"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.

Friday, February 4, 2011

Jobs, Nevada Mining Tax Clouds & Newmont-Fronteer


Morning Miners!

It is 5:23 AM. Grab a cup of Raine's Friday Red Label and let's get to work, we've got a lot of news on the wire. The U.S. Labor Department will release their monthly report in seven minutes, be right back...

Jobs, Jobs, Jobs & Kool-Aid

The ole Colonel wishes he'd caught a few more winks and skipped the unemployment report. The world is waiting for that break-away moment when the unemployment numbers in the U.S. show a dramatic drop and all is better again. This morning was not that moment. On the surface, the unemployment rate looked quite encouraging dropping from a December 9.4% to a January 9.0%. However, the nonfarm payroll number increased only by 36,000 last month, far below a Dow Jones Newswires survey of leading economists who had forecast 136,000. Nuts.

The unemployment rate is taken from a household survey and represents different data than that used to compile nonfarm payrolls. The two surveys can give conflicting views of the jobs market, the low payroll number is being blamed by bad weather in January. The December payroll number was revised to show an increase of 121,000 jobs, from a previous estimate of 103,000 - either estimate a lot bigger than January's 36,000. Nuts.

CNBC bond market reporter Rick Santelli can always be counted on for a memorable comment after these monthly reports. This morning he wadded up some paper and threw it at the camera. Rick then made the observation that despite evidence to the contrary, the "people" somehow know that inflation has arrived and the jobs situation "stinks." He then implied economists/analysts of the opposing view were a bunch of "Kool-Aid drinkers." You gotta love that Santelli.

More red metal déjà vu

COMEX copper bested yesterday's morning record (yet again) with a pop to $4.5975/lb, now the 15th record since the Pearl Harbor Day highs of last December. COMEX gold went up, then down, then settled close to where it was before the release of the labor report. Silver is again showing strength against gold with the gold/silver ratio dropping to 46.7 from yesterday's 47.1. Gold is presently at $1352.7/oz; silver at 28.945/oz. The moves of all three metals reinforce the Report's theme of "rising copper, falling gold & resilient silver" for the price action since mid-December.

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 $31.275/oz 08:15:00 ET 01/03/2011, March contract most active
COMEX Copper $4.5975/lb 09:10:00 ET 02/04/2011, March contract most active

The following chart (red line, far-right) shows the little up-down-sideways blip in London spot gold price following the release of the labor report, ho-hum:

European Molybdenum Oxide nudged up another 8 cents to $17.68/lb - Go Miss Moly!

Nevada Mining Tax - Gathering Clouds

A faithful reader of the Report informed me that lobbying firm R&R Partners has ended its relationship with the Nevada Mining Association. R&R president and principal Pete Ernaut has been particularly helpful keeping a lot of the "higher mining tax" discussions at bay as Nevada tries to address its looming budget problems. Here is a link to Benjamin Spillman's report for the Las Vegas Review-Journal:

R&R Partners parts ways with Nevada Mining Association (Benjamin Spillman, Las Vegas Review-Journal,
Wednesday, Feb. 02, 2011 at 07:43 PM)

Gathering clouds, pardner.

Newmont to aquire Fronteer Gold

After jobs and taxes we need some good news to start the weekend! Adella Harding, mining editor for the Elko Daily Free Press, wrote a terrific article on the Newmont Mining Corp. (NEM) planned acquisition of Fronteer Gold (FRG) for its late-stage Long Canyon Project in Elko County and two other Nevada projects:

Newmont to aquire Fronteer Gold (Adella Harding, Elko Daily Free Press, Thursday, February 3, 2011 5:31 pm)

FRG had a nice pop on the news from $10.4/share on the close yesterday to an open of $14.5/share on the open this morning. The Colonel has been high on Newmont (NEM) since my January 19th blog Buy Barrick? Buy Newmont?. Presently NEM is trading at $57.3/share compared to its closing price of $55.46/share on 1/19/2011, up 3.9% with a 1.05% dividend yield. I see a lot more coming Newmont's way, please do your own research buckaroos. Newmont is bullish on gold prices going forward - like our buddy Santelli, ya gotta love'em.

Daily Oil Watch

On Tuesday we identified North Sea Brent crude oil as a good barometer for the developing crisis in Egypt. It is 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 the Middle East (which may not be for a long, long time).

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

NYMEX light sweet crude $91.59 up $1.05
ICE North Sea Brent crude $102.13 up $0.37
Spread (ICE- NYMEX) = $10.54 (yesterday $11.62)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $97.30 up $0.64
ICE North Sea Brent crude $103.10 up $0.34
Spread (ICE- NYMEX) = $5.80 (yesterday $6.26)

The spreads are narrowing from yesterday but still in favor of 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 594.82, up from from yesterday's 532.52 and breaking above the 1-month moving average of 588.60. Although a bulllish sign, 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 just above its 50-day moving average and 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 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

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

Commodity Market Morning Update

SPECIAL NOTE: The Report will track both NYMEX Western Texas Intermediate and ICE Brent crude oil prices until things settle down in the Middle East. WTI is a benchmark for North America; North Sea Brent, for Europe (see note 1).

NYMEX/COMEX: WTI Oil is up $0.32 in early trading at $91.18 (March contract, most active); Gold is up $2.0 to $1334.1 (April contract, most active); Silver is up $0.061 to $28.350 (March contract, most active); Copper is down $0.0060 to $4.5380 (March contract, most active)

Brent Crude is up $0.37 at $102.13 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.68; LME moly 3-month seller's contract is $17.69, LME cash seller is $17.51

Stock Market Morning Update

The DOW is down 7.27 points to 12,054.99; the S&P 500 is down 0.85 at 1306.25. Miners are mixed:

Barrick (ABX) $48.60 down 0.15%
Newmont (NEM) $57.63 up 0.52%
US Gold (UXG) $7.14 down 0.56%
General Moly (Eureka Moly, LLC) (GMO) $5.60 down 0.36%
Thompson Creek (TC) $14.38 down 0.14%
Freeport-McMoRan (FCX) $57.10 up 0.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.25 down 0.44% - global steel producer
POSCO (PKX) $106.53 up 0.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.06% at $1,7770,935.52(what's this?).


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

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