Texas Sweet $103+/bbl; US Gold (UXG) Closes Sale

Þūnresdæg
Morning Miners!

It is 5:50 AM. Thor just made a new pot of Thunder, have a cup. He just reminded me to fill up our reserve tank with gasoline before we see $5.00 per gallon. There's no way I want that thunderbolt jockey around my fuel tanks when we're re-stocking, there's enough explosive news these days...

Eureka County in Photographs (circa 1940s)

Today we mark the end of 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). The headline photo shows cattle feeding time at the Horseshoe Ranch. This ranch is south-east of Beowawe at the north end of the county and south-west of Emigrant Pass which we talked about Tuesday. My favorite of the series is this haunting image of sky and snow near Emigrant Pass. There is something timeless here, the scene could be from any year and would have certainly been foreboding to settlers caught in an early snowstorm on the California Trail.



Oil & Metals Update

Sometimes it's no fun being right, especially when a prediction about higher fuel costs comes true. Oil and its byproducts are important costs to mining and can quickly offset gains from rising metal prices. On December 10th of last year I made three predictions for 2011. Before July Fourth,

NYMEX light crude will break $100/bbl

COMEX gold will break $1570/oz

COMEX silver will break $36/oz

Yesterday one floor trade brought NYMEX Texas light sweet crude to $100/bbl (see note 1). It soon fell back below $100 but then raced to a new high of $103.41/bbl in the wee hours of the morning. Both NYMEX crude and ICE Brent crude peaked at 02:45 ET, the latter hitting a jaw-dropping $119.79/bbl. When geo-political conflicts spiral out of control, the fundamentals of supply and demand are among the early casualties. Here is a Bloomberg article on that subject and the possibility of $220/bbl oil:

Oil Surges to $119 on Libya Crisis; Goldman Sees ‘Upside Risk’ (Grant Smith, Bloomberg News, Feb 24, 2011 5:14 AM PT)

Nuts.

Two things were a bit unexpected about yesterday's oil trade:

1) I thought that gold would move higher than it did on a $100/bbl NYMEX spike. This Report has been saying for some time that $100 oil should comfortably support $1500+/oz gold, this morning we are presently at $1414.2/oz. We've based our argument on the relatively stable gold/oil ratio which has a 3-month average value of 15.43. This morning the gold/oil ratio is a much lower 14.18, a full 2.7-standard deviations below the average. That is a lot of statistical gobble-de-gook to say the Colonel may be barking up the wrong tree.

2) The US dollar failed as a safe haven trade on recent Middle East tensions. The Swiss franc is the rising safe currency trade as the dollar plummets. The 5-yr Treasury auction was also dismal yesterday, CNBC Rick Santelli graded it at D-. Retreat from the dollar and Treasurys on geo-political turmoil is not a good sign. There is a thought that rising interest rates in Europe may draw money to the euro further weakening the dollar. Interest rates also put pressure on gold because our favorite metal does not generate income and perhaps sheds some light on our first item.

Stay tuned.

Let's update the records for our big three metals with the addition of both Brent and NYMEX crude:

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
NYMEX WTI Crude $103.41/bbl 02:45:00 ET, 02/24/2011, April contract most active
ICE Brent crude $119.79/bbl 02:45:00 ET 02/24/2011, April contract most active

US Gold (UXG) Closes Sale

US Gold (UXG) closed the sale of its latest stock offering. From their morning Press Release:

"US GOLD CORPORATION (UXG:$6.9500,$-0.1200,-1.70%) (the "Company" or "US Gold"), an exploration company focused on gold and silver in the United States and Mexico, announced today the closing of its previously announced underwritten offering in the United States and Canada. The company sold 17,250,000 shares of common stock, including 2,250,000 shares pursuant to the underwriters' full exercise of their over-allotment option at $6.50 per share for aggregate gross proceeds of $112.12 million, or net proceeds of $105.3 million after commissions and expenses.

US Gold intends to use the net proceeds from the offering to complete feasibility study work and acquire long lead-time capital items for the El Gallo Project in Mexico, complete pre-feasibility and feasibility work at the Gold Bar Project in Nevada, continue ongoing aggressive exploration programs in Mexico and Nevada and for general corporate purposes." (Press release, 2/24/2010)

US Gold is one of the twelve stocks in the Eureka Miner's Grubstake Portfolio. The Gold Bar Project is in Eureka County and was commonly called the "Atlas Mine" when it was in production in the late 1980s-early 1990s. The Colonel misses those times buckaroos.

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 $99.73
ICE North Sea Brent crude $114.24
Spread (ICE- NYMEX) = $14.51 (yesterday $12.21)

Here are the June contracts with a narrower spread:

NYMEX light sweet crude $102.17
ICE North Sea Brent crude $113.45
Spread (ICE- NYMEX) = $11.28 (yesterday $9.36)

Although prices are off their crisis highs, we have $100+ Brent and NYMEX in June favoring higher oil prices for the summer. Unfortunately my December prediction that we will see NYMEX $100/bbl oil before the Fourth of July came true.


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 408.67 but makes a new low for 2011; down from yesterday's 424.80 and below the 1-month moving average of 544.90. 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 trapped between its 100-day and 150-day moving averages 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 $1.63 in early trading at $96.73 (April contract, most active); Gold is up $0.2 to $1414.2 (April contract, most active); Silver is down $0.023 to $33.275 (March contract, most active); Copper is up $0.0325 to $4.3080 (March contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $17.82; LME moly 3-month seller's contract is $17.28, LME cash seller is $17.01

Stock Market Morning Update

The DOW is up 3.21 points to 12,108.99; the S&P 500 is up 0.54 at 1307.94. Miners are mixed:

Barrick (ABX) $51.93 down 0.92%
Newmont (NEM) $57.63 down 2.50%
US Gold (UXG) $6.95 down 1.70%
General Moly (Eureka Moly, LLC) (GMO) $5.23 up 2.35%
Thompson Creek (TC) $13.61 up 0.89%
Freeport-McMoRan (FCX) $51.87 up 1.69% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.91 up 1.21% - global steel producer
POSCO (PKX) $102.58 down 0.52% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.16% at $1,772,369.30(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: Feeding cattle. Horshoe Ranch, Eureka County, 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-USF34-029687-D (b&w film neg.)

Inset photograph from the Library of Congress

• Title: Snow on Emigrant Pass. Eureka County, 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-USF34-029685-D (b&w film neg.)

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