Happy New Year! General Moly Rolls on Mt. Hope

Happy New Year! Eureka, Nevada
 
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My latest Kitco commentary: Copper & Gold – Fast Eddie’s Lucky Run


This morning's...
COMEX Gold price = $1,660.3/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 96.82 (gold value is elevated with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,432.9/oz
COMEX - VAGP = $227.4/oz; gold is trading at a  premium to key commodities.

Morning Miners!

Mariana and I visited Mt. Hope General Manager Mike Iannacchione the day after Christmas at Eureka Moly LLC. He gave us a quick project update and shared a positive view on the China recovery, South Korea and the big picture for molybdenum in 2013.

The General Moly (subsidiary Eureka Moly LLC) Mt. Hope project is a molybdenum mine 23 miles north of Eureka with an expected mine life off 44 years. Mt. Hope contains approximately 1.3 billion pounds of proven and probable molybdenum reserves. Final permitting is complete, financing is coming together and mine construction will commence this spring. Together with a broad array of industrial uses, molybdenum is a key strengthening alloy in high-quality steel products.

Mike is trying to think of all manner of ways to start something in the winter time to save schedule next year. Even with poor weather, tree clearing may be possible if the snow permits. He is also actively working with Caterpillar to get the big machinery in play. Archaeologists have returned to  Mt. Hope to wrap up their evaluations but are constrained by weather too.

Even though the current stalemate on the U.S. fiscal cliff negotiation has kept domestic markets in the lurch, Asians markets are showing signs of recovery. The Japanese stock market hit 21-month highs this morning in anticipation of further monetary accommodation by the new Abe government with a focus on infrastructure projects.

The South Korean KOSPI stock index has rallied from its multi-month mid-November low and the Chinese Shanghai composite is up from February 2009 levels plumbed in early December. Improving conditions in both Japan and China will be positive in 2013 for South Korean steel producer POSCO (PKX). POSCO (subsidiary POS-Minerals) owns a 20% share of Mt. Hope and Mike reminded me that having a share of the project is as important for the steel producer as future production of Mt. Hope molybdenum.

This morning's trading has POSCO (PKX) up on a down market day and General Moly (GMO) pulling back a tad:

POSCO (PKX)  $81.22 up 0.38%
General Moly (GMO)  $3.74 down 0.53%

The S&P 500 is down 0.44% at 1,411.58
The KOSPI is up 0.49% at 1,997.50 (2,000 is a key level)
The Shanghai Composite is up 1.24% at 2,233.25

Here is an interesting article by James Areddy of the Wall Street Journal about Hanlong financing of the Mt. Hope project:

In Nevada, a Chinese King of the Hill (James T. Areddy, WSJ, 12/28/2012)

James is the lead WSJ correspondent in Shanghai and contacted me several months ago to check on how things were going with the Mt. Hope project.

Moly prices are thankfully back in mid-$11 per pound territory, another sign of improving prospects for the minor metals in 2013. However, we need to see prices continue to trend up to the $15-level before sounding the all-clear:

Metals Week Average:
US$11.525
As of December 24, 2012
(updated weekly)

Ryan's Notes Average:
US$11.55
As of December 21, 2012
(updated twice weekly)

The London Metal Exchange (LME)  3-month seller's contract is US$26,000 per metric ton (US$11.79 per pound)

The best of luck to Mike and the General Moly Team!

Where do gold, silver and copper prices go next week? Checkout my today's input to the Weekly Kitco Gold Survey below.

Enjoy another cup of Raine's delicious Red Label TGIF and have a great weekend.

The Colonel and Mariana wish you all a Happy New Year and thank you for following the Report!

The Colonel's Gold, Silver & Copper Prices for Next Week

Here is my input to the Kitco Weekly Gold Survey:

12/28/2012 (10:47 CT)

Q. Where do you see gold’s price headed next week, up, down or unchanged?

A. Up, $1,680 per ounce target.

Q. Why?

A. Thin holiday trading and the stalled U.S. fiscal cliff negotiations have put closing COMEX gold prices in “freeze frame” since last Friday varying by only several dollars per ounce. Assuming some comprise is reached next week to forestall the worst consequences of taxation and sequestration, gold should be poised to move higher. My target is therefore a neutral bias from the mean of December’s highs and lows ($1,725.0 and $1,636.0 per ounce, respectively). This will bring gold bullishly above the 200-day average which is presently $1,667.5 per ounce.

Since last week the yellow metal has also lost additional value to key commodities oil and copper but has recovered some value relative to the broader markets. Less the fiscal cliff, the underpinnings for gold and base metals remain supportive given worldwide accommodative monetary policies, indications the Chinese economy has bottomed and some signs of stabilization in Europe.

For $1,680 per ounce gold we can expect to see silver in a range of $29.4-$33.5 per ounce; and copper in a range of $3.42-$3.64 per pound. Both silver and copper are expected to have a positive bias above their respective means.

As measured by the Eureka Miner’s Gold Value Index (GVI, Ref 1), the value of gold relative to global commodities copper and oil and companion metal silver is 96.82, staying below the key-100 level at and 1-month moving average of 98.36 (bearish gold trend). The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) has recovered some after a precipitous drop to mid-August levels on Dec. 20. It is now 7.1% below its 2012 high (1.2710, Nov.15) at 1.1802 but up 3.5% from the December low. The latest price action indicates gold has lost considerable value relative to the broader markets but is now trending up from a bottom.

Background Notes:

1. My target price of $1,680 per ounce is a neutral bias from the geometric mean of the given highs and lows for December.
2. Given the target gold price, the silver price ranges are derived from the 1-month gold ratio mean (GSR) and its respective ratio stability (CRS©). A similar technique was used to predict the price range for copper.
3. My Gold Value Index© (GVI) equals 96.82 or 6.7% below the 2012 high of 103.73. Today gold value is below its 1-month moving average of 98.36; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
4. The gold-to-copper ratio today is 460.81 pounds per ounce and below its 3-month moving average of 477.46 and 6-year trend of 484.04; falling below the long-term trend line is a bullish indication for the red metal; trending above 500 pounds per ounce, bearish (Ref 3).  The 1-month gold-to-copper ratio stability is a very low 1.53%. The 1-month rolling correlation is +0.54; 3-month is +0.43. 3-month relative volatility is 1.47X gold and price sensitivity (beta) is +0.64
5. The gold-to-silver ratio (GSR) is above its historical norm at 55.205; the 3-month rolling correlation is +0.98, relative volatility is 2.00X gold and price sensitivity (beta) is +1.77. The GSR is above its 3-month average of 52.78; the 1-month gold-to-silver ratio stability is 3.28%.

Ref 1: Gold Versus Copper, Oil and Silver: The Value Trend Is Your Friend (Kitco News, 7/23/2012)

Ref 2: Copper and Gold - In the Eye of the Storm (Kitco News, 10/30/2012)

Ref 3: Copper and Gold - The Bank Shot (Kitco News, 11/19/2012)

Ref 4: Copper & Gold – Fast Eddie’s Lucky Run (Kitco News, 12/03/2012)

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