"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.

Sunday, September 1, 2013

Mt. Hope - A Journey in Space and Time (Part VI, Eureka and the Deep Blue Sea)

Henderson Road on the way to Mt.Hope, Kobeh Valley, Nevada

*** GENERAL MOLY NEWS ***

General Moly Announces Preliminary Injunction Motion Denied, Without Prejudice, Related to Mt. Hope Record of Decision Appeal (8/26/2013)
General Moly Announces Second Quarter 2013 Results (8/2/2013)
General Moly Announces Results of Annual Meeting (6/14/2013)
Mt. Hope construction continues despite financial issues (by Marianne Kobak McKown, Elko Daily Free Press, 5/31/2013)
General Moly Provides Finance Update (5/15/2013)

A very detailed General Moly briefing for investors on the status of the 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:  A Bear Case For Lower Gold Price (With A Happy Ending) (09/03/2013)
Paintings by Mariana Titus, The Three Anas & The Three Moon Anas, are presently at Lafitte Guest House & Gallery, New Orleans

Friday's closing prices...
COMEX Gold price = $1,396.1/oz (December contract most active)
COMEX Silver = $23.510/oz (December)
COMEX Copper = $3.2330/lb (
December)
NYMEX WTI crude = $107.65/bbl (
October)
ICE Brent crude = $114.01/bbl (
October)
Eureka Miner’s Gold Value Index© (GVI) = 86.45 (gold value is trading at a discount to oil and and a slight premium to copper)
Value Adjusted Gold Price© (VAGP) = $1,349.3/oz
COMEX - VAGP = $46.8/oz; gold is trading at a slightly rising net premium to key commodities.


General Moly (GMO) = $1.65 down 1.79%
Barrick Gold (ABX) = $19.15 down 2.74%
Newmont Mining (NEM) = $31.77 down 0.19%




Morning Miners!

This report is a bit delayed and falls in the middle of your Labor Day Holiday - I hope you are having a good one! The ole Colonel has been studying the geology surrounding Mt. Hope and it has become more of a challenge than originally anticipated. Thank you for your patience.

Fortunately, I've received great assistance from a respected local geologist and friend of the Eureka Miner. Part VI of our summer series (below) will look at a curious similarity between some of the forces that shape our basins and ranges and the deep bottom of the ocean floor.

Gold had an excellent week in the middle with Wednesday’s intraday Comex high of $1,434.0 per ounce but then dropped below the $1,400-level as some of the steam has come off the U.S. Syria response.

Note the latest General Moly (GMO) press release below today's headline photo if you missed it when it posted Monday.

Please checkout my input to the weekly Kitco News Gold Survey (below) and most recent Kitco News commentary for my latest thoughts on copper and gold,  Copper & Gold - The Thin Red Line (08/12/2013).  My comments below were before Saturday's announcement that the U.S. Congress will now be involved in the Syria strike decision but that doesn't materially change my outlook. I plan to have a new commentary posted Tuesday.

Mt. Hope - A Journey in Space and Time (Eureka and the Deep Blue Sea) 

A multi-part series that circumnavigates the Mt. Hope molybdenum mine site on Eureka County back roads and highways.  Starting with the creation of molybdenum in the early universe, this journey will cover the geology of the area as well as its colorful history. There will be two trips, Loop#1 and #2, which include ranches of early settlers, a portion of the Pony Express Trail, a challenging section of the old Eureka-Palisade Railroad and a mine site tour. If you'd like to visit Mt. Hope, please make arrangements beforehand with Zach Spencer, General Moly's Director of Media Relations. Like any mine site, there are both security and safety concerns at Mt. Hope, but Zach and the Mt. Hope team do everything possible to accommodate public interest in their project. You can contact Zach by e-mail: zspencer@generalmoly.com


A Long Lunch Break

We've had several weeks to finish our lunch near the backside of Mt. Hope (Mile 17.3, Henderson Road M-108A). The reason for this extended break was to allow the ole Colonel some time to study the local geology around Mt. Hope. I've received terrific help from a local geologist and friend of the Eureka Miner who has wisely reminded me more than once, “Early Tertiary geology in the intermountain west is complex and puzzling.” He’s not kidding.

Tertiary time embraces the second major tectonic event that shaped our County and includes lots of volcanic activity and faulting. The Tertiary spans a period of 13 to 63 million years ago - something like a week ago on the Geologic time scale. With regard to Mt. Hope, much of the exciting action occurs during the Miocene Epoch which falls roughly in the middle of the Tertiary or about the same time large gazing mammals first appeared on the planet – a point of interest perhaps for Eureka folks with a large herd of cattle in their front yard.

You’ll remember that we started our story at the Roberts Creek Road turnoff in awe of some of the features around us from the Paleozoic Period – that was in the way-way back of hundreds of millions of years ago. We’ll discover that in the largest sense, Mt. Hope is anchored in the Paleozoic with characteristics of mineral interest shaped during the more recent Tertiary. My geologist friend kicks me every time I make these sweeping generalizations – it’s more complex and puzzling than that! He’s right, of course – we’ll find out why as we bump further down the road.

Let’s try to sneak up on Mt. Hope’s complicated past in small steps, granny-low speed if you’re traveling in that trusty F-250 built before automatics took some of fun away from pickup driving in the outback.

We’re now heading east on M-108A with Mt. Hope looming larger ahead (headline photo).

The Deep Blue Sea

You may enjoy reading John McPhee’s classic book Basin and Range. It is one of two books that brought us to Eureka in the mid-1980s; the other was Blue Highways by William Least Heat Moon. The former is a creative nonfiction trek across the U.S. that spends much of its time in Nevada exploring the forces that shaped its most recent basin and range topography; the latter is also a road trip from East to West on the two-lane roads of America – you can imagine that the Loneliest Highway (HWY 50) deserves a chapter and Blue Highways doesn’t miss the opportunity with stories of Frenchman (now, long since gone) and Austin.

Blue Highways kindly drove Mariana and me to the Key Hole Bar for a mid-day break on one of our two-lane cross-country adventures thirty or so years ago. From a front door kept open with a large rock, I remember watching a paper cup dancing merrily down the center of Eureka’s Main Street - Pa-top-pa-top-pa-top.

Sadly, the Keyhole is now closed but I recollect seeing that same rock on one my last visits there. Perhaps it serves as a proper metaphor for Nevada’s geology – rocks move slowly, time passes quickly.


A big theme in McPhee’s account is the uniqueness of Northern Nevada relative to the many mountain ranges and intervening basins. One of the many forces behind their present state is akin to something called “sea-floor spreading,” one of the few (and perhaps only of such scale) above-water examples in the world. You can tell that to the next someone from somewhere else that describes Nevada as a boring flat place with tumbleweeds on the outskirts of Las Vegas!

“Extensional tectonics” is a much fancier name for the process and is the opposite of “compressional tectonics” that we encountered earlier in our tale when big chunks of tectonic features crashed together during the Antler orogeny  (Part III). Extensional means “pulling apart” and explains why Reno is slowly moving away from Salt Lake City. Here is a simple animation of this process (click on the the image below if it is not already in motion):


Seafloor spreading usually occurs at mid-ocean ridges where oceanic crust is formed through volcanic activity. As you see from the animation, molten red stuff rises to the surface at points where the earth’s crust is thin – basaltic magma rising up through fractures, cooling and forming new sea floor. In this scenario, older rocks are found further from the so-called “spreading zone” while younger rocks (new crust) are nearer. This colored map of the ocean floors tells the story:


The newest crust is colored red along the spreading centers (dark lines); the older crust descends yellow, green, blue and dark blue for oldest. Putting two pieces of the puzzle together: sea floor spreading (extensional) creates the forces that push the world’s great tectonic plates together (compressional).

In Eureka County, the Northern Nevada Rift zone, or NNR, is a good example of the above-sea level process. Occurring in the Middle Miocene, we can quickly checkout a Dr. Blakey map to verify that Nevada was by that time wholly above sea water although portions of California were still submerged (13 to 17 Ma). If you are joining us late in the story, we met the ever helpful Dr. Blakey in Part III.

The NNR runs roughly south-southeast passing through the Roberts Range and then turns slightly just east of Lone Mountain. As far as I can tell, our picnic area is right in the middle of the zone and Mt. Hope lies on its eastern boundary. Further north, the Buckhorn mine in the Cortez Mountains is near its center.  My geologist friend offers this description (“My” is a geologist’s abbreviation for the previously mentioned Miocene time scale; numbers are in millions of years ago):

“…I understand that the rift [NNR] is a Miocene-age element (17 to 15 My “window”) that involved extension/pulling apart of the crust and was accompanied by intermediate to mafic volcanism.  Deposits like Buckhorn are, I believe, directly related to this activity, and the Yellowstone hot spot is also part of this story (or so I’ve read).  Mt Hope itself is older than the rift and is related to an earlier cycle of igneous-volcanic activity. I think I recall seeing a date of ~35+ My for the MH [Mount Hope] stock [igneous intrusion] and deposit…”

Lava from the mafic volcanism noted above contains silicate minerals rich in magnesium and iron. Water and gases have an easier time passing though mafic lava compared to felsic lava with a higher silica content - the latter acting more like a cork in a bottle that allows pressure to build. As a consequence, felsic volcanoes are explosively much more violent. Interestingly, most oceanic volcanoes are mafic-lava type which explains why the NNR is a close cousin to the sea floor spreading variety. We'll learn more about volcanoes later in our story.

Now you may better appreciate the comment “complex and puzzling.” A BIG PICTURE process of compressional and extensional tectonics explains much of what we see in Northern Nevada today (à la McPhee). It's left huge clues around Mt. Hope but still falls short of explaining the mountain’s unique geology and mineralization. It will take a few more episodes in granny-low to figure the rest of this puzzle out.

We’re coming up to the base of Mt. Hope on its western face at Mile 20.0 – let’s stop and check out that curious circle of rocks on our right side...

Molybdenum Prices

Spot moly oxide prices have stabilized above the $9 per pound-level. Here are the latest numbers compliments of moly benchmark miner  Thompson Creek (TC):

Metals Week Weekly Average: US$9.29 as of August 26, 2013 (updated weekly)

Ryan's Notes Average: US$9.50 as of August 27, 2013 (updated twice weekly)

The London Metal Exchange (LME) futures contracts are above spot prices on the 3-month contract and slightly above $10 per pound on the longer contract. 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 $21,600 per metric ton ($9.80 per pound)

15-month seller's contract $21,300 per metric ton ($10.12 per pound)

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

Here is my weekly input to the weekly Kitco Gold Survey:

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

A. Down. My target price is $1,385 per ounce.

Q. Why? [comments inserted after Saturday's announcement on Syria action]

A. Realistically, all one can say about gold price after the long Labor Day weekend is volatility will likely to be higher. If there is an attack on Syria prior to the President’s departure to the G20 summit [note: unlikely given Saturday's announcement], gold price will no doubt spike higher along with oil – perhaps a lot higher in the short-term. If not, more “taper talk” and a monthly jobs report next Friday could move prices higher or lower depending on how the winds blow.

After a brilliant rally this week to Wednesday’s intraday Comex high of $1,434.0 per ounce (December contract), this morning’s [i.e. Friday] trading below the $1,400-level is a rather discouraging retreat.

I continue to believe that once the headlines clear, the yellow metal will eventually trade at a discount to a basket of commodities that include oil, copper and silver; this should limit future advances and may presage a return to much lower prices later this year. Hence, my lower target of $1,385.0 per ounce for next week.

For $1,385 per ounce gold we can expect to see silver in a statistically bounded range* of $20.1-$25.0 per ounce; and copper in a range of $3.19-$3.53 per pound. Silver is expected to have a positive bias with respect to a range mean of $22.542 per ounce; copper, a negative bias with respect to a mean of $3.3595 per pound.

 (* +/- 2-standard deviations, 1-month basis)

The S&P 500 has traded down this week and has lost ground to gold. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:



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 33% of value relative to equities from the November peak (AUSP=1.2710). Bullishly, gold has breached the channel to the upside in the last several weeks.

This week, gold is trading flat after bullishly entering $1,400 territory. The yellow metal lost value relative to oil and gained relative to copper; oil significantly gained on copper. The chart below is a week-over-week valuation matrix. The first row is the current commodity price in the given currency. For all other rows, read “1 unit of row A buys X units of column B”; for example, “1 ounce of gold buys 432.5 pounds of copper.” Percentages are deltas over one week:



Since last November, gold has experienced bearish value destruction not only in U.S. dollar terms but value relative to oil and copper. The yellow metal has recently recovered value relative to the red metal.




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 86.45, below the key-100 level but above the 1-month moving average of 85.48. The 2012 high was 103.73 on Nov. 13. 

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


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