"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.

Friday, March 22, 2013

General Moly (GMO) Loan Suspended; Unfolding Saga of Liu Han, Hanlong & Mt. Hope

Liu Han, right, Chairman of Sichuan Hanlong Group, has been reportedly detained in China, image from news.com.au  (Australia) & Associated Press


$665 million Chinese sourced Hanlong loan for Mt. Hope suspended:

General Moly Announces Financing Update (Press Release, Mar 20, 2013)

Chronology of related articles that came to the attention of the Eureka Miner throughout the week (most recent to first news break):

(0833 PT Mar 22, 2013)

Sundance suitor's chairman Liu Han detained for harbouring fugitive brother (news.au.com & AP March 21, 2013 11:37 PM)

(1426 PT Mar 21, 2013)

Sundance poised to pull plug on Hanlong (Philip Wren, Business day (Australia), March 22, 2013)

(1251 PT Mar 20, 2013)

Latest update on the Liu Han Saga (note co-author and source article from last December below). The Fox News (via WSJ) article mentions Mt. Hope and General Moly directly. 

Firms Struggle to Locate Chinese Tycoon (Fox News: Gillian Tan, James T. Areddy, WSJ, Mar 20, 2013) 

(0827 PT Mar 20, 2013)

Sundance Seeks Information From Hanlong After Detention Report (By Soraya Permatasari & Janet Ong, Bloomberg - Mar 19, 2013 11:28 PM PT)

China detains Hanlong founder (Philip Wen, Mar 21, 2013 (Australia time), The Sidney Morning Herald) 

Source article on Liu Han & Mt. Hope (reported by the Eureka Miner Dec 28, 2012):

In Nevada, a Chinese King of the Hill (James Areddy, WSJ, Dec 28, 2012)

James Areddy is the lead WSJ correspondent in Shanghai and contacted this report in 2012 to check on how things were going with the Mt. Hope project.

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold Weather Report (03/25/2013)

Paintings by Mariana Titus, The Three Anas, are presently being featured at Lafitte Guest House & Gallery, New Orleans

Friday's morning prices...

Below are the prices used for this morning's analysis. Since then COMEX gold is up a tad at 1,607.1/oz (0948 PT):

COMEX Gold price = $1,606.2/oz (April contract most active)

COMEX Silver = $28.665/oz (May)
COMEX Copper = $3.4670/lb (May)
NYMEX WTI crude = $93.13 (May)
ICE Brent crude = $107.62/bbl (May)
Eureka Miner’s Gold Value Index© (GVI) = 95.39 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,406.9/oz
COMEX - VAGP = $199.3/oz; gold is trading at a premium to key commodities.

Morning Miners!

A rough way to start the spring for the General Moly team...and Eureka County.

Just before the Equinox, news started to break that Liu Han, the Chairman and founder of  Hanlong Sichuan, together with members of his family had been mysteriously detained in China. General Moly has been waiting for a $655 million loan from Hanlong to begin Mt. Hope mine construction in earnest this spring. Pre-construction activities are presently underway to clear and grub the Mt. Hope site together with associated waterworks for the construction effort.

Below the headline AP photo is a chronology of the news as it came to the attention of this report. The ole Colonel updated last Friday's Eureka Miner with these links but waited to hear from General Moly (GMO) before publishing Thursday's Special Report. The really bad news came with a GMO press release after the market close Thursday.

General Moly Announces Financing Update (Press Release, Mar 20, 2013)

It states:

 "[General Moly] has been informed that legal counsel has suspended work on the $665 million Chinese sourced Term Loan that is currently being negotiated with China Development Bank (“CDB”) for the development of the Mt. Hope Project until further notice. This suspension of activities relates to media reports that Mr. Liu Han, Chairman of Sichuan Hanlong Group (“Hanlong”) has reportedly been detained by Chinese authorities. Hanlong or an affiliate is obligated to arrange and guarantee the Term Loan, throughout its life."

I first learned of Liu Han last year from the Wall Street Journal source report by James Areddy, their correspondent in Shanghai:

In Nevada, a Chinese King of the Hill (James Areddy, WSJ, Dec 28, 2012)

James Areddy had interviewed a number of Eureka residents including this report in the preparation of this article. Ironically, the Eureka Miner e-mailed James on an unrelated topic this Monday before the recent stories broke. In closing, I joked that construction of Eureka's Liu Han Casino hadn't started yet. He didn't reply to my humor and now I know why!

Truth is stranger than fiction (and jokes) with the Australian press citing Mr. Han's shady ties to Macau casinos, suspected money laundering and most recently, hiding his brother who is suspected of murder. Australia is keen to find out more about the Chinese tycoon because they have two mines whose future hangs in the balance of Hanlong loans. General Moly is as anxious to sort out the latest dust-up and to seek financing alternatives. A trusted source informed me several minutes ago that it is likely that Ames will be allowed to continue their present work and that General Moly should have plenty of cash on hand after the winter Mt. Hope activities are tallied.

The markets seem to agree that there is still a lot of hope for Mt. Hope. After closing at $2.77 a share Wednesday, General Moly stock plummeted to an intraday low of $2.04 Thursday (-26%) but then recovered to close at $2.31 followed by this morning's trading at $2.32. We'd be well south of $2 by now if the investment community was heading for sunlight in this moly mine.

As a point of disclosure, I lost 1/4 of my position in GMO by stop loss but have decided to tough it out with the remaining 3/4 position until dust clears on that mountain top 21 miles north of town. General Moly has a strong management team and have climbed a lot of other mountains in the past - after all, one of the world's largest molybdenum reserves hasn't left Eureka County!

The best of luck to the entire General Moly team!

Please do your own research, pardner. As I warned last week "markets can turn on you faster than a feral cat."

Molybdenum Prices

Spot moly oxide prices are now below the key-$11 per pound level. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$10.98 As of March 18, 2013 (updated weekly)

Ryan's Notes Average: US$10.90 As of March 19, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are below $12, and the 3-month contact has dipped below $11. Remember that this is a thinly traded futures market and contract prices reflect developments in Europe probably more than the global spot price averages above.

3-month seller's contract $24,200 per metric ton ($10.98 per pound)

15-month seller's contract $25,210 per metric ton ($11.44 per pound)

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

Here is my weekly input to Kitco Gold Survey:

03/22/2013 (10:25 AM CT)

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

A. Up, $1,620 per ounce target.

Q. Why?

A. Gold is quickly moving away from the commodity camp as safe-haven status reemerges in response to the Cyprus debacle. Only last week, the yellow metal was strongly correlated with global commodities copper and oil on a 1-month basis (+0.89 & +0.81, respectively); today, the correlation is negative for copper and falling for oil (-0.49 & +0.55). This is a bearish sign for metals but bullish for gold.

However, opposing forces may cap gold’s advance below solid resistance at the $1,630 per ounce level. Assuming the Cyprus situation continues into next week without satisfactory resolution, gold should get another boost higher but may be limited by liquidations to raise capital for damage control in the euro-zone. My target of $1,620 is a positive bias above March’s highs, challenges the February high ($1,619.7) but is below $1,630 resistance.

For $1,620 per ounce gold we can expect to see silver in a range of $28.8-$29.6 per ounce; and copper in a range of $3.39-$3.58 per pound. Silver is expected to have a neutral bias with respect a range mean of $29.200 per ounce; copper, a neutral bias with respect to a mean of $3.4807 per pound between the intraday high and low for March.

Although the yellow metal has lost considerable value relative to global commodities oil and copper since mid-November, this trend has now reversed to the upside for gold.
If the long-term gold value uptrend relative to oil and copper remains intact, the longer term prospects for gold priced in dollars are good. The data suggest that this is still the case (Note 6, Ref 5)

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 95.39, below the key-100 level but above the 1-month moving average of 94.07. The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) is off its low for the year, but still 18.8% below its 2012 high (1.2710, Nov.15) at 1.0362 (2013 low = 1.0166). The latest price action indicates gold has lost significant value relative to the broader market but has bottomed and is now regaining ground.

Background Notes:
  1. My gold target price of $1,620 per ounce challenges the February intraday high of $1,619.7 (2/26/2013).
  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 different technique was used to predict the price range for copper given its present negative correlation with gold.
  3. My Gold Value Index© (GVI) equals 95.39 or 8.0% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.07; 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 463.28 pounds per ounce and now above its 3-month moving average of 452.05 but below its 6-1/2 year trend of 488.88. The 1-month gold-to-copper ratio stability is a low 1.82%. The 1-month rolling correlation is -0.48; 3-month is +0.71. 3-month relative volatility is 0.1.12X gold and price sensitivity (beta) is +0.80.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 56.033; the 3-month rolling correlation is +0.92, relative volatility is 1.62X gold and price sensitivity (beta) is +1.49. The GSR is above its 3-month average of 54.22; the 1-month gold-to-silver ratio stability is a very low 0.77%.
  6. Although gold has lost considerable value relative to oil and copper since early November, the uptrend in gold value relative to these global commodities remains on solid footing (mid-2006 to the present). If this relation gives way, gold is probably in a world of hurt. Also, 1-month gold ratios relative to WTI & Cu remain quite stable* unlike the early-October 2011 commodity debacle following the U.S. debt downgrade (Ref 4):
    1. Au:WTI -0.65 sigma below 6-1/2 year trend line; Au:Cu -0.41 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 1.0% (3.2% 10/6/11); Au:Cu 1.8% (5.7% 10/3/11) - I consider ratio stability > 3% to be divergent & worrisome
(* stability defined as the standard deviation of the gold ratio normalized by its mean over 1-month)
Ref 2: Oil, Copper & Gold – All in the Family (Kitco News, 01/22/2013)
Ref 3: Oil, Copper & Gold – Beware the Snake? (Kitco News, 02/11/2013)
Ref 4: Oil, Copper & Gold – Don’t Worry (Kitco News, 02/25/2013)
Ref 5: The Emperor of Metals Heeds a Warning from Copper (Kitco News, 03/11/2013)


Colonel Possum

Inset painting by Mariana Titus

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Paintings by Mariana Titus, The Three Anas, are presently being featured at Lafitte Guest House & Gallery, New Orleans

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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