"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 9, 2015

Mixed Jobs Report; Gold Rallies; General Moly (GMO) Up and At'em

Prospect, Eureka County, Nevada

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*** Local Mining News ***

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

Timberline Resources Commences Drilling at Eureka (Press release, 12/17/2014)

*** AM Prices ***

The early morning prices used for today's analysis:

Goldman Sachs Commodity Index

S&P GSCI (1/15 futures contract) 396.55 (395.2 52-wk low)


Nymex oil (WTI) $48.52 per barrel
Comex copper $2.7515 per pound
Comex gold $1,214.3 per ounce
Comex silver $16.395 per ounce

Latest Nevada gasoline prices

Happy New Year Miners!

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.

This morning started off with the first monthly Labor Department report for 2015. The good news is that the U.S. added 252,000 jobs in December while economists expected a gain of 240,000 nonfarm payrolls. Revisions also showed employers added 50,000 more jobs in October and November than previously estimated. The unemployment rate fell to 5.6%, its lowest level since June 2008. The economy is improving.

Unfortunately, average hourly earnings fell from the prior month and were up only 1.7% from a year earlier.  No signs of  wage inflation indicates there is still considerable slack in the labor force. Key for gold price is the timing of the first interest-rate increase by the Federal Reserve and many investors expect that to occur this year. Any unexpected weakness in employment growth could delay the first increase along with worries about weak growth in Europe and Japan and the threat of deflation in the former. A continued low interest stance by the Fed is supportive of gold prices going forward.

Presently there is a significant safe-haven premium built into gold price given the situation in Europe and the deflationary effects of falling oil prices. As a consequence, the Comex gold is keeping its head above the key-$1,200 per ounce level bouncing slightly to $1,214.3 per ounce as the report did its analysis following the jobs data. Midday prices are up a bit more at $1217.6.

As explained below, gold has fared far better than silver, copper and oil since the close of 2013. An ounce of gold today buys nearly twice as much oil as a year ago and continues to show strength relative to the euro and Japanese yen. Although dollar price still hovers around $1,200 with little net change year-over-year, that's a good enough for most mining operations. Macquaire sees improving physical demand coming from both China and India:

Macquarie: Gold Has Potential To Move Higher In 2015 (Kitco News, 01-09-2015)

HSBC has moved their forecast up to $1,234 per ounce but sees headwinds for PGMs; their silver forecast remains unchanged at $17.65 an ounce for the coming year:

 HSBC Raises Gold Forecast To $1,234/oz, Lowers PGM Forecast (Kitco News, 01-09-2015)

On the darker side, if an oil price-dependent economy like Russia collapses and forces their central bank to begin liquidating gold reserves, gold price could move significantly south in 2015. The commodity support for gold is now a very lowly $854 per ounce based on AM prices (see below).

General Moly (GMO) Up and At'em

General Moly got an $8.5M lifeline in December as detailed in this press release near the close of last year:

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

The Private Placement financing, is a bridge to a project financing for Mt. Hope designed to minimize dilution to shareholders.

As a point of disclosure, I remain positive on GMO and added to my position at $0.36 per share in December prior to learning of the placement. My thoughts were pretty simple: the world is still here, folks need steel products even though global demand is in decline and Mt. Hope is a tangible asset filled with critical and strategic minerals. The ole Colonel is willing to wait this out. After the first news of the placement, GMO share price bumped to $0.67. This morning GMO is trading at $0.53. Please do your own research, markets can turn on you faster than a feral cat.

A trusted source added some background to this release for the Eureka Miner. Steve Mooney, the former Chairman and Chief Executive Officer of Thompson Creek Metals Company (TC), provided the lion's share of the financing with a $5 million investment. Mr. Mooney founded TC in 1993 and led its sale in 2006, after helping build it into one of the largest primary molybdenum producers in the world. He has significant experience in the mining and molybdenum space and a deep understanding of the viability of the Mt. Hope Project. That's commitment, pardner.

As explained in the above release, General Moly’s executive management team and board of directors supported the Private Placement by investing over $2 million in aggregate underscoring the strong internal support for the future prospects of the company.

Metals Week (1/2/2015) reports a moly oxide price of $9.10.

Relative to molybdenum fundamentals in 2015, my source pointed out that Thompson Creek Mine and Endako Mine halted production by year-end 2014 (the two mines produced 33mm pounds in 2013, the most recent full year report currently available). Furthermore, Mercator’s Mineral Park Mine (10mm pounds produced in 2013) has been put on care and maintenance. Together this could remove approximately 40mm lbs of 2014 moly production from the market in 2015. This goes a long way to offset production from Sierra Gorda when that mine comes online sometime in 2015.

Reduced supply and improving global demand should be supportive of both moly price and GMO's efforts to secure construction financing for Mt. Hope. Keep the faith.

Winter 2014 Mining Quarterly

The online edition of the Winter 2014 Mining Quarterly is up and ready to rock n' roll. 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

Big gold miners Newmont (NEM) and Barrick Gold (ABX) are trading at $20.41 and $10.88 (chart below, click for larger view) . Midway (MDW) is $0.7410 up 1.51% in morning trade. Benchmark Moly Miner Thompson Creek (TC) is don 3.59% at $1.58. GMO remains above 50 cents per share at $0.5294. Timberline Resources (TLR) is up 4.31% at $0.7510 per share. Checkout the December press release on TLR at the top of this post.

Finally, benchmark miner and copper giant Freeport-McMoRan (FCX) is down .32% at $23.29. Freeport has recently taken on oil interests to diversify so feels double-pain when red metal and oil prices are down. Comex copper is trading presently at $2.7515 per pound.

Mining Stocks, Yahoo Finance

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 1.0% loss in U.S. dollar price, glitter is up 19% over the white metal, 25% over the red and a whopping 105% over oil (chart #1, below). 
  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 $810 to $1,170 per ounce for this quarter (1Q2015). 
  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 from the value wedge by increasing premium even more. If that premium disappears gold will follow commodities lower this year. 

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

Chart #2: 

Cheers - Colonel

Photos by Mariana Titus

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