"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.

Monday, August 1, 2011

Global Markets Lift ; General Moly (GMO) Surprise; Day-6 Debt Watch

DEBT CRISIS INDEX = 142.8 (200-level is "Oh-oh" time; previous, 138.9)

*** BREAKING NEWS *** A lower-than-expected score by the CBO on the latest debt plan and a lousy ISM number have reversed earlier gains in the market. The S&P 500 has dropped to 1,277.03 and is now below the 200-day moving average of 1,284.84 - a dangerous sign. COMEX gold has regained its mojo and is presently trading at $1,633.3/oz. Stay tuned, pardner.

Morning Miners!

It is 5:34 AM. Have a cup of Debt-Debate-Free Monday Java. This is one of those rare mornings when the ole Colonel is glad to see gold down. Weekend progress on the debt ceiling debate lifted global markets starting last night in Asia; I'm looking at 16 this morning and 14 are in the green. COMEX gold is down 12-bucks but still above the $1,600/oz level presently trading at $1,619.3/oz. COMEX copper, after bolting to near 16-week highs on the Sunday open, has settled back down close to Friday's close at $4.4765/lb. Hopefully this gets us back on track, we'll check our broader markets when they open shortly. Our normal Metals & Miners Weekly Roundup has been postponed until Wednesday morning (note 2).

General Moly (GMO) Surprise

Just when I thought the Mt. Hope water rights issue was becoming a smaller image in my rear view mirror it looks like it may be switching to the passing lane. Mining editor Adella Harding of the Elko Daily Free Press posted this article mid-day Friday:

Eureka County to appeal water ruling (ADELLA HARDING Mining Editor, Elko Daily free Press, Friday, July 29, 2011 11:09 am)

As Adella reports, "Eureka County plans to appeal State Engineer Jason King's recent approval of General Moly's request for using water rights for mining at its proposed Mt. Hope molybdenum mine."

The ole Colonel doesn't know any more than what is in her article but will pass on any news as I hear it. A faithful reader of this report sent me this timeline for the last appeal process with the relevant press releases, it took about 1-year.

April 26th 2010 New Appeal

April 1 2009 GMO Wins Water Rights

Pray, we are not in for that duration and Eureka County drops the appeal. Investors certainly aren't taking General Moly to task this morning - the broader markets are now open and GMO is trading up 3.7% to 4.74/share. Stay tuned.

Day-6 Debt Watch; DCI ticks up but not "Oh-oh!" yet

Last week we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The DCI is computed at the market close and reported the following morning. Friday, the DCI had a closing value of 142.8 up slightly from Thursday's 138.9. Our benchmark is 100, the value of the DCI on July 22nd, Day-0 of our countdown; a bigger number suggests a worsening impact on markets (note 2). This Report has identified an elevated level surpassing 200 is time for serious concern.

My snapshot DCI calculation for the morning is 129.5 which is the first decrease since we started counting. Let's get this bill through Congress and on the President's desk. If the DCI drops below 100, I'm blowing an all-clear for now - we're not there yet.

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 222.17, up from Friday's 197.99 and below the 1-month moving average of 291.12. 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 trending up for awhile but now appears to be at a top - right on the edge of another downtrend. Nuts.

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 79.99, up from Friday's 81.35 and above its 1-month average of 79.14. The new high for 2011 is 82.20 set June 23rd. Today's Value Adjusted Gold Price (VAGP) is $1,691.5/oz or $72.2/oz above the current COMEX gold price.

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, moved sideways for a while and but now appears to be heading back up.

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.

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 $98.21
ICE North Sea Brent crude $119.38
Spread (ICE- NYMEX) = $21.17 (Yesterday, $20.67)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $99.03
ICE North Sea Brent crude $119.07
Spread (ICE- NYMEX) = $20.04 (Yesterday, $19.41)

* 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 ON - The miners are on back on rough roads; The VIX or "fear index" is just below 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is just above its 200-day moving average of $52.88 and 150-day moving average of $53.29 (our new key levels, 07/28 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 $2.51 in early trading at $98.21 (September contract, most active); Gold is down $11.9 to $1619.3 (December contract, most active); Silver is down $0.806 to $39.300 (September contract, most active); Copper is down $0.0030 at $4.4765 (September contract, most active)

Western Molybdenum Oxide is $14.97; European Molybdenum Oxide is $14.70; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is up 50.8 points to 12,193.42; the S&P 500 is up 4.25 points at 1,296.53

Miners are down:

Barrick (ABX) $48.51 up 1.98%
Newmont (NEM) $55.86 up 0.45%
US Gold (UXG) $6.52 up 2.68%
General Moly (Eureka Moly, LLC) (GMO) $4.74 up 3.72%
Thompson Creek (TC) $9.10 up 0.66%
Freeport-McMoRan (FCX) $54.03 up 2.02% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $15.93 down 0.78%
Timberline Resources (TLR) $0.75 down 1.32%

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

ArcelorMittal (MT) $31.30 up 0.48% - global steel producer
POSCO (PKX) $111.27 up 1.34% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.06% at $1,744,192.84(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 - The Report will track the progress of the U.S. debt ceiling debate and its effect on markets through the so-called "deadline" on August 2nd. In the meantime we've suspended some of our usual weekly format. The next Metals & Miners Weekly Roundup will be Wednesday, August 3rd. In truth, the impact of the U.S. debt ceiling debate has been affecting investment decisions for weeks. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

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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