General Moly (GMO) Update & The $20 Moly Camp

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*** A special thanks for the input provided to today's report by Seth Foreman, Director of Investor Relations, General Moly ***


Morning Miners!

It is 5:51 AM. Grab a cup of hump day java. I've got Old Miner Woden counting on all fingers and toes trying to figure out the latest General Moly timing for Mt. Hope...

Mt. Hope Permitting Progress

General Moly (GMO) updated their permitting progress in a yesterday afternoon press release:

GENERAL MOLY UPDATES MT. HOPE PROJECT PERMITTING PROGRESS (Press release, 02/08/2011, 2:10 PM PT)

Things are taking a little longer than expected, pardner. Investment Relations Director Seth Foreman explained it to me this way, "...the review and edit process with the BLM and its independent EIS contractor is flat taking longer than we thought and longer than they indicated it would." Also he added, "...the BLM has decided, based on the scope of the comments that we received on the PDEIS (August last year) that there needs to be another round of review before we get to the DEIS publication. So they have inserted another review period into the draft/edit cycle, creating more delay. Frustrating, but something we will deal with."

Nuts. My sympathy goes out for the GMO team, there must be a lot of frustration for those anxious to put on the Carhartts and begin doing what they do best - mining!

I believe Old Miner Woden has got it figured. Let's look at the pieces and come up with a rough new schedule. The Draft EIS (DEIS) is now expected to be released for publication in the second quarter of this year. At the earliest, the ole Colonel doesn't think that means April Fool's Day, let's say mid-April just for fun. The latest would be the end-of-June.

After DEIS release there are two additional steps:

DEIS publication = 1 to 2+ months
Record of Decision (ROD) = 6 to 9 months

If we assume GMO starts digging right at ROD time, then we have 7 to 11+ months to go to mine construction from mid-April to late-June of this year. Woden tells me that gives us mid-November 2011 at the earliest; late-May+ 2012 at the latest. We put a "+" on the later time because the 1-2 month DEIS publication estimate is qualified in the press release, "...other DEIS publications have taken longer."

Last year I believe General Moly was expecting mine construction to begin this summer, now it looks as though it is pushed out to the end of the year at the earliest. Unfortunately, GMO has little influence over these delays.

One thing that is in General Moly's control is time-to-first production once mine construction has started. Their estimate in the press release is 20 months which I believe is unchanged from earlier estimates. That schedules the first pound of moly for mid-July 2013 to late-January+ 2014. Nuts, I thought we'd see Miss Moly before the ole Colonel turns eligible for Medicare. Looks like we're now a few months beyond that milestone at best.

The $20 Moly Camp

The Report has been talking about $20+/lb molybdenum oxide for some time, my mid-range 2011 target is $20.12/lb. I look at the spot markets and the relatively new London Metal Exchange (LME) molybdenum futures market for clues in future pricing. These are reported in detail in our molybdenum roundup bright and early every Monday morning.

In all honesty, the LME futures trading is still very thin and investment interest in this minor metal is dwarfed by such speculation favorites as gold and copper. Here is a quick look at metal inventories* related to some popular speculative investments compared to LME molybdenum warehouse stores:

SPDR Gold Trust ETF (GLD) 1,200 tonnes $52.5 billion (@$1360/oz)
LME Copper 394,000 tonnes $3.9 billion (@$10,000/tonne)
LME Molybdenum 282 tonnes $10.6 million (@$37,500/tonne)

(*approximate inventories & pricing for comparison purposes)

Get the picture? For now, moly prices are driven primarily by supply and demand not speculative interest. I asked Seth Foreman for his opinion on the future prices expected in the physical market. He gave me this comprehensive overview that supports $20/lb moly with some interesting comments on timing:

"Yes, we are in the $20/lb camp. We are already at about $18/lb and the trend has been slowly, but steadily climbing for a couple months now, as you note [yesterday's blog on spot & LME futures].

A couple factors that we are seeing. First, global steel production has reached pre-crash levels. That said, China represents about 50% of that steel production whereas pre-crash they were closer to 40% or even lower. Chinese steel, in general, doesn’t contain that much moly. So I think that globally, the average moly content per ton of steel is lower now than it was pre-crash (based on country-specific product mix). That helps explain why steel production is at pre-crash levels but moly prices are not at pre-crash levels.

Second, although this is nearly impossible to estimate, I think there are some existing moly inventories that may be still being worked through. That, and I do not believe that all Chinese domestic production is back on line yet. I think those two factors are mitigating the potential for a price spike in moly, compared to what has happened in the Copper market. However, those two mitigating factors are both temporary in nature. It will not be long before Chinese mines are back online nor will it be long before any existing inventories are worked through. At that point we see the potential (no guarantees) for a positive price reaction, assuming global economic growth holds." (Seth Foreman, Director of Investor Relations, General Moly)

So there you have it pardner. Be a little patient, Mt. Hope is coming and moly prices are trending higher (Euro moly nudged up to $17.92/lb yesterday). That doggone Woden just stirred my coffee with his Medicare card - stop it you old fool...I'll have mine before you know it!

Daily Oil Watch

Last week we identified North Sea Brent crude oil as a good barometer for the developing crisis in Egypt. The most active front month contract has moved above $100/bbl again with a growing 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 the Middle East.

Here are the most active March contracts as of this morning:

NYMEX light sweet crude $87.23
ICE North Sea Brent crude $100.48
Spread (ICE- NYMEX) = $13.25 (yesterday $12.28)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $94.85
ICE North Sea Brent crude $101.71
Spread (ICE- NYMEX) = $6.86 (yesterday $5.86)

Although prices are still off their crisis highs, we have $100+ Brent and mid-$90 NYMEX in June favoring higher oil prices for the summer. I'll 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 571.31, down from from yesterday's 584.86 sitting just below the 1-month moving average of 580.79. The EMI continues to trend down from the high set on January 4th.

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 metals & miners have hit a rough patch; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day moving average headed for its 100-day average but still well 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 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, R&R Partners parts ways with Nevada Mining Association

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.29 in early trading at $87.23 (March contract, most active); Gold is up $0.2 to $1364.3 (April contract, most active); Silver is up $0.009 to $30.280 (March contract, most active); Copper is down $0.0140 to $4.5600 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.92; LME moly 3-month seller's contract is $18.14, LME cash seller is $17.96

Stock Market Morning Update

The DOW is down 6.51 points to 12,226.64; the S&P 500 is down 3.75 at 1320.82. Miners are down:

Barrick (ABX) $48.21 down 0.99%
Newmont (NEM) $58.14 down 0.22%
US Gold (UXG) $7.48 down 2.22%
General Moly (Eureka Moly, LLC) (GMO) $5.46 down 3.19%
Thompson Creek (TC) $13.83 down 1.50%
Freeport-McMoRan (FCX) $54.74 down 1.63% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $37.82 down 1.28% - global steel producer
POSCO (PKX) $108.06 down 2.03% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.26% at $1,781,290.21(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 by Mariana Titus