"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, May 10, 2013

$1,100 Gold? Key Date for General Moly Approaches; The Colonel's Metal Prices for Next Week

The Long Road, Eureka, Nevada

*** (5:34AM PDT, May 15,2013) ***

General Moly Provides Finance Update


General Moly Quarterly Report (Released 5/3/2013)

Here is a very detailed General Moly 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:  Oil, Copper & Gold – Herd Mentality? (05/06/2013)

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

Please remember to vote for Mariana: Violet Valise Studios

Friday's morning prices...

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

COMEX Gold price = $1,429.1/oz (June contract most active)

COMEX Silver = $23.260/oz (May)
COMEX Copper = $3.3420/lb (May)
NYMEX WTI crude = $94.41 (May)
ICE Brent crude = $102.37/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 90.95 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,312.9/oz
COMEX - VAGP = $116.2/oz; gold is trading at a declining premium to key commodities.

Morning Miners!

Gold prices were hit hard today by a strong dollar as the yen broke 100 yesterday coupled with better-than-expected jobless claims and new rumors that the Federal reserve may pullback from its present generously accommodative policies sooner than expected. Presently trading at $1,429.1 per ounce, Comex gold is off its morning low of $1,418.50 but down nearly $40 from its Thursday close. Ouch.

I had an informative e-mail exchange with Janet Mirasola, Managing Director of R.J. O'Briens, this morning about a floor for gold prices that reflects "true commodity value." Although we both agreed it is probably above $1,200 per ounce, she wisely commented that prices in these markets can easily overshoot to the downside making a trip to the $1,100-level possible. The full analysis and discussion are included in my input to the weekly Kitco Gold Survey (below).

A Key Date for General Moly (GMO)

General Moly has found itself in a perfect storm of bad news but there is potential for things to reverse, perhaps this month. Suspension of Hanlong financing in March (see previous reports above), overall pressure on the mining sector and lackluster molybdenum prices are a tough environment to find new financing and kick start Mt. Hope mine construction.

My understanding is that mid-May the exclusivity agreement for Hanlong financing expires and that the General Moly management team is in China [5/15/2013 UPDATE: The Eureka Miner tries to report as accurately as possible. Please read the latest Press Release to determine the current and accurate status of the GMO/Hanlong relation. Bruce D. Hansen, Chief Executive Officer of General Moly, said, "Hanlong's cooperation and assistance is appreciated as we move forward to secure another Chinese strategic partner capable of advancing the full financing of the Mt. Hope Project and reinvigorating advanced stage loan negotiations with China Development Bank..." and, "Our efforts to secure such a strategic partner are incrementally enhanced by the elimination of these warrants which reduces the potential for future dilution. We are actively marketing the Mt. Hope Project as a fully permitted, construction-ready, high grade / lower cost molybdenum deposit supported by our joint venture partner POS-Minerals, and recently attracted a number of parties in China who are beginning to engage in due diligence."]. This report surmised last week that although direct financing from Hanlong is unlikely, it appears they remain a viable organization for seeking alternative paths for GMO. I remain optimistic for a positive outcome form this visit.

What the Colonel has heard in the ether is that although there is presently a pause in Ames Construction activities, their work could resume this fall - possibly sooner. Eureka Moly's Zach Spencer informed me this morning that, "Specific to GMO, there remains a handful of Ames employees at Mt. Hope."

I also understand Kautz Environmental Consultants is continuing their activities. Kautz has been contracted by Eureka Moly to initiate cultural clearance mitigation and will be onsite until the conclusion of the process. Kautz is a well-known and respected firm specializing in cultural resource surveys, mitigation, and regulatory compliance. They have extensive experience in Nevada and throughout the Western United States, having completed numerous projects since 1994.

Molybdenum spot and futures prices have stabilized above $11 per pound (see below). On the supply side, the April 10 Kennecot Bingham Canyon slide was extensive and may represent one to two years of delay and a 3%  reduction of moly production worldwide. There are also strikes in Chile and unrest for copper miners elsewhere putting a floor under moly and copper prices (molybdenum is a common byproduct of copper mining). Demand side may be boosted by a better-than-expected recovery in the U.S although the jury is still out for China and Europe. Staying above $11 per pound will be a good global bellwether going forward.

GMO is presently having a 3-day rally trading at $1.96 per share. The ole Colonel threw a few more shares in the buckboard at $1.86 yesterday, very near CEO Bruce Hansen's buy-point several weeks ago. Please do your own research, pardner, I've read it wrong in the past. Remember, markets can turn on you faster than a feral cat .

Keep the faith!

Molybdenum Prices

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

Metals Week Weekly Average: US$11.34 as of May 6, 2013 (updated weekly)

Ryan's Notes Average: US$11.05 as of May 8, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are holding above $11 per pound this week, mostly unchanged from last week. 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 $25,000 per metric ton ($11.34 per pound)

15-month seller's contract $25,740 per metric ton ($11.68 per pound)

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

Here is my weekly input to the Kitco Gold Survey:

05/10/2013 (10:52 AM CT)

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

A. Up, $1,445 per ounce target.

Q. Why?

A. Gold prices were hit hard today by a strong dollar as the yen broke 100 yesterday coupled with better-than-expected jobless claims and new rumors that the Federal reserve pullback from its present generously accommodative policies sooner than expected.

Janet Mirasola, Managing Director of R.J. O’Briens, humorously described gold’s present dilemma in her Friday pre-market brief, “The Shiny One [gold] remains gender confused as it tries desperately to hold onto its currency haven status knowing full well that its true commodity value may be many dollars below current levels.”

I asked Ms. Mirasola if she agreed with my analysis that shows the “ture commodity value” of gold has a floor of $1,250 to $1,280 per ounce.

Since October 2010, my adjusted gold price (given historical norms for oil, copper and silver) has had these lows:

10/1/2010 $1,273 (just before the dawn of QE2)
10/3/2011 $1,266
6/22/2012 $1,279
4/18/2013 $1,253 (most recent)

She concurred that the RJO number is also around $1,200 per ounce but that it could easily overshoot and go to $1,100. Ms. Mirasola added, “All commodities currently have new high level ‘cost of production’ – but this calculation is never set in stone expect in the leanest of times.  So if that cost is for instance $1200 the closer the market gets to the benchmark the more likely that producers will find ways to cut the cost.”

It is likely that today’s pullback is overdone and prices should find some relief next week. My target is therefore $1,445 per ounce – above the mean of the May 3 high ($1,487.2) and the Feb. 16 low ($1,321.5).

For $1,445 per ounce gold we can expect to see silver in a statistically bounded range of $23.3-$25.8 per ounce; and copper in a range of $3.06-$3.48 per pound. Silver is expected to have a negative bias with respect to a range mean of $24.508 per ounce; copper, a positive bias with respect to a mean of $3.2694 per pound.

The S&P 500 has set new record highs again this week. This has caused gold to continue its loss of 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 30% of value relative to equities from the November peak (AUSP=1.2710). Today set a new low at 0.8762.

Gold has lost dollar price and value relative to copper and oil this week; copper has lost value to oil. Gold continues to behave as a commodity but its correlation with these two key commodities is declining. The yellow metal remains positively correlated to copper and oil on both a short-term (1-month>+0.5) and mid-term (3-month >0.6) basis.

The chart below is a week-on-week valuation matrix (Read the chart as “1 unit of A buys X units of B”; for example,”1 ounce of gold buys 427.6 pounds of copper. Percentages are change from last Friday’s closing numbers):

Inline image 2

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 90.95, below the key-100 level and below the 1-month moving average of 92.99. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,445 per ounce is below strong resistance at May’s high of $1,487.2 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. Although gold has lost considerable value relative to oil and copper since early November, the long-term 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 could see considerable downside. 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 for copper are possible:
    1. Au:WTI –1.39 sigma below 6-1/2 year trend line; Au:Cu -1.03 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 2.5%;  Au:Cu 3.2% - 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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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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