Monday, November 28, 2011
Gold & Markets Rally; Positive News for Gold Bar
NEW FORMAT for 2012
The Eureka Miner's Market Report has a new format. Three daily reports, "Mining", "Gold & Silver" and "Copper & Molybdenum" consolidate key morning market information for metals and mining relevant to Eureka County and surrounding areas with new expanded detail on moly prices.
The "Daily Market Roundup" also includes an "Oil Watch" and "Debt Crisis Watch" to monitor the impacts of global events on oil and fuel prices and the unfolding debt crises here and in Europe. Finally, "Stock Market Morning Update" provides the latest on the broader markets as well as the Eureka Miner's Million Dollar Grubstake Portfolio.
Have a good read and welcome back!
My latest Kitco commentary:
What does CRS© tell us about Gold, Copper & Oil? (11/28/2011)
COMEX Gold price = $1,718.4/oz (December contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 98.26
Value Adjusted Gold Price© (VAGP) = $1,461.2/oz
COMEX - VAGP = $257.2/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels
Copper CRS© is 3.16%; bullish level, converging stability
Oil CRS© is 3.24%; bullish level, some divergence
It is 5:55 AM. Have a hot cup of Last Turkey Sandwich Monday. Let's get to work, looks like a great day in the markets...
Markets Rally; Positive News for Gold Bar
Nothing like starting the week with a $30+ gold pop and 19 global markets in the green. Why is everybody happy? Two things: Black Friday gave the U.S. a strong start to the holiday shopping season and euro-zone leaders are cooking up a new-new Big Plan to stem Europe's sovereign-debt crisis. Spot copper even enjoyed a 3% bounce as investors remind us that the U.S. is the number two consumer of the red metal (see Copper & Molybdenum Report below).
And for us old timers that have fond memories of the Atlas Gold Bar mine from the late 1980s-early 1990s, there is positive news from US Gold (UXG) this morning:
US Gold Announces Positive Preliminary Feasibility Study for Gold Bar Project, Nevada (Press Release, 11/28/2011)
Here's the summary findings from their Preliminary Feasibility Study for resuming operations at the old site:
1) Average annual production of approximately 51,000 ounces of gold over an 8-year mine life (total 410,400 ounces), at a cash cost of $665 per ounce (oz).
2) Open-pit mine with conventional oxide heap leach processing. Projected gold recovery of 82% after primary crushing to 5 centimeters (2 inches) and a 90-day leach cycle.
3) After-tax Net Present Value (NPV) of $36.4 million at $1,200 per oz gold and 8% discount rate, giving an Internal Rate of Return (IRR) of 29%. Based on today’s spot gold price ($1,700 per oz) the after-tax NPV and IRR increase to $109.1 million and 61% respectively.
4) Estimated initial capital expenditures of $55.8 million and sustaining capital of $38.5 million, for total life-of-mine (LoM) capital expenditures of $94.3 million. Pay-back period of 2.6 years at $1,200 per oz gold, or 1.4 years based on the spot gold price ($1,700 per oz).
I wrote a little piece about the Atlas Gold Bar good times (and bad for some) back in 2009:
Johnny Horton and Atlas Mine Memories (Eureka Miner, 11/2/2009)
Daily Market Roundup
This morning's mining stocks...
Barrick (ABX) $49.88 up 5.14%
Newmont (NEM) $65.55 up 2.79%
US Gold (UXG) $4.08 up 8.22%
General Moly (Eureka Moly, LLC) (GMO) $3.18 up 15.64%
Thompson Creek (TC) $6.26 up 5.56%
Freeport-McMoRan (FCX) $35.82 up 5.91% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $9.72 up 6.14%
Timberline Resources (TLR) $0.63 up 1.61%
The Steels (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $16.85 up 9.27% - global steel producer
POSCO (PKX) $79.25 up 5.25% - South Korean integrated steel producer
The Eureka Miner's Index© (EMI) is below-par at 55.25, up from Friday's 42.63 and below the 1-month moving average of 72.66. The new record low for 2010-2011 was set Oct. 4, 2011 at 22.88. The 1-month average is currently below 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 2010-2011 high for the EMI is 816.78 set 01/04/2011; the low was set 10/4/2010 at 22.88. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.
Here is the Eureka Miner's Index© (EMI) through Friday's close (a larger more readable plot is near the bottom of the blog page):
Today's EMI would pull us back to the the top rail of the descending channel (dotted lines) which we had left with great conviction in late October. Unfortunately that momentum was lost and the average (blue line) is falling back. The 1-month moving average needs to move above 100 to take our miners back to bull pasture. A few more rally days and this miners could reverse to the upside again. However, this morning's average at 72.66 says we're still in deep bear country.
Gold & Silver Report
COMEX silver is up $1.146/oz at $32.160/oz (December contract, most active)
The gold-to-silver ratio (Au:Ag) is 53.433 oz/oz
The Eureka Miner’s Gold Value Index© (GVI) is below-par at 98.26, down from Fridays's 99.03 and above its 1-month average of 98.78. The new record high for 2010-2011 is 109.97 set on Oct. 4, 2011.
The Value Adjusted Gold Price© (VAGP) is $1,411.0/oz which is $268.9/oz below 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 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 price is less than the VAGP, then gold is undervalued; if above, overvalued.
The Eureka Miner’s Gold Value Index© (GVI) is presently moving sideways. Here is plot of the GVI at Friday's close (also near the bottom of the blog page):
To get the metals & miners back on their feet, we need gold to give up some relative value to copper, oil and silver. Remember, the GVI and EMI typically (but not always) have an inverse relation; as the GVI falls, the EMI rises. It is bullish for miners then to see the GVI 1-month average (dark line) trending down. Presently, the GVI at 98.26 is just below an average of 98.78 and down 10.7% from its 2010-2011 high of 109.97.
Copper & Molybdenum Report
The best morning article on copper comes from London Bloomberg's dauntless metals expert Maria Kolesnikova:
Copper Advances the Most in Two Weeks on Record-High Holiday Sales in U.S. (London Bloomberg News, 11/28/2011)
COMEX copper is up $0.1075 at $3.3775/lb (December contract, most active)
The gold-to-copper ratio (Au:Cu) is 508.78 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" but the ratio is now trending down a bit (bullish).
Western molybdenum oxide (price per pound):
Metals Week Average:
As of November 21, 2011
Ryan's Notes Average:
As of Nov 22, 2011
(updated twice weekly)
European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
London metal Exchange (LME) molybdenum 3-month seller's contract:
US$13.83/lb (US$30,500/metric ton)
Daily Oil Watch
Latest Nevada Fuel Prices
On February 1st we identified North Sea Brent crude oil as a good barometer for the ongoing crises in the Middle East and North Africa (MENA). It remains above $100/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX.
Here are the key front-month contracts this morning:
NYMEX light sweet crude $99.24
ICE North Sea Brent crude $109.24
Spread (ICE- NYMEX) = $10.00 (last report, $10.83)
Here are the March contracts* with a narrower spread:
NYMEX light sweet crude $99.50
ICE North Sea Brent crude $107.24
Spread (ICE- NYMEX) = $7.92 (last report, $9.43)
* NYMEX futures contracts have rolled forward, we now show January and March for a 2-month look-ahead
Prices are off their crisis highs and we have $100+ Brent and $95+ NYMEX in March favoring high oil prices throughout the winter and into spring.
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 187.3 down from Friday's closing 201.6. A level above 200 is time for serious concern. We are now just below that level.
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.
Stock Market Morning Update
The DOW is up 319.01 points to 11,550.79; the S&P 500 is up 37.36 points at 1,196.03
The Eureka Miner's Grubstake Portfolio is up 5.70% at $1,381,642.01 (what's this?).
Headline photo by Mariana Titus
Write Colonel Possum at email@example.com for answers to your questions or to request e-mail updates on the market