"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.

Friday, March 15, 2013

The Ides of March - Bullish Metals & Miners? The Colonel's Metal Prices for Next Week

Street Muscians, Eureka, Nevada

*** BREAKING NEWS ***

$665 million Chinese sourced Term Loan for Mt. Hope suspended:

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

Related news received throughout the day: 

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. 

(1251 PT Mar 20, 2013)  

Firms Struggle to Locate Chinese Tycoon (Fox News: Gillian Tan, James T. Areddy, WSJ, Mar 20, 2013) 
 
I just received these two links and am doing some digging...

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

News:

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

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 has pulled back a thin flat washer to $1,591.9/oz (1100 PT):

COMEX Gold price = $1,596.7/oz (April contract most active)

COMEX Silver = $28.975/oz (May)
COMEX Copper = $3.5210/lb (May)
NYMEX WTI crude = $93.40 (April)
ICE Brent crude = $110.06/bbl (May)
Eureka Miner’s Gold Value Index© (GVI) = 93.91 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,420.6/oz
COMEX - VAGP = $176.1/oz; gold is trading at a premium to key commodities.


Mr. Paul & La Loquita

Morning Miners!

Today is the ides of March - watch your step...or is it time to leap?

There isn't a sadder lot than miners lately as the broader markets seek new highs on a nearly daily basis and miners head further down the mineshaft. Yesterday the S&P 500 almost closed at all time highs, the DOW Jones has already been there - both are at levels at or above the heady days of October, 2007.

Barrick Gold (ABX) has been one of the worst performers this year. Since a closing high of $42.86 on Sept. 21, Barrick has fallen 33% to this morning's price of $28.73. It's easy to blame falling gold prices but gold is only down 10% over the same period.  For me, yesterday's news that Barrick couldn't even get a gold shipment out of the Dominion Republic was a low point. Here's the news feed:

03/14/2013, 2:56 PM Barrick Gold (ABX) says customs authorities in the Dominican Republic halted a shipment of gold from the recently-opened Pueblo Viejo mine. There is no explanation for the action, but Pueblo Viejo has been under pressure from local politicians seeking a more favorable contract. A local report suggests the Dominican president told customs to halt the shipment pending a new agreement.

Is that a stagecoach robbery or what? Of course, Barrick is not the only miner facing tough times. Dodgy governments, rising costs, lower grade ores and lengthy permitting cycles are pretty common beefs across the sector. Add falling metal prices on a stronger U.S. dollar with uncertain global demand and you don't have much to attract new investment dollars - or to even keep the old investors!

Nuts.

Every low point is followed by a high point. This morning, Goldman Sachs upgraded copper giant Freeport-McMoran (FCX) to a "buy" rating:

03/15/2013, 6:46 AM Goldman Sachs upgrades Freeport McMoran (FCX) to a Buy rating and raises its price target to $42. The firm stands more positive on copper and sees the M& A overhang on Freeport diminishing.

Freeport has fared much better than Barrick bouncing 2% to $33.86 this morning on the Goldman thumbs up but is still down 20% from its Oct. 18 closing high of $42.43 - hey, that's the new target! Maybe things are getting better. Barrick is up a nudge too on an uptick in gold prices and General Moly (GMO) is pretty flat at $2.88.

Nuts, this might take some time - be patient.

As I explain in the Kitco weekly survey input below, the yellow metal has faced a lot of challenges in 2013 but is showing a few signs of turning up. It is highly correlated with copper price and both are due for some recovery in the coming weeks. As for the General, I believe once the Hanlong loan clears its last paper work cycle and Mt. Hope mine construction ramps up this spring, GMO should have a nice step up in share price too. TIC will soon begin the installation of seven miles of electrical power lines and will install the pumping stations to support the approximately 2,000 gallons per minute of construction water in preparation for heavy earthworks - that's commitment.

I added to my Freeport position yesterday ahead of the Goldman upgrade and a few more shares of General Moly today. GMO put in a double-bottom this month and technically is due for a little levitation north in my view. Price support is at $2.74 per share (March 4, 2013).

Please do your own research, pardner - the ole Colonel has been wrong in the past and markets can turn on you faster than a feral cat.

Molybdenum Prices

Spot moly oxide prices are still below $12 per pound level and drifting down from the last week. Here are the latest numbers:

Metals Week Weekly Average:
US$11.14

As of March 11, 2013
(updated weekly)

Ryan's Notes Average:
US$11.075

As of March 12, 2013
(updated twice weekly)

The London Metal Exchange (LME) futures contracts are also below $12, and the 3-month contact has ominously 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 $25,230 per metric ton ($11.44 per pound)

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




Here is my weekly input to the  Kitco Gold Survey:
 
03/15/2013 (10:46 AM CT)

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

A. Up, $1,605 per ounce target.

Q. Why?

A. Gold has returned to the commodity camp with conviction, strongly correlated with global commodities copper and oil on a 1-month basis (+0.89 & +0.81, respectively). Although all three have been under pressure since the beginning of Chinese Lunar New Year, increasingly positive correlations are a bullish sign for metals going forward.

Reuters reported yesterday that Gianclaudio Torlizzi, a partner at metals consultancy T-Commodity, said, “Metals have already incorporated a lot of bad news out of China. In my view, March and April data will be much better.”  This morning, Goldman Sachs upgraded copper giant Freeport McMoran (FCX) to a “buy.”

Gold will follow copper higher and perhaps at a faster pace as it recovers a loss of value since November (Ref 5). My target of $1,605 per ounce is a breakout above the key $1,600 level above March’s intraday high ($1,598.8, Mar.13). There remains significant resistance at the $1,630 level.

Although the yellow metal has lost considerable value relative to global commodities oil and copper there are signs that this erosion has halted and may soon reverse to the upside for gold.

For $1,605 per ounce gold we can expect to see silver in a range of $29.0-$30.3 per ounce; and copper in a range of $3.51-$3.69 per pound. Silver is expected to have a neutral bias with respect a range mean of $29.663 per ounce; copper, a negative bias below a mean of $3.5978 per pound.

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 93.91, below the key-100 level but above the 1-month moving average of 93.09. 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 19.3% below its 2012 high (1.2710, Nov.15) at 1.02552 (2012 low = 1.0142). The latest price action indicates gold has lost significant value relative to the broader market but may have bottomed.

Background Notes:
  1. My gold target price of $1,605 per ounce is a breakout above the psychologically important $1,600-level.
  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 93.91 or 9.5% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 93.10; 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 453.48 pounds per ounce and now above its 3-month moving average of 451.68 but below its 6-1/2 year trend of 488.49. The 1-month gold-to-copper ratio stability is a very low 1.23%. The 1-month rolling correlation is +0.89; 3-month is +0.71. 3-month relative volatility is 0.94X gold and price sensitivity (beta) is +0.67.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 55.106; the 3-month rolling correlation is +0.93, relative volatility is 1.58X gold and price sensitivity (beta) is +1.47. The GSR is above its 3-month average of 54.04; the 1-month gold-to-silver ratio stability is a very low 1.11%.
  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 -0.70 sigma below 6-1/2 year trend line; Au:Cu -0.56 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 1.6% (3.2% 10/6/11); Au:Cu 1.2% (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)

Cheers,

Colonel Possum


Headline photograph 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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