need to know pardners if you need to get back to work.

If you got a little extra time, the Colonel would like to show you a few things that have him puzzled. The dollar continues on a nose dive which has lifted many dollar denominated commodities such as gold and oil. Gold, of course, is more than a commodity and behaves like a currency in hard times. A global loss of faith in our dear greenback has pushed gold above the $1000 mark.

Here's the puzzle: not all commodities have reacted as their cousins, gold and oil. We have been watching molybdenum and nickel for several weeks since they are key ingredients to steel production and therefore important indicators for General Moly (see Good Golly Miss Moly! for a more detailed explanation). Fortunately they have stopped their decline and are showing signs of stabilization. Neither has benefited from recent dollar declines.

Since March, the Report has followed the price of copper because it is the biggest canary in the global recovery mineshaft. It soared like an eagle for several months but now seems to be circling below $3 with little help from the updrafts of a diving dollar. Compared to gold, the value of copper is actually in decline. Here are several charts to illustrate my point; the first is copper (green line, HG Z9) versus the dollar index (blue line, DX Z9) for the last 3-months:


Initially, everything is fine with copper rising as the dollar declined. The rise was much more than a currency phenomenon and experts concluded global demand was on the mend. Then we hit the just-below-3-bucks ceiling and the picture is a little cloudier. One explanation is that China has stopped a metal re-stocking cycle but their recovery is intact. China is important because they have the highest growth demand for copper as well as many other metals. Here is the price of copper versus gold over the same period:


It is startling that gold's recent jump above the clouds has had little effect on our poor tired copper eagle. The last tidbit is continued shakiness in the China Shanghai stock market:

"The Shanghai Composite lost 1.9% to close at 2842.72 on worries that a likely surge in new share issues and lower bank lending in the remainder of the year will crimp liquidity.
Still, some analysts said they were confident that the government would step in to support the market if the correction went too far. Peter Lai, director at DBS Vickers, said although Beijing wants to avoid asset bubbles, it doesn't want to 'kill the market.'
'If the Shanghai Composite went below 2500, it's very likely that you would see some kind of liquidity-easing measures,' he said." (WSJ, 09/23/09).

As China goes, so goes global recovery. The Colonel will continue to watch this mysterious dragon, buckaroos. Stay tuned.

Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low, what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $0.19 in early trading to $71.57 (November contract); Gold is down $1.9 to $1013.6 (December contract, most active); Silver is down $0.050 to $17.065 (December contract); Copper is down $.0745 to $2.7900 (December contract); Molybdenum holds steady at $14.75.

The DOW is down 22.07 points to 9807.80; the S&P 500, down 3.61 points to 1068.05. The miners are down:

Barrick (ABX) $36.97 down 1.41%
Newmont (NEM) $44.30 down 2.03%
General Moly (Eureka Moly, LLC) (GMO) $3.42 down 2.01%
Freeport McMoran (FCX) $72.00 down 1.57% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down, (a "tell" for General Moly):

Nucor (NUE) $49.45 down 0.53% - domestic steel manufacturing
ArcelorMittal (MT) $39.66 down 0.43% - global steel producer
POSCO (PKX) $105.69 down 0.43% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.45% to $1,233,187.91(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

As reported by the Wall Street Journal after the Fed announcement today:

"Federal Reserve officials highlighted signs of economic recovery and unveiled a strategy for reining in one of the central bank's extraordinary measures to prop up the mortgage market. The Fed's policy-setting panel announced that it would extend its $1.25 trillion of purchases of mortgage-backed securities into next year in order to help financial markets adjust.

The Federal Open Market Committee voted 10-0 to maintain the target federal-funds rate for interbank lending at a record-low range of zero to 0.25%. 'Economic activity has picked up following its severe downturn,' the Fed said in the upbeat policy statement it released at the conclusion of its two-day policy meeting." (WSJ, 9/23/09)

Tuesday, September 22, 2009

First Day of Fall Rolls into Eureka



Morning Miners!

It is 6:34 AM and we're on our second pot. The Colonel is a little late this morning because I've been helping Mother Nature offload Fall from her lowboy trailer. She rolled into Eureka County at 2:18 AM this morning, pretty as ever with a twinkle of El Niño in her eye. Mother N still drives a big red Pete 379 which is a Yee-ha for that ole classic hauler. If you're quick she might still be parked in front of the Courthouse although she's got a delivery of Autumn to drop off in Austin.

Unfortunately, the U.S. dollar fell off her trailer at the summit. It hit new lows this morning propelling gold above $1015 and silver beyond $17. There is a lot of currency buzz ahead of the Federal Reserve meeting and the G-20 meeting in Pittsburgh this week. Investors look forward to more hints about the economy and the question of when central backs may start tightening monetary policy after the recent splurge in stimulus around the world. One thing for sure is by Friday we will have seen either new highs in gold or a dollar on a rebound from the bottom. Stay tuned.

By the by, if you want to read what gold mining CEOs say about the price of gold including Barrick's Aaron Regent, checkout this article in MineWeb today:

Gold Rally has Legs: Mining Industry Leaders Agree


Seth Foreman of General Moly (Good Golly Miss Moly!) made a good call on molybdenum prices last week. If you missed it, his analysis is a terrific overview on recent current price action in the metal. We've been monitoring both nickel and moly daily and there appears to be a bottom forming with a slight uptick in nickel. Let's get these rascals on the up elevator again and have copper bust 3-bucks! It looks like General Moly stock has already got her legs back in early trading after yesterday's retreat.


Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low, what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $1.22 in early trading to $71.15 (November contract); Gold is up $12.4 to $1017.3 (December contract, most active); Silver is up $0.325 to $17.205 (December contract); Copper is down $.0595 to $2.8650 (December contract); Molybdenum holds steady at $14.75.

The DOW is up 6.35 points to 9785.21; the S&P 500, up 3.55 points to 1068.21. The miners are happy again:

Barrick (ABX) $37.07 up 1.53%
Newmont (NEM) $45.35 up 2.12%
General Moly (Eureka Moly, LLC) (GMO) $3.42 up 2.09%
Freeport McMoran (FCX) $71.30 up 2.35% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $49.25 down 0.04% - domestic steel manufacturing
ArcelorMittal (MT) $39.37 up 2.12% - global steel producer
POSCO (PKX) $107.05 up 0.19% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.39% to $1,238,151.22(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Monday, September 21, 2009

Gold, Parrots and Canoes


Morning Miners!

It is 6:00 AM sharp. The Colonel gave the coffee pot a good clean this weekend and cups are on the hooks. Grab a cup and let's squirt some ether in Monday's engine.

My sweetheart of 31 years, Mariana Titus, has taken many photographs of Eureka and its folks since the early 1980s. Many of you live in her albums and it is always fun to bring them out over the holidays for memories and story telling. I have been featuring Mariana's photos in the Report for some time now and ran across one that has me puzzled. This morning's headline image was taken somewhere in town but I can't for the life of me figure where this nook n' cranny lies. The bottles no doubt have a story of their own, can you help the ole Colonel solve the mystery?


Before we get into a week packed with Federal Reserve meetings and fickle markets, I thought you might enjoy some easy reading on your break. There is a fun Website called "Eyewitness to History" that carries an interesting account of the California gold rush. Here are the links:

Eyewitness to History

The California Gold Rush, 1849

There is a letter written by S. Shufelt to his cousin in 1850 from the California gold fields. His perilous journey there from the Catskills of New York is as interesting as his account of early mining. Suffering a touch of gold fever he boarded a steamer to Panama and upon arriving had to face the perilous overland crossing to the Pacific (no canal in those days buckaroos!). His group of adventurers employed local Indians to canoe them through the jungles filled with parrots and monkeys, with several dying along the way.

He eventually makes it to California and finds the camps filled with all manner of sin and wickedness...wait, I'm not going to spoil his tale! Have a good read, pardner. As tough as it gets these days, it ain't as tough as them days!

Looks like a roughie-toughie for commodities this morning. I've reduced my gold and Barrick positions; remember the old adage, "No one ever went broke taking profit." Could be a little bumpy up ahead but we'll keep her in 2-Wheel Drive for now. Stability remains the word for nickel and molybdenum prices after recent declines and that's encouraging:


Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low, what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $2.73 in early trading to $69.76 (November contract); Gold is down $10.4 to $999.9 (December contract, most active); Silver is down $0.350 to $16.715 (December contract); Copper is down $.0015 to $2.7835 (December contract); Molybdenum holds staedy at $14.75.

The DOW is down 84.12 points to 9736.08; the S&P 500, down 9.60 points to 1058.70. The miners are getting clobbered:

Barrick (ABX) $36.17 down 2.38%
Newmont (NEM) $44.16 down 1.78%
General Moly (Eureka Moly, LLC) (GMO) $3.20 up 2.44%
Freeport McMoran (FCX) $69.50 down 0.91% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks have the sniffles, (a "tell" for General Moly):

Nucor (NUE) $48.89 down 1.63% - domestic steel manufacturing
ArcelorMittal (MT) $38.86 up 4.05% - global steel producer
POSCO (PKX) $105.70 down 0.31% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.96% to $1,205,855.00(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Friday, September 18, 2009

Good Golly Miss Moly!


Morning Miners!

It is 5:31 AM, I've got a fresh pot of Raine's famous TGIF coffee brewing and Little Richard is blasting on the shop PA. That might be a little too old school for many of you but his song "Good Golly Miss Molly" is appropriate if you spell Molly m-o-l-y. You'll notice the Colonel has switched the yellow light to green for "Gold & Moly Prices" on the Eureka Outlook Dashboard to your right. What happened?

For the past week or so I've been worrying about recent declines in molybdenum and nickel prices, both key ingredients to making steel. The drop was curious because General Moly and steelmaker stocks have been on a tear lately. We scratched our heads a bit yesterday in the article Steel, POSCO and Eureka Moly LLC and in the late afternoon I was contacted by General Moly. They offered a thorough analysis of current events which I very much appreciate and will share with you below. As you might expect, the underlying forces that move molybdenum prices are sometimes as difficult to understand as the name of the metal is to pronounce. It is at least a three-legged stool with steel demand being the only leg of yesterday's discussion.

Here is the explanation provided by Seth Foreman, Director for Investor Relations at General Moly:

"We think there are primarily three factors at play here in determining where the price of moly is going. The first, as Colonel Possum indicates, is underlying steel demand. The second is the Chinese building a raw material inventory of so-called “strategic metals” like molybdenum. The third is the rate at which production that had come off line returns to the market.

China has almost always been a sizeable exporter of moly. Last year, the country produced approximately 130M lbs of moly out of a 450M lb global market (~29%). China’s import/export records show that China was a net exporter of approximately 57M lbs of moly in 2008. However, when the price collapsed last year, China became a net importer of moly for the first time. We saw this surface when existing producers like Thompson Creek Metals and Freeport started reporting in their quarterly conference calls that sales had suddenly picked up to Chinese customers. As verification, China’s import/export records show that China has been a net importer of approximately 77M lbs Mo YTD in 2009. A pretty stunning reversal.

So, the question begs, “why did China start buying foreign moly when they produce so much of it themselves?” We think the answer is that a lot (30-40m lbs) of internally produced moly came off-line when the moly price collapsed, presumably because it became uneconomic at lower prices. In fact, we think that so much Chinese moly production came off line, that China couldn’t source all the moly they needed domestically which actually forced them to buy on the global market. This is very contrary to the popular belief pre-2009 that all Chinese moly was cheap to produce.

As Colonel Possum states in his article today, China’s monthly production of crude steel hit an all time peak in August. Thus, we think that China’s need for moly to feed its steel industry has remained relatively flat (or even increased) during this economic recession. Add to that the other emerging economies (Brazil, India) that are much more healthy and the relative health of the Korean and Japanese steel industries (we are told they are both operating at ~90% of capacity), and you’ve got a pretty healthy steel industry ex-US and ex-Europe.

But in addition to China buying moly to feed their mills, we suspect that they have been building a stockpile of these “strategic minerals” both to make sure they don’t get caught short of moly again, but also as part of their high-level diversification away from US dollar denominated assets. This is likely why their imports of moly in 2009 are so much larger than the amount of off-line production (77m lbs versus 30-40m production off-line). Ryan’s Notes (a group that follows the moly space) has reported that China has built a stockpile of about 30M lbs and although nobody can really verify that, it seems about right given the size of the export/import differential I just described.

Lastly, with 30-40m lbs of production off-line in China and more here in the western world, there is going to be a period of time where some of this production comes back online. So long as the new incremental production is matched with incremental moly demand, it shouldn’t have an impact on price. But if too much production comes back too fast, the price will go down, and if too little comes back, the price will go up.

So when we look at the price declining from the mid $17/lb to the mid $15/lb over the past couple weeks, we suspect one or more of the following is at play. First, the Chinese could be done accumulating their stockpile of moly and thus demand has been reduced. Or, second, some incremental production from either China or the western world could be coming back online, increasing relative supply. Or both. (We are just learning that the Ashdown mine has come back online – small Mo producer in the Nevada area).

However, we think that the underlying “fundamental” demand picture looks pretty good. Inventories around the world are de-stocked, emerging economies are on a tear, and things in Europe and the US are starting to look a little better. We don’t see the recovery as either a straight line nor extraordinarily rapid, but we think there are lots of “green shoots” out there, especially ex-USA."

Interestingly, China and the global retreat from the U.S dollar are important pieces to the above explanation. We may be 77 miles from Ely and 125 miles from Elko but the world is on our front porch buckaroos.


Here is our latest graph of molybdenum and nickel prices, it looks like things are stabilizing. Green lights, pardner except for that pesky threat of new mercury emissions regulation. Say, can someone out there put that one to rest?

Turn up Little Richard and let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low, what's this?)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $0.06 in early trading to $72.53 (October contract); Gold is up $5.2 to $1018.7 (December contract, most active); Silver is down $0.025 to $17.240 (December contract); Copper is down $.0455 to $2.8505 (December contract); Molybdenum holds at $14.75.

The DOW is up 34.46 points to 9818.38; the S&P 500, up 2.86 points to 1068.35. The miners are mixed:

Barrick (ABX) $37.90 down 0.41%
Newmont (NEM) $43.78 up 0.59%
General Moly (Eureka Moly, LLC) (GMO) $3.34 up 1.21%
Freeport McMoran (FCX) $70.18 down 0.64% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $49.70 down 0.28% - domestic steel manufacturing
ArcelorMittal (MT) $41.01 up 0.76% - global steel producer
POSCO (PKX) $106.29 down 0.44% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.21% to $1,245,139.72(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Thursday, September 17, 2009

Steel, POSCO and Eureka Moly LLC


Morning Miners!

It is 5:57 AM, grab a cup and remind me to stop by Raine's sometime today. We're plumb out of their delicious TGIF coffee and Friday is almost here. I thought we'd take a moment to scratch our heads a little more on the steel industry and General Moly. This is a big topic and we've been picking around the edges for the last week or so tracking the price performance of of molybdenum and nickel, key ingredients to making steel. They both took a turn down and that had the Colonel worried. It looks like they are stabilizing and it's high time to walk up-canyon a bit to take a broader view.


Why should we care? General Moly, or more correctly Eureka Moly LLC in these parts, is still a long way from producing molybdenum from our Mt. Hope. Why does the price of moly or the health of the steel industry matter today? The answer is simple, investment. It takes a lot of mullah to start up a new mine and that comes initially from institutional and individual investors who believe the Mt. Hope story. Like many of you, I believe and have a small grubstake in our friends on Main St.

Belief in something can't soley come from hope even if hope is the size of a mountain (in our case). Investors need to feel confident that the expected price and demand for molybdenum is adequately high in the 2010-11 time frame to justify the start up and production costs ahead. We've just dodged a global depression by a hair, so the argument is tougher than ever to attract new money to future projects. The news so far has been good; General Moly (GMO) share price is seeing 52-week highs and the same is true for the South Korean steel producer POSCO which owns a 20% share of Mt. Hope.

For GMO to succeed, POSCO and other steelmakers must continue to be strong. POSCO is a major provider to China and the world and that's why the Report looks at global events to devine our local economic future. China which produces nearly half the world's steel is doing great so far:

"China's monthly steel production hit a fresh high in August at 51.65 million tons, up 21% year on year to represent a record daily production of 1.67 million tons, according to a Morgan Stanley research note Monday." (MarketWatch, 9/14/09)"

Although experts don't expect steelmakers to revisit their peak levels from 2007 anytime soon, POSCO closed yesterday at a price nearly identical to its close following the collapse of Bear Stearns ($108.08 9/16/09 versus $108.41 3/17/08). Since POSCO hit lows in the $40 range last Fall, this is indeed impressive. The global steel industry is recovering buckaroos.

The Colonel has worried about recent declines in the price of molybdenum from $18.25 to $14.75 but that is still more than 80% higher than moly's April lows. Moly is an input cost for steelmakers and we may indeed just be seeing a dip from restocking raw materials this year. What about the price of their product?

I dug up some numbers for domestic steel. Here is the percent price gain in three categories from their lows earlier this year:

Flat steel: up 31% from 6/09
Long steel: up 9.5% from 5/09
Scrap steel: up 84% from 4/09

Hmm..lower input costs, increasing product price and rising global demand. That's looking pretty healthy to me. There are some concerns. Joseph Innace, managing editor, Platts Steel Markets Daily, remarked recently:

"In short, the steel sector -- globally and in most regions -- had a decent summer, but now things look iffy again..."

So what's the bottom line? My sense is that we're seeing an industry on the mend with a few bumps in the road ahead. The Report will stay on top of this story but so far the up-canyon view for our friends at Eureka Moly looks pretty durn good to the ole Colonel.

Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low)

Yellow light is ON for declining molybdenum price although there are signs of stabilization (less than magic number: $16.50)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.20 in early trading to $72.71 (October contract); Gold is down $0.7 to $1019.5 (December contract, most active); Silver is up $0.005 to $17.525 (December contract); Copper is up $.0010 to $2.9375 (December contract); Molybdenum holds at $14.75.

The DOW is up 26.52 points to 9818.23; the S&P 500, up 2.31 points to 1071.07. The miners are mixed:

Barrick (ABX) $38.81 up 0.73%
Newmont (NEM) $46.86 down 0.56%
General Moly (Eureka Moly, LLC) (GMO) $3.37 down 1.75%
Freeport McMoran (FCX) $72.36 up 0.29% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $50.46 up 4.89% - domestic steel manufacturing
ArcelorMittal (MT) $41.24 down 1.81% - global steel producer
POSCO (PKX) $107.82 up 0.24% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.18% to $1,256,783.31(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Wednesday, September 16, 2009

The Colonel Sticks by his Gold Price Prediction


Morning Miners!

It is 5:43 AM, grab a cup and we've got sunny days ahead. On May 22, I predicted gold would see $1050 before Christmas and it looks like we're almost there. The London spot price hit $1020.50 this morning and is presently hovering just below the $1020 level. You can watch the action yourself by clicking on the InfoMine link in the Miner's Corner to your right. Charts for gold, silver, platinum and palladium are on the homepage and are updated frequently.

Broader markets are on a tear too after Ben Bernanke's comment yesterday that the "recession is very likely over at this point..." The causality has been the U.S. dollar as investors around the world move back into riskier assets. Coincidentally, the S&P 500 and gold are numerically similar with the S&P closing at a new high of 1,052.63 yesterday. If its a race to 1050, the stock market is already there. You shouldn't draw too much from this but it is a fun way to keep track of the two which have shown a great deal of correlation lately.

The Report readers (yup, that's you) should be happy too! Your Grubstake profits passed a quarter of a million dollars this morning for a return of over 25% since we put your portfolio together May 10th (The Eureka Miner's Million Dollar Grubstake). Mining stocks have been one of the strongest leaders in the market rally to date and General Moly has reached new intraday highs of $3.67 this morning. How about a big Colonel - Yee-ha!


Some of gold's recent luster has been driven the U.S. dollar's continued weakness. Rick Santelli of CNBC Business News soberly reminded us yesterday that the dollar is "stock" in America and its decline (although good for our exporters) is nothing to cheer. I thought I'd look at gold price for the last three-years in relation to three currencies: the U.S. dollar, the euro and the Australian "aussie". The chart is shown below. The aussie (blue line) is always an interesting currency because it represents a commodity based economy (similar to Eureka County, mining and agriculture). The euro (green line) is representative of more generalized western economies reflecting the broad diversity of the euro zone (manufacturing, services etc.). The U.S. dollar is given by the red line:


Note that dollar denominated gold has courted the $1000/oz zone three times in two years; roughly the Bear Stearns collapse, bottoming of the S&P last March and recent times. We are very close to the March high of $1,032.35. The recent gains in gold are less bullish when we compare the U.S. dollar chart to the euro and aussie which supports the case that the September rally is more about an ailing dollar than anything else.

It's always good to be cautious in rallies and I remain puzzled about the slide in nickel and molybdenum although they appear to be stabilizing. I checked out steel manufacturer Nucor (NUE) yesterday as promised after seeing a news flash about "new demand". They offered guidance for the third quarter yesterday. Dan DiMicco, Nucor's President, Chairman and CEO, commented:

"Our view remains that there has been little improvement in real demand and the uncertainty in our economy is still very high. We also continue to believe that real demand is in for a long, slow recovery."

Hmm...that doesn't sound too great. Of course Nucor is a domestic company more tied to the fate of the U.S. economy. Our other steelmakers, ArcelorMittal and POSCO, service China and global markets. I'll dig a little more into their story buckaroos. Always keep a sober guard posted at the gates when the troops are having a party.

Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low)

Yellow light is ON for declining molybdenum price (less than magic number: $16.50)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.70 in early trading to $71.63 (October contract); Gold is up $12.00 to $1018.3 (December contract, most active); Silver is up $0.385 to $17.385 (December contract); Copper is up $.0735 to $2.9185 (December contract); Molybdenum holds at $14.75.

The DOW is up 30.15 points to 9713.56; the S&P 500, up 4.88 points to 1057.51. The miners are happy:

Barrick (ABX) $38.66 up 1.87%
Newmont (NEM) $47.54 up 1.73%
General Moly (Eureka Moly, LLC) (GMO) $3.63 up 2.26%
Freeport McMoran (FCX) $72.26 up 1.32% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $47.46 down 0.69% - domestic steel manufacturing
ArcelorMittal (MT) $41.93 up 0.62% - global steel producer
POSCO (PKX) $106.68 up 2.60% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.20% to $1,256,426.31(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Tuesday, September 15, 2009

Gold and Pizza in Philadelphia


Morning Miners!

It is 5:52 AM, the coffee is hot and life is good. Recent events in the markets having been confusing to say the least. The Colonel's mission is to bring some sense to all this and wrap it up in a few words for your morning break so you can go on to do better things than worry about price dips in molybdenum. Sometimes the mission is easy, sometimes hard and this morning, a delight. In today's news search I found a wonderful article by Felicity Duncan explaining the present rise in gold prices. It was posted by Mineweb and sourced from Philadelphia. It is short, concise and gives the reader a nice overview of the lustrous metal that drives our local economy. It is all told in a very straightforward manner including an explanation of inflation using a pizza purchase for an example.

This is, however, where things started to fall apart for me. In the pizza example Duncan gives the price in "rands" and the ole Colonel sensed something funny in Philadelphia. Checking Google, I discovered this Philadelphia was not in Pennsylvania but a charming little town in South Africa. It may very well be the size of our Eureka; it sits inland from the coast in the southwest tip of Africa north of Cape Town. Here's a picture of a road near Duncan's town, isn't this the road to Carlin?


Philadelphia even has a Main St. and a Meul St. I thought "Meul" St. was close enough to our "Buel" St. assuming the first letter difference and vowel transposition have something to do with being in the Southern Hemisphere (coriolis forces?). I plan to e-mail the author today and explore what other similarities our two communities may have. Stay tuned.

Back to the business of gold here is a link to the Duncan article. It's a quick read on your break.

The story the gold price is telling (Felicity Duncan, Mineweb 9/15/2009)

On the metals front the Colonel continues to be befuddled by the drop in moly and nickel prices while the stocks of General Moly and steelmakers rise and the U.S. dollar falls to new 52-week lows. In normal times (which we left many moons ago), one might argue that big consumers like China have reached their raw material restocking for the year and steel stocks are rising because their input costs (e.g. nickel, moly) are declining and demand is up. We are now in the "new normal" where raw materials are still recovering from a severe deflationary period and real global demand for steel remains questionable. Dollar drops generally cause commodities to rise but lately moly and nickel continue to fall. Hmmm...I just saw a news flash on Nucor (one of the steelmakers we track) announcing "new demand", I'll check this out and report more on our metals puzzle tomorrow. Here is the latest one-month chart of our two little canaries in the global recovery mineshaft:


Looks like we've got a new highs for General Moly today - Yee-ha!

Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low)

Yellow light is ON for declining molybdenum price (less than magic number: $16.50)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is up $0.79 in early trading to $69.65 (October contract); Gold is down $3.5 to $997.6 (December contract, most active); Silver is down $0.013 to $16.610 (December contract); Copper is up $0.0250 to $282.95 (December contract); Molybdenum holds at $14.75.

The DOW is down 0.30 points to 9626.50; the S&P 500, down 1.60 points to 1047.74. The miners are mixed:

Barrick (ABX) $37.20 down 0.51%
Newmont (NEM) $45.99 up 0.50%
General Moly (Eureka Moly, LLC) (GMO) $3.41 up 3.97%
Freeport McMoran (FCX) $70.53 down 0.13% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed, (a "tell" for General Moly):

Nucor (NUE) $46.74 down 0.15% - domestic steel manufacturing
ArcelorMittal (MT) $40.90 up 1.56% - global steel producer
POSCO (PKX) $102.10 up 2.67% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.73% to $1,210,759.68(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus

Photo of Philadelphia, South Africa,courtesy of www.traveljournals.net

Monday, September 14, 2009

Diamonds are a (Canadian) Miner's Best Friend


Morning Miners!

It is 5:45 AM, grab a cup and let's kick start this week. Some stories are just too much fun to pass up. Before we get to story telling, a faithful reader asked me the other day to explain Barrick's new direction and "de-hedging". I have included my reply below the sign off today for those of you that may also be wondering what's going on. Keep those questions coming!


The Colonel is a fan of the History Channel's summer show "Ice Road Truckers". It is a great series about the men and women that brave driving trucks in the great white north to deliver supplies to mines and oil & gas exploration sites near the Arctic Circle. One of their destinations has been Canada'a Diavik Diamond Mine which is only accessible 10-weeks out the year by ice road. You thought you have problems making a good list before driving to Elko's Walmart!


Diavik Mine is back in the news because they have canceled their scheduled winter shutdown and 2010 delivery is expected to ramp up to 7.5 million carats of diamonds or more. Diamonds are another canary in the global recovery mineshaft and this announcement is a positive sign for better times ahead. As you can imagine, demand for high-end diamond jewelry was one of the first fatalities in the economic downturn. Harry Winston Diamond Corp.(NYSE:HWD), a major Diavik owner, saw their share price drop from above $45 in the Fall of 2007 to below $5 this year. Signs of returning demand have created new interest in the fortunes of this hole-in-the-ground in Canada's Far North. In the words of chairman and chief executive Robert Gannicott:

"Since the market has improved substantially and consistently since the beginning of the first quarter, there is now a new mine plan under consideration..." (conference call, 9/11/09)

With a new salon in Singapore and eight others in Asia, Gannicott said Harry Winston is well positioned to profit from "a sector of the world economy that is expected to drive new growth."

Here are some related Web sites for the full story. There are some great mining photos on the Diavik site:

Harry Winston says new plan for Diavik would see 7.5M carats delivered in 2010 (Canadian Press, 9/11/09)

Diavik Minesite

Harry Winston Diamond Corporation

Ice Road Truckers


The ole Colonel is considering putting a little money on Harry. I would caution that this is a highly speculative play and depends greatly on the sustainability of global recovery, ice roads and and a lot of other stuff. Ah, what the heck! HWD is presently trading around $7.50 and is one of the few mining stocks trading up on an otherwise downer day. More on that when we walk the walk.

On the other side of the coin, I continue to be concerned about the softness in metals. Even gold and silver are in retreat today. Unfortunately molybdenum and nickel, key ingredients in the manufacture of steel, continued to slide Friday. Moly is now at $14.75, considerably below our $16.50 magic number (what's this?). Here's a one-month chart of molybdenum and nickel:


The Colonel will keep this chart running for you until something moves up. Let's cross our fingers.

Enough talk, let's walk the walk:

4-WD is OFF (the VIX or "fear index" is low)

Yellow light is ON for declining molybdenum price (less than magic number: $16.50)

Yellow light is ON for possible adverse regulation/legislation (mercury emissions)

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $1.05 in early trading to $68.24 (October contract); Gold is down $7.60 to $998.8 (December contract, most active); Silver is down $0.180 to $16.520 (December contract); Copper is down $0.0590 to $278.75 (December contract); Molybdenum drops to $14.75.

The DOW is down 9.06 points to 9596.35; the S&P 500, down 0.15 points to 1042.58. The miners are not happy:

Barrick (ABX) $37.79 down 1.02%
Newmont (NEM) $46.04 down 1.05%
General Moly (Eureka Moly, LLC) (GMO) $3.15 down 1.25%
Freeport McMoran (FCX) $69.63 down 1.05% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are flat, (a "tell" for General Moly):

Nucor (NUE) $46.31 down 0.13% - domestic steel manufacturing
ArcelorMittal (MT) $39.65 down 0.05% - global steel producer
POSCO (PKX) $98.58 down 0.33% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.58% to $1,190,490.31(what is this?).

Cheers,

Colonel Possum

Headline Photograph by Mariana Titus, "Waterhole Reflections", Ackerman Ranch

All other photos courtesy of The Diavik Diamond Mine

Response to a Reader's Question about Barrick and de-hedging:

In markets, hedging is a technique used by both buyers and sellers to reduce risk. Of course with less risk there is less reward. The old adage comes to mind, "hedge your bets", where one puts a little money on other horses in addition to your favorite to win. De-hedging goes in the the opposite direction, increasing risk and the possibility for greatest reward. In our analogy, placing all your money on one horse to win is an unhedged bet.

A recent Forbes article has a good explanation Barrick's de-hedging announcement:

"Gold hedges are futures contracts that commit a company to selling the metal at set prices. While hedges guarantee certain cash flows, they often commit a metals producer to ship the gold at prices lower than the current spot price. Barrick's decision to pay off its hedges amounts to a bet that gold prices - which rose above $1,000 per ounce Tuesday - will keep rising." (Forbes, 9/12/09)

Hedging became popular with gold miners like Barrick when gold prices experienced a lot of price swings in the 1990s:

"The industry went on an orgy of hedging in the 1990s, when a combination of weakening spot gold prices and a steep forward curve made it very profitable. This decade, as gold's prospects have brightened, hedging has fallen out of favor. Barrick, one of the last holdouts, has seen its stock lag behind the broader sector significantly this year." (WSJ, 9/10/09)

Here's a simple example. If I guaranteed to buy gold from a miner every month for $950/oz; the miner does well if the spot price for gold drops below $950 and loses money if it heads higher. With a hedge, at least the miner can rely on a reliable flow of cash. The buyer (me) typically holds on to the miner's gold waiting for the price to move higher to sell. To "de-hedge", I believe Barrick is now buying back gold to relieve themselves from the obligations of futures contracts. If gold keeps heading north to say $1200/oz in 2010, they made a wise decision.

An interesting side to this is the size of Barrick. They are so big that their buy-backs (increased demand) can actually increase the price of gold which then becomes a self-fulfilling prophecy.