"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.

Wednesday, February 23, 2011

Brent Breaks $110/bbl; 1-Year for Miss Moly; LME Moly Drops



Wōdnesdæg
Morning Miners!

It is 5:52 AM. Have a brimming cup of Hump Day Splendor. Who's chuckling this morning? Old Miner Woden! Looks like I just lost another bet...

Eureka County in Photographs (circa 1940s)

Today's headline photograph continues our series of photographs by Arthur Rothstein who captured images of Eureka County in the early 1940s (more detail at the bottom of this blog, you may be amused to see Eureka referred to as a "ghost town"). This photo is one of my favorites because it is pretty rare to find an oldie Eureka shot taken on my side of the canyon. We're looking south along Monroe street from the north-west corner of town just down from Marge Pastorino's house. The Colonel's place is a just little further north and up the hill on North O'Neil Avenue (not in picture). Monroe is one street back from Main St. and you can see the Eureka Courthouse and the Colonnade Hotel in the distance.

I bet Woden that the house in the center of the photo was the Biale place. He said, "Hogwash!" and stomped up town to get a second opinion. John Brown gave me a holler and said it was not the Biale but the old McBride residence. I owe John and Old Miner Woden a beer. Nuts.

Eric Pastorino reminded me that the McBride house was roughly where the south two bays sit in the new Eureka Firehouse. By the way, I believe our firehouse is the second largest in the state but that's a story for another day. You can check out more fun facts about early Eureka in the town's self-guiding tour .


Oil & Metals Update

Heavy gunfire in Libya's capital today from forces loyal to Moammar Gadhafi was enough to send Brent crude oil to a new record breaking $110/bbl. This Report is using Brent crude oil as a barometer for the developing Middle East situation (see below).

The escalating conflict in Libya is keeping COMEX gold above $1400/oz trading presently at $1404.3/oz. COMEX silver is checking in at $33.135/oz and copper is continuing its descent plumbing $4.2675/lb. Here is a good article on copper's dilemna by Bloomberg's metal reporter Agnieszka Troszkiewicz (say that in one breath and I'll buy you a beer too):

Copper Drops in New York on Worries Unrest Will Hamper Growth (Agnieszka Troszkiewicz - Feb 23, 2011 5:29 AM PT)

Let's update the records for our big three metals and Brent:

COMEX Gold $1432.5/oz 08:25:00 ET 12/7/2010, February contract most active
COMEX Silver $34.330/oz 20:00:00 ET 02/21/2011, March contract most active
COMEX Copper $4.6375/lb 06:15:00 ET 02/04/2011, March contract most active
ICE Brent crude $110.35/bbl 09:45:00 ET 02/23/2011, April contract most active

Miss Moly has an Anniversary


We mentioned yesterday that Miss Moly was having her 1-year anniversary at the London Metal Exchange (LME) which started trading cobalt and molybdenum futures on February 22nd, 2010. This report tracks the latter daily and gives a detailed report bright and early Monday on spot and future moly oxide prices. According to this article the new exchange for minor metals is enjoying some success:

LME trade of cobalt and molybdenum crosses $430mn
(Commodity Online, London, February 23 2011 09:40 GMT)

Some interesting facts:

1) Cobalt trading was 7,825 tonnes traded during the year to February 21st; Molybdenum trading was 3,498 tonnes during the same period.

2) Warehousing in both metals was dominated by Rotterdam while Singapore and Baltimore also attracted good warehouse activity in cobalt.

3) Brand registration for both metals has also been good, with good delivery brands registered from ten cobalt producers and seven molybdenum producers.

Moly price is still predominantly determined by supply and demand and not speculative interest in the LME futures market. Although thinly traded, molybdenum futures have lately been behaving more or less like the major metals with periods of contango and backwardation of the 3-month and 15-month contarcts compared to moly oxide spot prices (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).

I thought of a simple way we can test whether the LME moly futures contracts can indeed predict future prices...

LME Moly Prices Drop

Yesterday, LME 3-month and 15-month contracts dropped but spot prices in the West and Europe remain unchanged at $17.00/lb and $17.82/lb respectively. Here's a comparison of future prices between last Friday and yesterday:

Friday (2/18/2011):

3-month seller $18.14/lb
15-month seller $18.28/lb

Tuesday (2/22/2011):

3-month seller $17.10/lb down 5.7%
15-month seller $17.85/lb down 2.4%

In Europe we've gone from contango to backwardation on the 3-month seller contract and spot price. I'm willing to place a bet that we'll see a fall in European spot prices soon. Here's a good Irish beer bet:

European Moly Oxide will break below $17.50/lb before St. Patrick's day 2011

You can check out some of the Colonel's other beer bets near the bottom of the column to your right.

Daily Oil Watch

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East. The most active front month contract remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in this volatile region.

Here are the most active front month contracts as of this morning:

NYMEX light sweet crude $96.67
ICE North Sea Brent crude $108.88
Spread (ICE- NYMEX) = $12.21 (yesterday $10.44)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $99.0
ICE North Sea Brent crude $108.36
Spread (ICE- NYMEX) = $9.36 (yesterday $8.14)

Although prices are off their crisis highs, we have $100+ Brent and high-$90 NYMEX in June favoring higher oil prices for the summer. I'll still stick with my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 424.80 but makes a new low for 2011; down from yesterday's 503.43 and below the 1-month moving average of 548.30. The EMI continues to be down from the high set on January 4th and a trend reversal in the short term now appears unlikely.

The record high for the EMI is 816.78 set 01/04/2011; 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.

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 ON - The miners are still in a rough patch but conditions are improving; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 100-day moving average but still above its 200-day average of $43.06 (our new warning level, 02/02 update after the FCX 2:1 stock split); 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, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $1.25 in early trading at $96.67 (April contract, most active); Gold is up $3.2 to $1404.3 (April contract, most active); Silver is up $0.273 to $33.135 (March contract, most active); Copper is down $0.0795 to $4.2675 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.82; LME moly 3-month seller's contract is $17.10, LME cash seller is $16.79

Stock Market Morning Update

The DOW is down 38.86 points to 12,173.93; the S&P 500 is down 2.47 at 1312.97. Miners are up:

Barrick (ABX) $52.20 up 1.32%
Newmont (NEM) $59.17 up 1.74%
US Gold (UXG) $7.20 up 1.41%
General Moly (Eureka Moly, LLC) (GMO) $5.14 up 0.59%
Thompson Creek (TC) $13.52 up 0.37%
Freeport-McMoRan (FCX) $50.81 up 0.85% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.06 up 1.49% - global steel producer
POSCO (PKX) $103.72 up 1.20% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.69% at $1,776,686.71(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

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

Headline photograph from the Library of Congress

Title: Ghost mining town once produced over eighty million dollars in gold, silver and load. Eureka, Nevada
Creator(s): Rothstein, Arthur, 1915-1985, photographer
Date Created/Published: 1940 Mar.
Medium: 1 negative : safety ; 3 1/4 x 4 1/4 inches or smaller.
Reproduction Number: LC-USF34-029908-D (b&w film neg.)

Rights Advisory: No known restrictions. For information, see U.S. Farm Security Administration/Office of War Information Black & White

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