"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, January 23, 2015

Gold Giddy-Up; Europe Throws Miners a Curve Ball; GMO Surprise

Eureka-Croesus Mine, Eureka, Nevada

Please checkout Mariana's Eureka, Nevada on Facebook

*** Local Mining News ***

General Moly Announces Agreement with POS-Minerals to Utilize $36 Million in Reserve Account to Fund Mt. Hope Project (Press release, 1/21/2015)

Midway Provides Construction Update For Pan Gold Project, Nevada (Press release, 01/16/2015)

Timberline Resources Drilling Identifies New Zone of Gold Mineralization at Eureka (Press release, 01/14/2015)

General Moly Announces Closing of Private Placement Financing (Press release, 12/30/2014)

*** AM Prices ***

The early morning prices used for today's analysis (most active contracts):

Goldman Sachs Commodity Index

S&P GSCI 380.6 (378.5 52-wk low)


Nymex oil (WTI) $46.17 per barrel
Comex copper $2.5065 per pound
Comex gold $1,295.7 per ounce
Comex silver $18.345 per ounce

Latest Nevada gasoline prices

Note: There are several changes to the Eureka Miner for the new year. For the time being, Kitco News, Montreal has suspended their weekly gold survey due to staffing changes. However, I will provide a periodic gold price outlook based on my column in the Winter 2014 Edition of the Mining Quarterly with updates to the analysis and charts given in that piece (see below). This replaces the weekly survey input to Kitco News. The ole Colonel will continue to contribute periodic articles to that publication and this report.

Super Mario

Morning Miners!

Another crazy week in global markets!

No, it wasn't the death of Saudi King Abdullah that has roiled equities and commodities. In the not too distant past, such an event would spike oil prices and trigger broad-based volatility. Nowadays, after a brief pop, oil continues its slide down, down. The Kingdom announced early this morning, that it is likely to continue to pump crude in the face of a global glut - Nymex light sweet crude is presently trading at $46.17 per barrel down 40% from its late-October high. As far as OPEC drama goes - ho-hum.

Central bankers wear the big hat these days and this week it was Europe's turn to walk the walk. European Central Bank (ECB) President Mario Draghi announced the launch of an eye-popping monthly 60 billion euro private and public bond-buying program yesterday which is scheduled for 18 months beginning in March. This long anticipated monetary largese, will put 1.1 trillion new euros into the world's currency pot - that's printing some money, pardner!

The reaction? The euro fell to an 11-year low (1.1116) approaching near parity with the U.S. dollar. King dollar in turn raced to a 12-year high as measured by the U.S. dollar index (.DXY). Most raw commodities are priced in U.S. dollars which caused additional downward pressure on metals and blunted a brilliant gold rally that had touched $1,307.8 per ounce (Comex, February contract) prior to the ECB announcement.

Although it is satisfying to see the U.S. dollar in strong ascendancy, it creates a new headwind for the mining sector. The good news for gold miners is that the yellow metal continues to hold a much stronger hand than other players in the metals complex. This morning Comex gold is trading at $1,295.7 per ounce; Comex copper is at a lowly $2.5065 per pound. The Eureka Miner's Gold Value Index (GVI), which measures gold value against oil, copper and silver independent of currency tells the story (click for larger view):

Todays GVI (point C) is at high levels not seen since the dark days of early-2009. Reassuringly gold has been trending higher relative to these key commodities (i.e. real stuff, not paper money) since mid-2006.

My gold 2015 price forecasts (below) are derived from the Colonel's column on the yellow metal in the latest edition of the...

Winter 2014 Mining Quarterly

The online edition of the Winter 2014 Mining Quarterly is out and about. Elko Daily Free Press Editor Marianne Kobak McKown and her team have done an outstanding job on this publication. There are feature articles on Cortez Hills, Barrick's Turquoise Ridge and Newmont's Twin Creeks together with updates on Comstock, Pershing Gold, Veris Gold and Western Lithium. It's a dandy!

The ole Colonel wrote a gold price outlook for 2015, Gold at the Crossroads, which you can find on pages 72-77 of the online edition and 75-79 of the printed version.

This report closes with updates for the charts and numbers provided in this column - the underlying assumptions for 2015 remain unchanged.

Local & Benchmark Mining Stocks

The Mining Sector is still in the storm of volatile metal prices with gold miners faring best. Big gold miners Newmont (NEM) and Barrick Gold (ABX) are trading at $24.29 and $12.61 (chart below, click for larger view) . Midway (MDW) is $0.7510 down 1.18% in morning trade. Benchmark Moly Miner Thompson Creek (TC) is down 0.79% at $1.2699. GMO is just below 60 cents per share at $0.5753. Timberline Resources (TLR) is up 4.29% at $0.70 per share. Please checkout the latest press releases from General Moly, Midway and Timberline at the top of this report.

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is down 2.47% at $19.52. Freeport has taken on oil interests to diversify so feels double-pain when red metal and oil prices are down.

Mining Stocks, Yahoo Finance

General Moly (GMO) Surprise

As flagged by Wednesday's Eureka Miner e-mail alert, General Moly got a significant funding boost from POS-Minerals (subsidiary of South Korean steel giant POSCO and 20% owner of Mt. Hope):

General Moly Announces Agreement with POS-Minerals to Utilize $36 Million in Reserve Account to Fund Mt. Hope Project (Press release, 1/21/2015)

Bruce D. Hansen, Chief Executive Officer, said, “This agreement, combined with the recently announced $8.5 million private placement financing that closed in December 2014, provides the Company with a significantly improved project and corporate liquidity profile as we bridge to a project financing for Mt. Hope, while at the same time minimizing the dilution to our shareholders. We want to thank POS-Minerals for their continued financial support and partnership.”

Mr. Hansen continued, “We remain confident in the progress being made toward full Mt. Hope Project financing. Negotiations on investment agreement terms, sponsorship requirements, and indicative loan terms associated with a $700 to $750 million debt and equity package, are continuing to advance. We have strong interest from multiple private Chinese industrial companies and a large Chinese bank in advancing the fully permitted, construction-ready project.”

Gold Forecast Update

Some highlights updated through this morning's trading:

  1. Gold has fared quite well compared to other key commodities; one ounce still buys more ounces of silver, pounds of copper and barrels of oil than it did in late-December 2013. Outpacing a 7.8% gain in U.S. dollar price, glitter is up 14% over the white metal, 46% over the red and a whopping 130% over oil (chart #1, below). A 8-1/2 year uptrend in gold value relative to these commodities is intact. 
  2. Gold's relation to commodities works like the force of gravity. Without the propulsion of safe haven or monetary hedge, the yellow metal falls back in line with commodity prices and historical norms. 
  3. This relation has formed a declining value wedge since 2011 (chart #2, dashed red lines) which has proved quite accurate in predicting future price ranges. Extending the dashed lines suggests a commodity value range of $790 to $1,170 per ounce for this quarter (1Q2015). The lower number represents a U.S. dollar floor for gold relative to key commodities. 
  4. Gold presently carries a premium to the aggregate of key commodities in chart #2; this has been mostly true since August 2011. Using the gravity analogy, gold needs to achieve escape velocity (>$1,300) from the value wedge by increasing premium even more. If that premium disappears gold will follow commodities lower this year. This week, we witnessed gold's first attempt to challenge the key-$1,300 level.

Chart #1 (updated from the Winter 2014 Edition of the Mining Quarterly, click for larger view):

Chart #2: 

Cheers - Colonel

Photos by Mariana Titus

1 comment:

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