"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.

Friday, June 3, 2011

Eureka Moly (GMO) Takes the Cake!

Morning Miners!

It is 5:22 AM and the morning greets the Diamond Valley with a ruby smile. Let me pour you a freshly brewed cup of Raine's Red Label. The ole Colonel can't think of a nicer day to start this 500th market report for Eureka County. We started in March, 2009 and have only missed a few when I've been on the road. By the by, I'll be following that white line again soon but this report will be back on the air bright and early next Thursday, June 9th.

Eureka Moly (GMO) Takes the Cake!

Yesterday, Eureka Moly LLC held a mid-day and evening town hall meeting at the Opera House to provide the community with an update on the nearby Mt. Hope Molybdenum Project and to introduce its new General Manager Mike Iannacchione ("Mike I" to his friends and fellow employees). Mariana and I made the second show and boy was it ever fun!

General Moly CEO Bruce Hansen, Non-Executive Chairman of the Board of Directors Patrick James and V.P. of Engineering Bob Pennington all came to Eureka to support the meetings. I believe they would agree the cake for Mike Iannacchione stole the show. Brenda's Cakes & Confections (note 2) created a colorful replica of Mt. Hope complete with the sign by HWY 278, a haul truck, chunks of molybdenum, sage brush and cacti - all edible. The cake said "Welcome to Eureka Moly Mike" and was a real treat for young and old.

We began the evening with a delicious meal (the cake was for later) that featured meatballs with bean, potato and green salads catered by our local Pony Express Deli. Eureka Moly's Zach Spencer kicked off the meeting by introducing Mike I to the attendees who included a good cross-section of the county; local business folks, miners, farmers and ranchers. Many in attendance remember Mike when he was a superintendent at the Atlas Gold bar Mine in the late 1980s-early 1990s. Mike was born and raised in Ely and is a third generation miner. While at Atlas two of his six children attended Eureka schools; his wife still teaches school. Mike I comes with a solid background in Northern Nevada Mining including the Robinson, Round Mountain and Marigold mining operations in addition to his tenure at Gold Bar. Welcome back Mike!

After Mike spoke and shared a few good humored comments about the cake, Eureka Moly's Environment and Permitting Pat Rogers gave an update on the EIS and the ongoing water rights issues. He reminded the audience that once in full operation, Mt. Hope will require 7,000 gallons of per minute 24-7. For this reason, Eureka Moly is taking every precaution to ensure that the agricultural concerns in Diamond valley will not be adversely affected. Although the primary Mt. Hope water draw is from a basin separate from Diamond Valley there is reasonable concern from many that depend on water for their livelihoods that they may eventually be impacted. To address these concerns, Eureka Moly plans to monitor the water drawdown on both sides of the Whistler Range to periodically check their models with reality. Nonetheless, the water issue continues to delay the pemititng process.

The next speaker was CEO Bruce Hansen who introduced Non-Executive Chairman Patrick James. Pat was appointed to the Board of Directors last December and shares much mining experience with Bruce in the past including Santa Fe and Pacific Gold operations. Bruce Hansen then commented on a range of topics including the 400+ Mt. Hope high-quality jobs, significant school, county and state tax benefits, and outreach to politicians at the local, state and federal level.

Bruce mentioned the good work consultant Elaine Barkdull Spencer has done in forming the Eureka Business Netwwork (which has a terrific cattle-brand-style logo), including surveys and communication with local business leaders (Elaine's Barkdull Spencer Agency link is included in the Miner's Corner to your right). General Moly's CEO then commented on other community contributions including new stadium lights and scholarship programs.

With the permitting and water rights delays, most folks were interested to see the latest schedule for Mt. Hope. It is the same as the one presented at last week's Goldman Sachs Basic Materials Conference. If all the schedule Q2s & Q3s make your head spin, I roughed out worst-case/best-case dates last week in the Report. It goes like this: mine construction is expected to start sometime between mid-April and late December of next year, the first pound of molybdenum comes from Mt. Hope production sometime between hunting season 2013 and Labor Day 2014.

Vice President Bob Pennington, who also comes with a generational mining background, followed Bruce with engineering and construction updates. He began by discussing the expected 200 million dollar tax revenues to Eureka County and the 600 jobs required to support the construction stage. Bob then expanded on Pat Roger's comments on water with a description of Eureka Moly's "monitor & mitigate" plan to protect Diamond Valley agricultural interests. They will have a recovery plan in place if there is any observed water draw-down moving towards the Diamond Valley. Bob closed by saying he believed the business community was "jazzed" about the Mt. Hope Project bringing economic benefits to the town and county.

Bob then opened the floor to Q&A from the audience. Eureka's Pete Edera asked if Kennecott's expanded molybdenum operations would compete with General Moly's business plan. Bruce Hansen answered that their new autoclave facility would improve Kennecott's process and avoid costly off-site roasting costs in Mexico. He didn't, however, foresee it impacting the global moly market significantly. Bob interjected that it is the goal and mission of General Moly to become the "world's largest moly producer."

This report asked whether other strategic minerals (e.g. rhenium) may be discovered at Mt. Hope during the production phase. Bob answered that they would be on the hunt for that and precious metals then determine their economic potential for processing or stock piling. Pretty exciting stuff, pardner.

The report also asked Bob Hansen to give an overview of the mining sector as well as General Moly in light the recent downgrades of domestic and global growth expectations. I'll save his thoughtful comments and insight for upcoming blogs in light of a dismal U.S. Labor Department jobs report released this morning. Hey, I'm still an optimist - keep the faith.

Q & A was followed by one-on-one discussions at various booths that included operational planning, taxes and permitting. Mt. Hope Engineer and good friend of this report Juanita McCord stood ready to answer engineering questions and helped served the delicious cake; the Colonel got a chunk of moly, Mike I got the haul truck.

I then had a chance to chat with Bruce Hansen. He mentioned that there were other things he could have done in his life. I said, "I bet you're doing Mt. Hope because you love this work." There was a twinkle in his eye - I can relate, I love to report on a project that is so important to the future of Eureka County.

A special thanks to my wife Mariana who captured the images for this article and the previous 499. Have a great weekend folks!

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 274.62, down from yesterday's 288.40 and below the 1-month moving average of 289.54. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. The 1-month moving average continues a troubling downtrend.

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 80.31, up from yesterday's 78.72 and above its 1-month average of 77.90. The gold-gaining-value trend has picked up. Today's Value Adjusted Gold Price (VAGP) is $1,606.8/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 $98.62
ICE North Sea Brent crude $113.80
Spread (ICE- NYMEX) = $15.18 (Yesterday, $14.90)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $101.35
ICE North Sea Brent crude $114.48
Spread (ICE- NYMEX) = $13.22 (Yesterday, $13.13)

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

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in September favoring high 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 rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $50.50 (our new warning level, 05/31 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 YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

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 $1.78 in early trading at $98.62 (July contract, most active); Gold is up $11.6 to $1544.3 (August contract, most active); Silver is down $0.492 to $35.710 (July contract, most active); Copper is down $0.0200 at $4.0645 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is down 75.00 points to 12,173.55; the S&P 500 is down 6.96 at 1,305.98

Miners are down:

Barrick (ABX) $45.59 down 0.58%
Newmont (NEM) $54.99 down 0.27%
US Gold (UXG) $6.86 down 2.00%
General Moly (Eureka Moly, LLC) (GMO) $4.59 down 1.92%
Thompson Creek (TC) $10.45 down 1.32%
Freeport-McMoRan (FCX) $49.77 down 0.02% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.16 down 1.28%

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

ArcelorMittal (MT) $32.15 down 0.80% - global steel producer
POSCO (PKX) $99.56 down 1.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.99% at $1,699,307.02 (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)

Note 2 - Brenda's Cakes & Confections (775-318-1222 or 775-237-5784) earlandbrendao@sbcglobal.net

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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