Ain't Worried about Nutin'; General Moly (GMO) on a Roll

"Don't worry about the world coming to an end today. It's already tomorrow in Australia." Charles Schultz

My latest Kitco Commentary: The Copper-Gold Conundrum (9/6/2011)

This morning's...
COMEX Gold price = $1,828.2/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.20
Value Adjusted Gold Price© (VAGP) = $1,555.5/oz
COMEX - VAGP = $272.7/oz; gold is trading at a premium; key gold-referenced commodity ratios remain at recession levels (e.g., copper & oil)


Wōdnesdæg
Morning Miners!

It is 5:37 AM. Have a hot cup of Ain't Worried about Nutin'. The ole Colonel is really in the doghouse this morning with Old Miner Woden. Here's how it started, "Dad blame Colonel, you can't ignore what readers tell you!"


Ain't Worried about Nutin'

Old Miner Woden is spot on. Europe is a mess but worrying about it is not going to make anything better - I don't vote or pay taxes there. Several readers have pointed out a very positive local development and I have been too wrapped up in the woes of the macro-economic world to pay it much attention. There's nothing I can do to help Europe, time for Eureka - they start with the same two letters but are worlds apart!

General Moly (GMO) on a Roll

The really important news that has been sitting in my inbox since last week is the appointment of General Moly CEO Bruce Hansen to the chairmanship of the Nevada Mining Association (NvMA). Mining Editor Adella Harding of the Elko Daily Free Press had a terrific interview with Hansen at the NvMA Tahoe convention last week:

New mining association chairman outlines goals (Adella Harding, Elko Daily Free Press, September 9, 2011)

And an overview of the convention:

Mining officials gather at Tahoe (Adella Harding, Elko Daily Free Press, September 9, 2011)

It's a good read for your next break. Chairman Hansen told Adella, “I am extremely proud to be able to serve as the new chairman of the NvMA. Nevada’s rich mining heritage continues to add value every day, through its contribution in generating new high paying jobs, general economic activity, social contributions and taxes, while doing so in a safe and environmentally responsible manner.”

Hopefully, General Moly's CEO can help break up some of the permitting logjams they've experienced with the arduous process of getting Mt. Hope online. Adella reports that Hansen, "...will continue to press for shorter permitting times for projects." In his words, “If they tell us the rules, we will follow the rules, but they keep changing the rules.”

And finally, “I will also be focusing on broadening and diversifying the association’s membership. There are a lot of emerging projects here that aren’t gold,” Adella said he pointed to, "...the Mt. Hope and Liberty molybdenum projects his company is developing, new copper projects that will mean more copper production in Nevada, Western Lithium’s project and American Vanadium’s plan to mine near Eureka."

Amen for Nevada strategic mineral exploration and the best of luck to Bruce Hansen and the General Moly folks!


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index© (EMI) is below-par at 85.40, up from yesterday's 84.48 and below the 1-month moving average of 103.08. The EMI set a new low for 2011 of 74.53 on August 9. It is troubling that the 1-month average is very near the 100-level.

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 to update mining equity norms in the EMI on a monthly basis.

Gold Value Index (GVI)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.20, up from yesterday's 97.81 and below its 1-month average of 98.48. The new record high for 2011, was set Tuesday, September 6th at 103.43. The Value Adjusted Gold Price© (VAGP) is $1,555.5/oz or $272.7/oz below the current COMEX gold price.

Although gold prices were on the rise, the GVI initially trended down from 6/7/2010 when it had a value of 100; gold regained value reversing the trend, moved sideways for a time and and headed back up with vigor. A sustained presence around the 100-level may prove to be a recession warning for a second dip down in the economy.

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 derivatives are 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 and industrial 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 Debt Crisis Watch

July 26th we introduced the Debt Crisis Index (DCI). The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI and GVI indices. Today, the DCI has a value of 201.5 down from yesterday's 205.4. Our benchmark is 100, the value of the DCI on July 22nd; 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. We are now above that level.

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 $100/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 $89.58
ICE North Sea Brent crude $112.17
Spread (ICE- NYMEX) = $22.59 (Yesterday, $22.99)

Here are the December contracts* with a narrower spread:

NYMEX light sweet crude $89.87
ICE North Sea Brent crude $108.42
Spread (ICE- NYMEX) = $18.55 (Yesterday, $19.43)

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

Prices are off their crisis highs and we have $100+ Brent and $85+ NYMEX in December favoring high oil prices throughout the fall and into early winter. My last 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 above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is seriously below its 200-day moving average of $52.33 (our new key level, 09/08 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned on for Commodity Reflation with copper trading comfortably above $3.50/lb

The YELLOW light is turned on for Stable Markets with the VIX above 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 until mid-2013

The ORANGE light is turned back on for Investor Confidence with investors adverse to commodity-sensitive equities

The YELLOW light is turned on our Fuel Gauge with oil above $80

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 down $0.63 in early trading at $89.58 (October contract, most active); Gold is down $1.9 to $1828.2 (December contract, most active); Silver is down $0.338 to $40.855 (December contract, most active); Copper is down $0.0430 at $3.9270 (December contract, most active)

Western Molybdenum Oxide (Infomine) is $14.74; European Molybdenum Oxide (Bloomberg) is $14.55; LME cash seller is $14.74, LME moly 3-month seller's contract is $14.74

Stock Market Morning Update

The DOW is down 14.84 points to 11,091.01; the S&P 500 is down 1.07 points at 1171.80

Miners are mixed:

Barrick (ABX) $52.99 down 1.21%
Newmont (NEM) $63.76 down 0.79%
US Gold (UXG) $6.16 down 1.60%
General Moly (Eureka Moly, LLC) (GMO) $3.70 down 1.33%
Thompson Creek (TC) $7.60 down 0.39%
Freeport-McMoRan (FCX) $41.20 down 1.90% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $11.50 up 0.88%
Timberline Resources (TLR) $0.73 down 2.67%

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

ArcelorMittal (MT) $17.61 down 0.73% - global steel producer
POSCO (PKX) $93.06 down 1.76% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 1.13% at $1,582,754.12 (what's this?).

Cheers,

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 impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd and was followed by an S&P credit downgrade. 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