"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.

Wednesday, April 13, 2011

General Moly (GMO ) Milestone; What Happened Yesterday?

Morning Miners!

It is 6:52 AM. Old Miner Woden and I would like to apologize for the interruption of service yesterday. The Google platform that supports this market report crashed twice. Looks like we're back on the air this morning. 471 reports have gone out without a hitch so we're giving Google a pass. Up and at'em, have a cup of hump day java and let's go.

General Moly Announcement

A day late so you may have heard already, General Moly reached an important milestone in their lengthy permitting process for the Mt. Hope molybdenum project. Here is the press release in its entirety:

LAKEWOOD, COLORADO – April 12, 2011, General Moly (NYSE Amex and TSX: GMO) announced that on Monday, April 11, 2011, the Bureau of Land Management (BLM) circulated the second draft of the Mt. Hope project's Preliminary Draft Environmental Impact Statement (PDEIS) to cooperating agencies. Cooperating agencies will review the second draft of the PDEIS and provide comments to the BLM, which will form the basis of the Draft Environmental Impact Statement (DEIS).

Following receipt of submitted comments, the BLM and its independent contractor will evaluate comments and move forward with production of the DEIS. The comment and review process is anticipated to take three to four weeks. The Company continues to anticipate completion of the DEIS in the second quarter and publication of the DEIS in the Federal Register in the second or third quarter of this year.

Bruce D. Hansen, Chief Executive Officer, said, “We are pleased the BLM has circulated the PDEIS for a second round of cooperating agency reviews. This progress is important in that all comments from the first draft of the PDEIS have been evaluated and incorporated as appropriate into this document, along with additional requested analysis, in a manner acceptable to the BLM. We will continue to drive this process forward as quickly as we are able.”

That's progress, pardner.

The cure for high prices is high prices

I heard oil legend T. Boone Pickens once say, "The cure for high prices is high prices." I believe that adage about markets is actually older than the venerable Texas sage but he says it so well. We've seen little bit of that at work in the last two days with a broad commodity retreat. The Wall Street Journal expanded on T. Boone's axiom, "Global markets tumbled Tuesday, dragged down by rising concern that the high cost of raw materials is eating into tight business and household budgets and undercutting prospects for economic growth." So it goes.

The miners have been hammered with bellwether Freeport-McMoRan (FCX) plunging through its 50-day and 100-day moving averages; today it is moving dangerously close to its 150-day. If it busts the 150-day, we may have another correction in the mining sector. The gold miners are holding up fairly well so let's wait and see before we bolt for daylight.

Oil, silver & copper prices for April

COMEX gold is presently trading at $1459.3/oz and NYMEX oil has fallen to $106.65/bbl. Since they presently have a high positive correlation (>+0.9), further pressure on oil prices could drop gold further down the shaft. I have updated my commodity models for April (bottom of this blog page) and thought it would be interesting to see where oil, silver and copper could go for a nominal gold price of $1450/oz. Here are the fair values and ranges:

For COMEX gold $1,450/oz:

The fair value of NYMEX oil is $105.36/bbl in a range of $98.53/bbl to $112.18/bbl
The fair value of COMEX silver is $37.452/oz in a range of $34.988/oz to $39.915/oz
The fair value of COMEX copper is $4.3428/lb in a range of $4.1038/lb to $4.5819/lb

I think the lower ranges tell us a lot about what to expect if oil and the metals continue to go south. We may see oil dip below $100/bbl but not by very much. COMEX silver today is at $40.650/oz above the expected top range. The good news is that it appears unlikely that silver will drop below the mid-$30s. COMEX copper should also stay above the $4/lb mark although I'm going to start worrying if it breaks $4.25/lb in the next few days. Stay tuned, the cure for high prices is high prices.

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 486.54, up from yesterday's 451.62 and above the 1-month moving average of 428.85. The EMI continues to be down from the high set on January 4th but is up from the March 15th low of 262.02. The EMI is trending up from the March low but caution is again in the winds.

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 69.93, up from yesterday's 69.00 and marks a 2-day ascent from Monday's 2011 low of 67.68. The 1-month moving average is 70.10. Today's Value Adjusted Gold Price (VAGP) is $1,743.6/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

Latest 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 $106.65
ICE North Sea Brent crude $121.81
Spread (ICE- NYMEX) = $15.16 (Yesterday $14.86)

Here are the July contracts with a narrower spread:

NYMEX light sweet crude $108.01
ICE North Sea Brent crude $121.04
Spread (ICE- NYMEX) = $13.03 (Yesterday $12.68)

Although prices are off their crisis highs, we have $120+ Brent and $100+ 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 back on some rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 50-day and 100-day moving averages today but 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, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.40 in early trading at $106.65 (May contract, most active); Gold is up $5.7 to $1459.3 (June contract, most active); Silver is up $0.299 to $40.365 (May contract, most active); Copper is down $0.0535 to $4.3330 (May contract, most active)

Western Molybdenum Oxide is $17.25; European Molybdenum Oxide is $17.12; LME cash seller is $16.85, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is up 9.01 points to 12,418.50; the S&P 500 is up 2.31 at 1,335.82

Miners are mixed:

Barrick (ABX) $52.91 up 1.09%
Newmont (NEM) $57.09 down 0.26%
US Gold (UXG) $9.10 up 3.76%
General Moly (Eureka Moly, LLC) (GMO) $5.17 down 0.58%
Thompson Creek (TC) $12.48 down 0.64%
Freeport-McMoRan (FCX) $58.15 down 0.56% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.79 down 0.03% - global steel producer
POSCO (PKX) $111.12 up 1.47% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.95% at $1,908,953.71 (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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