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


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) 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.

Tuesday, December 22, 2009

A Little Perspective on Gold & General Moly

Morning Miners!

It is 6:46 AM, let me pour you a cup as you shake off some of that winter snow. The month of December has been pretty tough so far on the price of gold and our local miners. It all started with the Dubai debt crisis at the end of November followed by concerns about the economic health of some members of the European Union. What has been bad for gold has been good for our own greenback which has received a much needed lift from its doldrums.

The ole Colonel thought it might be time to do a little head scratching and get some perspective on these pullbacks. Let's start with gold, one year ago it sat at $850/oz and this morning's COMEX is trading down $8 to $1087/oz. It is easy to be discouraged when you remember the recent shot at $1225+/oz but the 1-yr trend line puts us at $1080/oz which is pretty durn close to where we're at. Hmm...that's not all bad. Palm trees will grow in Eureka before an unhedged Barrick can't turn a King's ransom on gold north of $1000/oz!

Let's do a tougher one. One year ago molybdenum was $11/lb and today it is $11.62/lb. Rising above $18 this summer the return to $11 territory may seem that we're stuck in reverse. Remember, however, that moly dipped to $8 this April and the 1-year trend line puts us at roughly $14/lb. Much of the rise in moly was due to Chinese stimulus and their frenetic restocking of strategic metals. Today's price may be more representative of supply/demand fundamentals of a recovering global steel industry. According to Kevin Loughrey, President and CEO for Thompson Creek Metals (TC), things are on the mend in the world of moly. Thompson Creek and Freeport McMoran (FCX) are two major producers of moly today.

It is worth repeating Mr. Loughrey's points during the CNBC interview with Maria Bartiromo (Molybdenum on CNBC News, 11/24/2009):

1. Moly demand is returning for a recovering steel industry as well as other industrial uses.
2. China is very important to moly demand growth.
3. China became a net importer of molybdenum in 2009.
4. Thompson Creek expects 2-3% demand growth from the rest of the world.
5. Restocking has caused moly prices to decline some but world inventories are moderate. Louhrey expects that 2010 will be a better year than 2009 and 2011 "even better than 2010".
6. Thompson Creek is very optimistic about their future specifically and moly mining in general.

A year ago, General Moly's share price was a dismal $0.78 when moly was $11/lb. Yesterday's closing price was $1.96 for a moly price of $11.62/lb. Even though GMO has retreated from a the lofty $3+ levels this summer, the present price still represents a considerable increase in investor confidence from last December. Here is a 1-year comparison of GMO with moly producers Thompson Creek (TC) and Freeport McMoran (FCX):

GMO 12/22/08 $0.78
GMO 12/21/09 $1.96 (up 151%)

TC 12/22/08 $3.68
TC 12/21/09 $11.10 (up 201%)

FCX 12/22/08 $21.32
FCX 12/21/09 $77.96 (up 265%)

OK Colonel, what's your point? I remain bullish on gold and General Moly. I grabbed a few shares at $2.17 and $2.05 the other day and have an average cost basis of $2.23. If you have any faith in the moly outlook, I think GMO will do just fine and gold will get some of its mojo back early next year too.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" remains below 25; smoother road market conditions expected (what's this?)

Yellow light is ON for possible adverse regulation/legislation: Cortez Hills & mercury emissions

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

Oil is down $0.52 in early trading to $73.20 (February contract, most active); Gold is down $8.1 to $1087.9 (February contract, most active); Silver is down $0.105 to $16.930 (March contract); Copper is up $0.0310 to $3.1275 (March contract); Molybdenum is steady at $11.62.

The DOW is up 115.86 points to 10444.75; the S&P 500 is up 13.08 points to 1115.55. The miners are mixed:

Barrick (ABX) $38.56 down 1.03%
Newmont (NEM) $46.52 down 0.98%
General Moly (Eureka Moly, LLC) (GMO) $1.96 unchanged
Freeport McMoran (FCX) $78.11 up 0.19% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are mixed, (a "tell" for General Moly):

Nucor (NUE) $44.85 up 0.52% - domestic steel manufacturing
ArcelorMittal (MT) $44.33 down 0.49% - global steel producer
POSCO (PKX) $126.29 up 1.60% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.11% to $1,246,374.91 (what is this?).


Colonel Possum

Headline Photograph by Mariana Titus

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