"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.

Monday, December 20, 2010

North Korea Blinks - Metals & Miners Weekly Roundup

*** BREAKING NEWS *** Latest General Moly (GMO) Press Release:
(2:16 PM PT)

Morning Miners!

It is 6:13 AM. Grab a cup of Monday Joe and let's see what's outside our window besides the weather...

North Korea Blinks

Tensions built over the weekend on the Korean Peninsula as South Korea went ahead with their planned artillery drill on Yeonpyeong Island. Diplomatic negotiations occurred at all levels including emergency meetings at the U.N. and an unofficial visit to Pyongyang by New Mexico Gov. Bill Richardson. Instead of carrying out the threats of new attacks, North Korea criticized South Korea but then said they didn't feel the need to retaliate.

The latest conflict drew the interest of this Report because of the potential impact it could have on South Korean steelmaker POSCO specifically and the Asian commodity story generally. POSCO is an investor in General Moly (GMO) and 20% owner of the Mt. Hope. The Colonel is bullish on the steelmakers for 2011 but an escalation in the Korean conflict could put a damper on this story. Stay tuned.

Metals & Miners Rally except for Thompson Creek

The broader markets are now open and it looks like the metals & miners are in rally mode except for moly producer Thompson Creek (TC). Thompson creek received a notice of judicial review of their recent acquisition of Terrane Metals Corp. The notice was posted by the Nak'azdli First Nation, here is a link to this breaking news:

Thompson Creek Metals

Let's see how Miss Moly fared last week...

Weekly Molybdenum Roundup

Spot prices of molybdenum oxide are now both above $16/lb in the West and Europe. Moly futures indicate a mild contango between spot prices and the London Metal Exchange (LME) and 15-month seller contract however a backwardation now exits between spot and the 3-month seller. The latter condition suggests near term demand may be increasing; the latter, stable future prices are expected. Contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango. The 3-month seller at $15.88/lb is still above the Colonel's mid-range moly price target for 2010 of $15.71/lb.

Western Moly Oxide $16.00/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.30/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $34700/metric ton $15.74/lb

3-Month (Buyer) $33,000/metric ton $14.97/lb
3-Month (Seller) $35,000/metric ton $15.88/lb

15-Month (Buyer) $34,300/metric ton $15.56/lb
15-Month (Seller) $36,300/metric ton $16.47/lb

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

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. Below is a chart of the EMI at Friday's close. The magenta line is the EMI with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio). A 1-month moving average is given by the blue line. A larger and more readable chart appears near the bottom of this blog page.

The Eureka Miner's Index(EMI) is above-par at 705.78 up from Friday's 697.96. The 1-month moving average is 554.96. 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.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.7717 (1-month) +0.8828 (3-month)
Cu/Au correlation +0.5897 (1-month) +0.8000 (3-month)
Cu/Oil correlation +0.9017 (1-month) +0.9113 (3-month)

Here are the numbers from the last Monday's roundup (12/13/2010):

Oil/Au correlation +0.8659 (1-month) +0.9220 (3-month)
Cu/Au correlation +0.7364 (1-month) +0.8884 (3-month)
Cu/Oil correlation +0.9227 (1-month) +0.9387 (3-month)

All these correlations remain high and positive which is a bullish condition for the metals & miners. The correlation of copper & gold is starting to weaken with copper showing a very over-valued state with respect to gold (greater than 5 standard deviations above the December model "fair vale" line). The 1-month and 3-month correlations of copper & oil remain above 0.9 suggesting copper will track rising oil prices.

Gold/Oil & Oil/Copper Ratios

The recent stability of the gold/oil and oil/copper ratios is interesting to monitor. This morning's gold/oil ratio is 15.6 suggesting $90/bbl oil should support $1400/oz gold; $100/bbl oil, $1560 gold. The oil/copper ratio is presently 21.1 suggesting $90/bbl oil should support $4.27/lb copper; $100/bbl oil, $4.74/lb copper.

Here are charts of both ratios showing a period of stability commencing in early September to the present:

For the past 3-months we have these statistics:

Au/Oil ratio

mean 16.26 bbl/oz
variation 2.56% (1-standard deviation/mean)

Oil/Copper ratio

mean 21.70 lbs/bbl
variation 1.86% (1-standard deviation/mean)

Daily Market Roundup

Enough talk, let's walk the walk:

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 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?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.26 in early trading at $88.86 (February contract, most active); Gold is up $6.0 to $1385.2 (February contract, most active); Silver is up $0.087 to $29.220 (March contract, most active); Copper is up $0.0440 to $4.2030 (March contract, most active)

Western Molybdenum Oxide is $16.00; European Molybdenum Oxide is $16.30; LME moly 3-month seller's contract is $15.88, LME cash seller is $15.74

Stock Market Morning Update

The DOW is down 12.26 points to 11,504.17; the S&P 500 is up 2.43 to 1246.34. Miners are up except for Thompson Creek:

Barrick (ABX) $52.23 up 1.16%
Newmont (NEM) $59.90 up 0.84%
US Gold (UXG) $7.46 up 2.61%
General Moly (Eureka Moly, LLC) (GMO) $5.36 up 1.13%
Thompson Creek (TC) $13.47 down 0.82%
Freeport-McMoRan (FCX) $115.26 up 1.36% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $38.60 up 0.05% - global steel producer
POSCO (PKX) $102.77 down 0.08% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.87% to $1,845,050.92 (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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