"The history of Eureka lies in its future." - Lambert Molinelli, 1878

DISCLOSURE

The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO), McEwen Ming (MUX) 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, April 9, 2012

Miners 2012 - Tough Times this Spring?

A good man has passed - Ted Vernes

Latest Nevada Gas 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: The 2012 Copper & Gold Conundrum (4/02/2012)

My Latest International Business Times commentary: Silver & Gold, “Situation Normal…” (03/26/2012)

This morning's...
COMEX Gold price = $1,647.5/oz (June contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 89.99 (gold value pause from trending down)
Value Adjusted Gold Price© (VAGP) = $1,529.7/oz
COMEX - VAGP = $117.8/oz; gold is trading at a premium to key commodities; the gold-to-copper ratio moves up to just below its 3-month average (Cu bearish trend)


Morning Miners!

It is 6:09 AM. Have a hot cup of Good Memories. We start this week without the laughter of a good man who loved Eureka and blessed it with his creative hand painted signs and strong Norwegian spirit. The Colonel and Mariana will miss our good friend and neighbor, Ted Vernes.

Miners 2012 - Tough Times this Spring?

As this report continues its Miners 2012 series, we only have to look in the rear view mirror to remember that mining stocks have had a pretty rough ride since early February. A new lunar year rolled in the Dragon and his fiery breath was soon felt in the mineshaft. Chinese traders returning from holiday were lackluster in buying new copper; the red metal stocks fell at the London Metal Exchange but rose in Shanghai as anticipated strong demand evaporated. Precious metals had their own downside with liquidations and diminished chances for further quantitative easing in the U.S.

The Eureka Miner's Index© (EMI) tells the story. Here is a plot of the EMI from Jun. 30, 2011 through Thursday's close (a larger more readable plot can be found near the bottom of this blog page):


A composite index of benchmark miners, interest rates, market volatility and metal prices, the EMI peaked Feb. 9 at a respectable 322.3; a strong rally from the Oct. 4, 2011 multi-year low of 22.88 - surely 2012 would be better than late 2011.

This report sounded an alarm Mar. 29 as the EMI (magenta line) crashed through its lower trend line support (dotted line) - almost always a sign of worse times to come. Alas, Thursday gave us another downdraft to 142.7 and this morning after last Friday's soft jobs report, new fears of debt contagion in Europe and a weak euro the EMI registers 123.5 (see Mining Report below). An EMI of 100 is the border line between hot and cold markets for metals and miners - it is sure getting chilly, pardner.

The report is not only concerned about lower mining stocks, but copper is entering pretty scary territory too. COMEX copper this morning is $3.7205 per pound to gold's $1,647.5 per ounce and the gold-to-copper ratio tells us that one troy ounce of gold buys 442.8 pounds of copper. That by itself is troubling since ratios above 400 pounds per ounce were encountered during some of the worse periods of the 2008-2009 financial crisis. The good news has been that this ratio has been steadily trending down since last October when it peaked at 538 pounds per ounce. The bad news is that this ratio has headed back up and comes close to breaking its 3-month moving average (442.8 versus 444.4 average). If we can stay below this falling average, the miners are probably battered but not broken. If the EMI can stay above 100 into the summer months; better times may lie ahead. The ole Colonel will be watching both of these indicators with an eagle eye, in any case there will be some tough times ahead for miners this spring.

Daily Market Roundup


Mining Report

This morning's mining stocks...

Barrick (ABX) $41.37 up 1.57%
Newmont (NEM) $48.28 up 1.15%
McEwen Mining (MUX) 4.08 up 3.03% (formerly US Gold, UXG)
General Moly (Eureka Moly, LLC) (GMO) $3.18 down 0.93%
Thompson Creek (TC) $6.21 down 1.58%
Freeport-McMoRan (FCX) $37.30 down 1.32% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $n/a
Timberline Resources (TLR) $0.50 unchanged

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

ArcelorMittal (MT) $17.58 down 0.68% - global steel producer
POSCO (PKX) $81.26 down 1.73% - 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 123.47, down from last report's 142.67 and below the 1-month moving average of 180.81. 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 $17.4/oz at $1,647.5/oz (June contract, most active)

COMEX silver is down $0.040/oz at $31.690/oz (May contract, most active)

The gold-to-silver ratio (Au:Ag) is 51.988 oz/oz

Silver 1-month CRS© is 1.14% (bullish level); very stable ratio; 1-month & 3-month < 3% (Ag bullish)

The Eureka Miner’s Gold Value Index© (GVI) is below-par at 89.99, up from last report's 87.77 and just above its 1-month average of 88.05. Gold value is taking a pause from trending down. The record high for 2010-2012 is 109.97 set on Oct. 4, 2011.

The Value Adjusted Gold Price© (VAGP) is $1,529.7/oz which is $117.8/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 down $0.075/lb at $3.7205/lb (May contract, most active)

The gold-to-copper ratio is 442.82 lb/oz; ratios in excess of 400 lb/oz are considered "recession levels"; the ratio is below its 3-month moving average of 444.41 (a Cu bullish trend has stalled in Price Domain B)

Copper 1-month CRS© is 1.57% (bullish level); very stable ratio; 1-month & 3-month < 3% (Cu bullish)

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

Metals Week Average:
US$14.175
As of April 9, 2012
(updated weekly)

Ryan's Notes Average:
US$14.20
As of April 3, 2012
(updated twice weekly)

European Molybdenum Oxide (Bloomberg average price, updated Wednesday & Friday):
US$14.13/lb

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

US$14.06/lb (US$31,000/metric ton)

Daily Oil Watch

Latest Nevada Gas Prices (click this link)

Understanding the Price of Oil (click this link for a quick overview on crude oil prices)

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 $101.59
ICE North Sea Brent crude $121.81
Spread (ICE- NYMEX) = $20.22 (last report, $20.55)

Here are the July contracts* with a narrower spread:

NYMEX light sweet crude $102.69
ICE North Sea Brent crude $120.75
Spread (ICE- NYMEX) = $18.06 (last report, $18.30)

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

NYMEX WTI 1-month CRS© is 1.79% (bullish level); CRS© weak divergence (Oil neutral)

Prices are near highs for 2012, we have $120+ Brent and $100+ NYMEX in July favoring high oil prices this spring into summer. A front-month spread between Brent and WTI >$20/bbl is a trouble sign; we're there, spread today may be more about domestic oversupply than new Iran concerns].

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 83.0 up from last report's 71.8. 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 136.76 to 12,923.38; the S&P 500 is down 17.56 points at 1,380.52

The Eureka Miner's Grubstake Portfolio is down 0.03% at $1,394,370.41 (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

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