"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.

Tuesday, April 5, 2011

Blue Skies? General Moly (GMO), Thompson Creek (TC) & Freeport (FCX)

Blue skies
Smiling at me
Nothing but blue skies
Do I see
- Irving Berlin "Blue Skies"


New records for gold & silver!

COMEX Gold $1445.50/oz 12:55 ET 04/05/2011, June contract most active (new)
COMEX Silver $39.240/oz 12:50 ET 04/05/2011, May contract most active (new)

Morning Miners!

It is 5:51 AM. Sweet Ruby T is whistling a pretty tune today, come in and have a cup. I've always liked that song "Blue Skies", especially the Willie Nelson version...

Brent Crude Breaks $120/bbl - No Panic (yet)

Before we talk about miners let's checkout oil. Brent crude punched above the $120/bbl mark at $121.14/bbl this morning but NYMEX light sweet crude stayed below its recent record trading down $0.42 to $108.05/bbl.

Dennis Gartman, Commodity King and respected author of the Gartman Letter, made an interesting call on oil yesterday. He believes that as long as the price ascent for the gooey stuff is orderly, there is not much to panic about yet - even at these high levels. His outlook on commodities also remains bullish. Mr. Gartman is presently buying gold in yen playing on the present weakness in the Japanese currency.

If the Commodity King is not running for the exits I guess the ole Colonel won't either. We better keep an eye on fuel prices in Nevada though. I'm going to include a link to Nevada Fuel Prices in our Daily Oil Watch below. The Nevada gasoline price average is actually down sitting at $3.780/gal compared to $3.814/gal yesterday (this number is updated quite frequently so don't be surprised to see a different one when you click on the link).

Here's a new update for our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1448.60/oz 10:30 ET 03/24/2011, April contract most active (new)
COMEX Silver $38.620/oz 09:00 ET 04/04/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $108.78/bbl 04:30 ET, 04/04/2011, May contract most active
ICE Brent crude $121.42/bbl 08:30 ET 04/05/2011, May contract most active

Blue Skies? General Moly (GMO), Thompson Creek (TC) & Freeport (FCX)

The broader markets are now open and its a so-so day for the miners. I'm not worried, in fact the Colonel is willing to stick his neck out and say we may have finally turned the corner. The miners started out well enough with the Eureka Miner's Index(EMI) hitting a lofty high of 816.8 on January 4th. It was pretty much down the mine shaft after that with the year's low set on March 15th at 262.0 (see the EMI discussion below). Lately we've been in the 400s again and we had an especially good day for three of our favorite miners yesterday.

At Monday's close General Moly (GMO) had bounced 9.6%; Thompson Creek (TC), 4.2% and bellwether miner Freeport-McMoRan (FCX), 1.3%. Thompson Creek is our benchmark moly producer and although Freeport is one of the world's copper giants it also produces its share of molybdenum. It makes some sense then to compare both with our moly-producer-to-be, General Moly. Here is a chart of their year-to-date performance (GMO blue, TC green & FCX brown):

With the broader markets flirting with new highs, these miners' 2011 track record is not much to brag about: FCX is down 7.5%, GMO is down 12.5% and TC is down 15.0%. By contrast, the S&P 500 is up 6.0% for the year.

So what's your point Colonel? Shucks buckaroos, look at the three miners' post-March 15th trend. The EMI this morning (discussion below) is down a tad from yesterday but we're on the second day above its descending upper trend line. I'm betting we're witnessing a reversal in fortunes for these guys even on a day China is raising interest rates again.

Let's close with a 1-year chart for General Moly. I've included both the 50-day and 100-day averages. We've climbed above the averages lately, maybe there are some blue skies ahead this spring. Stay tuned.

Blue skies
Smiling at me
Nothing but blue skies
Do I see

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 466.29, down from yesterday's 478.04 and above the 1-month moving average of 376.29. The EMI continues to be down from the high set on January 4th and up from the March 15th low of 262.02. This is the second day the EMI is above its upper trend line of 445.27 possibly breaking the downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. 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 of 100 is the boundary between good lands and bad lands for the metals & miners.

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.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 69.50, up from yesterday's 69.37. The 1-month moving average is 70.83. Today's Value Adjusted Gold Price (VAGP) is $1,721.63/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa. It is still above $100/bbl with a large but narrowing 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 region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $108.05
ICE North Sea Brent crude $121.14
Spread (ICE- NYMEX) = $13.09 (Yesterday $11.79)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $109.17
ICE North Sea Brent crude $120.30
Spread (ICE- NYMEX) = $11.13 (Yesterday $10.05)

*(the most active front-month contracts are now May so we moved from June to July contracts for a 2-month look-ahead).

Although prices are off their crisis highs, we have $100+ Brent and NYMEX in July favoring higher oil prices through the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are heading for firmer ground; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is above its 50-day moving average today and is comfortably above its 200-day average of $44.85 (our new warning level, 03/04 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 RED light is turned on our Fuel Gauge with oil above $100

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, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.42 in early trading at $108.05 (May contract, most active); Gold is down $0.9 to $1432.1 (June contract, most active); Silver is down $0.109 to $38.385 (May contract, most active); Copper is down $0.0105 to $4.2435 (May contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.95; LME cash seller is $17.26, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is down 28.53 points to 12,371.50; the S&P 500 is down 0.75 at 1332.12

Miners are mixed:

Barrick (ABX) $51.32 down 0.14%
Newmont (NEM) $54.38 down 0.38%
US Gold (UXG) $8.97 up 0.34%
General Moly (Eureka Moly, LLC) (GMO) $5.73 down 1.38%
Thompson Creek (TC) $13.10 down 0.08%
Freeport-McMoRan (FCX) $55.66 down 0.20% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $36.60 up 0.14% - global steel producer
POSCO (PKX) $116.09 down 0.63% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.30% at $1,941,969.52 (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 (source: Wikipedia)

Headline photograph by Mariana Titus

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

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