Monday, April 26, 2010
General Moly Water Rights Decision, Bridge Loan
It is 6:11 AM. Grab a cup and let's get to work, pardner. It is a mixed news day for General Moly (GMO). Let's get right to it - here are two press releases that just reached my mail box:
General Moly Announces Nevada District Court Remands Mt. Hope Water Rights Decision Back to State Engineer (6:04 AM)
General Moly Receives $10 Million Under Hanlong Bridge Loan Agreement (6:10 AM)
Starting with the good news first; General Moly got a $10 million check in the mail as one of the first funding steps from the recent Hanlong transaction (A Game Changer for General Moly & Eureka County). It's always good to receive money as GMO re-starts engineering and begins procurement of mining equipment for our Mt. Hope project.
Now a more thorny issue. We've been waiting since January for the Judge Papez decision on water rights in the Kobeh valley. On 4/16, this Report asked General Moly if they had any news on the pending decision. Seth Foreman, Director of Investor Relations, replied they had not and gave us this concise summary of events:
"As background, we had a series of public hearings on our applications for the two water permits back in October of 2008. Following those hearings, the State Engineer issued his ruling in late March 2009, granting our applications for change of water use from Agricultural to Mining and change of point of diversion to our proposed well field closer to the Mt. Hope mine. Following that ruling, the County’s and grower’s appeal was filed. Briefs were filed with the district court in September of last year, and oral arguments were heard in January of this year." (Seth Foreman, General Moly, 4/16/2010))
The other shoe has finally dropped with Judge Papez ruling in favor of the County and farmers:
"...on Friday, April 23, 2010, the Company [General Moly] received a ruling from a Nevada District Court overturning the Nevada State Engineer's decision to grant water applications for the Mt. Hope project. The Court's decision remands the water rights applications back to the State Engineer to reconsider in a new hearing, a date for which has not been set.
The Court ruled that the Petitioners' (Eureka County and certain farmers in the Diamond Valley) due process rights to a full and fair hearing were violated when the State Engineer considered and relied upon an updated version of the Company's hydrology model that had not been presented to the Petitioners." (GMO Press Release, 6:04 AM, 4/26/2010)
The ole Colonel reads this as a bump in the road for General Moly and not a roadblock because the objection is more procedural than material. In the words of Bruce D. Hansen, Chief Executive Officer:
"...this procedural flaw is disappointing given the strong legal and technical findings by the State Engineer to determine that the Company's water applications should be granted for the Mt. Hope project. The updated model referenced in the State Engineer's decision had substantially the same conclusions as the model the petitioners had reviewed. With our final hydrology models being completed this week, all parties involved will now be reviewing a single, final model, so this procedural issue can be avoided moving forward." (GMO Press Release, 6:04 AM, 4/26/2010)
Tim Arnold, Mt. Hope General Manager, added:
"We are clearly disappointed that the State Engineer's original ruling was not upheld. We will continue to work with the Commissioners of Eureka County and the farmers in Diamond Valley to find a solution to their opposition to our water applications. Our scientific studies continue to indicate that our water pumping in Kobeh Valley, 15 miles to the west of Diamond Valley, will have virtually no impact to their water table and we will continue to engage and educate all stakeholders on that issue. Additionally, we will continue to develop a comprehensive long-term monitoring and mitigation plan.
The overwhelming support by the citizens of Eureka County is a real positive for our project and we hope they will more fully engage to vocally support our project and help us move Mt. Hope forward in an environmentally sound manner and help us create badly needed jobs and tax revenue in their community and Nevada." (GMO Press Release, 6:04 AM, 4/26/2010)
In these hard times, I hope all parties involved can reach an agreement that is mutually beneficial and does not delay the mining of strategic metals like molybdenum from becoming an important and integral part of Eureka County's future. The best of luck to all.
Let's see how the markets are voting on the news. On Friday, GMO touched $4.00 briefly (3:15 PM EDT) to close at $3.93. As the markets opened this morning, GMO got whacked down to $3.44 in early trading on fairly heavy volume (143,131 shares). Since then the stock has rebounded to $3.69, down 6.1% from Friday's close.
Am I worried? Nay. Last week the Report created a price model of GMO share price noticing an unusually high correlation with the S&P 500 (General Moly - $3.15 or $4.25? Ask Helen of Troy). We identified the fair value of GMO to be $3.71 in a range of $3.15 to $4.25. At the present $3.69 we are just a whisker below fair value and even the intraday low of $3.44 is well above the bottom range of $3.15. At the time of this analysis, we identified $3.20 as a buying opportunity if you believe the global growth story.
Say, guess what? This morning there are two chunks of good news on that front from our friends at Caterpillar (CAT) and the London Metals Exchange (LME). As reported by the Wall street Journal this morning:
"U.S. stock futures were generally firmer as Caterpillar raised its full-year profit outlook and said the economy is definitely improving...Caterpillar swung to a sharply higher-than-expected profit in the first quarter following prior-year restructuring charges, though sales fell and taxes rose. The heavy machinery maker also raised its 2010 forecast." (WSJ, 4/26/2010)
And at the LME,
"Metals added to gains on Monday on optimism the world's top economy is slowly but surely picking up..." (Fastmarkets, 4/26/2010)
That's not all bad, buckaroos. Speaking of the LME, this is how Miss Moly fared last week:
Western Moly Oxide (FeMo65) $17.75/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)
Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.25/lb (the price reported in the Metals Bulletin)
LME Futures Contracts
3-Month (Buyer) $38,000/metric ton $17.24/lb
3-Month (Seller)$40,000/metric ton $18.14/lb
15-Month (Buyer) $38,000/metric ton $17.24/lb
15-Month (Seller)$40,000/metric ton $18.14/lb
Here is a chart of the LME 3-month contract (seller) from the February launch to the present:
Looks pretty steady-eddy to me.
Enough talk, let's walk the walk:
4-WD is OFF - optimistic but cautious markets; the VIX or "fear index" is back in the 17s comfortably below 25; metals & miners are looking better with benchmark FCX back in the low eighties and comfortably above $75 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment (what's this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions &
General Moly Mt. Hope Water Rights
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is down $0.23 in early trading to $84.89 (June contract, most active); Gold is down $1.0 to $1152.7 (June contract, most active); Silver is up $0.058 to $18.250 (May contract); Copper is up $0.0155 to $3.5285 (May contract); Western Molybdenum Oxide up at $17.75, LME moly 3-month seller's contract remains at $18.14
The DOW is up 33.55 points to 11237.83; the S&P 500 is down 0.64 to 1216.64. The miners are mixed:
Barrick (ABX) $40.39 down 0.17%
Newmont (NEM) $53.01 down 0.17%
US Gold (UXG) $3.23 up 0.94%
General Moly (Eureka Moly, LLC) (GMO) $3.69 down 6.11%
Thompson Creek (TC) $13.70 up 2.70%
Freeport-McMoRan (FCX) $80.74 up 1.48% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are happy, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $42.97 up 1.18% - global steel producer
POSCO (PKX) $121.36 up 1.93% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is down 0.39% to $1,444,303.75 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus