"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 19, 2011

Gold $1499; Silver $43.6; Blue Skies for Moly Miners?

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

Morning Miners!

It is 5:50 AM. Have a cup of Ruby Red and let's find out what has our Tuesday sweetheart chuckling. Oh, that's right she was signing "Blue Skies" just two weeks ago. What happened?

Gold $1499; Silver $43.6

Ruby T reminds the ole Colonel there's blue sky somewhere in the world even on our cloudiest days. She pointed to that little patch in top right hand corner of the Report's morning headline photo of the Austin sign. In this case it is precious metals. In the last two weeks gold and silver have been up and away with gold nearly touching $1,500/oz in early trading scoring $1,498.90/oz. Silver set its new high yesterday at $43.290/oz. Two weeks ago silver was only at the $40/oz doorstep and gold was in the mid-$1450/oz. That's pretty cool.

Gold has been recovering value too when compared to oil, silver and copper as calculated in the Report's new Gold Value Index (GVI) (see below). We have come up from a GVI of 69.50 to today's 71.37, a gain of 2.6%. This should make value investors happy after watching gold's steady decline in value since last June relative to these three key commodities. That's not all bad; record gold price, improving value.

Before we move on to not-so-blue skies let's update of our record book for the big three metals together with NYMEX and ICE Brent crude:

COMEX Gold $1,498.9/oz 07:45 ET 04/19/2011, June contract most active (new)
COMEX Silver $43.560/oz 09:30 ET 04/18/2011, May contract most active
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $113.46/bbl 18:00 ET, 04/10/2011, May contract most active
ICE Brent crude $126.47/bbl 016:45 ET 04/08/2011, June contract most active

General Moly, Freeport & Thompson Creek Blues

Two weeks ago we witnessed an impressive bounce in stock price for three of our favorite miners - General Moly (GMO), Freeport-McMoRan (FCX) and Thompson Creek (TC). This is an important trio to track if you are a Miss Moly watcher because Thompson Creek is this report's molybdenum benchmark producer and copper giant Freeport is both an industry bellwether miner and significant producer of moly. The fortunes of these two influence the investment sentiment towards our moly-producer-to-be, General Moly, and the Mt. Hope project.

On February 5th we showed a three-month chart and there were few clouds in the sky. Here is the same chart two-weeks later:

Nuts. Looks like we fell down the stope. The broader markets are now open and things look a little cheerier for Freeport after seven consecutive days of declining stock price. General Moly is down a tad and Thompson Creek is up a notch; here's all three compared to two weeks ago:

FCX $55.66 (4/5) $50.83(4/19) down 8.6%
GMO $5.73 (4/5) $5.07 (4/19) down 11.5%
TC $13.10 (4/5) $11.61 (4/19) down 11.4%

We can laundry list all the reasons our miners have headed back down the shaft; U.S. and Europe sovereign debt concerns, unrest in the Middle East and North Africa, China monetary tightening policy etc...etc. We can also remember that there is a large part of the world that is still running at a pretty good clip with a voracious appetite for metals and refined metal products like steel. As far as I know, copper is still expected to be in deficit this year. With red metal prices north of $4/lb, a key miner like Freeport with production costs of around a buck-a-pound is going to do just fine, pardner.

What about moly miners? As we mentioned yesterday expectations for the global steel industry drive molybdenum demand. Things aren't looking too bad there either. Checkout this article:

Steel use to surge by 5.9% to 1,359 mmt in 2011: World Steel (Commodity Online, London, 4/19/2011)

Here's the steel outlook according to this report, "Apparent steel use will increase by 5.9% to 1,359 mmt in 2011, following 13.2% growth in 2010 — The World Steel Association said Monday in its April 2011 short range outlook (SRO) for 2011 and 2012. In 2012, it is forecast that world steel demand will grow further by 6.0% to reach a new record of 1,441 mmt."

What I found surprising was the expected contribution from emerging and developing economies:

"This forecast suggests that by 2012, steel use in the developed world will still be at 14% below the 2007 level whereas in the emerging and developing economies, it will be 38% above. In 2012, the emerging and developing economies will account for 72% of world steel demand in contrast to 61% in 2007." (Commodity Online, London, 4/19/2011)

Did I just hear Ruby T whistling "Blue Skies" again? Stay tuned.

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 423.91, up from yesterday's 385.68 but still below the 1-month moving average of 455.43. The EMI continues to be down from the high set on January 4th, it set a new 2011 low on March 15th. A positive trend from the bottom may now be jeopardy if we do not rebound above the 1-month average in the next several days.

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 71.37, up from yesterday's 70.77 and marks a 6-day ascent from Monday's 2011 low of 67.68. The 1-month moving average is 69.85. Today's Value Adjusted Gold Price (VAGP) is $1,749.2/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 (MENA). It is now above $120/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 region.

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

NYMEX light sweet crude $107.03
ICE North Sea Brent crude $119.78
Spread (ICE- NYMEX) = $12.75 (Last Friday $13.19)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $107.67
ICE North Sea Brent crude $119.11
Spread (ICE- NYMEX) = $11.44 (Last Friday $11.63)

* NYMEX futures contracts have rolled forward, we now show June & August for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in August favoring higher oil prices throughout 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 150-day moving averages today but is still above its 200-day average of $47.94 (our new warning level, 04/15 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 down $0.66 in early trading at $107.03 (June contract, most active); Gold is up $1.3 to $1494.2 (June contract, most active); Silver is up $0.334 to $43.290 (May contract, most active); Copper is up $0.0190 to $4.2170 (May contract, most active)

Western Molybdenum Oxide is $16.85; European Molybdenum Oxide is $17.12; LME cash seller is $17.12, LME moly 3-month seller's contract is $17.46

Stock Market Morning Update

The DOW is up 21.27 points to 12,222.40; the S&P 500 is up 1.63 at 1,306.77

Miners are mixed:

Barrick (ABX) $53.36 down 0.21%
Newmont (NEM) $57.99 up 0.21%
US Gold (UXG) $8.99 down 1.75%
General Moly (Eureka Moly, LLC) (GMO) $5.07 down 0.59%
Thompson Creek (TC) $11.61 up 0.78%
Freeport-McMoRan (FCX) $50.83 up 0.43% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.70 up 1.43% - global steel producer
POSCO (PKX) $109.48 up 1.29% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.17% at $1,901,755.04 (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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