Wednesday, April 6, 2011
Oil, Au & Ag New Records; Mike Iannacchione Mt. Hope GM; SJR 15 Update
It is 5:48 AM. Have a hot cup of Hump Day Madness. We've got an ore cart full of news this morning! Four new records for the books, a big General Moly meeting at the Opera House and a mining tax update - let's give Old Miner Woden some help with all these weighty headlines...
Oil, Gold & Silver set more new records
The ole Colonel's head is spinning with all the price action in the oil, precious metal and base metal markets. Oil, gold and silver surged higher on common headlines setting new records this morning. NYMEX crude topped out at $108.70/bbl; BRENT rolled the barrel to $123.37/bbl. COMEX gold hit $1462.3/oz in early trading and COMEX silver set a new 31-year record at $39.71/oz. Here is a growing list of factors considered bullish for precious metals; items 1 and 5 are primary drivers for oil:
1) Continued turmoil in the oil-rich Arab world
2) Inflation concerns
3) The threat of a U.S. government shutdown
4) A further downgrade to Portugal's credit rating and continued worry about debt problems in the euro zone.
5) The euro rose to its highest level since January 2010 at 1.4283 (i.e. weaker U.S. dollar lifts dollarized commodity prices)
In the base metals, copper lead the upward momentum this morning at the London Metal Exchange together with multi-year highs for lead and aluminium. While not setting new records yet, COMEX copper is trading up at a respectable $4.3510/lb.
Here's an update for our record book for the big three metals together with NYMEX and ICE Brent crude:
COMEX Gold $1462.30/oz 08:15 ET 04/06/2011, June contract most active (new)
COMEX Silver $39.710/oz 07:05 ET 04/06/2011, May contract most active (new)
COMEX Copper $4.6375/lb 06:15 ET 02/04/2011, March contract most active
NYMEX WTI Crude $108.70/bbl 05:15 ET, 04/06/2011, May contract most active (new)
ICE Brent crude $123.37/bbl 09:50 ET 04/06/2011, May contract most active (new)
General Moly (GMO) holds a town hall meeting
General Moly gave presentations at the Eureka Opera House which featured updates and the announcement of a new general manager for the Mt. Hope Molybdenum Mine Project. Presenters included General Moly CEO Bruce Hansen, VP of Engineering and Construction Bob Pennington and Director of Environmental and Permitting Pat Rogers. Mining Editor Adella Harding wrote good summaries of the meetings in last night's Elko Daily Free Press;
General Moly presents update to Eureka (ADELLA HARDING, Mining Editor, Elko Daily Free Press, Tuesday, April 5, 2011 10:13 pm)
General Moly names Mt. Hope manager (ADELLA HARDING, Mining Editor, Elko Daily Free Press, : Tuesday, April 5, 2011 7:13 pm)
Eureka old timers will be happy to hear that Mike Iannacchione will be the new General Manager of Mt. Hope. Mike was Mine Superintendent at the Atlas Gold Bar Mine back in the day and has extensive experience in Nevada mining:
"Mike joins the Company with 28 years of mining experience, predominately in Nevada. Most recently, Mike served as Operations Manager at Goldcorp's Marigold Mine near Battle Mountain, Nevada. In that role, Mike managed operation and maintenance activities targeting a 55 million ton per year production rate. Prior to that, Mike was Vice President and General Manager at the Round Mountain gold mine located in Round Mountain, Nevada, a joint-venture between Barrick Gold Corporation and Kinross Gold Corporation. Mike's other Nevada experience includes serving as Mine Superintendent at the Atlas Gold Bar Mine in Eureka, Nevada, as Mine Manager at the Robinson Mine in Ely, Nevada, and as Mine Engineer and Mine Shift Foreman at the Bald Mountain mine in Ely, Nevada.
Mike has a B.S. in Mine Engineering from the University of Nevada Reno as well as a substantial amount of safety, leadership, communication and crisis management training. Mike is active in the Society of Mining Engineers of AIME and is an inactive Professional Engineer in Nevada." (General Moly Press Release, April 5,2011)
Mike replaces Tim Arnold as General Manager, Tim has taken a position at Geovic Mining. I'm going to miss Tim a lot and wish Mike the best of luck with a new tour in the Eureka area!
Key events and timing discussed in the Mt. Hope update include:
1) Expectation of the BLM's Record of Decision late this year or early 2012
2) Expectation that State Engineer Jason King will issue the company's needed water permits possibly as soon as April
3) Main employment will span 2012 to 2014, mine construction will peak at some 1,000 workers
4) Employment after construction will be more than 400 people
Good golly Miss Moly.
Mining Tax Update - SJR15, more geese
Last Wednesday the Report likened the latest Nevada mining tax maneuvers to killing the goose that laid the golden eggs. A faithful reader flagged me yesterday on an important meeting on Senate Joint Resolution (SJR):
"Good morning Colonel. SJR15 will be heard in the Senate Revenue committee...This is the joint resolution proposing to change the Nevada Constitution related to the net proceeds of mines tax structure. Obviously, this is only step one as a Constitutional change requires majority passage twice from the legislature and a vote of the people before it is ratified and adopted."
The Elko Daily Free Press carried a good Associated Press article last night on this meeting:
Proposal could change net proceeds tax (By MICHELLE RINDELS Associated Press, Elko Daily Free Press, April 5, 2011 7:50 pm)
Stay tuned, pardner. This is only the beginning...
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 571.93, a nice bounce from yesterday's 466.29 and above the 1-month moving average of 383.53. The EMI continues is down from the high set on January 4th and up from the March 15th low of 262.02. This is the third day the EMI is above its descending upper trend line of 439.37 which breaks the downtrend from my view.
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 69.61, up from yesterday's 69.50. The 1-month moving average is 70.82. Today's Value Adjusted Gold Price (VAGP) is $1,752.62/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 $108.51
ICE North Sea Brent crude $123.27
Spread (ICE- NYMEX) = $14.76 (Yesterday $13.09)
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) = $12.83 (Yesterday $11.13)
*(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 $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 heading for firmer ground; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is nicely 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, Proposal could change 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 up $0.17 in early trading at $108.51 (May contract, most active); Gold is up $7.5 to $1460.0 (June contract, most active); Silver is up $0.432 to $39.615 (May contract, most active); Copper is up $0.0865 to $4.3510 (May contract, most active)
Western Molybdenum Oxide is $17.25; European Molybdenum Oxide is $17.00; LME cash seller is $16.85, LME moly 3-month seller's contract is $17.01
Stock Market Morning Update
The DOW is up 35.19 points to 12,429.09; the S&P 500 is up 5.16 at 1337.79
Miners are rockin':
Barrick (ABX) $54.45 up 0.31%
Newmont (NEM) $57.24 up 0.46%
US Gold (UXG) $9.74 up 2.31%
General Moly (Eureka Moly, LLC) (GMO) $5.82 up 0.52%
Thompson Creek (TC) $13.55 up 1.57%
Freeport-McMoRan (FCX) $57.78 up 2.07% (a bellwether mining stock spanning copper, gold & molybdenum)
The Steels are mixed (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $37.57 up 1.98% - global steel producer
POSCO (PKX) $114.60 down 1.25% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 0.95% at $2,004,084.62 (what's this?).
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 firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market