"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.

Thursday, March 15, 2012

Miners 2012 - St. Paddy Fuel Bet; Timberline-South Eureka Update

Devonian Shore, Devil's Gate, Eureka, Nevada

Latest Nevada Fuel Prices (click this link)

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 = $1,644.6/oz (April contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 86.72 (gold value trending down)
Value Adjusted Gold Price© (VAGP) = $1,584.7/oz
COMEX - VAGP = $59.9/oz; gold is trading at a declining premium to key commodities; the gold-to-copper ratio remains below its 3-month average and compressing (Cu bullish)

Morning Miners!

It is 6:22 AM. Have a cup of Thor's Four-Leaf Clover coffee - make a wish and wake up to the last Thorsday before St. Paddy's. Gold prices aren't crashing this morning so let's tiptoe back to our Miners 2012 series and see if we can win a bar bet on fuel costs.

Miners 2012 - St. Paddy Fuel Bet

Last year St. Patrick's Day was on a Thursday. We've thrown in a leap day since so this year wears the green on Saturday. Today's a Thursday and the ole Colonel thought it would be fun to do a St. Paddy fuel cost comparison for our three benchmark miners (a couple of day's off is close enough for this Welsh-Irish-Norwegian). There's even a fun beer bet in this comparison - ask your drinking buddy the question, "In terms of their primary product, who pays more for fuel now than a year ago - gold, copper or moly miners?"

To answer this question I chose a barrel of Brent north sea crude oil because all petroleum derivatives like diesel start with crude and a large and growing percentage of their cost is driven by the price of the black gooey stuff. Brent is also considered to be a global benchmark.

Here's a comparison of prices now and last St. Paddy's Day; Brent crude and the miner's primary products - gold, copper and molybdenum oxide. Moly prices are the average of Western and European spot prices. COMEX most active contracts set the prices for gold & copper and the ICE futures for Brent.

Brent crude $113.12/bbl (3/17/2011) $124.43/bbl (today)
Gold $1,400.9/oz (3/17/2011) $1,644.6/oz (today)
Copper $4.300/lb (3/17/2011) $3.8685/lb (today)
Moly oxide $17.00/lb (3/17/2011) $14.25/lb (today)

Answering our question boils down to figuring how many pounds or ounces of product it takes to buy a barrel of oil then and now, and calculating the one-year percentage change. For example, for copper miners it took 26 pounds of copper to buy one barrel of oil a year ago; today it takes 32 pounds, a relative cost increase of 22%. Here are the results for all three:

Gold miners 0.0808 oz/bbl (3/17/2011) 0.0757 oz/bbl (today) down 6.3%
Copper miners 26.3 lb/bbl (3/17/2011) 32.2 lb/bbl (today) up 22.35%
Moly Miners 6.65 lb/bbl (3/17/2011) 8.73 lb/bbl (today) up 31.2%

There you have it. In theory, gold miners actually pay less than a year ago and moly miners pay a lot more than the other two. The rise in crude oil price over this period is 10% in U.S. dollar terms so copper and moly miners are both paying a healthy premium for oil in terms of their product; and gold miners, a discount.

This is, of course, a rough comparison and ignores all sorts of details about how much fuel is required to mine each product, fuel hedging strategies, electric/diesel mix etc. It is useful exercise to make the point that $124/bbl crude oil prices do not impact all miners the same at least in terms of their product price...Oh, and also to win that bar bet.

Timberline-South Eureka Update

Mining editor Adella Harding of the Elko Daily Free Press wrote a nice piece on Timberline Resources (TLR) recent purchase of 19 claims (211 acres) in South Eureka. Old timers will take delight in knowing this includes some of the old Windfall mine properties. TLR is part of our Eureka Miner's Grubstake Portfolio.

Timberline buys 19 claims (Adella Harding, Elko Daily Free Press, Wednesday, March 14, 2012 6:03 pm)

Daily Market Roundup

Mining Report

This morning's mining stocks...

Barrick (ABX) $43.73 up 0.95%
Newmont (NEM) $54.31 up 0.02%
McEwen Mining (MUX) 4.23 up 0.71% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.34 up 0.60%
Thompson Creek (TC) $7.04 up 0.14%
Freeport-McMoRan (FCX) $38.68 up 1.47% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 down 1.96%

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

ArcelorMittal (MT) $20.37 up 1.24% - global steel producer
POSCO (PKX) $88.77 up 0.16% - 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 192.57, down from last report's 201.14 and below the 1-month moving average of 208.42. 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 up $1.7/oz at $1,644.6/oz (April contract, most active)

COMEX silver is up $0.059/oz at $32.240/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.011 oz/oz

Silver 1-month CRS© is 1.97% (bullish level); CRS© divergent (Ag bearish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 86.72, up from last report's 86.38 and below its 1-month average of 89.93. Gold value is now solidly 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 $1,584.7/oz which is only $59.9/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.

Copper & Molybdenum Report

This morning's...

COMEX copper is up $0.0205/lb at $3.8685/lb (May contract, most active)

The gold-to-copper ratio is 425.13 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 453.83 (Cu bullish trend emerging in Price Domain B)

Copper 1-month CRS© is 2.67% (bullish level); 1-month & 3-month CRS© < 3%, divergent, compressing ratio(Cu bullish)

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

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

Ryan's Notes Average:
As of March 13, 2012
(updated twice weekly)

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

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 $106.09
ICE North Sea Brent crude $124.43
Spread (ICE- NYMEX) = $18.34 (last report, $19.60)

Here are the June contracts* with a narrower spread:

NYMEX light sweet crude $107.11
ICE North Sea Brent crude $123.96
Spread (ICE- NYMEX) = $16.85 (last report, $17.71)

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

NYMEX WTI 1-month CRS© is 2.77% (bullish level); CRS© divergent (Oil bearish)

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 but getting closer.

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 is 71.2 up from last report's 67.4. 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 down 8.74 to 13,185.13; the S&P 500 is up 0.41 points at 1,394.69

The Eureka Miner's Grubstake Portfolio is up 0.28% at $1,455,768.69 (what's this?).


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

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