Gold's Dilemma; Midway Gold (MDW) Milestone, Tough Week for Miners

Willow Creek Ranch, Eureka County, Nevada

*** HOLIDAY BREAK ***

The Eureka Miner will be on holiday until later this month. 







*** Local Mining News ***

Midway Begins Long Lead-Time Orders For Pan Project, Nevada (Press release, Nov 21, 2013)

Midway Gold - Final Environmental Impact Statement Is Done Pan Project, Nevada (Press release, Nov 20, 2013)

Barrick's Ruby Hill shuts down temporarily (11/05/2013, Elko Daily Free Press, Marianne McKown)

The latest General Moly briefing on the status of the Mt. Hope molybdenum project (with Webcast): General Moly - John Tumazos Very Independent Independent  Research Conference (10/16/2013)

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 – The Long Ride from Lehman Brothers (Part II) (10/28/2013)


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

Friday's AM prices used for this morning's analysis: 

COMEX Gold price = $1,245.1/oz (December contract most active)
COMEX Silver = $19.935oz (December)
COMEX Copper = $3.2055/lb (December)
NYMEX WTI crude = $94.35/bbl (December)
ICE Brent crude = $110.00/bbl (December)


Eureka Miner’s Gold Value Index© (GVI) = 84.96 (gold value relative to a basket of commodities that include oil, copper and silver)
Value Adjusted Gold Price© (VAGP) = $1,224.5/oz
COMEX - VAGP = +$20.56/oz; gold is trading at a declining premium to key commodities.



General Moly (GMO) = $1.24 down 8.15%
Barrick Gold (ABX) = $16.665 down 1.10%%
Newmont Mining (NEM) = $25.79 down 0.27%
Midway Gold (MDW) = 0.8812 down 0.99%
Timberline Resources (TLR) = $0.16 down 2.14%
S&P 500 = 1,792.59 up 0.88%

Morning Miners!

Another rough week for gold and not much whistlin' in the mine shaft for miners. This is what I said this morning in my input to the Kitco Weekly Gold Survey (full analysis below):

As it plunged to 4-month lows Thursday, gold continues to suffer from outflows in investment funds and a lack of robust physical buying support. Importantly, the yellow metal made new lows relative to the S&P 500 re-establishing a declining trend initiated one-year ago. The value spread with copper is also widening in the red metal’s favor; the same is true for oil but to a somewhat lesser extent. Continued losses in U.S. dollar price and value relative to equities and key commodities create a very bearish environment for the tarnished store-of-wealth.

Presently Comex gold is trading at $1,245.1 per ounce down over 3% from Friday's close. Copper is having a much better week up 1% at $3.2055 per pound.

Miners broadly are having a tough time. General Moly (GMO) gave us the chills when its share price dipped to $1.32 last week before recovering to a $1.43 close last Friday. This Friday GMO touched $1.23 and has crawled up to $1.24 as I write this report - ouch, 2009 levels! (see Update from General Moly below)

Gold miners Barrick Gold (ABX) , Newmont Mining (NEM), Midway Gold (MDW) and Timberline Resources (TLR) are all following gold price decline (see percentage declines above the photo) - Nuts!

Midway Gold (MDW) Milestone

Amid all this price calamity, Midway Gold (MDW) can score a big positive for their Pan Project in White Pine County. They issued two press releases this week:

Midway Begins Long Lead-Time Orders For Pan Project, Nevada (Press release, Nov 21, 2013)

Midway Gold - Final Environmental Impact Statement Is Done Pan Project, Nevada (Press release, Nov 20, 2013)

Although not in the royalty stream, this is positive for Eureka County with some Midway miners and contractors establishing home base in the Eureka area. Congratulations to the Midway team, a final EIS is a terrific milestone.

Update from General Moly (GMO)

[Nov. 26, 2013, 7:34AM Update: GMO share price dipped to $1.04 after the markets opened and is presently trading at $1.09 - levels not seen since March 27, 2009, very scary indeed]

This report contacted Scott Kozak, General Moly Director of Investor Relations, to ask how they were reading the tea leaves of the recent meeting of Chinese leaders reported in the Eureka Miner. Here is Scott's update:

We have also been tracking news from the 3rd Plenum and will continue to monitor the pace and degree to which the communicated reforms are implemented. More broadly, we continue to believe that the long-term fundamentals for moly consumption are sound, both in and outside of China. We are on the road meeting with investors and participating in a conference this week.


We're back to 2009 GMO share prices but Mt. Hope is now fully permitted with pre-mine construction work complete. The value of Mt. Hope as a molybdenum resource for the future has dramatically increased and now for the same price as the early days - what a deal from a valuation point-of-view.

This is offset by the glum environment for miners and uncertainty about 2014. Goldman Sachs has some interesting thoughts, not all bad certainly:

 Goldman Sachs’s Top Ten Macro Themes for 2014

Item #10 - "Stable China may be good enough" is relevant. Unfortunately, we are in a down-cycle for commodities which will put pressure on metals across the board (Item #9). As Scott notes, the world still needs molybdenum so if we're willing to wait something positive should happen as long as the GMO team has remaining funds to find financing (which they currently do).

An interesting wild card is POSCO and a seemingly booming South Korean economy - the ole Colonel wishes some additional support would come from the steel maker that presently owns a 20% share of Mt. Hope.

Please do your own research. As I always caution - markets can turn on you faster than a feral cat.

The best of luck to the General Moly Team!

Molybdenum Prices

Spot moly oxide prices remain 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$9.85 as of Nov. 15, 2013 (updated weekly)

Ryan's Notes Average: [no data] (updated twice weekly)

The London Metal Exchange (LME) futures are below the spot price on the 3-month contract with the 15-month at nearly $10 per pound. Remember that this is a thinly traded futures market and contract prices may reflect developments in Europe more than the global spot price averages above.

3-month seller's contract $21,300 per metric ton ($9.662 per pound)

15-month seller's contract $22,000 per metric ton ($9.979 per pound)

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

My input to the Weekly Kitco Gold Survey:

11/22/2013 (10:42 AM CT)

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

A. Down. My target price is $1,244 per ounce.

Q. Why?

As it plunged to 4-month lows Thursday, gold continues to suffer from outflows in investment funds and a lack of robust physical buying support. Importantly, the yellow metal made new lows relative to the S&P 500 re-establishing a declining trend initiated one-year ago. The value spread with copper is also widening in the red metal’s favor; the same is true for oil but to a somewhat lesser extent. Continued losses in U.S. dollar price and value relative to equities and key commodities create a very bearish environment for the tarnished store-of-wealth.

The Federal Reserve minutes released this week suggest that tapering of the U.S. quantitative easing policy (QE3) will likely be delayed until the first half of next year [clarification - this is my interpretation given this analysis: Policymakers expected economic and labor market reports to "warrant trimming the pace of (bond) purchases in coming months," according to minutes of the Oct. 29-30 meeting. The minutes also say policymakers could "slow the pace of purchases at one of its next few meetings." Ref - USA Today, 11/20/2013. My take is that the December meeting is too soon but reductions may begin earlier in 2014 than expected before the minutes were released].

I explain in my latest commentary, Copper & Gold – The Long Ride from Lehman Brothers (Part II), “Absent future price shocks, an extended QE3 will likely be characterized by low volatility with copper and gold prices stabilized within trading ranges. As monetary accommodations fade and inflation expectations return, this trend should reverse again in gold’s favor with the return of sustainable higher prices.” The likelihood of the latter may be many months away with tame inflation in the U.S.  and deflationary pressures building in Europe.

My gold target of $1,244 per ounce anticipates further downside next week.

For $1,244 per ounce gold we can expect to see silver in a statistically bounded range* of $19.2-$20.7 per ounce; and copper in a range of $3.01-$3.23 per pound. Silver is expected to have a neutral bias with respect to a range mean of $19.957 per ounce; copper, a positive bias with respect to a range mean of $3.1197 per pound.

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

The S&P 500 had a volatile week posting a new high Monday, selling off Wednesday and rebuilding its way back towards $1,800 this morning. Gold in turn has shed more value to equities. The relation between the two is illustrated by a plot of the gold-to-S&P 500 ratio, or AUSP:

The ratio slid into a descending channel mid-November as money rotated away from gold assets into the U.S. stock market. This trend transitioned to a sideways channel July 5 (dashed blue lines, AUSP=0.7431). More recently the AUSP has broken decisively below the lower boundary and appears to be on a second leg of descent (dashed red line) with this morning’s gold trading at a loss of 45.5% of value relative to the November peak (AUSP=1.2710). Breaking the lower boundary of this channel is a very bearish indication for gold; however, it may presage a reversal of fortunes if stocks falter before year’s end.

This week, Comex gold is down 3.3% for the week in U.S. dollar terms and 13.2% below August’s high ($1,434.0). The yellow metal lost significant value relative to copper; oil also lost some value relative to the red metal. 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 388.4 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:

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 84.96, below the key-100 level and below the 1-month moving average of 86.09. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,224.5 or a $20.56 discount to actual gold price (i.e. gold is trading at a growing premium to a basket of key commodities).

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