"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.

Wednesday, June 22, 2011

Gold Up, Miners Rally; Timberline Resources in Eureka

Morning Miners!

It is 5:45 AM. Have a hot cup of Hump Day Hoo-rah. No sign of Old Miner Woden in the break room - he plugged in the pot and left a note, "Gone to Lookout Mountain." I think our resident market bear doesn't want to be around now that the miners are back in bull mode or maybe he has something else on his mind...

Gold Up, Miners Rally

Yesterday was a spectacular day for the mining sector. The reader's Eureka Miner's Grubstake Portfolio closed up 3.7% for the day, I believe this is a record move for the year. A more positive mood about the European debt crisis during the day and a Greek vote of confidence for Greek Prime Minister George Papandreou after western markets closed might be the trick to break the miner's spring malaise. We'll check in a moment when the broader markets open.

There remain substantial hurdles ahead for Greece and the other peripheral countries of Europe facing sovereign debt issues. However, after an upcoming vote on new austerity measures, the Greeks and everyone else in Europe will start focusing on summer holiday and we hopefully can take a break from all this euro-drama. Of course, we may substitute that for our own debt issues with the upcoming vote on raising the U.S. debt ceiling in early August. Today will be dominated by the Fed's policy statement followed at 11:15 PM (PT) by Federal Reserve Chairman Ben Bernanke's press conference and question-and-answer period. Everyone will be ready to sift though his comments for more light on "somewhat slower than expected" domestic recovery. Nuts.

COMEX gold got a nice pop ahead of the Fed meeting trading presently at $1,555.5/oz, territory we haven't seen since the first market day of May. COMEX silver is feeling pretty spry too, up $0.201 at $36.580/oz. COMEX copper remains resilient above the key $4/lb level, up $0.0035 at $4.0920/lb.

The broader markets are now open and the miners remain in rally mode. The Eureka Miner's Index(EMI), after plumbing a new low for 2011 on Monday of 183.5, has just bumped above its 1-month moving average at a much healthier 252.1 (see below). If the EMI can stay above this average there may be hope for reversing the mining equity downtrend that has haunted us since late April.

Now, why did Old Miner Woden really bug out to Lookout Mountain?

Timberline Resources in Eureka

Mining Editor Adella Harding of the Elko Daily Free Press did a nice piece on Timberline Resources Corp. which announced yesterday the resumption of exploration and drilling at its South Eureka property, including their advanced-stage Lookout Mountain Project. Here is her report:

Timberline resumes drilling near Eureka (Adella Harding, Elko Daily Free Press, 6/21/2011)

The ole Colonel has added Timberline to the Miner's Corner in the column to your right. Go to their "South Eureka" page and you can read about their latest plans:

Timberline's exploration efforts are focused at its 23 square-mile South Eureka land package, one of the largest remaining undeveloped gold properties in Nevada. The South Eureka Property is located on the south end of Nevada's Battle Mountain / Eureka Trend, just four miles from Barrick Gold's two-million ounce Archimedes / Ruby Hill mine. It includes Timberline's flagship Lookout Mountain Project along with a pipeline of earlier-stage projects that feature past gold production, historic gold estimates, and/or drill-indicated gold mineralization. Timberline acquired the South Eureka property, including Lookout Mountain, in its acquisition of Staccato Gold in June 2010.

Timberline also expects to define heap-leachable gold mineralization at other project areas within the South Eureka property. Lookout Mountain lies within the 5-mile long Ratto Ridge structural zone, the western-most of three distinct mineralized structural zones at South Eureka. Areas north and south of Lookout Mountain, along with areas on the other two mineralized trends, provide the opportunity for significant additional gold discoveries.
Timberline Resources Website

Now we know what Old Miner Woden is up to. Some of you old timers may remember the old Windfall Mine operation in the early 1980s. Woden worked there and that mine in combination with Rustler, North Paroni, South Paroni, and Lookout Mountain diggings logged a total historic gold production of more than 133,000 ounces. All of those properties have perked the interest of Timberline Resources. Yee-hah!

Timberline Resources Corp. is listed on U.S. (TLR:NYSE-AMEX) and Toronto Exchanges (TBR:TSX-V). I just threw a few shares in the buckboard at $0.7949/sh. The TLR 52-week high is $1.40/sh; the low is $0.73/sh. Please do your own research, pardner. Socks below $1 can whipsaw you faster than Old Miner Woden can make tracks to new diggings.

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 252.11, up from yesterday's 238.46 and above the 1-month moving average of 251.03. The EMI is down from the high of January 4th and set a new 2011 low on June 20th at 183.47. The 1-month moving average continues a troubling downtrend but the pop above the average today is encouragiing.

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 hot and cold markets 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 81.91, up from yesterday's 81.35 and above its 1-month average of 79.25. Today's Value Adjusted Gold Price (VAGP) is $1,586.7/oz or just $31.2/oz above the current COMEX gold price.

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 trended down since 6/7/2010 when it had a value of 100; recently, gold has been gaining value reversing the trend. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be 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 $94.24
ICE North Sea Brent crude $111.73
Spread (ICE- NYMEX) = $17.49 (Yesterday, $17.39)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $95.15
ICE North Sea Brent crude $110.98
Spread (ICE- NYMEX) = $15.83 (Yesterday, $16.23)

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

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in October favoring high oil prices throughout the summer and into fall. 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) is still below its 200-day moving average of $51.44 (our new warning level, 06/20 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 in June (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 up $0.07 in early trading at $94.24 (July contract, most active); Gold is up 9.1 to $1555.5 (August contract, most active); Silver is up 0.201 to $36.580 (July contract, most active); Copper is up $0.0035 at $4.0920 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $15.95; LME cash seller is $16.10, LME moly 3-month seller's contract is $16.10

Stock Market Morning Update

The DOW is down 13.85 points to 12,176.16; the S&P 500 is down 0.32 at 1,295.2

Miners are happy except for the moly miners:

Barrick (ABX) $44.67 up 1.09%
Newmont (NEM) $53.89 up 1.28%
US Gold (UXG) $6.21 up 4.90%
General Moly (Eureka Moly, LLC) (GMO) $4.52 down 0.22%
Thompson Creek (TC) $9.81 down 0.30%
Freeport-McMoRan (FCX) $49.46 up 0.45% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.02 up 0.74%

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

ArcelorMittal (MT) $32.72 up 0.62% - global steel producer
POSCO (PKX) $102.15 down 0.25% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.07% at $1,673,377.82 (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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