"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, April 26, 2013

Bluer Skies for General Moly? The Colonel's Metal Prices for Next Week

Art in Unexpected Places, Eureka, Nevada

*** GENERAL MOLY NEWS ***

Last week General Moly posted a very detailed briefing for investors on the status of Mt. Hope molybdenum project:

General Moly Investor Presentation

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold – Is April the Cruelest Month? (04/22/2013)

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

Friday's morning prices...

Below are the morning prices used for today's analysis:

COMEX Gold price = $1,469.5/oz (June contract most active)

COMEX Silver = $24.140/oz (May)
COMEX Copper = $3.2125/lb (May)
NYMEX WTI crude = $92.99 (May)
ICE Brent crude = $102.71/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 94.26 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,302.7/oz
COMEX - VAGP = $166.8/oz; gold is still trading at a premium to key commodities.



Good Morning Miners!

I was very sad to hear that recently elected Commissioner Pat Dempsey passed away last Saturday. Pat and I had a nice chat before he won the election - he seemed like a very nice man and a good fit for the District 3 seat. Pat and I discovered we were only a few days separated in age - he laughed when I told him that I was his senior. Pat was a Reno native who had ranched for 50 years and also owned a construction firm. He is survived by his wife, Julie. I'll miss Pat.

Eureka County Assessor Mike Mears informed this report that, "The replacement process is an appointment by the Governor. The County Clerk notices the board vacancy to the Secretary of State who in turn, notifies the Governor. It is then up to the Governor to determine how to proceed. Replacement candidates must come from District 3 and must be a registered Republican as that was the party Pat represented..." and, "The seat will have to be part of the 2014 general election (2 year term) and will also roll over to the 2016 election (4 year term) to get it back into its original rotation."

Bluer Skies for General Moly?

This is purely conjecture on my part, but there may be bluer skies ahead for General Moly and the prospects for Mt. Hope. The key issue is finding new financing for Mt. Hope after the Hanlong loan suspension in March (See earlier March 22 and March 29 reports for a full chronology of events).

With all the turmoil in the metals markets last week, the ole Colonel missed an important article in a Chinese publication:

Fallout From the Arrest of Hanlong's Chairman Continues (Ferro-Alloys, 4/15/2013)

Here's their update relative to Moly Mines of Australia:

The fallout from the arrest of Hanlong’s Chairman continued last week. Moly Mines of Australia announced that its Board and its major shareholder, Hanlong Mining Investments, agreed that the three current independent directors will be replaced with new independent directors in the six months following the company’s annual meeting on May 31. In addition, Liu Han, the Chairman of Hanlong, will be replaced as a director by his current alternate Nelson Chen at the annual meeting. Hanlong has said it will continue to support the merger and acquisition strategy of Moly Mines even though Hanlong said it is unlikely to be in a position to give direct financial support to an acquisition or project development in the near future. Hanlong said it would seek to assist Moly Mines secure financing from Chinese banks and other sources. Sundance Resources, meanwhile, said it had terminated its USD1.4-billion iron ore development agreement with Hanlong Mining. Hanlong reportedly failed to meet funding conditions for the Mbalam-Nabeba iron ore project in Cameroon.

I found it interesting that Hanlong still appears quite viable for seeking financing alternatives if not direct financial support. Also, Nelson Chen is already  a member of General Moly's Board of Directors, serving since September 2011. According to the General Moly website:

Prior to joining Hanlong, Mr. Chen was an Associate Director at the Sydney, Australia office of PricewaterhouseCoopers ("PwC"). Mr. Chen has 11 years of audit and M&A transaction advisory experience with PwC. He was involved in a large number of financial due diligence and acquisition advisory transactions with a focus on leading engagements servicing Chinese clients. He has extensive experience in many industries including mining, manufacturing, consumer products, financial services, real estate.

Even more reassuring is the fact that General Moly CEO Bruce Hansen bought 30,000 additional shares of his company's stock Monday at $1.8635 per share (April 22, 2013 transaction, SEC Form 4 filing, April 23, 2013). This puts Mr. Hansen's total shares at 1,116,266 - that's commitment! Mr. Hansen commented about the path forward in the April 3 General Moly Press Release:

In addition to extending the Bridge Loan, we are working with Hanlong to secure another Chinese strategic partner to help advance the full financing of the Mt. Hope Project. We feel this path provides the most promise in the near term given China’s strategic long-term view towards moly sourcing, our current exclusivity agreement with Hanlong, and taking into account the Company’s advanced stage of loan negotiations with China Development Bank.

I decided to throw a few more shares in the buckboard at $1.88 yesterday; this morning General Moly is presently trading at $1.91.

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

All in all, I think the above developments are positive signs. The mining sector has been under tremendous pressure for several years so it is a risky thing to invest in.

Keep the faith.



Molybdenum Prices

Spot moly oxide prices remain above the key-$11 per pound and inched up a little more - very positive. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$11.75 As of April 22, 2013 (updated weekly)

Ryan's Notes Average: US$11.20 As of April 23, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are holding above $11 per pound this week which also remains encouraging. 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 $24,500 per metric ton ($11.11 per pound)

15-month seller's contract $25,200 per metric ton ($11.43 per pound)

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



Here is my weekly input to the Kitco Gold Survey:


04/26/2013 (10:40 AM CT)

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

A. Up, $1,495 per ounce target.

Q. Why?

A. Gold has recovered some dollar price and value relative to copper this week. Its valuation relative to oil and silver has seen little change. The yellow metal remains highly correlated to oil, copper and silver on both a short-term (1-month>+0.85) and mid-term (3-month >0.8) basis. Gold is therefore behaving as a commodity but could easily regain safe-haven status with a flare up in the Middle East. Higher oil and gold prices are likely for that scenario with increased headwinds for copper.

The S&P 500 is trying to regain upward momentum but is still off its record highs given a much lower than expected GDP number this morning (2.5 versus 3.2 exp.). This has helped gold regain value relative to equities as illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



Since mid-November, the ratio has been in a descending channel with rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak (AUSP=1.2710). April 15 trading broke below the channel to score a low of 0.8768. This morning the AUSP has returned to the channel.

The new dichotomy for gold persists with a strong pickup in physical buying in Asia balanced by continued outflows in gold exchange traded funds. This will probably limit the upside for the yellow metal against a backdrop of bearish influences including fear of gold liquidation by central banks in the troubled southern countries of the euro-zone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. However, a wider conflagration in the Middle East could bring back safe haven status for the yellow metal and change these dynamics, at least for the short-term.

Gold will probably move higher next week on re-emerging fears about Syria and Iraq but find considerable resistance at $1,500 per ounce
My target is therefore $1,495 per ounce – above the mean of the Feb. 12 high ($1,564.2) and the Feb. 16 low ($1,321.5).

For $1,495 per ounce gold we can expect to see silver in a range of $23.9-$27.0 per ounce; and copper in a range of $3.01-$3.46 per pound. Silver is expected to have a neutral bias with respect a range mean of $24.450 per ounce; copper, a negative bias with respect to a mean of $3.2336 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 2 & 3)

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 94.26, below the key-100 level and above the 1-month moving average of 93.91. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,495 per ounce is below strong resistance at $1,500 per ounce
  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 94.26 or 9.1% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 93.91; 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 457.43 pounds per ounce and above to its 3-month moving average of 450.86 and below its 6-1/2 year trend of 491.1. The 1-month gold-to-copper ratio stability at 3.52% is falling slightly. The 1-month rolling correlation is +0.86; 3-month is +0.88. 3-month relative volatility is 1.02X gold and price sensitivity (beta) is +0.895.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 60.874; the 3-month rolling correlation is +0.97, relative volatility is 1.74X gold and price sensitivity (beta) is +1.69. The GSR is above its 3-month average of 55.88; the 1-month gold-to-silver ratio stability is 3.14%.
  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 has remained 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 have remained quite stable* unlike the early-October 2011 commodity debacle following the U.S. debt downgrade (Ref 2 & 3). There are, however, continued signs that divergent ratios are possible:
    1. Au:WTI -1.16 sigma below 6-1/2 year trend line; Au:Cu -0.54 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 3.0% (3.2% 10/6/11); Au:Cu 3.5% (5.7% 10/3/11) - I consider ratio stability > 3% to be potentially divergent & worrisome
(* stability defined as the standard deviation of the gold ratio normalized by its mean over 1-month)
Ref 2: The Emperor of Metals Heeds a Warning from Copper (Kitco News, 03/11/2013)
Ref 3: Copper & Gold – Is April the Cruelest Month? (Kitco News, 04/22/2013)

Cheers,

Colonel Possum

Photos by Mariana Titus

Please checkout bayoutales.com for books and book orders


Paintings by Mariana Titus, The Three Anas, are presently 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

Friday, April 19, 2013

Gold, Miners Up (Slightly) after Big Down; The Colonel's Metal Prices for Next Week

Car Crash, Eureka, Nevada

*** GENERAL MOLY NEWS ***

This week General Moly posted a very detailed briefing for investors on the status of Mt. Hope molybdenum project:

General Moly Investor Presentation

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.
 

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Copper & Gold – Is April the Cruelest Month? (04/22/2013)

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

Friday's morning prices...

Below are the morning prices used for today's analysis:

COMEX Gold price = $1,404.5/oz (June contract most active)

COMEX Silver = $23.365/oz (May)
COMEX Copper = $3.1200/lb (May)
NYMEX WTI crude = $88.02 (May)
ICE Brent crude = $99.43/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 93.61 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,253.6/oz
COMEX - VAGP = $150.9/oz; gold is still trading at a premium to key commodities.



Good Morning Miners!

I must admit the developments in Boston have the ole Colonel pinned to the television this morning - a horrific week from Boston to Texas with carnage in the commodity markets too. Gold plumbed a low of $1,321.6 per ounce and copper nearly broke $3 per pound at $3.0600 per pound. Thankfully both have recovered some this morning along with the miners:

Barrick Gold (ABX) $18.39 up 2.28%
Newmont (NEM) $32.94 up 0.52%
General Moly $1.87 up 2.75%

Today's commentary is taken from an e-mail I sent yesterday to a good friend who made me aware of General Moly's recent investor presentation (link below headline photo):

Very confusing commodity world - I delayed my usual bi-weekly Kitco commentary on Oil, Copper & Gold until next Monday.

The key issue to me is if we are seeing a breakdown in gold valuation relative to global commodities oil & copper (=> "is the gold bull run over?" and "is the commodity super-cycle over?" are interrelated questions in my view) . Tom McClellan (McClellan oscillator has been checking my [gold ratio stability] work and asking good questions). My colleague in Mumbai has been giving me interesting inputs on physical buying there. I won't have a new opinion on these three commodities until Monday.

Nonetheless, I have just trimmed and not exited my [Freeport McMoRan] FCX position and, of course, still hanging in there with [General Moly] GMO. As bad as this week has been, the fact that everything is going down together actually gives me some hope. 3,000+ tonnes of SIC PIG [Spain Italy, Cyprus, Portugal, Ireland, Greece] central bank gold is the scariest number for me if there is some panic liquidation in Europe. Large inventories of copper and increased supply should find balance unless China rolls over. GDP falling from 8.0% to 7.7% is still growth, the Germans are still building cars and Americans are building houses again.

Not the good ole days for sure but not the end of the world either.

I'm actually more worried about Barrick than General Moly, GMO presentation [link below headline photo] was encouraging.

Cheers

(Colonel's e-mail, 4:53 PM PDT, April 18, 2013)

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

Keep the faith - we've been through worse.



Molybdenum Prices

Spot moly oxide prices broke above the key-$11 per pound which is great news. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$11.00 As of April 15, 2013 (updated weekly)

Ryan's Notes Average: US$11.20 As of April 16, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are holding above $11 per pound this week which remains encouraging. 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 $24,500 per metric ton ($11.11 per pound)

15-month seller's contract $25,200 per metric ton ($11.43 per pound)

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




Here is my weekly input to the Kitco Gold Survey :


04/19/2013 (10:39 AM CT)


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

Up, $1,425 per ounce target.

2.      Why?

Another challenging week for gold and commodities started with a bout of panic selling Monday. Global commodities oil and copper and companion metal silver are highly correlated with gold on both a short-term (1-month>+0.85) and mid-term (3-month >0.8) basis. Although all went together, gold has recovered value relative to all three by this Friday morning’s trading.

Different from last week, the S&P 500 is now trending down instead of posting new record highs. In this light, gold is also recovering value relative to equities after very bearishly breaking to the downside Monday as illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:




Since mid-November, the ratio has been in a descending channel with rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak (AUSP=1.2710). Monday trading broke below the channel to score a low of 0.8768. This morning the AUSP has moved up to 0.9438 signaling some stabilization.

The new dichotomy for gold is a strong pickup in physical buying in Asia balanced by continued outflows in gold exchange traded funds. This will probably limit the upside for the yellow metal against a backdrop of bearish influences including fear of gold liquidation by central banks in the troubled southern countries of the euro-zone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. Gold will probably recover some next week but find resistance at today’s intraday high ($1,424.7 per ounce).

My target is therefore at the former level of support at $1,425 per ounce – above the mean of the Feb. 15 high ($1,495.0) and this week’s low ($1,321.5).

For $1,550 per ounce gold we can expect to see silver in a range of $23.4-$25.8 per ounce; and copper in a range of $3.88-$3.33 per pound. Silver is expected to have a negative bias with respect a range mean of $24.590 per ounce; copper, a neutral bias with respect to a mean of $3.1053 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 93.61, below the key-100 level and the 1-month moving average of 94.09. The 2012 high was 103.73 on Nov. 13.


Background Notes:
  1. My gold target price of $1,425 per ounce is at today’s intraday high of 1,424.7
  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 93.61 or 9.8% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.09; 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 450.16 pounds per ounce and close to its 3-month moving average of 451.34 and below its 6-1/2 year trend of 492.1. The 1-month gold-to-copper ratio stability is on the rise at 3.58%. The 1-month rolling correlation is +0.88; 3-month is +0.85. 3-month relative volatility is 1.00X gold and price sensitivity (beta) is +10.847.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 60.110; the 3-month rolling correlation is +0.97, relative volatility is 1.67X gold and price sensitivity (beta) is +1.62. The GSR is above its 3-month average of 55.18; the 1-month gold-to-silver ratio stability is a low 2.37%.
  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 has remained 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 have remained quite stable* unlike the early-October 2011 commodity debacle following the U.S. debt downgrade (Ref 4). There are, however, signs this week that divergent ratios are possible:
    1. Au:WTI -1.15 sigma below 6-1/2 year trend line; Au:Cu -0.67 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 3.3% (3.2% 10/6/11); Au:Cu 3.6% (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

Inset painting and headline photo by Mariana Titus

Please checkout bayoutales.com for books and book orders


Paintings by Mariana Titus, The Three Anas, are presently 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

Tuesday, April 16, 2013

SPECIAL REPORT: SJR 15 Update, Taxation Implications for Nevada Mining



*** SPECIAL UPDATE (Wednesday, 4/17/2013) ***

One of the biggest threats to gold price is central bank selling in the troubled southern eurozone countries (aka SIC PIGs). Cyprus is considering the sale of some of their reserves which total 13.9 tonnes. This could trigger more sales in these countries:

Portugal 382.5 t
Italy    2,451.8 t
Ireland       6.0 t
Greece  111.9 t
Spain     281.6 t

Total SIC PIG = 3,247.7 tonnes

To prevent a price collapse, these sales would occur over time (if at all) but nonetheless, the numbers are daunting.

I't's rough to be a gold miner today!

(11:58 AM, 4/16/2013) Analysts at RBC Capital think credit downgrades for some top gold miners are a strong possibility. There's a “moderate probability” Barrick Gold (ABX -0.1%) could trigger a one-notch downgrade at $1,400 gold; at $1,300, Newmont Mining (NEM +1.9%) could get downgraded, and Kinross Gold (KGC +1.8%) could get cut right to junk status. TD Securities also offers similarly disturbing conclusions.

0714 PDT, 4/17

(Note copper price on disappointing eco-news from Germany)

Comex gold $1,389.1 (Intraday low = $1,321.5 4/16)
Comex silver $23.575 (Intraday low = $22.000 4/16)
Comex copper $3.2130 (Intraday low = $3.1760, 4/17)
Nymex crude (WTI) $87.81

Barrick Gold (ABX) $18.90 up 0.27%
Newmont (NEM) $33.55 down 0.68%
General Moly $1.82 up 3.41%


*** SPECIAL UPDATE ***

Thankfully, gold got a bid this morning after plumbing $1,321.5 per ounce. Silver and copper are also off their Monday lows:

0716 PDT, 4/16

Comex gold $1,377.8 (Intraday low = $1,355.1 20:45 EDT, 4/15)
Comex silver $23.365 (Intraday low = $22.000 20:45, 4/15)
Comex copper $3.2725 (Intraday low = $3.1935, 4/15)
Nymex crude (WTI) $88.16

Barrick Gold (ABX) $19.81 up 0.15%
Newmont (NEM) $34.28 up 1.06%
General Moly $1.84 down 0.54%

*** SPECIAL REPORT ***

Last Friday afternoon, Eureka County Assessor Mike Mears sent this report a thoughtful analysis of SJR15 and the potential impact on mining taxation in Nevada. Unfortunately, yesterday's market calamities delayed its timely posting. Thanks and hats off to Mike!


SPECIAL REPORT – SJR15 which removes the net proceeds of minerals tax out of the Nevada Constitution passed out of the Senate last week on a 17-4 vote. It has been passed over to the Assembly where it will be heard in the next couple of weeks. The resolution passed out of the Legislature in the 2011 session, so if it passes out of this session, it goes to the ballot in 2014 for a vote of the people. All of my sources indicate that it will pass out of the Assembly and there appears to be enough public sentiment that mining does not pay its fair share that it would very likely pass the vote of the people and take effect January 1, 2015. The result would be no taxation on the mineral interests of the mines. In an effort to prepare for the passage of SJR15, SB400 and SB401 were put before the Senate Revenue committee last week. Both bills attempt to put into law the ability to somehow value and tax the mineral interest in the ground. In [a] work session yesterday, SB400 and SB401 were somewhat merged together and the amended bill was passed out of the committee in a unanimous vote. Because it has potential fiscal impact to the state and local government, it is exempted from today’s committee deadline to have a vote. It has now been referred to the Senate Finance committee for consideration.

OPINION – I always hate to step out too far on legislative issues, but in this case, I have to share my thoughts. First, the question of whether our lawmakers have the ability to create a special tax on the mineral value within Nevada law (NRS) is a big question. The Legislative Counsel Bureau (LCB) has given an opinion that the mineral could be valued as a personal property asset and thereby pass Constitutional muster of uniform and equitable taxation. It remains to be seen if the Mining Association would ultimately challenge this in court, though I think it likely that they would seek a court opinion if the bill passes. There are multiple problems with the bill; most specifically how we as assessors are to develop a value on the mineral. Second, even if we are somehow able to “create” a mineral value, that value would only be subject to the taxation level of the existing county general rate; not the current 5% rate allowed for in the Constitution. In terms of Eureka County, which has the lowest tax rate in the State of Nevada, that would be 1.8% resulting in a substantial loss of revenue to the State. Today, with the 5% rate, Eureka County exports at least 60% of the net proceeds tax generated in the County to the State. I still question how we make up that void in State revenues. The idea, as I understood it, was to remove the mineral tax from the Constitution so the ability to alter the rate and distribution of the tax would be availed to the Legislature. Unfortunately, I cannot see how we get there with the proposed bill. I fully expect zealous debate on SJR15 in the Assembly and the same as SB400 moves along in the Senate; however, as aforementioned, the attitude that mining somehow does not make their fair contribution to the State is so pronounced in the building, I expect to see something pass along to the Governor before the end of the session. Will he exercise his veto on the bill? Perhaps, but even if he does, we are left with the dilemma of the likelihood that SJR15 passes and the mineral tax no longer exists. Potentially positive for mining, but the miners have already stated that the existing system works and they are happy with their contributions to the State and to local governments and communities. Troubling to mining counties who rely on net proceeds taxes to fund capital projects in their communities.

(Eureka County Tax Assessor, Apr 12, 2013 at 2:46 PM PDT)

Cheers,

Colonel Possum

Friday, April 12, 2013

Gold , Barrick (ABX) Down the Mineshaft; General Moly (GMO) Steady Eddy

Wash Day, Eureka, Nevada

*** MONDAY CLOSING NUMBERS ***

Comex gold $1,361.1 Intraday low = $1,355.1
Comex silver $23.360 Intraday low = $22.520
Comex copper $3.2730 Intraday low = $3.1935
Nymex crude (WTI) $88.71 Intraday low = $87.20

*** MONDAY MORNING UPDATE (0823 PDT) ***

Comex gold $1,362.1 Low = $1,355.3 (1110 ET)
Comex silver $23.255 Low = $22.920 (0605 ET)
Comex copper $3.2325 Low = $3.1935 (0605 ET)
Nymex crude (WTI) $88.18 Low = $87.86 (1045 ET)

*** MONDAY MORNING UPDATE (0720 PDT) ***

Horrific Sunday night and Monday morning for gold and commodities. Worst than expected China GDP (7.7% vs 8.0%), gold liquidation fears in the troubled eurozone countries, lackluster physical demand in India and China, and anticipation of the eventual Bernanke unwind of quantitative easing (QE3) are all weighing on the yellow metal.

Barrick (ABX) is gettting clobbered again trading at $20.11 and pushing the clock back to October 2008 for these levels.

Newmont (NEM) is faring only a little better trading at $34.20 or early December 2008 territory.

General Moly (GMO) has fallen below the key $2-level to trade at $1.94

Comex gold $1,397.3 Low = $1,385.0 (0600 ET)
Comex silver $22.985 Low = $22.920 (0605 ET)
Comex copper $3.2270 Low = $3.1935 (0605 ET)
Nymex crude (WTI) $88.55 Low = $$88.05 (0605 ET)

The fact that commodities and gold are going down together is actually a positive for gold in my view. This how I phrase it in my Kitco Monday commentary to be posted later this morning:

With dramatic sell off in progress, it is tempting to declare the end of the gold bull run and/or commodity super-cycle. My thesis has been that until the uptrend in gold valuation relative to oil and copper reverses, the longer-term prospects for higher currency prices remain intact. I ran my 6-1/2 year valuation models tonight [Sunday, 4/14] and there is statistically no cause for alarm (yet).

At this morning's prices an ounce of gold still buys 433 pounds of copper; in mid-2006 it was only 200 pounds. An ounce buys 15.8 barrels of Western Texas Intermediate Crude; in mid-2006 it only fetched 10 barrels.

Keep the faith!

*** GENERAL MOLY NEWS ***

Last week General Moly received some breathing room on the Mt. Hope molybdenum project financing:

General Moly Announces Financing Update (Press Release, Wednesday, 4/3/2012)

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.
 

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...

Events overtook timely calculation this morning, Comex gold plunged to $1,491.4 per ounce after my weekly gold report to Kitco News. Gold is presently trading at $1,501.1 down $63.8 from yesterday's close. Below are the morning prices used for the earlier analysis:

COMEX Gold price = $1,537.4/oz (June contract most active)

COMEX Silver = $26.890/oz (May)
COMEX Copper = $3.3820/lb (May)
NYMEX WTI crude = $91.55 (May)
ICE Brent crude = $102.46/bbl (May)
Eureka Miner’s Gold Value Index© (GVI) = 94.28 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,362.6/oz
COMEX - VAGP = $174.8/oz; gold is trading at a premium to key commodities.



Good Morning Miners!

This is one of those Friday's that moves faster then I can type...or think.

It has been another lousy week for the metals & miners so the ole Colonel didn't start the morning with any wild-eyed expectations. Comex gold plumbed $1,525.6 per ounce at 6:20 AM cowboy time but managed to struggle back up to $1,537.4 when I did my analysis for the weekly Kitco gold survey. This report predicted a $1,570 target for the week which was winning bets on the close yesterday ($1,564.9, close enough for ranch work). The early morning price dive didn't do much for my ego.

Several minutes after posting my analysis to Kitco Global Editor Debbie Carlson at 8:35 AM (see below), I noticed that gold had taken another nose dive! While I was busily typing, Comex gold had dipped to $1,491.4 per ounce at  8:00 AM - a $73.50 drop from yesterday's close - Ouch!

I wrote Debbie back and told her to throw my numbers in the trash bin. I revised my $1,550 target to a "pray we can hold" $1,500 number. She did like my words if not my numbers; here's how Debbie thankfully cast my thoughts:

Richard Baker, editor, Eureka Miners Report, said he thinks gold has a chance to bounce next week after Friday’s sell off, although the rebound could be limited as the larger sentiment toward gold is still negative.

There’s been “a rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak… Other factors influencing gold price are fears of liquidation by central banks in the troubled southern countries of the eurozone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. I have a sense that gold is presently oversold and will see some relief next week although (it will be) still constrained...” he said.

Barrick Gold (ABX) gasps for air

Diving gold prices is not what Barrick Gold (ABX) needs to hear on one of their worst weeks in recent memory. Work at their troublesome Pascua-Lama gold mine was halted by a Chilean court this week causing their share price to fall down the mineshaft with gold - a few levels further down. Barrick is presently trading at $23.24 per share, levels not seen since December 2008!

This is how the news broke early Wednesday morning:

TORONTO (04/10 06:30 AM)- Barrick Gold Corp. (ABX:$25.79,00$-0.90,00-3.37%) opened down about 3.3% in Toronto Wednesday after reports that a Chilean court has suspended construction of the Canadian company's massive Pascua-Lama gold project on environment grounds.

A spokesman from Barrick declined to comment on the court order, saying the company had yet to review it. The action was filed last September in the Court of Appeals of Copiapo, Chile, by representatives of four indigenous communities, the company said. It was filed against Compania Minera Nevada, Barrick's Chilean subsidiary and the local regulatory body with oversight authority over the project. A second action was filed the following month in the same court by a " representative of a Diaguita indigenous community and certain other individuals, " Barrick said. The mine, which would produce about 800,000 to 850,000 ounces of gold a year, was scheduled to start producing in 2014. While not expected to be Barrick's largest mine in terms of production, the Toronto-based company believed it would be its lowest-cost mine.


The mine has already been plagued by cost overruns, with Barrick announcing an increase of $500 million in February, bringing the total expected cost of the project to around $8 billion to $8.5 billion. (Newswire)

Mariana and I had dinner with a good friend and geologist that night who had visited the Pascua-Lama site some years ago. He said the conditions at 15,000+ feet elevation were extremely challenging with little oxygen and searing UV radiation. In those days coca leaves kept the miners rolling while baseball capped visitors from the North gasped for air and pondered why their exposed ears were quickly turning to burned bacon. Here's an informative follow-up article:

Barrick Gold And The Pascua-Lama Disaster (Seeking Alpha ,Apr 11 2013, 15:43)

Although this is becoming an extreme example of misfortune (and perhaps miscalculation), all miners are facing the challenges of falling metal prices, rising costs and growing environmental concerns. The ole Colonel threw a few shares of Barrick in the buckboard this morning figuring things couldn't be as bad as December 2008 - could they?

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

General Moly (GMO) steady eddy

Even with blood in the streets for gold miners, General Moly (GMO) is still trading above $2; presently at $2.01. There was a brief sojourn to $1.92 on the same day investors were treating Barrick like useless overburden. This report maintains that a General Moly above $2 is evidence that investors are confident in GMO management's ability to secure new financing - so am I.

The best of luck to the General Moly team and the Barrick folks that are looking for a breath of air at Pascau-Lama.



Molybdenum Prices

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

Metals Week Weekly Average: US$10.90 As of April 6, 2013 (updated weekly)

Ryan's Notes Average: US$10.75 As of April 9, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are still above $11 per pound this week which remains encouraging. 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 $24,500 per metric ton ($11.11 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 Kitco Gold Survey :


04/12/2013 (10:32 AM CT)

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

A. Up, $1,550 per ounce target.

Q. Why?

A. Another challenging week for gold which retreated to new lows as domestic equity markets posted record highs. A plot of the gold-to-S&P 500 ratio, or AUSP, continues to illustrate this woeful dichotomy for the yellow metal:

Inline image 1

Since mid-November, the ratio has been in a descending channel falling below parity in the last several days to score a lowly 0.9665 this morning. This reflects a rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak (AUSP=1.2710). This morning Comex gold plumbed $1,525.6 per ounce; yesterday the S&P 500 made its new record close at 1,593.37.

Other factors influencing gold price are fears of liquidation by central banks in the troubled southern countries of the euro-zone and the eventual unwind of the Federal Reserve from its present generously accommodative policies. I have a sense that gold is presently oversold and will see some relief next week although still constrained within the AUSP channel for the time being.
My target is therefore at the former level of support at $1,550 per ounce – below the mean of February’s high ($1,620.6) and this morning’s low ($1,525.6).

For $1,550 per ounce gold we can expect to see silver in a range of $26.7-$28.7 per ounce; and copper in a range of $3.32-$3.54 per pound. Silver is expected to have a neutral bias with respect a range mean of $27.662 per ounce; copper, a negative bias with respect to a mean of $3.4341 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 94.28, below the key-100 level and the 1-month moving average of 94.83. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,550 per ounce was previously a thought-to-be solid level of support.
  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 94.28 or 9.1% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.83; 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 454.58 pounds per ounce and close to its 3-month moving average of 453.59 and below its 6-1/2 year trend of 491.24. The 1-month gold-to-copper ratio stability is a low 1.59%. The 1-month rolling correlation is +0.41; 3-month is +0.81. 3-month relative volatility is 1.40X gold and price sensitivity (beta) is +1.13.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 57.174; the 3-month rolling correlation is +0.95, relative volatility is 1.94X gold and price sensitivity (beta) is +1.94. The GSR is above its 3-month average of 54.70; the 1-month gold-to-silver ratio stability is a low 1.81% (same as copper)
  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 -0.84 sigma below 6-1/2 year trend line; Au:Cu -0.58 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 1.9% (3.2% 10/6/11); Au:Cu 1.6% (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

Inset painting and headline photo by Mariana Titus

Please checkout bayoutales.com for books and book orders


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

Friday, April 5, 2013

Shocking Jobs Report, Breathing Room for General Moly; The Colonel's Metal Prices for Next Week

Sun Angles, Eureka, Nevada

*** LATEST NEWS ***

This week General Moly received some breathing room on the Mt. Hope molybdenum project financing:

General Moly Announces Financing Update (Press Release, Wednesday, 4/3/2012)

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.
 

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 morning prices used in today's analysis:

COMEX Gold price = $1,562.8/oz (June contract most active)

COMEX Silver = $27.010/oz (May)
COMEX Copper = $3.3465/lb (May)
NYMEX WTI crude = $92.60 (May)
ICE Brent crude = $105.20/bbl (May)
Eureka Miner’s Gold Value Index© (GVI) = 95.735 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,364.0/oz
COMEX - VAGP = $198.8/oz; gold is trading at a premium to key commodities.



Good Morning Miners!

Since March 2009, the Eureka Miner has brought you the monthly U.S. employment report and my thoughts on how it impacts the metals & miners. Released by the U.S. Labor Department promptly at 5:30 AM PDT on the first Friday of the month, the announcement of nonfarm payrolls and unemployment rate have become quite a media event for early birds, this morning was no exception. The ole Colonel watches CNBC Business News and records the quotes from talking heads as the jobs numbers are digested. Here's a sample:

"A punch to the gut!"
"A puzzler for the Fed!"
"A tough report..."
"Massive decline in retail..."
"Terrible numbers!"
"Struggling to find anything good!"
"It's all about the sequester!"
"No it's not!"

Yup, it was a bad one. The consensus going into the announcement was 200,000 new jobs; the answer was a meager 88,000 and lower than even the gloomiest economic pessimists predicted. Oddly, the unemployment rate ticked down from February's 7.7% to 7.6% - the lowest since December 2008. The catch is that both the unemployed actively looking for work and folks currently employed both ticked down, so the rate is nothing to cheer about.  The simple way to state this is there are more workers leaving the labor force than getting jobs. The labor force participation rate, at 63.3%, is at its lowest level since 1979. Ouch.

OK, what are the positives? The Federal Reserve will no doubt continue their present quantitative easing program (aka QE3) to prop up the U.S. stock markets and put a floor under commodity prices, including metals. Scary reports generally boost gold prices making an absolutely horrible week for gold just a horrible week as I explain in my weekly input to the Kitco Gold Survey below. Copper prices that were falling through the floor yesterday (intraday Comex low of  $3.306 per pound) are trading presently at $3.3465. The S&P 500 fell to 1,539.8 shortly after the open but has since crawled up to 1,541.39. Earlier in the week the S&P made an all-time closing high of 1,570.25 - shucks, we're only down 1.8% on a bum report!

Nonetheless, a tough environment for miners who have been heading down, down lately as the broader markets go up, up. It will take some time to determine whether today's report is a game changer or not. Stay tuned.

General Moly Update

The torrent of negative Liu Han headlines has thankfully subsided this week and General Moly received some welcome breathing room on their Hanlong bridge loan:

General Moly Announces Financing Update (Press Release, Wednesday, 4/3/2012)

See earlier March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension.


I asked General Moly's Zach Spencer how things were going and he replied just prior to the press release:

Mt. Hope is a world class molybdenum deposit, we have a great management team with decades of experience and we have all of our permits in place. Pre-construction activities are continuing and as soon as we have an update we will certainly share it with you, the market, and the media.

The markets seem to agree with Zach; General Moly (GMO) share price is up 2% at $2.07 on an otherwise down day in the markets. This report has set the $2 as an important level to watch and this week the markets tested $2.01 for three days in a row but did not break lower - so far so good.

The best of luck to the General Moly team.



Molybdenum Prices

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

Metals Week Weekly Average: US$10.766 As of April 1, 2013 (updated weekly)

Ryan's Notes Average: US$10.75 As of April 2, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are still above $11 per pound this week which remains encouraging. 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 $24,500 per metric ton ($11.11 per pound)

15-month seller's contract $25,240 per metric ton ($11.45 per pound)

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




Here is my weekly input to Kitco Gold Survey :


04/05/2013 (10:49 AM CT)

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

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

Q. Why?

A. After a horrible week for gold, silver and copper prices, it took a horrible Friday jobs report to make it a little less horrible for gold and silver on a short covering rally. Even the embattled red metal finds itself above its Thursday low. With an expected 200,000 nonfarm payrolls becoming reality at only 88,000, the metals find themselves in a conflicted environment. The poor number reinforces the notion that QE3 is here to stay for a long time but casts another shadow of uncertainty on the robustness of the U.S. recovery against the gray backdrop of a slowing China and contracting Europe.

Aggressive monetary easing in the U.S. and Japan have buoyed their stock markets to new highs as other global equity markets are lack luster to down for the year. For gold, a plot of the gold-to-S&P 500 ratio, or AUSP, tells the story:

Inline image 1

Since mid-November, the ratio has been in a descending channel dropping briefly below parity yesterday (AUSP=0.9972). This reflects a rotation of money away from gold assets into the U.S. stock market with gold losing more than 20% of value relative to equities from the November peak (AUSP=1.2710). This morning finds some relief at 1.0139 but still constrained within the channel.

My target is therefore only slightly up for the yellow metal at $1,570 per ounce – the geometric mean between February’s high ($1,620.6) and Thursday’s low ($1,539.4). Since yesterday’s low may prove a double-bottom from last May’s $1,545 per ounce, a floor of $1,540-$1,550 may be in for the year.

For $1,570 per ounce gold we can expect to see silver in a range of $26.7-$29.1 per ounce; and copper in a range of $3.29-$3.57 per pound. Silver is expected to have a neutral bias with respect a range mean of $27.900 per ounce; copper, a negative bias with respect to a mean of $3.4280 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 95.74, below the key-100 level but above the 1-month moving average of 94.85. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,570 per ounce is below Wednesday’s resistance at $1,577.3
  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 95.74 or 7.7% below the 2012 high of 103.73. Today gold value is above its 1-month moving average of 94.56; 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 467.00 pounds per ounce and now above its 3-month moving average of 452.69 but below its 6-1/2 year trend of 490.39. The 1-month gold-to-copper ratio stability is a low 2.01%. The 1-month rolling correlation is +0.17; 3-month is +0.80. 3-month relative volatility is 0.1.37X gold and price sensitivity (beta) is +1.09.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 57.860; the 3-month rolling correlation is +0.94, relative volatility is 1.91X gold and price sensitivity (beta) is +1.81. The GSR is above its 3-month average of 54.51; the 1-month gold-to-silver ratio stability is a low 2.01% (same as copper)
  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 -0.80 sigma below 6-1/2 year trend line; Au:Cu -0.37 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 2.0% (3.2% 10/6/11); Au:Cu 2.0% (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

Inset painting and headline photo by Mariana Titus

Please checkout bayoutales.com for books and book orders


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