"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 24, 2013

General Moly back from China; SJR15 Update; The Colonel's Metal Prices for Next Week

Man's Best Friend, Eureka, Nevada


General Moly Provides Finance Update (5/15/2013)

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

Friday's morning prices...

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

COMEX Gold price = $1,388.9/oz (June contract most active)

COMEX Silver = $22.370/oz (July)
COMEX Copper = $3.2835/lb (July)
NYMEX WTI crude = $93.26 (July)
ICE Brent crude = $101.71/bbl (July)

Eureka Miner’s Gold Value Index© (GVI) = 90.44 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,283.2/oz
COMEX - VAGP = $105.7/oz; gold is trading at a declining premium to key commodities.

Morning Miners!

It has been quite a week for gold prices, General Moly and the evolving story on Nevada's mining tax issue. Let's take 'em one at a time -  full analysis and discussion of gold, copper and silver prices are included in my input to the weekly Kitco Gold Survey (below), General Moly's Zach Spencer provided some encouraging inputs on Mt. Hope, and Eureka County Assessor Michael Mears has been tenaciously tracking SJR15.

General Moly (GMO) Management team back from China

I called Zach Spencer yesterday to get the latest news. CEO Bruce Hansen and CFO Dave Chaput have now returned from their trip to China. The trip went well as they sought a new strategic partner capable of advancing the full financing of the Mt. Hope molybdenum project. The China Development Bank (CDB) apparently remains interested in a new team with a solid substitute partner. Hanlong had been that partner until problems arose with their founder Liu Han (See  March 22 and March 29 reports for a full chronology of the $665 million Hanlong loan suspension).

The good news is that there are several interested parties that have started a due diligence process. I believe the General Moly management team plans to return to China but Zach is not sure just when. In the meantime, Zach informed the Eureka Miner that a handful of Ames Construction people will remain onsite and that the Phase II cultural clearance mitigation with Kautz Environmental Consultants is continuing as originally planed.

The ole Colonel was happy to discover that General Moly Corporate Counsel Roswell Scott bought 7,300 shares of GMO at $2.04 on Monday. CEO Bruce Hansen added to his position April 22 buying 30,000 shares at $1.86. GMO is presently trading at $2.04 and has been showing signs of accumulation over the past several days - I interpret all of these transactions in a very positive light. Please do your own research, pardner - markets can turn on you faster than a feral cat.

Keep the faith!

Molybdenum Prices

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

Metals Week Weekly Average: US$10.825 as of May 20, 2013 (updated weekly)

Ryan's Notes Average: US$10.90 as of May 21, 2013 (updated twice weekly)

Thankfully, the London Metal Exchange (LME) futures contracts are holding above $11 per pound this 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 $24,500 per metric ton ($11.11 per pound)

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

Mining Tax Update

Eureka County Assessor Michael Mears has kept the Eureka Miner well informed about the latest twists and turns in Nevada's mining tax saga. Thursday, Mike gave me this report on SJR15:

At this point, SJR15 is on the desk in the Assembly awaiting a vote. That vote is expected to take place during today’s floor session. All indications are that the bill will pass out of the Assembly. Having already passed the Senate, the issue will go on the 2014 ballot for voter approval where it is highly likely to pass. As I stated earlier, the proposal removes the entire paragraph in the Nevada Constitution related to the net proceeds of mines tax. So what does it all mean? Nobody can say for sure at this point. The Legislative attorneys from Legal Counsel Bureau have stated that the net proceeds tax can continue to be administered under the authority in Nevada Revised Statutes (NRS) 362. Other legal minds I have spoken with argue whether the tax, once out of the Constitution, will be allowable under the uniform and equal language within the Constitution. Some have argued that it will become a special tax and may not be Constitutional. Also at stake is the rate of taxation. Currently, the net proceeds tax rate is 5% on operations with annual net proceeds of $4,000,000 or more. The maximum local government tax rate is currently $3.64 per $100 of assessed value. The argument has been made that once out of the Constitution, the 5% rate would no longer apply and would revert to the $3.64 rate resulting in a loss of revenue to the State. There were proposals floated during the session to attempt to modify the net proceeds tax within the existing law, but none of those proposals actually went anywhere. With only 12 days left in the session, it is highly unlikely that anything will come forward; however, in the last week of the session, anything can happen. Local governments, like Eureka County, who receive net proceeds tax revenue, are certainly concerned about the uncertainty of this measure and are hoping perhaps after the session, some of our questions may be answered.

This morning, Mike told me that SJR15 passed out of the Assembly yesterday afternoon on 26-15 party-line vote. He also sent a link to a Ralston report on the mining tax issues for a little perspective:

Uncertain road led to mining tax resolution passage; uncertain road lies ahead, too (Ralston Reports, Jon Ralston, 05/23/2013)

Hats off to Mike for his excellent inputs on what could become a significant headwind for Nevada miners.

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

Here is my weekly input to the Kitco Gold Survey:

05/24/2013 (10:32 AM CT)

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

A. Up, $1,395 per ounce target.

Q. Why?

A. Gold has had a very volatile week buffeted by comments from Federal Reserve Chairman Bernanke’s comments about possibly tapering bond buying later this year and a sharp downturn in the Nikkei after Bank of Japan governor Kuroda said that enough stimulus had been announced. Encouragingly, the yellow metal has gained ground relative to equities, copper and oil since last Friday.

The S&P 500 has pulled back this week from recent new highs as gold has gained momentum, illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

Inline image 1

However, the ratio has been in a descending channel since mid-November 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). Even with gold’s move up this week, the channel is still intact.

My gold target for next week is therefore the current S&P 500 futures contract for June adjusted by the present AUSP ratio:

Expected gold price = 1,640 (S&P futures) * 0.85 (AUSP) = 1,395

For $1,395 per ounce gold we can expect to see silver in a statistically bounded range of $22.4-$23.0 per ounce; and copper in a range of $2.93-$3.48 per pound. Silver is expected to have a neutral bias with respect a range mean of $22.713 per ounce; copper, a positive bias with respect to a mean of $3.2034 per pound.

Gold has recovered not only dollar price but has gained value relative to copper and oil this week; oil has lost value to copper.

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 447.5 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 4, 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 90.44, below the key-100 level and slightly below the 1-month moving average of 91.58. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,395 per ounce is below resistance at $1,400 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 90.44 or 12.8% below the 2012 high of 103.73; a value of 100 represents a historically high-value of gold relative to key commodities oil, copper and silver.
  4. 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 is still intact (mid-2006 to the present). If this relation gives way, gold could see considerable downside. Alarmingly, 1-month gold ratios relative to WTI & Cu are now showing stability divergence (>3%).
    1. Au:WTI -1.45 sigma below 6-1/2 year trend line; Au:Cu -1.11 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 3.5%;  Au:Cu 4.3% - 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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