"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 27, 2017

What's Up with General Moly (GMO)? EM Talks to CEO Bruce Hansen


Mt. Hope Molybdenum Project
(8,000' elevation, looking southeast)
Eureka, Nevada (2013)

Weekly Summary (something new!)

(click on table for larger size)

Friday, January 27, 2017 AM 

Morning Miners!

Gold falls below $1,200 per ounce, presently trading at $1,186.1 with an early morning low of $1,179.7. My input to the Weekly Kitco Gold Survey:

This has been a horrible week for gold losing value to a wide set of assets. The yellow metal is not only down in U.S. dollars but has lost ground in terms of euro and yen; slipped in value relative to copper, oil and the broader Bloomberg commodity index (BCOM) as well as domestic equities that scored all time highs [see Weekly Summary above]. Headwinds have included a rise in U.S interest rates* and the U.S. dollar recovering strength from a six-week low. 

For more normal times, one might expect a bearish downtrend to continue with such a solid reversal of fortune - just last week gold shined brightly against the same set of assets. But these are not normal times given the uncertainty surrounding the new administration. Increase of trade tensions with Mexico or geopolitical turmoil caused by new foreign policies could spike gold considerably higher.

Volatility is further exacerbated by the absence of Chinese traders for most of next week given their Lunar Holiday. I believe it is likely that gold will find support around $1,180 and then close the week higher next Friday. Until the specifics of these new U.S. policies are clearer, gold price will remain volatile. .




Year of the Red Fire Rooster (January 28)

Additional note from last week:

The fate of the Chinese yuan remains a key tell for gold. Aggressive liquidity tightening by the People's Bank of China (PBOC) has eased, stabilizing the yuan below 7 USD/CNY. However, defending their currency has brought China foreign reserves to a 6-year low. We need to wait until after Lunar New Year to see if this vigorous defense is sustainable. After Chinese traders return from holiday, it is possible that gold will get a boost; and copper, a correction given worsening conditions for the yuan.
*Note on real rates going forward:

Real Rates’ Show Real Concerns Over Trump Economic Rebound (Min Zeng, WSJ, 01/15/2017)

What's Up with General Moly (GMO)?
EM Talks to CEO Bruce Hansen



Mt. Hope Molybdenum Project
(8,000' elevation, looking southwest)
Eureka, Nevada (2013)

This month General Moly (GMO) stock has more than doubled in value. Trading at $0.58 per share represents a whopping 132% gain year-to-date. Amazingly, most of this rise has occurred in the last seven market days [Update: GMO closing price for Friday is $0.54 per share].

The roaring rally began on January 19 with the filing of a Form 8-K which announced restricted stock unit grants for CEO Bruce Hansen, Chief Operating Officer Robert Pennington and Chief Legal Officer Scott Roswell - a total of 900,000 shares. Although the filing demonstrates a positive commitment by its officers to the Mt. Hope Molybdenum Project and other mining interests, that alone doesn't seem to justify the intensity of the rally - especially since moly oxide remains at rock bottom prices.

I e-mailed Bob Pennington to see if he could shed light on other factors behind the bounce. He replied, "I sure like whatever is causing this interest in molybdenum! Hopefully it is the beginning of another good run. We will be ready for it!" Bob then suggested I call CEO Bruce Hansen for additional thoughts and background.

Mr. Hansen expressed his belief that "no company specific news" was driving share prices to recent highs (GMO today is at levels not seen since July 2015). He suggested it may be a mix of "macro-longer-term-fundamental-view" investors plus "Trump rally" momentum traders. The trigger for the first group is likely related to President Trump's actions on new pipelines and domestic steel plus rising rig counts for the oil & gas industry. Both activities utilize high quality steel alloyed with molybdenum for strength.

Mr. Hansen then described current supply and demand dynamics. He believes the molybdenum market has made its bottom with a supply forecast showing diminished incremental increases. Demand should also rise given the projects noted in addition to anticipated infrastructure spending domestically and abroad. Supply/demand is therefore supportive of higher moly oxide prices going forward.

Financing the Mt. Hope Molybdenum Project with their Chinese partner AMER is dependent on several important moly price points as described in a 2015 press release:


Follow-on financing, Tranche 2 and 3, are contingent upon the following moly price levels and progress on water right permits:

Tranche 2 investment of $6.0 million by AMER, contingent on a molybdenum price rise to $8 per pound for 30 consecutive calendar days.

Tranche 3 investment of $10 million conditioned on a final adjudication of the to be re-issued Mt. Hope Project's water rights permits through courts or settlement...and at such time the price of molybdenum is in excess of $12 per pund for a 30 consecutive calendar days.

Mr. Hansen noted that Mt. Hope is economic at roughly a $10 per pound level but $12 is necessary for full financing. He is positive on protecting and re-issuing water right permits for the project. Mr Hansen said that moly oxide is presently pricing in a range of $6.80 to $7.20 per pound (LME 3-month futures are at $6.92 per pound).

On other issues, Mr. Hansen believes an ROD re-issue is probably a 6 month to 1 year process to address an air quality issue identified in the following 9th Circuit court of Appeals Opinion:

General Moly Receives Opinion from 9th Circuit Court of Appeals on Mt. Hope Record of Decision Challenge (Press release, 12/30/2016)

General Moly is currently working on this with NDEP and the BLM, revisiting assumptions for an air quality baseline in a remote area. Mr. Hansen is confident that resolution is well within GMO's data analysis & modeling capabilities.

Better days ahead!

The best of luck to Bruce, Bob, Scott and the General Moly team!

Gold Price Outlook 2017

The question becomes whether 2017 will be a repeat of 2013 with gold losing value across a broad set of assets, which includes stocks, commodities and currencies, or stabilize in a range above $1,100. There are increasing signs that the latter case will prevail. Gold started the year nicely and should remain in a range of $1,125 to $1,320 per ounce*. Average gold price for 2017 should register above $1,200 per ounce.

An important gold ratio to watch is gold-to-S&P500 or AUSP. The ratio bottomed in early-December of 2015 and reversed to a bullish trend, peaking February 11, 2016. It bottomed again December 20, 2016 but has been trending higher since. Confirming a double-bottom in the coming months would be a significant positive for the lustrous metal.

Gold has gained ground on the embattled euro and yen. Post-election, gold in euro and yen terms are converging and safely above 2013 lows [chart below]. Additionally, gold ratios relative to copper and oil are stabilizing near historically less extreme levels which is a healthy sign [Chart to Watch, below]. Geo-political events and/or a bump in inflation expectations could restore glitter to gold in 2017.

Gold near my low-range of $1,125 per ounce-level is a tempting "buy."

(please do your own research, markets can turn on you faster than a feral cat!)

*My pre-election October range for gold price was $1,240 to $1,320 per ounce, Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper

Click on the image for a larger size:


Gold in euro & yen terms regaining value post-election

McEwen Mining & Gold Bar Thumbs Up for 2017!

An exciting development for Eureka will be the re-opening of the Gold Bar Mine north of town. Some us old timers have fond memories of Gold Bar when it was operated by Atlas in the late-1980s and early-1990s (Johnny Horton and Atlas Mine Memories, Eureka Miner, Nov. 11, 2009).

McEwen Mining expects to have permitting done and an ROD by the third quarter of 2017. Mine construction will follow with first production expected by the end-of-2018. Their mine feasibility study assumes a reasonable $1,150 per ounce which nets a greater than 20% internal rate-of-return and payback in 3 years.

Here is a recent Kitco video with McEwen Mining CEO Rob McEwen discussing Gold Bar, other projects and his gold outlook for 2017:

McEwen Gives His Gold Outlook In This No-holds-barred Interview With Daniela Cambone (Kitco News, 12/28/2016)

Rob McEwen has been inducted in the the Mining Hall of Fame received the honors January 12. Congratulations and the best of luck to you and your team in 2017!

Winter 2016 Edition Mining Quarterly



Elko Daily Free Press Editor Marianne Kobak McKown has put together another dandy. The Winter Edition of the Mining Quarterly has great columns on Newmont Mining Corp.'s Twin Creeks Mine, Cripple Creek and Victor Mine (Colorado), Barrick Gold Corp.'s Cortez Hills, EP Minerals' unique product and the Kinross expansion of Bald Mountain.

Chart to Watch

Here's an importanat chart to watch. Click on the image for a larger size:


Gold’s record rise against key commodities
in the strong dollar era (updated 1/27/17) 

Excerpt from the just released Winter 2016 Edition of the Mining Quarterly Storms Never Last: Positive News for Gold, Oil & Copper:

This chart [updated through this morning, January 27] is a record of oil and copper gold ratios for the last six years. October, 2010 was a relatively peaceful period when ratios were stable and close to historical norms following the market turbulence of the 2008-2009 financial crisis.

The chart indicates the percentage value change from that moment of calm. The China slowdown began to impact commodity prices in 2011. However, prices were protected to a degree by U.S. monetary policy that suppressed the value of the U.S. dollar. 

For example, even during periods a high volatility, copper prices rarely dipped below $3 per pound. This is a level above even the most optimistic forecasts these days. Two Federal Reserve quantitative easing programs (or QE, the printing of dollars to buy bonds) helped moderate gold ratios through October 2014 amid record gold peaks, crashing copper prices and $100-plus oil. This period is shown by the gray box in the chart. The Oct. 3, 2011 +50% extreme occurred as the gold-to-copper ratio peaked following the already noted U.S. debt crisis. The bottom of the box marks a -30% low for the gold-to-oil ratio. Wild days for sure but the Federal Reserve kept commodity storms inside the hotel. 

Trouble spilled onto the streets when the U.S. stopped printing money concurrent with a global crash in oil prices in late-2014. At the same time, other central banks tried to goose their stagnant economies with increasingly looser and experimental policies as the U.S contemplated raising interest rates. This divergence in monetary policy ushered in the current strong dollar era – a real headwind for dollarized commodities.

The value of gold relative to oil and copper headed north in a hurry. This year, the gold-to-oil ratio reached a record and unsustainable high Feb. 11 (up 180%); and for copper, Sep. 7 (up 80%). To give this some historical perspective, the average gold-to-oil ratio for the QE2 through QE3 period is 15.7 barrels per ounce. From 1986 through QE3, the average is 16.0. The February peak touched a jaw-dropping 47 barrels. Copper soared from 350 pounds per ounce six years ago to top out above 640.

Gold price in U.S. dollars rallied strongly as copper and oil fell at the beginning of 2016 scoring a nearly 30% gain by early-July. The yellow metal had left the commodity hotel and dominated major currencies as I explained in the Fall Edition of the Mining Quarterly. Very unusual times indeed. 

As 2016 comes to a close there are increasing signs that major central banks will methodically pull back from aggressive policies and those nations will look to fiscal stimulation to keep their economies energized. Oil and copper prices are on the rise given an extra boost by rising inflation expectations. Gold ratios in turn are falling from their lofty peaks...It is important to note that the higher-low trendlines (dashed lines) have now been broken with declining gold ratios. So far go good - confident resource CEOs pass the gold test. Supply will slowly come into balance with demand and the yellow metal is checking back in the commodity hotel.

Cheers,

Colonel Possum & Mariana

Photos by Mariana Titus if not otherwise noted

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