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My latest Kitco commentary: The 2013 Copper & Gold Conundrum (01/07/2013)
This morning's...
COMEX Gold price = $1,663,8/oz (February contract most active)
Eureka Miner’s Gold Value Index© (GVI) = 95.34 (gold value is elevated but falling with respect to key commodities oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,458.2/oz
COMEX - VAGP = $205.6/oz; gold is trading at a decreasing premium to key commodities.
Morning Miners!
Gold prices stumbled this morning the day after the S&P 500 touched levels not seen since December, 2007. A falling U.S. dollar, falling gold prices and stock markets that feel little pain is a mixed bag for precious and base metals as I explain in my weekly Kitco Gold Survey input (see below) and latest commentary, The 2013 Copper & Gold Conundrum.
Monday, I had the pleasure of going to the first 2013 working session of the Eureka Commissioner's twice-monthly meeting with newly elected members J.J. Goicoechea, Pat Dempsey and returning member Jim Ithurralde. Alan London and Zach Spencer of General Moly gave a mid-morning presentation on the Mt. Hope molybdenum mine revenue projection for Eureka County as well as status and schedule of ongoing operations. Alan London is the new Administrative Services Manager and Zach Spencer is the Director of External Communications.
Alan began by identifying the Eureka County "stakeholders" who are representatives from Public Works (Ron Damele), Public Safety (Mike Sullivan) and Tax and Fiscal (Mike Mears and Mike Rebaleati). All three groups met separately in November with their Eureka Moly LLC counterparts (Eureka Moly LLC or EMLLC is the local subsidiary of General Moly responsible for the Mt. Hope mine). They include Alan, Lee Shumway, GMI Corporate Controller and Treasurer, Sarge Warrick, EMLLC Health and Safety Manager, Mike Iannacchione, EMLLC General Manager, and Randy Johnson, EMLLC Mine Manager.
Mine construction begins this spring in earnest but clearing and grubbing activities are underway now. This includes archeological clearing and identification of cultural sites with BLM approvals as outlined in a Jan. 9, 2012, press release:
General Moly Initiates Preliminary Construction Activities at Mt. Hope
Alan says that we can look forward to seeing the delivery of haul trucks and drilling equipment towards the end of this year followed by electric shovels in early 2014 - pardner, that's heavy metal!
Molybdenum production is planned for the first quarter of 2015. Even before the first pound of moly is mined, the County and School District will benefit from property and sales tax revenue. Alan projected that pre-production revenue will be a total of $20M; $16M for Eureka County and $4M for the School District. Estimated County Sales and Property taxes will be a grand total of $122M which includes the construction phase and 44-year life of mine (32 years of mining followed by 12 years of processing low-grade stockpiles). $250M is the cumulative total when estimated proceeds from the Net Proceeds of Mineral Tax are included. These estimates assume a $15 per pound moly price
Zach Spencer closed the presentation with a status on hiring. The latest new employees are Angela Martin, EMLLC Environmental Compliance Manager; Sam Street, HR Manager and Patty Maloney, Mine Engineer.
Overall, I thought the review was well received by the Commissioners who are no doubt pleased that significant revenue will soon hit the books long before production begins. During the discussion period, Jim Ithurralde was assured that all the sales tax revenue will be within the Eureka and not neighboring counties. Apparently, Nye county received tax revenue several years ago when some General Moly equipment was stored there.
Pat Dempsey voiced a concern about the firewood that is being harvested from the present clearing operations. Pat thought Eureka County seniors should get first dibs and Zach agreed recounting that General Moly had distributed firewood previously reaffirming the company's ongoing commitment to the community.
J.J initiated discussion about the impact of mine construction traffic on HWY 278. Traffic patterns are presently being studied for a 15 mile stretch. After the meeting, Tax Assessor Mike Mears explained to me that there had been some concern last year about a "gap" in pre-production revenues versus service demands. For example, he cited the public safety aspect given the anticipated traffic load on HWY 278. Accordingly, the Eureka volunteer EMS and fire may find themselves responding to a greater volume of incidents in the near future which could exhaust their resources. General Moly does plan to have emergency services at the mine site that will eventually ramp up to 24-hour duty. Mike cautions that no one has a "crystal ball" but I believe he remains optimistic that these challenges can be met and early revenue will be a welcome boost for the County.
Moly spot prices are starting to crowd the $12 per pound level which is encouraging. Here's the latest numbers compliments of Thompson Creek Metals (TC):
Metals Week Daily Average:
US$11.79
As of January 7, 2013
(updated weekly)
Ryan's Notes Average:
US$11.90
As of January 8, 2013
(updated twice weekly)
The London Metal Exchange (LME) futures contracts have already crested $12 per pound:
3-month seller's contract $26,500 per metric ton ($12.02 per pound)
15-month seller's contract $27,230 per metric ton ($12.35 per pound)
General Moly (GMO) stock is presently trading at $4.03 per share.
The ole Colonel can't wait to see the first Mt. Hope haul truck! Good luck to the EMLLC 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.
Enjoy another cup of Raine's delicious Red Label TGIF and have a great weekend.
The Colonel's Gold, Silver & Copper Prices for Next Week
Here is my input to the weekly Kitco Gold Survey:
01/11/2012 (10:51CT)
Q. Where do you see gold’s price headed next week, up, down or unchanged?
A. Down, $1,640 per ounce target.
Q. Why?
A. Gold
has been range bound between January highs and lows this week ($1,695.0
and $1,626.0 per ounce) and fell sharply this morning to its range
mean of $1,660 per ounce.
There
is a very mixed picture for the yellow metal today. Recently released
Chinese CPI data was higher than expected for December placing downward
pressure on gold and metals. It is feared that higher inflation there
will result in less monetary accommodation (bearish) but a faster pace
economy could ultimately increase demand for raw materials (bullish). A
strong euro/weak dollar has not been enough
to blunt the impact of gold’s retreat.
Gold
is also being pressured by the rising 10-year Treasury rate which is
fast approaching 2% as money moves from bonds to equities and the S&P
500 closed at levels yesterday not seen since December 2007. Japan’s
stock market is also in rally mode hitting 22-month highs.
Technically,
negative 3-month correlations between gold and global commodities oil
and copper do not form a particularly favorable environment for the trio (Ref 5).
Although gold will probably stay above its January low next week, my
target is a negative bias below the range mean at $1,640 per ounce.
For
$1,640 per ounce gold we can expect to see silver in a range of
$29.3-$32.3 per ounce; and copper in a range of $3.47-$3.68 per pound.
Silver and copper are expected to be negatively biased below their
means [the ranges for silver and copper were misstated Friday and have been corrected].
The
yellow metal has bearishly lost value relative to oil and copper as
well as the broader markets but has recovered some this week.
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 95.34, staying below the key-100 level and
1-month moving average of 96.92(bearish gold trend). The 2012 high was
103.73 on Nov. 13.
The ratio of gold-to-the S&P 500 (AUSP) is now 10.9% below its 2012 high (1.2710, Nov.15) at 1.1327.
The latest price action indicates gold has lost considerable value relative to the broader market.
Background Notes:
- My target price of $1,640 per ounce is a negative bias below the geometric mean of the given highs and lows for January to date.
- 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.
- My Gold Value Index© (GVI) equals 95.34 or 8.1% below the 2012 high of 103.73. Today gold value is below its 1-month moving average of 96.92; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
- The gold-to-copper ratio today is 453.35 pounds per ounce and below its 3-month moving average of 474.43 and 6-year trend of 484.07. 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 1.45%. The 1-month rolling correlation is +0.52; 3-month is -0.21. 3-month relative volatility is 1.52X gold and price sensitivity (beta) is -0.31
- The gold-to-silver ratio (GSR) is above its historical norm at 54.62; the 3-month rolling correlation is +0.87, relative volatility is 2.28X gold and price sensitivity (beta) is +1.99. The GSR is above its 3-month average of 53.2; the 1-month gold-to-silver ratio stability is 2.45%.
Ref 5:
The 2013 Copper & Gold Conundrum (Kitco News, 01/07/2012)
Cheers,
Colonel Possum
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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