"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.

Friday, January 17, 2014

Shout Out for Miners; Bullish Call on Gold; General Moly Update


Major W.W. McCoy Memories


*** Local Mining News ***

General Moly Announces Filing of Updated NI 43-101 Technical Report for Mt. Hope Project (Press Release, 01/16/2014)

MIDWAY BREAKS GROUND AT PAN GOLD PROJECT, NEVADA (Press Release, 01/15/2014)

MIDWAY GOLD COMPLETES PERMITTING – RECEIVES RECORD OF DECISION PAN PROJECT, NEVADA (Press Release, 12/20/2013)
 
General Moly Announces Updated Operating Cost Estimate and Project Economics for Mt. Hope Project (Press release, 12/05/2013) 

Latest Nevada Gas Prices (click this link)

My latest Kitco commentary:  Gold (Still) Trapped in a Value Wedge (12/09/2013) 

My latest column in the Mining Quarterly: Copper & Gold - The Long Ride from Lehman Brothers (p. 90-91 online, p. 84-85 printed copy, MQ Winter Edition 2013)


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

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


COMEX Gold price = $1,247.0/oz (February contract most active)
COMEX Silver = $20.255/oz (March)
COMEX Copper = $3.3555/lb (
March)
NYMEX WTI crude = $92.53/bbl (
March)
ICE Brent crude = $106.28/bbl (March)



Eureka Miner’s Gold Value Index© (GVI) = 83.22 (gold value relative to a basket of commodities that include oil, copper and silver; 100 is a high value)
Value Adjusted Gold Price© (VAGP) = $1,252.0/oz
COMEX - VAGP = -5.00/oz; gold is trading at a decreasing discount to key commodities (bullish implication - bottom is in for gold)


As of 8:49 AM:


Barrick Gold (ABX) = $18.84 up 3.43%
Newmont Mining (NEM) = $24.71 up 3.13%

Midway Gold (MDW) = 0.9999 up 4.57%
General Moly (GMO) = $1.27 down 0.78%
Timberline Resources (TLR) = $0.166 up 0.61%
S&P 500 = 1,844.13 down 0.10%




Morning Miners!

Not a bad way to end the week on several accounts. Citigroup issued a "BUY" recommendation on miners yesterday saying, “We would rather be too early than too late in making this call.” The analysts at Citi moved their 12-month view on the mining sector to bullish for the first time in three years.

On Tuesday, I informed my Kitco News Editor Debbie Carlson that, according to my analysis, the worst is in for gold. The ole Colonel has been bearish about U.S. dollar gold price since May so this is my official switching of sides to the bull bleachers. Don't hold your breath, the outlook isn't great but we have probably seen the worst as explained in my gold survey below. Comex Gold made a low of $1,181.4 per ounce on December 31, 2013 - that's it pardner, ain't going any lower!

For miners, Citigroup lead analyst Heath Jansen said it best:

“Investor sentiment has hit rock bottom. The mining sector has moved through five stages of grief, namely Denial, Anger, Bargaining, Depression, and now we think we are in Acceptance that the sector has moved into a new norm.”

The market reaction to this change of heart is encouraging with Barrick (ABX), Newmont (NEM) and Midway (MDW) all up 3-4% in morning trading.

General Moly (GMO) Update

Some investors got a scare after digesting a General Moly (GMO) SEC filing on Monday (1/13).

Form S-3/A General Moly, Inc  Filed on: January 13, 2014

I received an e-mail from a faithful follower of this report who interpreted the filing as an indication that two of GMO's largest investors, Amperam and Hanlong, were seeking a path out. On Tuesday, GMO share price dropped from $1.29 the previous day to $1.20 and below its 1-month moving average, down nearly 7% on the close.

I called Director of Investor Relations Scott Kozak Tuesady and he had a reasonable explanation that rectified this misinterpretation. According to Scott, Amperam is a spinoff of ArcelorMittal (MT) and ended up with MT's interest in GMO. They deal with high-grade steels so an interest in a molybdenum mine makes sense. Amperam & Hanlong are indeed large shareholders of GMO and according to Scott have expressed "no interest" in the sale of their stock before or after Tuesday's SEC filing. Apparently the 1/13 filing is an amendment to an earlier filing in December and was a regulatory requirement only.

The markets must agree with Scott because this morning's share price has recovered to the 1-month average presently at $1.27. GMO is a thinly traded stock so a misinterpretation by a few traders can often cause a big blip in price. Fortunately in this case, all's well that ends well.

On another positive note, GMO released a key technical report Thursday:

General Moly Announces Filing of Updated NI 43-101 Technical Report for Mt. Hope Project (Press Release, 01/16/2014)

Bruce D. Hansen, Chief Executive Officer of General Moly, said, “The 43-101 Report for the Mt. Hope Project is in alignment with the updated operating costs, capital costs and project economics we announced in December, 2013. This exhaustive analysis underscores our belief that Mt. Hope remains one of the world’s best large scale, low cost, fully permitted and construction ready primary molybdenum development projects.”

Personally, I remain upbeat - GMO share price is at 2009 levels for a good-to-go fully-permitted mine.

It's smart to continue your own research, markets can turn on you faster than a feral cat.

Gold Prices for 2014

The following is a repeat of earlier 2014 projections which are essentially unchanged except now I do not expect 2014 prices to dip below the $1,180-level:

So what can we expect in 2014? I've written two recent columns on gold's outlook for next year; in the Winter Edition of the Mining Quarterly and more recently, for Kitco News, Montreal:

Copper & Gold - The Long Ride from Lehman Brothers (p. 90-91 online, p. 84-85 printed copy, MQ Winter Edition 2013)

Gold (Still) Trapped in a Value Wedge (Kitco News, 12/09/2013)

By the way, if you haven't checked out the latest Mining Quarterly - do it! Elko Daily Free Press Mining Editor Marianne Kobak McKown has done a terrific job on this issue with the latest news on the mining industry in Northern Nevada.


In the MQ article, I compare the price performance of copper and gold from the fateful collapse of Lehman Brothers Sep. 15, 2008 to the present. My argument is that monetary easing programs of the U.S. Federal Reserve have trumped supply/demand fundamentals for both metals for a significant portion of this 5 year period. There have been three quantitative easing cycles (QE or the printing of money to buy bonds) resulting in metal price reflation (QE1), inflation (QE2) and price stabilization for the current program (QE3).

Current stability in the metal markets is good for a global commodity such as copper which likely maintains a $3 per pound floor for the red metal as long as QE3 provides a supply of easy money. Monetary easing is less supportive for gold which has lost value to copper during all three QE programs. Sustainable gold rallies and even new records have typically occurred near the end or after these monetary interventions (e.g., QE1 and QE2 and respective benchmark gold records that followed). Is this a ray of light in the mine shaft?

The December meeting of the Federal Reserve began the tapering of their massive bond buying program signalling that QE3 will wind down sometime in 2014. Before this cycle is complete, the MQ column submits that "...if continued easing returns [gold/copper valuations] to pre-QE2 levels of 350 pounds per ounce, a $3-to-$4 range for copper would imply a $1,050-to-$1,400 range for gold." This morning the gold/copper valuation is 356 pounds per ounce so we're right on track going into the New Year.

The Kitco article takes a broader view and includes not only copper but oil and silver for a relative value comparison. According to this analysis, gold will enter 2014 trading at a substantial discount to both copper and oil and be trapped in a range of $1,150 [revised 1/14/13 to $1,180]-to-$1,375 for the first half of the year.

The MQ column concludes:

Absent future price shocks, continuation of the present QE3 program will likely mean less volatile copper and gold prices stabilized within trading ranges. As monetary accommodations fade, metals will naturally revert to the laws of supply and demand. As inflation expectations return, the market should eventually reverse in gold’s favor with a resumption of higher sustainable prices.

With tame inflation in the U.S. and the threat of deflation in Europe, we may have to wait some time to ride the up-elevator of our favorite metal. Always the optimist - let's see what the second-half of 2014 may bring!



Kitco Gold Survey 

Here is my input for the weekly Kitco Gold Survey:

01/17/2013 (10:18 AM CT) Mid-term outlook: Bullish

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

A. Up. My target price is $1,255 per ounce.

Q. Why?

Gold is in a narrow trading range awaiting a catalyst to move higher which may come from the upcoming 2-day FOMC meeting in combination with the approaching Chinese New Year. A dovish tilt on Federal Reserve tapering program and/or increased physical buying in Asia would be bullish for the yellow metal. Gold faces many headwinds in 2014 which include low U.S. inflation together with deflationary pressures in developed countries, rising Treasury rates and a slowly improving global economy (e.g., recent World Bank GDP estimate 3.2% versus 2.4% for 2013). However, it appears the discounting of gold relative to key commodities bottomed in late-December which suggests the low is in for gold. Until gold decisively breaks its declining relation with the U.S. stock market (see chart below), it is doubtful there will be much upside movement beyond the mid-$1,250 prices.

My gold target for next week is biased slightly above mid-range at $1,255 per ounce:

For $1,255 per ounce gold we can expect to see silver in a statistically bounded range* of $20.0-$20.7 per ounce; and copper in a range of $3.24-$3.51 per pound. Silver is expected to have a neutral bias with respect to a range mean of $20.374 per ounce; copper, a neutral bias with respect to a range mean of $3.3707 per pound.

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

This morning, the S&P 500 is flat for the week, down 0.1%; gold gained 0.1% on the S&P. 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 2012 as money rotated away from gold assets into the U.S. stock market. This trend transitioned to a sideways channel July 5, 2013 (dashed blue lines, AUSP=0.7431). More recently the AUSP has broken decisively below the lower boundary and is on a second leg of descent (dashed red lines) with this morning’s gold trading at a loss of 46.7% of value relative to the November peak (AUSP=1.2710). Breaking above the upper boundary of the second declining channel would be a bullish indication for the yellow metal.

This week, Comex gold is fairly flat for the week in U.S. dollar terms and 13.0% below August’s high ($1,434.0). The yellow metal lost value relative to copper and oil for the week; oil gained value relative on 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 371.6 pounds of copper.” Percentages are deltas over one week.



Since November 2012, 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 83.22, below the key-100 level and above the 1-month moving average of 82.17. The 2012 high was 103.73 on Nov. 13. The value adjusted price of gold is $1,252 per ounce or a $5.00 premium to actual gold price (i.e. gold is trading at a discount to a basket of key commodities).
Happy New Year!

Cheers,

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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