"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, April 26, 2013

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

Art in Unexpected Places, Eureka, Nevada


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)


Colonel Possum

Photos by Mariana Titus

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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

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