"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 8, 2013

Gold & GMO Resilient; The Colonel's Metal Prices for Next Week

Bricks and Arches, Eureka, Nevada

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  The Emperor of Metals Heeds a Warning from Copper (03/11/2013)

General Moly Announces Fourth Quarter and Full Year 2012 Results (03/08/2013)

Friday's morning prices...

Below are the prices used for this morning's analysis. Since then COMEX gold has recovered some gorund at $1,577.6/oz (1203 PT):

COMEX Gold price = $1.567.4/oz (April contract most active)

COMEX Silver = $28.560/oz (May)
COMEX Copper = $3.5100/lb (May)
NYMEX WTI crude = $91.38/bbl (April)
ICE Brent crude = $109.98/bbl (April)
Eureka Miner’s Gold Value Index© (GVI) = 93.38 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,402.5/oz
COMEX - VAGP = $164.9/oz; gold is trading at a premium to key commodities.

Morning Miners!

Be sure to checkout the Spring 2013 edition of the Mining Quarterly - it's a dandy! You can access the online version with the link on the sidebar to your right.

I started an early morning with better-than-expected monthly jobs numbers. The Labor Department reported employers added 236,000 jobs for February. The unemployment rate, obtained by a separate survey of U.S. households, fell 0.2% point to 7.7%, the lowest level since the end of 2008.

As I explain in the Kitco weekly survey input below, the yellow metal faced a lot of challenges going into the numbers with a U.S. dollar that was expected to gain on either a good or bad report; good implying the Fed may ease quantitative easing sooner than expected, bad reinforcing the U.S dollar's revived role as a safe-haven currency.

The numbers were so good that the U.S. dollar index (.DXY) made a 6-month high and predictably gold plunged to $1,560.4 per ounce by 0545 PT - but not for long. Up prices shot to $1,583.1 by 0700 PT then settled in just a few dollars up from yesterday's close at $1,577.4 per ounce.

If anything, gold price has been resilient lately. The same can be said for General Moly (GMO) share price which received a chilling downdraft last week on news that the Great Basin Resource Watch (GBRW) and the Western Shoshone Defense Project filed a complaint against the Bureau of Land Management challenging the BLM's issuance of the Record of Decision (ROD) for the company's Mt. Hope project. Monday, Feb. 25, GMO closed at $3.11. When the GBRW news broke Tuesday, Feb. 26, share price dopped 10% and registered a low of $2.77 Monday before regaining ground throughout the week to trade this morning at $2.93. In fairness, some of the downward pressure on General Moly and other miners was due to some gloomy global assessments during the week too.

I talked with General Moly Investor Relations Director Scott Kozak yesterday to see if there were any new developments regarding the complaint. Scott told this report that he couldn't comment directly on a pending legal matter but what was published in the news was a reasonable assessment.

Last week the Eureka Miner reported the following from the Midnight Trader:

The company has not been named as a defendant in the suit but will closely monitor the litigation and at the appropriate time will seek to intervene in the suit. The company says it cannot reasonably predict the final outcome of this complaint, and an unfavorable outcome could result in additional conditions on operations that could have a material adverse effect on the company's financial position or results of operations.(08:44 AM EST, 02/26/2013, Midnight Trader)

Scott told me that Mt. Hope was a multi-generational mine and that the project has made every attempt to be "good neighbors" and has followed an environmentally and socially responsible path in the development. The EIS process has been lengthy with considerable opportunity for public input and General Moly believes they have established a very positive relationship with the local Shoshone tribe at Duckwater.

A faithful follower of this report did an extensive dig on the GBRW, their lawyer and previous complaints. Here is one of the most detailed articles found which reveals the strategy for their case:

Western Shoshone fighting new mining near Eureka, Nevada (Lisa J. Wolf, CENSORED NEWS, 2/24/2013)

GBRW is a non-profit as is their lawyer Roger Flynn’s organization, the Western Mining Action Project. Western Mining is partially funded by grants. John Hadder of GBRW says, “...he’s [Roger Flynn's] independently funded and he’s essentially pro bono" and “we wouldn’t be able to do these cases without him.” The Western Mining Action Project “can only represent public interest organizations. When I’ve spoken to some of the people, especially the growers, they felt it was so expensive to try to do anything legally. It seemed like there was no easy way; so this process that we have with Roger is really the only way we have to challenge these projects. It’s really the only way, in our view, that that people’s voice gets out there through this mechanism. It is ridiculously expensive; no doubt about it.”

Hadder expects the case to be heard in the next month. The article reports him saying, “There will probably be a hearing on it. Roger [Flynn] will come and argue on it” and “we may have some witnesses, one of the people in Diamond Valley agreed to come and be a witness. It will kind of follow that process, the court gives its ruling. Since we’re asking for injunctive relief hopefully they’ll move pretty quickly on it and then if we don’t have satisfaction on it we’ll appeal to the 9th Circuit. It all depends on what comes out of the ruling.”

Here is some background on their lawyer, Roger Flynn:

Roger Flynn, Colorado

The same source that provided these links contacted Gloria Tibbits, the main contact for Mt. Hope at the BLM office in Battle Mountain. The BLM is apparently preparing a vigorous defense; the same team that represented Mt. Tenabo will be on the Mt. Hope response - they have gained a lot of experience with GBRW et al from past complaints. Also, the BLM in Nevada has been served but not the BLM in Washington, DC. A 14 day response clock starts after that. There has never been a preliminary injunction granted by Nevada Courts in the past for similar matters.

Here is the Mt. Hope ROD and contact information for Ms. Tibbits:

BLM Approves the Mount Hope Moly Mine Project in Central Nevada (BLM News Release No. 2013-02, 11/23/2012)

I believe the markets reacted negatively at first to the GBRW news and then quickly discounted the impact of this latest legal dust up. Do your own research pardner but the ole Colonel isn't going to lose any sleep on the GBRW for now.

A special thanks to our unnamed contributor for some terrific background research.

Have a great weekend!

Molybdenum Prices

Spot moly oxide prices are still below $12 per pound level and again changed only pennies from the previous week - very stable price action. Here are the latest numbers:

Metals Week Weekly Average:

As of March 4, 2013
(updated weekly)

Ryan's Notes Average:

As of March 5, 2013
(updated twice weekly)

The London Metal Exchange (LME) futures contracts also remains below $12, and the 3-month contact remains aligned with spot prices.

3-month seller's contract $24,700 per metric ton ($11.20 per pound)

15-month seller's contract $25,435 per metric ton ($11.53 per pound)

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

Here is my weekly input to Kitco Gold Survey:
03/08/2013 (10:44 AM CT)

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

A. Down, $1,570 per ounce target.

Q. Why?

Gold price confronted a polylemma on a better-than-expected U.S. jobs report this morning: a growing number of reasons for heading lower including a U.S. dollar index at 6-month highs, loss of value to base commodities and a new value low compared to the broader markets as money continues to abandon the yellow metal for greener pastures in stocks. Although, initially heading lower after the report, gold chose to move off its $1,560.4 low per ounce to reach a $1,560.4 high only to fall back to $1,577.4 presently, several dollars higher than yesterday.

So is the fate of gold lately, lack luster but resilient.

The best clue for where gold heads next week may come from copper. Facing downward pressure with lowered expectations of Chinese demand, the red metal has an unusually high 1-month correlation with the Lustrous one (+.93) and a very stable gold ratio (~1% 1-month standard deviation*). My copper target is at the mean of its present trading range or $3.51 per pound suggesting a gold price of $1,570 per ounce. This may change to the upside soon for both metals with Goldman Sach’s upbeat estimate for 3-month copper prices following the upcoming March numbers on Chinese demand. Gold should also find support from decent Asian physical demand.

My target of $1,570 per ounce is a negative bias below the mean of February’s high ($1,619.7, Feb. 26) and low ($1,554.3, Feb. 21) representing a a slight drop from current levels.

Since November, the yellow metal has lost considerable value relative to global commodities oil and copper. Recently, gold recovered some ground from mid-February value lows but is presently moving sideways to down.

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 4)

For $1,570 per ounce gold we can expect to see silver in a range of $28.2-$30.1 per ounce; and copper in a range of $3.43-$3.59 per pound. Silver and copper are expected to have a neutral bias with respect to their range means of $29.159 per ounce and $3.5099 per pound respectively.

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 93.38, below the key-100 level but above the 1-month moving average of 92.87. The 2012 high was 103.73 on Nov. 13.

The ratio of gold-to-the S&P 500 (AUSP) is at a new low for the year, 20.2% below its 2012 high (1.2710, Nov.15) at 1.0142. The latest price action indicates gold is losing significant value relative to the broader market.

Background Notes:
  1. My gold target price of $1,570 per ounce is a negative bias above the geometric mean of $1,586.7 per ounce given the stated range highs and lows
  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©). The same technique was used to predict the price range for copper.
  3. My Gold Value Index© (GVI) equals 93.38 or 10.0% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 92.87; 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 446.55 pounds per ounce and below its 3-month moving average of 452.68 and 6-1/2 year trend of 488.12. The 1-month gold-to-copper ratio stability is a very low 1.12%. The 1-month rolling correlation is +0.93; 3-month is +0.60. 3-month relative volatility is 0.86X gold and price sensitivity (beta) is +0.5160
  5. The gold-to-silver ratio (GSR) is above its historical norm at 54.881; the 3-month rolling correlation is +0.92, relative volatility is 1.81X gold and price sensitivity (beta) is +1.67. The GSR is above its 3-month average of 53.78; the 1-month gold-to-silver ratio stability is a very low 1.65%.
  6. On a positive note, it is interesting that 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 -0.68 sigma below 6-1/2 year trend line; Au:Cu -0.66 sigma below trend - I consider > 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 1.8% (3.2% 10/6/11); Au:Cu 1.1% (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)


Colonel Possum

Headline photograph by Mariana Titus

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