Metals & Miners Stuck in Spring Mud

*** BREAKING NEWS *** General Moly (GMO)

10:22 AM Eastern Daylight Time, 05/11/2011 (MidnightTrader) -- General Moly (GMO:$4.07,00$-0.3700,-8.33%) shares are down nearly 6% this morning, likely falling with reports that Chinese industrial output failed to match expectations and consumer inflation showed signs of slowing. Molybdenum is used to strengthen steel and demand for the material would likely decline if China's economy is actually slowing. Industrial output rose 14.1% in April, more than a full point behind both month-ago levels and Street expectations. Consumer inflation eased modestly to 5.3% during April after hitting a nearly 3-year high of 5.4% the prior month. Price: 4.03, Change: -0.25, Percent Change: -6


Wōdnesdæg
Morning Miners!

It is 6:05 AM. Grab a cup of Hump Day Hoo-Yah and let's take a peek at the Diamond Valley, she's a charmer today! Old Miner Woden rode out this morning to visit his diggings on Lone Mountain - better get ready to pull him out of some spring mud this afternoon...where's that dad blame Handyman jack?

Metals & Miners Stuck in Spring Mud

It promises to be a rough ride for the metals & miners too with spot copper dipping back down below $4/lb. COMEX copper is trading at $3.9520/lb, COMEX gold has pulled back to $1,511.5/oz and NYMEX oil has dropped more than a buck to perch at $102.60/bbl. I'm not too worried about gold and oil, but copper is down right troubling...or is it just that time of year again?

One year ago the ole Colonel observed:

"General Moly (GMO) has enjoyed a terrific run-up since late last week jumping nearly 15% yesterday to a new 19-month intraday high of $4.36. The GMO closing price was $4.30 on a day when bellwether miner Freeport-McMoRan (FCX) dropped below its 200-day average to close at $73.74. Benchmark moly producer, Thompson Creek (TC), fell 6.2% to close at $12.02." (Eureka Miner's Market Report, 5/4/2010)

That comment was made on another bad day for copper which fell more than 3% to $3.24/lb. Shucks that's a lot worse than a thin flat washer beow $4/lb today, pardner!

But what about General Moly? I'm still waiting for some good G2 on yesterday's water rights hearings (one of my trusted sources was diverted to Las Vegas because his daughter is in labor, best wishes to all). No matter what the folks think that sat through the 2-day affair, it will still take the State Water Engineer some time to render a decision (240 days maximum, General Moly is expecting a decision later this year). In the mean time GMO is at $4.33 in early morning trading, not much different than a year ago except now we're going down the share price elevator instead of up (one month ago GMO was at an intraday high of $6.09 on 4/11/11).

Ironically, bellwhether miner Freeport-McMoran (FCX) is fixing to break its 200-day average today, just like last May. This is a key event for this report and is almost never a good omen for the mining sector. Benchmark moly producer Thompson Creek (TC) is presently trading at $10.80, a not-so-great price compared to last May's $12.02 (one month ago TC was at an intraday high of $13.33 on 4/11/11).

Time to pack it in? Nah - the metals & miners are just stuck in a little spring mud, buckaroos. Now, give me that Handyman jack...


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 309.15, down from yesterday's 341.10 and below the 1-month moving average of 447.68. The EMI continues to be down from the high set on January 4th; it set a new 2011 low on March 15th. The 1-month average has established a troubling negative trend although we are still above the March low.

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 77.34, up from yesterday's 76.87 and above its 1-month average of 71.88. The gold-gaining-value trend is intact. Today's Value Adjusted Gold Price (VAGP) is $1,633.0/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 $102.60
ICE North Sea Brent crude $116.77
Spread (ICE- NYMEX) = $14.17 (Yesterday's $13.66)

Here are the August contracts* with a narrower spread:

NYMEX light sweet crude $103.70
ICE North Sea Brent crude $115.66
Spread (ICE- NYMEX) = $11.96 (Yesterday's $11.75)

* 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 $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 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 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 $1.28 in early trading at $102.60 (June contract, most active); Gold is down $5.4 to $1511.5 (June contract, most active); Silver is down $0.860 to $37.680 (July contract, most active); Copper is down $0.0900 at $3.9520(July contract, most active)

Western Molybdenum Oxide is $16.65; European Molybdenum Oxide is $16.98; LME cash seller is $17.10, LME moly 3-month seller's contract is $17.24

Stock Market Morning Update

The DOW is down 60.55 points to 12,699.81; the S&P 500 is down 4.88 at 1,352.28

Miners are down:

Barrick (ABX) $47.22 down 0.90%
Newmont (NEM) $54.32 down 0.60%
US Gold (UXG) $7.49 down 3.60%
General Moly (Eureka Moly, LLC) (GMO) $4.33 down 2.48%
Thompson Creek (TC) $10.80 down 1.55%
Freeport-McMoRan (FCX) $49.96 down 2.25% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $35.27 down 4.05% - global steel producer
POSCO (PKX) $109.04 down 0.66% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.01% at $1,767,198.09 (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