"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.

Thursday, July 21, 2011

Freeport (FCX) Bullish on Moly; General Moly (GMO), POSCO (PKX) Extend Rallies

Morning Miners!

It is 5:46 AM. Have a hot cup of Jörmungandr Java. Our favorite Norseman is telling more tales of yore about his fierce battles with the monstrous serpent Jörmungandr. Sounds like a lot of B.S. to me but Thor's coffee is sure good. Say, it looks like the Jörmungandr may have left the markets today...

Freeport (FCX) Bullish on Moly

Bellwether miner and copper giant Freeport-McMoRan (FCX) reported its second-quarter and six-month results this morning. Freeport earned a staggering $1.37-billion in the quarter, compared with $649-million a year earlier. The red metal miner's revenue rose 50.4%, to $5.8-billion. Times are good for Freeport which bodes well for the entire mining sector.

What I found interesting were comments about production and sales of molybdenum, an important by-product of copper mining. Freeport reported that they sold 21 million pounds of moly in the second quarter. This is 24% higher than their April estimate of 17 million pounds because of improved demand for molybdenum, a key alloy in specialty steels. Freeport did not change their full year sales forecast of 3.9-billion pounds of copper and 1.6-million ounces of gold, but raised their target for molybdenum sales to 77-million pounds; an over 5% increase from an earlier estimate of 73-million pounds. This is consistent with this Report's opinion and recent inputs from General Moly (GMO) that moly prices should enjoy a rise in the fall. The ole Colonel has bet that spot moly prices will break $16 before Halloween. Trick or treat? Stay tuned.

General Moly (GMO), POSCO(PKX) Bounce

The broader markets are now open and investor sentiment is up on news of a new aid package for Greece and an overhaul of the currency bloc's sovereign rescue fund. The draft plan will be published after a summit meeting of euro-zone leaders concludes today. This is welcome relief in the ongoing sovereign debt drama after spirits were dampened yesterday for any early resolution of the debt ceiling debate in this country.

Notably, General Moly (GMO) is extending its 2-day rally into early morning trading; up 2.3% to $4.83. Yesterday GMO bounced 5.4% adding a lot more daylight from their May 17th low of $3.83. This a long way from $7 territory at the close of 2010 but an encouraging sign. Share price (blue line) is quickly converging on a $5.05 200-day moving average (green line) as shown in this 1-year chart:

South Korean steelmaker POSCO (PKX), a 20% owner of GMO's Mt. Hope molybdenum project, is also up and at em'. This morning PKX popped 2.8% to $111.05 extending its two-day rally too. This is up a healthy 17% from its June 16th intraday low of $95.22 - let's forget May and June, pardner, and end 2011 in bull mode!

Here is a one-year chart of PKX (blue line) showing it is now above its 200-day moving average (green line):

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 341.38, up from yesterday's 296.44 and above the 1-month moving average of 273.33. The EMI is down from the high of January 4th and set a new 2011 low on June 27th at 180.03. The 1-month moving average broke its troubling downtrend on July 5th and is now trending up.

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 79.04, up from yesterday's 78.49 and below its 1-month average of 79.70. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,690.0/oz or $91.4/oz above the current COMEX gold price.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. 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.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend but now appears to be moving sideways.

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 $98.95
ICE North Sea Brent crude $118.26
Spread (ICE- NYMEX) = $19.31 (Yesterday, $19.37)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $99.70
ICE North Sea Brent crude $118.26
Spread (ICE- NYMEX) = $18.56 (Yesterday, $18.53)

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

Prices are off their crisis highs but we have $115+ Brent and $95+ NYMEX in November favoring high oil prices throughout the summer and into late 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 OFF - The miners are on smoother roads but caution is in the air; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) remains above its 200-day moving average of $52.22 and 150-day moving average of $53.40 (our new key levels, 07/11 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 phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence with some investors adverse to 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 $0.55 in early trading at $98.95 (August contract, most active); Gold is up $1.7 to $1598.6 (August contract, most active); Silver is down $0.252 to $39.810 (September contract, most active); Copper is down $0.0470 at $4.3890 (September contract, most active)

Western Molybdenum Oxide is $15.06; European Molybdenum Oxide is $14.65; LME cash seller is $15.06, LME moly 3-month seller's contract is $15.06

Stock Market Morning Update

The DOW is up 113.60 points to 12,685.51; the S&P 500 is up 14.15 points at 1,339.99

Miners are mixed:

Barrick (ABX) $49.84 up 1.32%
Newmont (NEM) $58.32 up 0.52%
US Gold (UXG) $7.02 up 0.72%
General Moly (Eureka Moly, LLC) (GMO) $4.83 up 2.33%
Thompson Creek (TC) $10.06 up 0.60%
Freeport-McMoRan (FCX) $55.76 down 0.29% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.93 down 1.64%
Timberline Resources (TLR) $0.80 unchanged

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

ArcelorMittal (MT) $32.64 up 2.54% - global steel producer
POSCO (PKX) $111.05 up 2.78% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.74% at $1,811,329.69(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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