General Moly (GMO) Update; Shootout at High Noon

Þūnresdæg

Morning Miners!

It is 6:15 AM. Have a cup of Thor's Lightning and checkout our favorite Norseman. Some time ago he figured an upended split differential case from a Model T makes a pretty good bird feeder. It is quite a sight to see a semi-retired thunder god feeding mountain grosbeaks and spotted towhees on a beautiful May morning...

General Moly (GMO) Update

This morning General Moly (GMO) released an update on their overall progress including the lastest permitting outlook for the Mt. Hope molybdenum project. Here is their press release:

GENERAL MOLY PROVIDES PROJECT UPDATE (Press release, 5/12/2011, 5:44 AM PT)

The latest step in the permitting process was the water rights hearing on Tuesday. Everything I've heard so far is consistent with the assessment in this press release. The hearing took less than three hours with about 15 minutes for cross-examination of Pat Rogers, GMO Director of Environmental and Permitting. Tuesday was an extra day granted to allow the protestants' counsel to question General Moly's water balance and basin use, as requested by the State Engineer.

Bruce D. Hansen, Chief Executive Officer, summarized the water rights and other permitting and finance aspects of the Mt. Hope project in their press release:

“We are continuing to make good progress permitting the Mt. Hope project. We believe the Preliminary Draft Environmental Impact Statement (PDEIS) is a thorough and defensible document and look forward to working with the Bureau of Land Management (BLM) and the reviewing agencies to resolve the comments submitted. We remain extremely confident that our water applications before the State Engineer’s office will be granted and support the degree of care and diligence the State Engineer’s office has taken to create a complete and carefully considered record and believe the additional time for this process is helpful to the receipt of the Company’s water appropriations. Lastly, Hanlong (USA) Mining Investment Inc. (Hanlong) continues to be a supportive, long-term strategic finance partner and is dedicated to the success of the Mt. Hope project. We continue to work hand-in-hand with Hanlong on the Chinese bank financing, which is progressing well.” (Press release, 5/12/2011, 5:44 AM PT)

So far, so good.

Shootout at High Noon

Now, if only the world felt a little better about itself. Shortly before noon yesterday a commodity sell-off that started in the morning accelerated and General moly, Thompson Creek (TC) and Freeport-McMoRan (FCX) shed share price at a dramatic pace. Freeport broke through its 200-day moving average to the downside, never a good omen for the mining sector. The sell-off continues this morning in early morning trading with GMO at $4.13; TC at $10.60 and FCX at a lowly $48.01. Gold miner Barrick is plumbing $45.14 as COMEX gold descends below $1,500 to trade at $1,496.0/oz. Silver is losing more of its shine at $34.015/oz.

What's going on? I respect folks that can capture the big picture in a few succinct sentences. Although it was reported by Reuters Monday, statements by BHP Billiton Chairman Jacques Nasser frame the conditions for the present flight from commodity related investments in just that way:

"In the short term, although many economies are recovering, the world remains in a fragile state with persistent levels of unemployment and threats of inflation...For the medium term, we should be prepared for further downside as global monetary and fiscal tightening and economic restructuring take hold..."

So it goes, pardner. Here's the whole article:

BHP Billiton sees fragile global economy near-term (Reuters MELBOURNE, 5/09/2011)

The Eureka Miner's Index(EMI) (see below) has just dropped below its March 15th, 2011 low. The ole Colonel ain't scared but we could be in for a repeat of last year's May/June malaise. 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 248.09, down from yesterday's 309.15 and below the 1-month moving average of 433.22. The EMI continues to be down from the high set on January 4th and sets a new 2011 low today. The 1-month average has established a troubling negative trend.

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 79.96, up from yesterday's 77.34 and above its 1-month average of 72.44. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,563.2/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 $110/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 $97.32
ICE North Sea Brent crude $112.33
Spread (ICE- NYMEX) = $15.01 (Yesterday's $14.17 )

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $98.31
ICE North Sea Brent crude $111.21
Spread (ICE- NYMEX) = $12.99 (Yesterday's $11.96)

* 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 now have $110+ Brent and $90+ 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 on very rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) has broke below its 200-day moving average of $49.62 (our new warning level, 05/10 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 The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

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, 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 $0.89 in early trading at $97.32 (June contract, most active); Gold is down $5.4 to $1496.0 (June contract, most active); Silver is down $1.500 to $34.015 (July contract, most active); Copper is up $0.0255 at $3.9390(July contract, most active)

Western Molybdenum Oxide is $16.74; European Molybdenum Oxide is $16.98; LME cash seller is $16.99, LME moly 3-month seller's contract is $17.12

Stock Market Morning Update

The DOW is down 78.33 points to 12,551.70; the S&P 500 is down 8.12 at 1,333.96

Miners are down:

Barrick (ABX) $45.14 down 0.90%
Newmont (NEM) $53.13 down 0.52%
US Gold (UXG) $6.76 down 3.57%
General Moly (Eureka Moly, LLC) (GMO) $4.13 down 1.20%
Thompson Creek (TC) $10.60 down 0.75%
Freeport-McMoRan (FCX) $48.01 down 0.54% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $34.28 down 0.67% - global steel producer
POSCO (PKX) $106.18 down 1.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.16% at $1,673,787.41(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 (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