Miners 2012 - Benchmark Recovery?

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NEW FORMAT for 2012

Morning Commentary
Daily Market Roundup
- Gold & Silver Report
- Copper & Molybdenum Report
- Oil Watch
- Debt Crisis Watch
- Stock Market Morning Update
- Eureka Miner's Million Dollar Grubstake Portfolio

My latest Kitco commentary: Silver & Copper 2012 - A Tale of Two Metals (03/05/2012)

My Latest International Business Times commentary: Silver to Gold, “Whither Thou Goest…” (02/27/2011)

This morning's...
COMEX Gold price = $1,686.1/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 88.30 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,595.5/oz
COMEX - VAGP = $90.6/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average (Cu bullish)


Morning Miners!

It is 6:09 AM. Have a cup of Ruby's Right! I must say that hearing Sweet Ruby T rant about the improving fortunes for copper is welcome over another Old Miner Woden told-you-so on the world going to hell in a hand basket. This morning copper is up, gold is down and Ruby couldn't be happier. The Colonel would prefer to see gold up a little and copper up a lot, then there would be two people happy in the break room.

Today we received a good reading on domestic retail sales and small-business optimism - improving U.S. economic data results in strong dollar, falling gold and copper up. Copper prices rising with the dollar is bullish indeed for a red metal that sorely needs some polish.

Miners 2012 - Benchmark Recovery?

Today we continue our series on the state of benchmark miners Freeport-McMoRan, Barrick Gold and Thompson Creek. Yesterday we looked at the big picture reviewing the performance of the Eureka Miner's Index© (EMI). The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County (see below). The record 2010-2012 high for the EMI is 816.78 set Jan. 4, 2011; the low was set Oct. 4, 2011 at 22.88. The high so far this year is 322.31 on Feb. 8.

Let's checkout how the benchmarks did individually. From the EMI record high to the close of last year was rough and tough in the mineshaft:

Freeport-McMoRan (FCX) 1/04/2011 $56.76 12/30/2011 $36.79 down 35.2%
Barrick Gold (ABX) 1/04/2011 $51.67 12/30/2011 $45.25 down 12.4%
Thompson Creek (TC) 1/04/2011 $14.91 12/30/2011 $6.84 down 54.1%

Ouch! When a sector gets hammered that bad typically there is some recovery to look forward in the year that follows. That certainly was the case going into February as the EMI made a year-to-date high of 322.31 on Feb. 8. Here's how the benchmarks rebounded:

Freeport-McMoRan (FCX) 12/30/2011 $36.79 2/8/2012 $46.53 up 26.5%
Barrick Gold (ABX) 12/30/2011 $45.25 2/8/2012 $49.07 up 8.4%
Thompson Creek (TC) 12/30/2011 $6.84 2/8/2012 $9.34 up 36.5%

Then everything rolled over as March rolled in and most of these 2012 gains evaporated. Here are the numbers as of this morning:

Freeport-McMoRan (FCX) 12/30/2011 $36.79 2/8/2012 $38.68 up 5.1%
Barrick Gold (ABX) 12/30/2011 $45.25 2/8/2012 $45.66 up 0.9%
Thompson Creek (TC) 12/30/2011 $6.84 2/8/2012 $7.04 up 2.9%

Nuts! At least the benchmarks are still positive for the year. The best case for benchmark recovery is realiatically an improving U.S. economy, mild recession in Europe, softening decline in China without a hard landing and no further escalation of troubles in the Middle East. That may prove to be a tall order and the miners face some cost headwinds that were just breezes last year - more on this tomorrow. This 1-year chart of benchmark moly miner Thompson Creek is a good illustration of how tough that challenge may be (blue, share price; green, 200-day average):

Looks like mostly happy miners today...

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $45.66 up 0.07%
Newmont (NEM) $55.52 up 0.22%
McEwen Mining (MUX) 4.60 up 2.00% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.46 up 2.37%
Thompson Creek (TC) $7.04 up 0.57%
Freeport-McMoRan (FCX) $38.68 up 1.10% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.52 up 1.96%

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

ArcelorMittal (MT) $19.91 up 1.74% - global steel producer
POSCO (PKX) $88.18 down 0.58% - South Korean integrated steel producer

The Eureka Miner's Index© (EMI) was re-calibrated 2/8 to reflect current 200-day moving averages for benchmark miners.

The EMI is above-par at 207.95, up from last report's 200.28 and below the 1-month moving average of 213.21. The 1-month average is falling but still above the key 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.

Gold & Silver Report

This morning's...

COMEX gold is down $13.7/oz at $1,686.1/oz (April contract, most active)

COMEX silver is down $0.250/oz at $33.250/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 50.710 oz/oz

Silver 1-month CRS© is 1.99% (bullish level); CRS© divergent, (Ag bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 88.30, up from last report's 89.30 and below its 1-month average of 90.45. Gold value is now trending down after briefly trending up mid-month. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,595.5/oz which is only $90.6/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.

Copper & Molybdenum Report

This morning's...

COMEX copper is up $0.0270/lb at $3.8645/lb (May contract, most active)

The gold-to-copper ratio is 436.30 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 455.71 (Cu bullish trend emerging in Price Domain B)

Copper 1-month CRS© is 2.11% (bullish level); 1-month & 3-month CRS© < 3%, weakly divergent (Cu bullish)

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

Metals Week Average:
US$14.40
As of March 12, 2012
(updated weekly)

Ryan's Notes Average:
US$14.30
As of March 9, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.35/lb

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

US$14.52/lb (US$32,000/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 $120/bbl maintaining a spread above 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 $106.02
ICE North Sea Brent crude $124.70
Spread (ICE- NYMEX) = $18.68 (last report, $18.32)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $107.05
ICE North Sea Brent crude $124.22
Spread (ICE- NYMEX) = $17.7 (last report, $16.34)

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

NYMEX WTI 1-month CRS© is 2.95% (bullish level); CRS© weak convergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $105+ NYMEX in June favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$20/bbl is a trouble sign, OK for now.

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 new record low at 65.1 down from last report's 68.2. A level above 200 is time for serious concern - we are now well below that level. The highest level recorded since inception was 271.0 Aug. 9, 2011; the lowest level is 65.1 on Mar. 13, 2012

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 up 47.23 to 13,006.94; the S&P 500 is up 6.06 points at 1,377.15

The Eureka Miner's Grubstake Portfolio is down 0.67% at $1,487,624.19 (what's this?).

Cheers,

Colonel Possum

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