"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.

Tuesday, June 21, 2011

Greek Salad: Copper Bounce, Miners Rally, Miss Moly Slips

Morning Miners!

It is 5:56 AM. Have your first cup of summer coffee, pardner! Sweet Ruby T rolled in this morning full of happy, "Copper is up another 1%, where's all the whiners today?" It looks like if she is right, the longest day of the year is going to be really long for folks on the other side of Ruby's market call...

Greek Salad: Copper Bounce, Miners Rally

If the markets are fixing to have a good day, the Greeks aren't planning to spoil it. After much concern over their looming debt crisis, there will be a key vote of confidence late today; so late most Western markets will be safely closed. The vote, which is expected at midnight local time (2 PM PT), follows days of mass protests over new government austerity plans. If Greece’s prime minister survives the confidence vote, parliamentary approval of austerity measures is expected and Greece will no doubt win bailout loans to meet a 12 billion euro payment due in July. Without it, Athens has warned that it could default on its debts, an event that could wreak havoc on global markets. The IMF, which is ponying up a quarter of Greece's total loan, warned that failure to address Greece's debt crisis "threatens to overwhelm" Europe's broader economic recovery. So it goes.

Of course, this only kicks the proverbial can down Athen's cobble stones; few (if any) economists believe that Greece will be able to ultimately repay these loans given its present state of economic decline. Hey, who wants to spoil the party? Our broader markets are now open and it looks like we may be off to a fourth day of up, up and away. Presently 19 global markets are in the green and all our favorite miners are ready to party!

COMEX copper is gaining headroom above the key $4/lb level trading up at $4.1100/lb. COMEX gold is hanging in there too, up a buck and change at $1,543.4/oz with silver on the bounce at $36.190/oz. Not to be left in the parking lot, NYMEX oil is back in the mid-$90s at $94.15/bbl. Greek salad for everyone!

On the other hand...

Ruby just stepped outside the break room, let's take a peek at more sobering news. Reuter's Polly Yam reports that China's apparent demand for refined copper dropped 2.1 percent in May from the previous month and 13.5 percent from May
2010. Here's her (fairly technical) article showing Reuter's calculations for copper and other base metals:

RPT-TABLE-China implied copper demand falls in May (Polly Yam, Reuters, Jun 21, 2011 10:19am GMT)

The market bull expectation is that the Chinese will be buying copper like crazy in July supporting copper price and pulling the mining sector from its spring malaise. So far, the recent decline in London Metal Exchange (LME) red metal inventories still supports this thesis:

Old Miner Woden told us last week that this copper story was all a bunch of "bull poop." He'll be in tomorrow, let's see what the ole boy thinks now. Oh-oh, Ruby just came back in with the feta cheese and a little uzo for the afternoon.

Miss Moly Slips

Last Wednesday, the report noticed a subtle shift in molybdenum pricing. Western moly oxide on the spot market got a little pop to $17.00/lb but the LME 3-month seller contract dropped to $16.56/lb. This put the two prices in technical "backwardation", not a big deal but a condition we have not seen for some time. Spot prices typically trade below future price expectations or in so-called "contango" with the futures contracts.

The ole Colonel puzzled that this may be a harbinger for a shift to the downside for the moly markets. Yesterday's moly pricing suggests this may indeed be in the works although the price changes are still small: western moly oxide notched down to $16.10/lb and now matches the LME 3-month seller contract which has also dropped to $16.10/lb. European moly oxide is now the spot price in "backwardation" sitting at $16.25/lb; my bet is that it will soon head south too.

Again, no biggie yet but here is the latest Western moly oxide chart. Looks like Miss Moly is tiptoeing down the staircase to me. Stay tuned, pardner.

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 238.46, up from yesterday's 183.47 and below the 1-month moving average of 250.94. 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.

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 81.35, down from yesterday's 82.20 and above its 1-month average of 79.07. Today's Value Adjusted Gold Price (VAGP) is $1,585.2/oz or just $41.8/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 $94.15
ICE North Sea Brent crude $111.54
Spread (ICE- NYMEX) = $17.39 (Yesterday, $19.13)

Here are the October contracts* with a narrower spread:

NYMEX light sweet crude $111.54
ICE North Sea Brent crude $111.14
Spread (ICE- NYMEX) = $16.23 (Yesterday, $17.40)

* 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 $0.52 in early trading at $94.15 (July contract, most active); Gold is up 1.4 to $1543.4 (August contract, most active); Silver is up 0.119 to $35.190 (July contract, most active); Copper is up $0.0365 at $4.1100 (July contract, most active)

Western Molybdenum Oxide is $16.10; European Molybdenum Oxide is $16.25; LME cash seller is $16.10, LME moly 3-month seller's contract is $16.10

Stock Market Morning Update

The DOW is up 100.40 points to 12,180.78; the S&P 500 is up 16.07 at 1,294.43

Miners are ready to party:

Barrick (ABX) $43.83 up 1.53%
Newmont (NEM) $52.82 up 1.93%
US Gold (UXG) $5.85 up 6.95%
General Moly (Eureka Moly, LLC) (GMO) $4.43 up 3.02%
Thompson Creek (TC) $9.63 up 2.56%
Freeport-McMoRan (FCX) $49.02 up 3.40% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.83 up 2.13%

The Steels are up big time too (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $32.40 up 2.56% - global steel producer
POSCO (PKX) $102.10 up 5.31% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 2.95% at $1,643,774.18 (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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