Thursday, December 30, 2010
Moly Target for 2011 - GMO, EMI, UXG, Cu & Ag New Highs
It is 6:09 AM. Our favorite Norseman Thor just brewed a new pot of Winter Storm Joe. Grab a cup and don't forget to wear double long johns tonight...
Copper & Silver post new records
The news line from the London Metal Exchange (LME) couldn't have said it better, "Metals defy gravity on weak dollar, bullish sentiment." COMEX copper and silver both posted new records in the wee hours. COMEX gold took a shot at its December Pearl Harbor high but couldn't get past $1415.4/oz For the record keepers here's where we stand for the big three:
COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $30.930/oz 04:20:00 ET 12/30/2010, March contract most active
COMEX Copper $4.3740/lb 07:50:00 ET 12/30/2010, March contract most active
Here are two articles on copper's moonshot that show a mix of fundamentals as well as investor zeal:
METALS-Copper hits record on demand expectations (Melanie Burton, Thomson Reuters, 12/23/2010)
China’s Stock Index Rises for Second Day on Yuan, Copper Rally (Irene Shen, Bloomberg News, 12/30/2010)
Who says Christmas is over?
General Moly & US Gold set new 52-week highs
Investor money continues to pile into the junior miners. Our two local favorites, General Moly (GMO) and US Gold, have enjoyed the rush. US Gold made a new 52-week high yesterday at $8.11/share; General Moly touched $7.25/share this morning. To give this some perspective, let's look back just three months:
General Moly $3.50 (low, 10/4/10) $7.25 (high, today) up 107%
US Gold $4.78 (low, 10/4/10) $8.00 (high, yesterday) up 67.4%
Now don't you wish you'd listened to the ole Colonel earlier this year? Of course, maybe you did...
Eureka Miner's Index (EMI)
The Eureka Miner's Index (EMI) gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. After a terrific run, the EMI showed some signs of cooling earlier this week. This morning's EMI is white hot at 780.1, a new record for 2010. Last June the EMI hit a low of 50.7, an EMI of at least 100 (par) is needed to claim we're grazing in green pasture.
The Colonel's Moly Target for 2011
The London Metal Exchange (LME) launched futures markets for minor metals cobalt and molybdenum last February. These exchanges are in their infancy and are thinly traded. The moly futures are however showing some signs of maturing and I plan to start modeling the 3-month seller contracts against reference commodities next year.
As this model develops, the Report will hopefully be able to see what's ahead for molybdenum as we currently do for COMEX copper, silver and gold and NYMEX oil futures. In the meantime, we can use some horse sense to develop a 2011 mid-range price target for molybdenum. Here is a plot of the 3-month seller contract from launch to the present:
As we have pointed out before, with the exception of a little front end enthusiasm, the 3-month seller has traded in a range of $30,000 to $40,000 per metric ton ($13.61 to $18.14 per pound). Lacking a model, I chose to take the geometric mean of this range (see note 1) to develop a mid-range price target for 2010 of $34,640/metric ton or $15.71/lb.
Moly mid-range price target (2010) = SQRT (30,000 x 40,000) = $34,640/metric ton
Until my new molybdenum price model gets some legs, let's use a similar approach to develop a target for 2011. Desjardins Securities John Redstone believes that moly could spike to $30/lb in 2011. If you missed his prediction in Monday's report, here's the link:
John Redstone Interview (BNN, 12/23/2010)
If $30/lb ($66,140/metric ton) proves to be the top for 2011 and we conservatively use the bottom of the 2010 range for support, we can compute a new mid-range target for 2011:
Moly mid-range price target (2011) = SQRT (66,140 x 30,000) = $44,540/metric ton
Or $20.21/lb for us folks out here in the West. How about another beer bet?
Western Moly Oxide will break $20/lb before the Fourth of July 2011
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) sets a new record at 780.11, up from yesterday's 708.35. The 1-month moving average is now 615.97.
The 2010 record high for the EMI is now 780.11 set 12/30/2010; 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 down 12.04 points to 11,573.34; the S&P 500 is down 1.23 to 1258.55. Miners are mostly up except the big golds:
Barrick (ABX) $52.99 down 0.17%
Newmont (NEM) $61.17 down 0.03%
US Gold (UXG) $7.95 up 0.13%
General Moly (Eureka Moly, LLC) (GMO) $7.13 up 1.86%
Thompson Creek (TC) $14.73 up 1.24%
Freeport-McMoRan (FCX) $120.69 up 1.29% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are up (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $38.19 up 0.90% - global steel producer
POSCO (PKX) $107.32 up 1.00% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.67% at $1,980,746.75 (what's this?).
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market
Note 1: The Colonel prefers the geometric to the arithmetic mean in estimating range mid-points. Markets tend to be ratio-metric and not additive in nature. This is just a mathematical nuance pardner, pick your poison.
Headline photograph by Mariana Titus