"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.

Wednesday, December 29, 2010

$10+ General Moly (GMO) Next Year?

Morning Miners!

It is 6:11 AM. Grab a cup of java and sit a spell with Old Miner Woden and me in the break room. That ole boy has been spinning tall tales every since he fired up the day. I think it is high time for a tall tale of my own and a beer bet to boot...

Dennis Gartman plugs General Moly on CNBC

Dennis Gartman, "Commodity King" and author of the Gartman Letter, plugged General Moly and molybdenum on CNBC Business News yesterday morning. If you've followed this Report for a while, you know that I believe he deserves his regal title for being one of the wisest traders in the commodity space. Gartman is high on steelmakers for 2011 and believes that metals & miners related to that industry (such as molybdenum & General Moly) will have a good year too.

General Moly Investor Relations Director Seth Foreman reminded the ole Colonel that this wasn't the first time that Gartman thought well of General Moly, "Dennis was a big backer of our stock going back to 2007, when we were a $12/share company." Unfortunately the economy soon cratered sending all the miners down the mineshaft and the Commodity King fled for higher ground.

Earlier that year, I had my own brief moment on the CNBC Business News show "Fast Money." On 4/25/2007, the Colonel asked Fast Money's Eric Bolling some questions about GMO (I believe they were called Idaho General Mines at that time) and the outlook for the molybdenum market. Bolling had recently received the Maybach "Man of the Year" award from Trader Monthly and was the show's expert on metals & mining companies. His reply was very positive for both GMO and the important steel alloying metal, molybdenum. I wrote about this experience last November in the blog Molybdenum on CNBC News.

At the time of the Bolling conversation GMO closed the day at $6.40/share. By that December GMO reached a record closing high of $12.42/share (intraday high of $12.58/share) and moly oxide was selling in $33/lb territory. The onset of the "Great Recession" in that same month cast a great shadow on the entire mining sector and General Moly was trading below a buck by the following December.

With some irony, GMO closed yesterday at $6.36/share yesterday just 4 cents below the price when I asked my question on CNBC more than three years ago. It's only natural to ask the question again. Fortunately, things are looking up for the metals & miners in 2011 with the emerging world feeling its oats and the big western economies on the mend.

Investors are pouring into the junior miners as evidenced by the recent surge in share price of General Moly and US Gold (UXG). With Mt. Hope expected to come online, the prospects for General Moly haven't looked this promising for some time. Experts seem to agree given the Gartman plug yesterday and Desjardins Securities John Redstone positive comments on Thompson Creek (TC) and molybdenum just before Christmas. Here's the link to the Redstone interview if you missed Monday's report:

John Redstone Interview (BNN, 12/23/2010)

(Note: be patient with this video link, you may get a short BNN front end piece)

$10+ General Moly (GMO) Next Year?

Let's close with two ballpark calculations to see if General Moly has a shot at double digits in the new year. When GMO hit their peak in December 2007, the ratio of moly oxide-to-share price was about 2.66, that is:

($33/lb)/($12.42/share) = 2.66

At yesterday's close the price of Western moly oxide was $16.00/lb and our ratio is pretty close to the 2007 number at 2.52:

($16/lb)/($6.36/share) = 2.52

If we believe John Redstone's prediction that moly may spike to $30/lb in 2011, we can use our ratios to take a wag at expected share price. Let's split the difference and use 2.6:

($30/lb)/(2.6) = $11.5

I admit this is not very rigorous but I believe it does shows that $10+/share isn't a completely outrageous expectation if investor interest and moly prices continue to trend positive. Shucks, I'll even make it a Beer Derby bet for next year:

General Moly (GMO) will break $10/share before New Year's Eve 2011

How's that for putting your money (or beer) where your mouth is! Stay tuned buckaroos (The Colonel's Beer Derby bets can be checked out in the right hand column at the bottom of this blog page)

Daily Market Roundup

Enough prognostication, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 708.35, up from yesterday's 654.78. The 1-month moving average is now 609.62. If we break below this level in the coming days, the recent EMI uptrend may reverse.

The 2010 record high for the EMI is 739.13 set 12/7/2010; the low was set 6/7/2010 at 50.7. An EMI greater than 100 signals better times for the metals & miners relevant to Eureka County, the EMI re-established an upward trend on Friday, 12/3.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Eureka Outlook Dashboard

4-WD is OFF - Markets are stable; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) in the low-$100s above its 200-day average of $79.39 (our new warning level, 12/06 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

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

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets

The ORANGE light is turned on our Fuel Gauge with oil above $90

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?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.29 in early trading at $91.20 (February contract, most active); Gold is up $2.1 to $1407.7 (February contract, most active); Silver is up $0.207 to $30.530 (March contract, most active); Copper is up $0.0010 to $4.3270 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.70; LME moly 3-month seller's contract is $17.24, LME cash seller is $17.01

Stock Market Morning Update

The DOW is up 35.99 points to 11,611.53; the S&P 500 is up 2.29 to 1260.80. Miners are mostly up:

Barrick (ABX) $53.01 up 0.09%
Newmont (NEM) $61.44 down 0.18%
US Gold (UXG) $7.85 down 1.38%
General Moly (Eureka Moly, LLC) (GMO) $6.55 up 5.76%
Thompson Creek (TC) $13.52 up 2.99%
Freeport-McMoRan (FCX) $118.93 up 0.55% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $37.58 up 0.86% - global steel producer
POSCO (PKX) $106.63 up 0.34% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.62% at $1,939,991.39 (what's this?).


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

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