"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 3, 2013

Good Report on Jobs & General Moly; The Colonel's Metal Prices for Next Week

Ready to Roll to Eureka, Nevada


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 = $1,465.7/oz (June contract most active)

COMEX Silver = $23.935/oz (May)
COMEX Copper = $3.2755/lb (May)
NYMEX WTI crude = $95.01 (May)
ICE Brent crude = $103.95/bbl (May)

Eureka Miner’s Gold Value Index© (GVI) = 93.60 (gold value is elevated with respect to key commodities oil & copper given historical norms)
Value Adjusted Gold Price© (VAGP) = $1,308.4/oz
COMEX - VAGP = $157.3/oz; gold is still trading at a premium to key commodities.

Good Morning Miners!

Sadly, Eureka has lost another another icon - RD Damele passed away last Friday. I understand he was on Antelope Summit with two of his granddaughters when he felt dizzy, collapsed and was gone. RD was a great man and long-time resident of Pine Valley and Eureka. Services will be held today. Mariana and I extend our thoughts and condolences to the Damele family who have shared a proud legacy with this country since the late-1800s.

Good reports

There were two good reports to start the morning. The U.S. Labor Department announced that the economy added 165,000 jobs last month, topping an expected 148,000. The unemployment rate fell from a previous 7.6% to 7.5%, the lowest level since December 2008, as more people found work. Encouragingly, there were significant upward revisions to the February and March numbers to 338,000 and 138,000 respectively. This news pushed the DOW above 15,000 and the S&P 500 above 1,600 - both on their way to set new closing highs this afternoon.

The second upbeat report came from General Moly (GMO) which released their results for the first quarter of 2013:

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

General Moly earnings per share (EPS) of -$0.03 beats by $0.01 the expected number. The negative number reflects that GMO is not in production but beating the analyst's estimate shows they are doing a good job of controlling costs as they seek alternative financing for the Mt. Hope molybdenum project.

Bruce D. Hansen, Chief Executive Officer of General Moly, says,

The Company made substantial progress with regards to our preliminary construction activities at Mt. Hope during the first quarter including early well field development, clearing and grubbing of terrain and cultural clearance.

We are working with Hanlong to secure another Chinese strategic partner to help advance the full financing of the Mt. Hope Project and reinvigorate advanced stage loan negotiations with China Development Bank. Our efforts to secure such a strategic partner are enhanced, given that we are advancing a fully permitted, construction-ready, high grade / lower cost molybdenum deposit along with our EMLLC partner POS-Minerals. 

Mr. Hansen concludes,

As we continue our efforts towards full financing at Mt. Hope, the Company will continue to prudently manage our unrestricted cash position of $57 million at the end of the first quarter with an additional $36 million in restricted cash.

Mt. Hope Construction Update

The quarterly report also summarizes the recent activities at Mt. Hope:

Early construction activities progressed as planned at the Mt. Hope Project site including cultural clearance, clearing and grubbing, wood harvesting, and the development of early construction water. Kautz Environmental Consultants completed field mitigation activities for all 29 cultural sites identified in the Phase I Cultural Mitigation of the initial construction program. Official releases from the Bureau of Land Management (“BLM”) and the State Historical Preservation Office have been obtained for all 29 cultural sites and the Company has advanced into Phase II Cultural Mitigation activities. Ames Construction has cleared and grubbed approximately 1,800 acres in preparation for starting major earthworks. The mine, process plant, and tailings dam areas and associated roads have been substantially cleared. Ames Construction also has completed four miles of water pipeline (approximately 50% of total planned) to supply construction water from the permitted well field to the plant site.

General Moly stock got a nice bid this morning, presently up 6.25% at $1.87.

Benchmark moly miner Thompson Creek (TC) is also getting a vote of confidence in the markets, trading up 6.57% at $3.08.

Keep the faith.

Molybdenum Prices

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

Metals Week Weekly Average: US$11.20 As of April 29, 2013 (updated weekly)

Ryan's Notes Average: US$11.15 As of April 30, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are holding above $11 per pound this week moving up a bit 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 $25,750 per metric ton ($11.68 per pound)

Mining Tax Update

Here is the latest attempt from the Legislature to tax the mines. Eureka County Assessor Mike Mears  told this report, "[The] big question is still whether a tax outside the Constitution is legal." As reported by the Las Vegas Sun:

Six Republicans propose doubling Nevada’s mining tax (Las Vegas Sun, 4/24/2013)

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

Here is my weekly input to the Kitco Gold Survey:

05/03/2013 (10:38 AM CT)

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

A. Up, $1,470 per ounce target.

Q. Why?

A. The new dichotomy for gold persists as strong physical demand in Asia continues balanced by outflows in gold exchange traded funds. However, there are signs that demand may soften next week and the flow of funds from ETFs is now slowing. This will probably limit the upside for the yellow metal against a backdrop of bearish influences including the eventual unwind of the Federal Reserve from its present generously accommodative policies. A wider conflagration in the Middle East could bring back safe haven status for the yellow metal but those fears have subsided as U.S. intervention in Syria is less certain.

Gold will probably move slightly higher next week as it remains range bound with considerable resistance at $1,500 per ounce.

My target is therefore $1,470 per ounce – above the mean of the Feb. 15 high ($1,495.0) and the Feb. 16 low ($1,321.5).

For $1,470 per ounce gold we can expect to see silver in a range of $22.8-$26.0 per ounce; and copper in a range of $3.02-$3.45 per pound. Silver is expected to have a negative bias with respect a range mean of $24.396 per ounce; copper, a negative bias with respect to a mean of $3.2375 per pound.

The S&P 500 has regained upward momentum setting new highs given after a better-than-expected U.S. employment report. 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 25% 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 follows the lower channel limit.

Gold has recovered some dollar price but has lost 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, oil and silver on both a short-term (1-month>+0.70) and mid-term (3-month >0.7) 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 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 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 93.60, below the key-100 level and slightly below the 1-month moving average of 93.86. The 2012 high was 103.73 on Nov. 13.

Background Notes:
  1. My gold target price of $1,470 per ounce is below today’s high at $1,487.2 per ounce and 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 93.60 or 9.8% 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. The gold-to-copper ratio today is 447.47 pounds per ounce and above to its 3-month moving average of 451.71 and below its 6-1/2 year trend of 491.93.
  5. The gold-to-silver ratio (GSR) is above its historical norm at 62.650; The GSR is above its 3-month average of 56.58; the 1-month gold-to-silver ratio stability is 3.25%.
  6. 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 are possible:
    1. Au:WTI -1.29 sigma below 6-1/2 year trend line; Au:Cu -0.71 sigma below trend - I consider > a negative 2-sigma indicative of a potential breakdown
    2. Au:WTI 1-month stability* 3.3%;  Au:Cu 3.3% - 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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