Thursday, July 14, 2011
Gold $1,594.90; Timberline Resources (TLR) Joins the Grubstake; Mining Tax Update
It is 5:33 AM. Have a cup of Thor's Bull Run. Thor has been trying to rope metallic bulls all morning. Our semi-retired thunder god is a whole lot handier at throwing thunderbolts than rope. Happy "Thor's Day!"
Gold New Record $1,594.90
COMEX gold inched closer to $1,600/oz logging a new record at $1,594.90/oz in the wee hours (3:30 AM PT). The latest bounce is attributed to a climb in U.S. debt insurance costs to their highest level in more than a year. Moody’s Investors Service said America may lose its Aaa rating. Gold is presently trading at $1,591.5/oz. COMEX silver got a nice bump too, sitting just below $40/oz at $39.270/oz.
Mining Editor Adella Harding kindly included my latest thoughts on gold and copper in last night's Elko Daily Free Press (online edition):
Gold prices climb to records (ADELLA HARDING Mining Editor, July 13, 2011 11:45 am)
I told her yesterday, "It doesn't get much better than this: Copper price strength and Comex gold nearly touching $1,600 an ounce. Copper and gold rising together is decidedly bullish for the mining sector."
Presently COMEX copper is down slightly from yesterday at $4.3915/lb but the copper/gold correlation trajectory continues to look promising. Copper and gold have rather dramatically moved from negative correlation (i.e. price moves in opposition) to positive correlation (prices move together). Both short-term (1-month) and mid-term (3-month) correlations are now positive, a historically bullish condition for both metals and miners.
Timberline Resources (TLR) Joins the Eureka Miner's Grubstake Portfolio
June 22nd I featured an Adella article on Timberline Resources (TLR) and the resumption of exploration and drilling at their South Eureka property. This is exciting news which includes their advanced-stage Lookout Mountain Project with an eye on other nearby historical properties - Windfall, Rustler, North Paroni and South Paroni.
The ole Colonel thought it was high time to include these good folks in the Eureka Miner's Grubstake Portfolio. We started the Grubstake on May 10th, 2009 with a $1,000,000 investment. It included twelve stocks that are directly or indirectly related to the future of mining in Eureka County. As of yesterday's close, the readers have made $744,118.10 for a return of 74.4% - sure beats CD rates! Timberline will be our thirteenth stock to make a Baker's Dozen.
Here are the Grubstake Portfolio equities:
Stocks Related Directly to the Future of Eureka County Mining:
Barrick Gold Corp.(ABX) - Gold mining (benchmark miner)
Newmont Mining Co. (NEM) - Gold mining
General Moly Inc. (Eureka Moly, LLC) (GMO) - Molybdenum mining (Mt. Hope Molybdenum Project)
US Gold Corp. (UXG) - Gold & silver exploration
Timberline Resources Corp. (TLR) - Exploration & Development of advanced-stage gold properties in the western United States
ArcelorMittal ADS (MT) - International steel producer, investor in General Moly
POSCO ADS (PKX) - South Korean integrated steel producer, 20% owner of Mt. Hope Molybdenum Project & investor in General Moly
Indirectly Related Stocks, Benchmarks and ETFs:
SPDR Gold Trust ETF (GLD) - Gold investment fund
iShares Silver Trust ETF (SLV) - Silver investment fund
Caterpillar Inc. (CAT) - Global supplier of mining equipment
Freeport-McMoran (FCX) - A bellwether mining stock spanning copper, gold & molybdenum
Thompson Creek Metals Co. Inc. (TC) - A benchmark molybdenum producer
Quadra FNX Mining Ltd. (TSE:QUX) - Copper Mining, operates the Robinson Mine in nearby Ely, NV
We have done some horse trading since inception and other miners were added as opportunities arose. Besides Timberline Resources, the ole Colonel swapped in Thompson Creek, US gold and Quadra FNX. Here are the present cost basis, shares and returns as of Wednesday's close, 7/13/2011:
ABX - $34.04 2,448 shares up 42.57%
NEM - $43.78 1,903 shares up 29.67%
GMO - $1.84 45,290 shares up 133.15%
MT - $28.70 2,904 shares up 14.63%
PKX - $89.00 936 shares up 21.67%
GLD - $89.98 926 shares up 71.30%
SLV - $13.79 6,043 shares up 169.98%
CAT - $39.64 1,718 shares up 174.07%
FCX - $25.90 1,609 shares up 211.93%
UXG - $2.66 35,767 shares up 150.38%
TC - $12.23 7,471 shares down 17.99%
QUX - $15.15 7,740 shares down 1.12%
TLR - $0.85 50,000 shares just added, 0.00%
To keep the books straight, I sold 384 shares of Caterpillar (CAT) at the close for $108.64. With this profit-taking plus a little cash from dividends ($782.24) I bought 50,000 shares of Timberline (TLR) at $0.85. In this manner, the original investment remains an even million with a dividend balance of $92,826.38. The Report will track the daily progress of TLR together with our other mining stocks (see below near the bottom og the blog).
Mining Tax Update
A good friend of this report and trusted source gave me the following mining tax update yesterday, "All is quiet in Carson City regarding proposed tax changes. Right now, the battle is still waging regarding redistricting; specifically the congressional seat boundaries as Nevada gained a seat after the Census. I will be monitoring the Tax Commission meetings to see if they will continue reviewing the net proceeds regulations and allowable deductions. I really don’t expect the Commission to make any really drastic changes to the regs, though. The fear of legal challenge is too intimidating. I’ll keep you posted if anything surfaces."
He also encourages readers to checkout Adella Harding's article on this year's expected net proceeds tax revenue posted yesterday:
Mines to pay nearly $200 million in net proceeds taxes
(ADELLA HARDING Free Press Staff Writer, Wednesday, July 13, 2011)
You can bet that with gold near $1,600/oz, the gators in Carson City will continue looking for some way to get even more! Here's a little good news on water quality oversight:
NMA happy with bill's passage (ADELLA HARDING Free Press Staff Writer, Wednesday, July 13, 2011)
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 299.21, up from yesterday's 290.46 and above the 1-month moving average of 249.30. 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.
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 78.97, down from yesterday's 79.75 and above its 1-month average of 80.04. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,683.9/oz or $92.4/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 back 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 $98.68
ICE North Sea Brent crude $118.78
Spread (ICE- NYMEX) = $20.10 (Yesterday, $20.16)
Here are the October contracts* with a narrower spread:
NYMEX light sweet crude $99.54
ICE North Sea Brent crude $117.78
Spread (ICE- NYMEX) = $18.24 (Yesterday, $18.34)
* 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 $95+ 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 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 $0.63 in early trading at $98.68 (August contract, most active); Gold is up $6.0 to $1591.5 (August contract, most active); Silver is up $1.190 to $39.270 (September contract, most active); Copper is down $0.0120 at $4.3915 (September contract, most active)
Western Molybdenum Oxide is $14.29; European Molybdenum Oxide is $14.60; LME cash seller is $14.52, LME moly 3-month seller's contract is $14.52
Stock Market Morning Update
The DOW is up 78.10 points to 12,569.71; the S&P 500 is up 7.65 at 1,325.37
Miners are mixed:
Barrick (ABX) $48.48 down 0.10%
Newmont (NEM) $57.04 up 0.48%
US Gold (UXG) $6.85 up 2.85%
General Moly (Eureka Moly, LLC) (GMO) $4.35 up 1.40%
Thompson Creek (TC) $10.06 up 0.30%
Freeport-McMoRan (FCX) $55.25 up 0.66% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.16 up 0.97%
Timberline Resources (TLR) $0.84 down 1.18%
The Steels are mixed (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $32.84 down 0.18% - global steel producer
POSCO (PKX) $108.96 up 0.62% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 1.20% at $1,763,654.23 (what's this?).
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 firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market