"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, January 9, 2012

Base Metal Revival for 2012?

Only 100 Million Years to Diamond Peak from Devil's Gate

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.

My Latest International Business Times commentary: Gold and Silver “Together Again” (12/05/2011)

My latest Kitco commentary:
What does CRS© tell us about Gold, Copper & Oil? (11/28/2011)

This morning's...
COMEX Gold price = $1,620.9/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 93.39 (declining gold value trend)
Value Adjusted Gold Price© (VAGP) = $1,450.3/oz
COMEX - VAGP = $170.6/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio continues to exceed recession levels but is trending down

Morning Miners!

It is 7:29 AM. Have a hot cup of Monday Ether. Maybe the markets need a little ether to get their diesel running for 2012, it seems like everything is moving sideways. There are, however, a few positive signs emerging for the metals & miners:the Eureka Miner's Index© (EMI) is courting the 100-level again, our Debt Crisis Index (DCI) dropped below 100 at the Friday close for the first time since July 22 and moly oxide spot and futures prices have been creeping cautiously upward. Unless Europe implodes or the Persian Gulf explodes, the Colonel suspects we may have a better year than last. Let's see what the analysts think...

Base Metal Revival for 2012?

This morning's Kitco News Market Nuggets have several good reports on the prospects for base metals this year. Here are two examples:

Market Nuggets: Harbor: Copper Could Reach $4 Per Pound In Jan.-April Period (Allen Sykora, Kitco news, 09 January 2012, 7:49 a.m.)

Market Nuggets: Goldman Sachs: Current Base-Metals Prices 'Present Value To Consumers' (Allen Sykora, Kitco news, 09 January 2012, 9:02 a.m.)

The first and most optimistic piece sees copper prices moving back to $4/lb at some point during the January-April period. Harbor Intelligence analysts say that global end-user demand growth resumed in December, with an improving picture in both the U.S. and China.

From this report's perspective, if gold remained at $1,600/oz and copper was slightly above $4/lb we'd be back below recession pricing for copper relative to gold (the Eureka Miner considers a gold-to-copper ratio in the range of 300 to 400 lb/oz to be normal; and above 400, recession level). The present gold-to-copper ratio is still an elevated 472 lb/oz.

The second nugget quotes Goldman Sachs as saying, "Concerns about European sovereign-debt problems and slowing economic growth have kept base-metal prices under pressure. We caution that these concerns are likely to continue to overhang the market in the near term. However, we continue to emphasize that the main-line expectation of lackluster but positive global economic growth led by EM (emerging markets), disappointing supply growth in key metals, and the likelihood of tightening balances suggest higher metal prices in 2012."

Goldman sees 3-month and 12-month forecasts for copper, $8,000 and $9,500/metric ton; aluminum, $2,300 and $2,400; zinc, $2,050 and $2,400; and nickel, $18,500 and $21,000. $9,500/ a metric ton for copper is $4.31/lb or a gold-to-copper ratio of 371 lb/oz for $1,600/oz gold.

This morning COMEX copper is a slightly less than a buck-away from the one-year number at $3.4340/lb but not very far away from $8,000/metric ton ($3.6288/lb). The latter number gets us to a gold-to-copper ratio of 440 lb/oz for $1,600/oz gold, still a little scary especially if you think gold prices are on the rise again.

All in all, things may very well be looking up for the metals in 2012; LME moly futures inched up another 3-cents Friday to $13.97/lb ($30,800/metric ton). Stay tuned.

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $47.66 up 0.25%
Newmont (NEM) $61.64 down 0.53%
US Gold (UXG) $3.65 up 0.83%
General Moly (Eureka Moly, LLC) (GMO) $3.26 up 0.31%
Thompson Creek (TC) $7.43 up 0.54%
Freeport-McMoRan (FCX) $39.09 up 0.57% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.76 down 0.13%
Timberline Resources (TLR) $0.60 up 1.69%

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

ArcelorMittal (MT) $18.60 down 0.37% - global steel producer
POSCO (PKX) $81.14 down 0.87% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) is below-par at 95.33, down from last report's 97.99 and above the 1-month moving average of 81.71. The new record low for 2010-2012 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 2010-2012 high for the EMI is 816.78 set 01/04/2011; the low was set 10/4/2011 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 is moving ever closer to the 100-level. The 1-month moving average is also headed north but needs to get above 100 to return our miners to bull pasture.

Gold & Silver Report

This morning's...

COMEX gold is up $4.1/oz at $1,620.9/oz (February contract, most active)

COMEX silver is up $0.442/oz at $29.125/oz (March contract, most active)

The gold-to-silver ratio (Au:Ag) is 55.653 oz/oz

Silver 1-month CRS© is 2.29% (bullish level); stalled convergence (Ag neutral)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 93.39, down from last report's 93.55 and below its 1-month average of 94.06. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,450.3/oz which is $170.6/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 declining on average. 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 more 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 93.39 is below an average of 94.06 and down 15.1% from its 2010-2011 high of 109.97.

Copper & Molybdenum Report

This morning's...

COMEX copper is down $0.0010/lb at $3.4340/lb (March contract, most active)

The gold-to-copper ratio is 472.02 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels" (Cu bearish) but the ratio is trending down (Cu bullish).

Copper 1-month CRS© is 2.23% (bullish level); stalled convergence (Cu neutral)

The latest molybdenum oxide spot and futures prices (courtesy of Thompson Creek Metals):

Metals Week Average:
As of January 9, 2012
(updated weekly)

Ryan's Notes Average:
As of January 6, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):

London metal Exchange (LME) molybdenum 3-month seller's contract:

US$13.97/lb (US$30,800/metric ton)

Daily Oil Watch

Latest Nevada Fuel Prices (click this link)

On February 1st, 2011, we identified North Sea Brent crude oil as a good barometer for the crises in the Middle East and North Africa (MENA). The next conflict could be in the Persian Gulf. Brent remains above $100/bbl with a narrowing spread with 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 $101.72
ICE North Sea Brent crude $113.54
Spread (ICE- NYMEX) = $11.82 (last report, $10.85)

Here are the April contracts* with a narrower spread:

NYMEX light sweet crude $102.22
ICE North Sea Brent crude $113.10
Spread (ICE- NYMEX) = $10.88 (last report, $9.79)

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

NYMEX WTI 1-month CRS© is 3.80% (neutral level); slightly convergent (Oil bullish)

Prices are off their crisis highs and we have $110+ Brent and $100+ NYMEX in April favoring high oil prices throughout the winter and 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 104.2 up from last report's 98.8. A level above 200 is time for serious concern. We are now well 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 and continuing into 2012.

Stock Market Morning Update

The DOW is down 4.73 points to 12,355.19; the S&P 500 is down 0.43 points at 1277.38

The Eureka Miner's Grubstake Portfolio is up 0.34% at $1,400,063.50 (what's this?).


Colonel Possum

Headline photo 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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