"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.

Monday, August 9, 2010

Copper, Lithium, Moly, Treasurys & EMI


Morning Miners!

It is 6:00 AM sharp. Have of cup of Monday brew and let's get to work. You might guess by the title that the ole Colonel has a lot on his mind as we enter a new week. Copper, our dauntless canary in the global recovery mineshaft, is catching a thermal under her wings this morning with COMEX trading at $3.3775/lb. The report spends a lot of time on the red metal even though the nearest copper mine is in Ely. As copper goes, so go the metals & miners, so go the broader markets in my world. For starters a new twist in the copper wire...

This weekend, I read an interesting run-down on the annual Diggers & Dealers conference in Kalgoorlie, Australia. Robert Friedland spoke about the prospects for copper, he is a metals visionary and the boss at the Canadian company Ivanhoe. Ivanhoe with Rio Tinto owns the majority share of the giant Oyu Tolgoi copper-gold mining project in Mongolia's Gobi desert. This Report has covered Oyu Tolgoi several times before, the most recent blog is from last October, Oyu Tolgoi, Solar Panels & $1050 Gold. Here is a link to Mr. Friedland's latest thoughts:

Friedland sees blue skies for copper (Barry Fitzgerald,The Age-Business, 8/9/2010)

Checkout this copper connection to electric vehicles and lithium:

"Friedland reckons that the forecast need for 600 million tonnes of copper over the next 20 years [is] not including the demand to come from the 'phenomenon' of electric cars. He believes that hybrid cars are old news. The world will shift its car fleet over to lithium battery-powered electric over the next 20 to 30 years or so, waving goodbye to reliance on Middle East oil supplies at the same time.
Good news for those chasing lithium as the next big thing. But don't forget copper, Friedland added.

He pointed out that a lithium battery is made out of a copper foil which is sprayed with graphite and lithium/cobalt oxide. 'And when you roll that puppy up and put it in your car, 80 per cent of the weight of the battery is copper metal.'

So a large sedan with a 450-kilogram battery will have about 360 kilograms of copper metal in it. Multiple that by the 500 million people who will want electric cars, and the implication for the copper market is 'breathtaking'." (Barry Fitzgerald,The Age-Business, 8/9/2010)

As the ole Colonel has said before - if Northern Nevada were a ship, gold would be our keel; strategic metals, our sail. Gold provides our present economic stability; strategic metals will capture the winds of change and sail our kids and grand kids to a brighter future. We've got low cost lithium carbonate in Humboldt County and copper in White Pine County. We've got molybdenum, rhenium and vanadium in Eureka County. All of these metals have a promising role in the emerging alternative energy industry together with their traditional uses (for more on Northern Nevada's metallic future, click here). Just something to think about buckaroos. More on molybdenum in a moment, first a tweak on the Eureka Miner's Index (EMI).

Treasurys & the EMI

All eyes will be on the Fed Tuesday to see if they will discuss the possible threat of deflation in our weakened economy. A deflationary trend could be bad news for the metals & miners. A troubling sign has been the fall in the yield of 10-year Treasurys to sub-3% levels. These are levels not seen since the darker days of the credit crisis:

10-yr Treasury 2.657% - 12/5/2008: Freeport-McMoran bottom ($16.8, $15.7 intraday)
10-yr Treasury 2.819% - 3/9/2009: S&P 500 closing low (676.53)

10-yr Treasury 2.833% - 8/9/2010: This morning, S&P 500 1122.93

Yikes, talk about a disconnect between the bond and equity markets! The Report has maintained that an environment of low interest rates and low fear in the broader markets is good for the metals & miners. The fall in Treasurys lately hints that there is a limit to this thesis. Many believe the bond markets are signaling deflation while commodity markets have been showing some signs of inflation (e.g., wheat, oil, copper).

I think it is reasonable to say that low interest rates are a positive for the metals & miners until the 10-year drops below 3%. The ole Colonel has, therefore, put a low interest rate cap (LIRC) of 3% for 10-year T-notes lower than this level in the Eureka Miner's Index (EMI) formulation. This will mitigate very low interest rates from "inflating" our index thereby painting a rosier outlook than reflected in the bond markets. From this point forward, the EMI will include a LIRC.

Let's see how our Miss Moly fared last week:

Weekly Molybdenum Roundup



Molybdenum prices remain in a stable range with European moly and LME futures contracts still slightly higher than Western moly oxide which sits at $14.25/lb. The LME 3-month and 15-month seller contracts are now $15.42/lb ($34,000/metric ton). The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) $14.25/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $15.05/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $33,550/metric ton $15.22/lb

3-Month (Buyer) $32,000/metric ton $14.51/lb
3-Month (Seller) $34,000/metric ton $15.42/lb

15-Month (Buyer) $32,000/metric ton $14.51/lb
15-Month (Seller)$34,000/metric ton $15.42/lb/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) through Friday with the new low interest cap (LIRC). The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.



The Eureka Miner's Index is above-par at 151.4, a bit up from Friday's 147.05 and a big improvement from the 6/7/10 low of 50.7. Importantly, the high and low trends (dotted lines) are still positive since the EMI high on 6/25. Remember an EMI greater than 100 is good times for metals & miners.

Enough talk, let's walk the walk:

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky but much firmer timber with benchmark FCX now trading slightly below its 200-day average of $75.3 (our new warning level, 8/05 update), 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.

The GREEN light is turned back on for Commodity Reflation with copper trading above $3/lb

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The GREEN light is turned back on for Investor Confidence as some investors return to equities. The bond markets signal caution with sub-3% 10-year Treasury yields.

The YELLOW light is turned 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, U.S. House committee debates miner workplace safety bill

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

NYMEX/COMEX: Oil is up $o.44 in early trading to $81.44 (September contract, most active); Gold is up $0.3 to $1205.6 (December contract, most active); Silver is down $0.052 to $18.420 (September contract, most active); Copper is up $0.0345 to $3.375 (September contract, most active)

Western Molybdenum Oxide is $14.25; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.22

The DOW is up 19.83 points to 10,673.39; the S&P 500 is up 1.29 to 1122.93. The miners are mixed:

Barrick (ABX) $43.12 down 0.62%
Newmont (NEM) $56.80 down 0.42%
US Gold (UXG) $4.94 up 1.33%
General Moly (Eureka Moly, LLC) (GMO) $3.17 down 0.63%
Thompson Creek (TC) $9.90 up 1.33%
Freeport-McMoRan (FCX) $74.69 up 0.11% (a bellwether mining stock spanning copper, gold & molybdenum)
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The Steels are down, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $33.59 down 0.06% - global steel producer
POSCO (PKX) $110.00 down 0.12% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.11% to $1,408,052.80 (what's this?).

Cheers,

Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Headline photograph by Mariana Titus (Alpine Hotel Series)

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