General Moly $6.50 Target & Country Roads

Morning Miners!

It is 6:03 AM. Let me pour you a hot one and let's chat about country roads. We'll close on a new CIBC price target for General Moly but first let's checkout the Big Picture. I heard an economist the other day compare the present sovereign debt crisis to traveling on a "country road." Unless you are driving to Austin, Ely or Carlin some may claim you are on country roads in these parts although I can't recall any local folks calling them by that name. "County road" or "Road Not Maintained Beyond This Point - Drive At Your Own Risk" or #@&#! road are more common nomenclature. In Eureka County, Gloria's Country Roads is where you weigh your hay truck or have a cheeseburger.

Anyway, this economist said that when sovereign debt or default becomes an issue (in the past, think Russia and a few Latin American countries) the world moves off the highway onto a "country road." His point was that the global economy eventually gets to where it should but the pace is slow and you feel every bump. In recent times we drove off HWY 50 in late November with the emergence of the Dubai debt crisis (Dubai, A World Away?). Gold, metals and miners hit a pothole then we got a nice stretch of gravel. Further down this road the solvency of Greece came in question and we hit an axle-breaker in mid-January (Hunker Down or Stand and Fight?). The whole commodity reflation story suddenly looked shaky and mining stocks required a Handyman jack (Freeport Broken, Miners in Correction). The European Union reluctantly patched a rescue plan together and we've been back on gravel most of March...until today. Nuts.

As reported in the Wall Street Journal this morning:

NEW YORK—The U.K. pound and the euro plunged early Tuesday in New York as warnings about deteriorating credit quality in Europe by rating firms prompted investors to seek refuge in the dollar and the yen...The flight from riskier assets, including commodities-based currencies, was triggered by comments on the U.K.'s and Portugal's fiscal problems from Fitch Ratings and Moody's Investors Service. Pressure on sterling intensified on the back of weaker U.K. economic data. (WSJ, 3/9/2010)

You guessed it, gold tumbled to $1110/oz on the London spot market and mining stocks hit some Bean Flat spring mud in early trading. It's not too bad; gold is moving back up and the miner's are headed for the sage to gain traction. My point is that the economist's analogy is pretty much spot on. We will continue to be pounded by sovereign debt issues of developed countries for most of this year whether it is Portugal, Italy, Ireland, Greece, Spain, the U.K., Japan or, perhaps, the good ole U.S.A. Hang in there buckaroos, it may be a rough road but we're traveling in a tough truck.

Now for some good news. CIBC raised their price target this morning for General Moly (GMO) from $4.80 to $6.50. Exactly one year ago the S&P 500 hit rock bottom at 666.79 (intraday low) and GMO hit a $0.65 low. I'd say 65 cents to $6.50 is a pretty long stretch of road. Right now, GMO sits at $3.58 on a down day for metals & miners. Say...we're more than half way there, pardner!

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners are headed for smoother roads with FCX above $74 (what is this?)

The YELLOW light is switched on our fuel gauge with oil above $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is down $0.59 in early trading to $81.28 (April contract, most active); Gold is down $7.5 to $1116.5 (April contract, most active); Silver is down $0.127 to $17.145 (May contract); Copper is down $0.0230 to $3.3875 (May contract); Western Molybdenum Oxide is steady at $18.25

The DOW is up 11.41 points to 10563.93; the S&P 500 is up 0.79 1139.29. The miners are down today:

Barrick (ABX) $39.45 down 0.58%
Newmont (NEM) $50.85 down 0.41%
US Gold UXG) $2.84 down 1.73%
General Moly (Eureka Moly, LLC) (GMO) $3.58 down 2.85%
Thompson Creek (TC) $14.16 down 1.39%
Freeport-McMoRan (FCX) $80.15 down 0.58% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are mixed, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $42.26 down 1.68% - global steel producer
POSCO (PKX) $124.49 up 0.13% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.80% to $1,367,311.70 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Colonel Possum of Mariana Titus and the Colonel's truck, "Casper"

A Game Changer for General Moly & Eureka County

Morning Miners!

It is 6:03 AM, grab a cup and let's get to work. Starting this week knowing that our Mt. Hope project is now anticipated to be fully funded is certainly a game changer. Molybdenum production in Eureka County may very well influence our future for the next forty years. It will bring jobs and revenue to the county and state through sales and use tax, property taxes and Nevada Net Proceeds. If you missed General Moly's announcement, we covered the bases Friday in the Report:

General Moly Announces Significant Investment from Hanlong, Stock Surges (Eureka Miner's Market Report, 3/05/10)


Since the press release, the Report received additional detail on the transaction from General Moly. Key to the deal is a $665 million bank loan from a prime Chinese bank sourced and guaranteed by Hanlong Group for the life of the loan. Hanlong is General Moly's new major investor and partner, a private group with both Chinese and international mining interests. General Moly made this important clarification to the Report:

"GMI will continue to operate with its current management team and its largely independent Board of Directors. Our shareholders (post transaction) will be 65% public and based in the USA."

Furthermore it was encouraging to learn that South Korean steelmaker POSCO will retain their 20% Mt. Hope equity interest and was "extremely supportive to General Moly through process." The Report reminds the reader that billionaire investor Warren Buffet, is an enthusiastic shareholder of POSCO and seeks to increase his holdings in the firm. By my calculation, Buffet owns at least 1% of Mt. Hope via his interest in POSCO. If it is good for the "Sage of Omaha", it should be good for Eureka! (Buffet Wants More POSCO, Both Want Lithium, The Eureka Miner's Market Report, 1/19/2010 )

The ole Colonel will continue to keep you updated as this important story develops. What's up with molybdenum?

Latest Molybdenum News

General Moly provided the Report with their most recent view on moly and new partner's unique position in the marketplace,

"...at the end of the day, with half of global steel production currently coming from China, they need natural resources. They are already the largest buyers of Iron Ore and Coal (the two main steel ingredients) and Hanlong sees the Chinese becoming dependent on moly imports to the country."

Last year the Chinese imported roughly 55 metric tons of molybdenum compared to exporting 25 tons in 2008. General Moly explains the change as a "...massive flip that we saw from China being a net exporter of moly to a net importer of moly in 2009. Their steel industry vastly surpassed their moly production capacity. Hanlong has taken note and wants to be a major steel supplier into China."

Another important factor is the percentage "...of steel that China currently alloys; it’s only about 20% [of crude steel production] and will grow as they develop more sophisticated steel mills." Growing alloy and stainless steel production means less alloy containing scrap which in turn equals more primary moly consumption. Things are looking good for Miss Moly, pardner.

As we have seen lately, molybdenum prices are on the rise in both the physical and futures markets. Here is an interesting article on European moly:

EU molybdenum prices likely to increase further

Below is a wrap up of molybdenum prices at the close Friday (3/05):

Western Moly Oxide (FeMo65) $18.25/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $18.25/lb (the price reported in the Metals Bulletin)

London Metal Exchange (LME) Futures Contracts

3-Month (Buyer) $39,000/metric ton $17.69/lb
3-Month (Seller)$41,000/metric ton $18.60/lb

15-Month (Buyer) $38,000/metric ton $17.24/lb
15-Month (Seller)$40,000/metric ton $18.14/lb

Here is the price action of the LME 3-month contract (seller) from their 2/22 launch to the present:



Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The YELLOW light is switched on our fuel gauge with oil above $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is up $0.60 in early trading to $82.10 (April contract, most active); Gold is down $1.2 to $1134.0 (April contract, most active); Silver is up $0.103 to $17.485 (May contract); Copper is up $$0.0385 to $3.4560 (May contract); Western Molybdenum Oxide is steady at $18.25

The DOW is up 3.25 points to 10569.45; the S&P 500 is up 1.09 1139.79. The miners are mixed today:

Barrick (ABX) $39.84 down 1.04%
Newmont (NEM) $51.17 down 0.74%
US Gold UXG) $2.73 down 1.09%
General Moly (Eureka Moly, LLC) (GMO) $3.91 down 1.95%
Thompson Creek (TC) $14.48 up 0.49%
Freeport-McMoRan (FCX) $80.94 up 0.29% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are still pouring metal, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $42,52 up 0.50% - global steel producer
POSCO (PKX) $123.70 up 1.95% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down0.30% to $1,383,901.67 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

General Moly Announces Significant Investment from Hanlong, Stock Surges

*** BREAKING NEWS *** GENERAL MOLY trades over 12 million shares, intraday high is $4.08, closing price is $3.99 (1:00 PM PST)

Morning Miners!

It is 6:53 AM and a major news day for General Moly (GMO) and Eureka County. Grab a cup of that fortifying Raine's TGIF coffee, we've got a lot of work to do. The ole Colonel awoke this morning expecting to digest the Labor Department's monthly jobs report and the General Moly quarterly earnings release. We got a whole lot more, pardner. I'll close on jobs, let's checkout what GMO put on the wires this morning:

GENERAL MOLY ANNOUNCES SIGNIFICANT INVESTMENT FROM HANLONG, POSCO COMMITS TO 20% MT. HOPE EQUITY INTEREST

General Moly Adopts Stockholder Rights Plan

General Moly Announces Fourth Quarter And Full Year 2009 Results

The blockbuster is the first link; General Moly has announced a significant investment and strategic relationship with Hanlong (USA) Mining Investment Inc., a wholly-owned subsidiary of Sichuan Hanlong Group (Hanlong), that is anticipated to provide full project funding for the Company's 80% owned Mt. Hope project.

Holy Cow.

Here is the summary of the investment deal:

1) $665 million bank loan from a Prime Chinese Bank to be procured and guaranteed by Hanlong at an anticipated rate of Libor plus 2%-4%;

2) $80 million equity investment in General Moly through the purchase of 25% of the Company's fully diluted shares, partially contingent upon completion of the $665 million bank loan;

3) $20 million bridge loan to assist in Mt. Hope project restart, repayable from the proceeds of the bank loan; and

4) A long-term molybdenum supply off-take agreement for Hanlong from Mt. Hope production.

Investors went nuts on this release sending GMO stock up more than 35% to $3.52 in early trading.

General Moly CEO, Bruce Hanson, had this to say,

"I am extremely pleased to have Hanlong as a major investor and partner. This transaction with Hanlong provides superior value to our stockholders than alternative transactions we have recently evaluated. Hanlong will, in accordance with the terms and conditions of the agreement, invest $80 million in equity and procure $665 million in senior secured debt, which we believe will fully fund the Mt. Hope project."

And there's more about South Korean steelmaker, POSCO. Mr. Hanson continues,

"We would also like to express our appreciation to POSCO, our Joint Venture partner at Mt. Hope, for its immense support as we have evaluated numerous financing alternatives and its commitment to remain a 20% partner in the Mt. Hope project."

The President of Hanlong (USA) Mining Investment Inc., Hui Xiao (Steven) commented,

"We are extremely pleased to invest in General Moly and we feel their Mt. Hope and Liberty projects are two of the most promising moly assets worldwide. Our investments in General Moly and Moly Mines position Hanlong to be a significant participant in the future of the molybdenum industry, which we find very attractive."

How's that for some Friday news? The second release provides coverage for shareholders followed by a link to their fourth quarter and full year 2009 report. Here are some new dates and status for the Mt. Hope Project:

"The Company currently expects the Bureau of Land Management (BLM) to complete an administrative Draft Environmental Impact Statement (EIS) mid-year and to receive its Record of Decision late in the fourth quarter of this year or early in the first quarter of 2011..The Company continues to believe that these studies confirm that the Mt. Hope project will have minimal long term impact to local ground water."

And an update on Engineering:

"The Company will restart engineering efforts, which had been paused in March 2009 to conserve cash, following stockholder approval of the equity issuances in connection with the Hanlong transaction and publication of the Draft EIS, currently anticipated to occur by mid-year. Equipment procurement efforts, which had also been paused, will resume later in the year. Although the Company has secured orders for most of the milling equipment, firm orders for much of the mobile mine fleet still must be placed."

That's a lot to absorb, give it all a good read on your break buckaroos.

Oh, I almost forgot, there was the monthly jobs report that I listened to on CNBC Business News at 5:30 AM. The weather affected the numbers much less than expected which has sent the broader markets up. The unemployment rate remains steady at 9.7% despite stormy weather on the East Coast last month. Slow but steady improvement, things are looking up.

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The YELLOW light has returned on our fuel gauge with oil above $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is up $1.54 in early trading to $81.75 (April contract, most active); Gold is up $6.4 to $1139.5 (April contract, most active); Silver is up $0.264 to $17.440 (May contract); Copper is down $$0.0660 to $3.4415 (May contract); Western Molybdenum Oxide is steady at $18.25, LME Moly 3-month (seller) is up to $19.05

The DOW is up 67.79 points to 10511.93; the S&P 500 is up 8.48 1131.45. The miners are are rocking:

Barrick (ABX) $40.38 up 1.46%
Newmont (NEM) $51.38 up 1.02%
US Gold UXG) $2.73 down 0.73%
General Moly (Eureka Moly, LLC) (GMO) $3.52 up 35.50%
Thompson Creek (TC) $14.36 up 3.38%
Freeport-McMoRan (FCX) $79.86 up 1.30% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are up, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $42.16 up 3.46% - global steel producer
POSCO (PKX) $120.85 up 2.27% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 4.63% to $1,362,366.15 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

Moly Breaks $18, Silver Headed for $20?

Morning Miners!

It is 6:11 AM and there is no lack of news on the wires. Grab a cup and let's sort through the headlines. Since sovereign debt issues have weighed on the metals and miners, it was encouraging that a Greek debt auction of 10-year notes went well. The government aimed to raise €5 billion from the offering but it was heavily oversubscribed attracting around €14.5 billion ($19.86 billion) in bids. Somebody loves them. If this auction had gone poorly we may have seen a sharp retreat in commodities.

Miss Moly is attracting new bids too after the molybdenum launch last week on the London Metal Exchange (LME). Western Moly Oxide gained another 75 cents yesterday to $18.25/lb with the 3-month and 15-month LME futures contracts both closing $18.82/lb. European Moly Oxide sits at $17.98/lb. The rise in moly prices has been good for General Moly (GMO) share price which jumped over 2.5% to $2.72 in early trading on an otherwise mixed day for miners. General Moly is expected to report Fiscal Year 2009 results tomorrow, 3/5. Stay tuned.


Although pulling back some today, gold has gained momentum this week. On Tuesday, I picked $1120/oz as a nominal price for this month (The Colonel's Outlook for March). Yesterday the COMEX closed at $1143.3/oz (April contract). There is an excellent interview with Brien Lundin of Jefferson Financial in Mineweb this morning on what may happen next for gold and perhaps as importantly, silver:

Gold still looking good but silver, even better (Mineweb, The Gold Report, 03/04/2010)

The Report has been signaling that silver appears cheap with respect to gold since last November (Why is Silver So Cheap?). Mr. Lunden argues that $1250 is a key level for gold, if it breaks that resistance silver may head for $20. Here is an excerpt from The Gold Report (TGR) interview:

TGR: Going back to what you said earlier about [how you] see gold up to $1,250 in the next six to eight weeks, if that's the case could silver have a run to, say, $20?

BL: Oh, absolutely, to $19 at least. The gold-silver ratio has gotten out of whack once again and silver's just due for a bounce. I may have seemed a bit pessimistic on gold. I am worried about it, but over the last couple of weeks it seems to me that gold has exhibited a real desire to take off. All that's really kept it back have been headlines here and there about tightening in China, etc. That's exacerbating the volatility in speculative, derivative gold -speculators going in and out of the futures markets. Overseas and worldwide outside the U.S., we've seen very strong physical demand and some of the commercials have begun rolling back their short positions. So from a technical standpoint, gold looks fairly positive in the short term.

How does this square with the ole Colonel's latest models?

For Gold = $1120 (The Colonel's nominal price for March)
The fair value of silver is $17.184 in a range of $15.944 to $18.423

For Gold = $1250 (Brien Lunden's key level)
The fair value of silver is $20.697 in a range of $19.458 to $21.937

Hmmm...looks like Mr. Lunden and I are on the same page. How about a bet for the Colonel's Beer Derby (lower right column of this blog)?

Silver will break $19 before Memorial Day

How's that for putting my money (or beer) where my mouth is?

Enough idle gambling, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The YELLOW light has returned on our fuel gauge with oil above $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is down $0.63 in early trading to $80.24 (April contract, most active); Gold is down $6.9 to $1136.4 (April contract, most active); Silver is down $0.049 to $17.280 (May contract); Copper is down $$0.0430 to $3.3920 (May contract); Western Molybdenum Oxide is up to $18.25, LME Moly 3-month (seller) sits at $18.82

The DOW is up 40.43 points to 10437.19; the S&P 500 is up 3.46 1122.25. The miners are mixed:

Barrick (ABX) $40.10 down 0.11%
Newmont (NEM) $51.32 down 1.20%
US Gold UXG) $2.68 down 4.63%
General Moly (Eureka Moly, LLC) (GMO) $2.72 up 2.72%
Thompson Creek (TC) $14.25 down 0.35%
Freeport-McMoRan (FCX) $79.00 down 0.31% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are up, (a "tell" for General Moly & Thompson Creek):
3
ArcelorMittal (MT) $41.14 up 1.07% - global steel producer
POSCO (PKX) $118.68 up 1.26% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.05% to $1,315,013.25 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

The Colonel's Miners Roundup for March

Morning Miners!

It is 6:02 AM. Let's have another cup and carry on from yesterday - how are our miners looking for March? The fate of metals and miners has been driven by headline news so far this year but beneath all the ups and downs there are some encouraging signs of recovery. This is helped some by this mornings' news of new austerity measures announced by Greece and a better-than-expected national employment report published Wednesday by payroll giant Automatic Data Processing Inc. (ADP). As reported by the Wall Street Journal:

"Private payrolls fell less than expected in February and layoff announcements dropped to their lowest level since 2006, according to data released Wednesday...The February employment decline was the smallest since employment began falling in February 2008. ADP said the adverse weather had only a very small effect on the ADP Report due to the methodology used to construct it." (WSJ, 3/03/2010)

The "Big Boy" labor report will be released Friday by the Bureau of Labor Statistics' which includes government workers and many believe will be more affected by the recent weather. It appears the markets are adjusting to this fact so a bad number may not have the impact some expect (e.g., White House top economic adviser Lawrence Summers lowered expectations the other day during a CNBC Business News Interview by anticipating higher job losses for February).

Why does this matter to miners? The sovereign debt issues of developed countries such as Greece and U.S. unemployment are perceived to be the major overhangs on the pace of both domestic and global recovery. Bad news on either front is a body blow to metals and miners; good news pushes those sectors to the front of broader market rallies. Beneath all this day-to-day hoohaa there does seem to be some steady improvement, how do we know?


Dennis Gartman, the "Commodity King", says simply, "Look for charts that go from the lower left to the upper right." South Korean steelmaker POSCO (PKX) (and 20% investor in our Mt. Hope) provides a text book example of what Gartman believes desirable. Here is a one-year chart of their stock performance:


The solid line is a 200-day average which is trending steadily upward. Even with the volatility in January and February, their share price has remained above the 200-day line. That's a Gartman Yee-ha! Let's look at our two benchmark miners; Freeport-McMoRan (FCX) as an overall bellwether and Thompson Creek (TC) as a major moly producer:



Hmm...not too bad. Both dipped to their 200-day but have recovered nicely. Before we look at our local miner's charts let's see how everyone is doing with respect to their averages:

Benchmarks:

Freeport-McMoRan 200-day $69.00; yesterday's close $77.98
Thompson Creek 200-day $12.00; yesterday's close $14.09

Local miners:

Barrick (ABX) 200-day $37.50; yesterday's close $39.47
General Moly (GMO) 200-day $2.50; yesterday's close $2.60
U.S. Gold (UXG) 200-day $2.70; yesterday's close $2.81

This is in stark contrast to their collective performance as reported January 29th, Freeport "Broken", Miners in Correction. Things may be looking up pardner.

Here are the respective charts for ABX, GMO and UXG:




While not "textbook Gartman", the upward trend in all three is evident and current stock prices are all above the 200-day averages. U.S. Gold is the only miner that is seeing their average line start to flatten. If we can keep this herd moving from the "lower left to the upper right" things may indeed be looking up for the miners. Hang in there buckaroos!

Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The YELLOW light has returned on our fuel gauge with oil above $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is up $1.13 in early trading to $80.81 (April contract, most active); Gold is up $5.4 to $1142.8 (April contract, most active); Silver is up $0.271 to $17.335 (May contract); Copper is up $$0.0495 to $3.4610 (May contract); Western Molybdenum Oxide is steady at $17.50, LME Moly 3-month (seller) ticks up to $19.28

The DOW is up 52.52 points to 10458.50; the S&P 500 is up 6.61 1124.92. The miners are still rocking today:

Barrick (ABX) $40.39 up 2.33%
Newmont (NEM) $52.47 up 1.49%
US Gold UXG) $2.81 unchanged
General Moly (Eureka Moly, LLC) (GMO) $2.66 up 2.31%
Thompson Creek (TC) $14.40 up 2.20%
Freeport-McMoRan (FCX) $80.17 up 2.81% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are still pouring metal, (a "tell" for General Moly & Thompson Creek):
3
ArcelorMittal (MT) $41.23 up 4.51% - global steel producer
POSCO (PKX) $118.70 up 1.12% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 2.07% to $1,325,755.16 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

The Colonel's Outlook for March

Morning Miners!

It is 6:03 AM. Let the ole Colonel pour you a cup and let's look into the crystal ball for March. In the big picture, fears about Greece are beginning to subside (again), Chilean copper mines are up and running and oil is pushing $80. Gold is seeing a nice pop today on the London spot market and all is well (for now).


Of course some new twist on the sovereign debt crisis or a bad jobs report Friday could send everything falling back to the lower levels of the mine (again). I think we are in for a fairly volatile year if the first two months are any indication. Commenting on the U.S. economy yesterday, billionaire investor Warren Buffet said with a wry smile, "Things are slightly better." (CNBC Business News, 3/01/2010)

My hero Dennis Gartman, "The Commodity King", had this to say about gold:

"Gold is weak in U.S. dollar terms, but it is a good deal stronger in Euro, Sterling and Swiss franc terms," said market newsletter writer Dennis Gartman. He said trade will be volatile in dollar trading because of wider concerns about the market recovery and debt in Europe. (WSJ, 3/02/2010)

In the Report outlook for February, the ole Colonel picked $1120/oz as a nominal price for the month. February closed very near this level but witnessed a scary intraday dive to $1044 on 2/05. Volatile, pardner. I think I can count as many reasons for gold to rise as fall so the Report will maintain $1120/oz as a nominal price for March. This is close to its 1-year, 3-year and 5-year trend lines. Gold really needs to sort out what its role will be in the coming months - a fellow traveler with the metals and oil or safe haven play for investors fleeing the commodity space. If gold and oil re-establish an inverse relation (on average) we may be headed for some tough times. I'm riding point on this one buckaroos.

My updated commodity models for the month of March for silver, copper and oil assuming $1120/oz gold are:

The fair value of silver is $17.184 in a range of $15.944 to $18.423

The fair value of copper is $3.2170 in a range of $2.9363 to $3.4977

The fair value of oil is $76.55 in a range of $70.33 to $82.77

Given this morning's COMEX price of $16.690, silver has a little giddy-up go but remains undervalued with respect to gold. Silver malaise began last November when we asked the question, Why is Silver So Cheap?. There appears to be new money flowing silver's way and it remains relatively cheap if you are in the gold-is-headed-higher camp.

Copper is overvalued with respect to gold at $3.3575 and came very close to its $3.4977 upper limit right after the Chilean earthquake. The $3.50 point is a very tough level of resistance for this metal and it will no doubt head a bit south now that the Chilean mines are back online. A recent reduction in the London Metal Exchange (LME) inventories is positive sign for copper price.

Oil appears to have less resistance for going up than down lately. At $79.34 this morning it sits above "fair value" with the yeller stuff and will no doubt break $80 again absent any bleak news on global recovery.

Molybdenum appears to be on an upward trajectory with a slowly recovering U.S. steel industry, an uptick in European stainless steel demand and successful launch on the LME last week.

Latest Molybdenum News

"US steel production, capability utilization still rising - According to American Iron and Steel Institute (AISI) data, domestic steelmakers operated with a capability utilization rate of 69% for the week ended February 27, producing nearly 1.7m short tons - up about 0.5% from the week before." (Steel Business Briefing, 3/01/2010)

Below is a wrap up of molybdenum Monday (3/1) price action. The 3-month LME futures contract broke $19/lb continuing its upward trend:

Western Moly Oxide (FeMo65) $17.50/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.42/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

3-Month (Buyer) $40,000/metric ton $18.14/lb
3-Month (Seller)$42,000/metric ton $19.05/lb
1
15-Month (Buyer) $39,500/metric ton $17.92/lb
15-Month (Seller)$41,500/metric ton $18.82/lb

Here is the price action of the LME 3-month contract (seller) from last Monday's launch:



Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The GREEN light has returned on our fuel gauge with oil just below $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is up $0.64 in early trading to $79.34 (April contract, most active); Gold is up $5.2 to $1123.5 (April contract, most active); Silver is up $0.221 to $16.690 (May contract); Copper is up $$0.0075 to $3.3575 (May contract); Western Molybdenum Oxide is steady at $17.50

The DOW is up 35.59 points to 10439.38; the S&P 500 is up 5.84 1121.55. The miners are rocking today:

Barrick (ABX) $39.35 up 2.34%
Newmont (NEM) $51.23 up 1.89%
US Gold UXG) $2.82 up 2.17%
General Moly (Eureka Moly, LLC) (GMO) $2.55 up 2.00%
Thompson Creek (TC) $14.50 up 1.68%
Freeport-McMoRan (FCX) $76.92 up 0.61% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are pouring metal, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $39.27 up 2.45% - global steel producer
POSCO (PKX) $117.65 up 0.79% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.53% to $1,296,878.64 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus

Miner's Monday Tax Surprise, Copper & Euro Moly Jump

Morning Miners!

It is 5:57 AM. Grab a warm one and let's kickoff a new month and a news-filled Monday. Nevada miners will start the week with a new claims fee to help close the state budget gap. A special session of the Nevada Legislature ended in the early morning hours with Nevada miners agreeing to pay a new fee on mining claims as reported by Mineweb:

Nevada mining to pay new claims fee to help shore up state budget shortfall (Mineweb, 3/1/2010)

The new tax is alleged to be temporary:

"Nevada Mining Association CEO Tim Crowley told Mineweb the new tax on mining claims is based on a four-tier system ranging from $0 to $195 per claim, depending on the amount of claims held by a mining or exploration company in the Silver State. The new fee is scheduled to sunset in June 30, 2011, which is when the current biennial state budget ends." (Mineweb, 3/1/2010)

We have been following other potential new taxes on miner's in the Report (Nevada Miner's New Taxation Worry, 2/17/2010), not a happy situation for a state that is already experiencing a decline in gold production. Phooey.

Fortunately a tsunami didn't wash away Eureka over the weekend but the 8.8 magnitude earthquake in Chile did cause a jump in copper prices. At the COMEX open (Sunday, 3:00 PM PST) copper hit $3.487 before falling back to the $3.30 level this morning. Another encouraging sign is a decrease in the London Metal Exchange warehouse stocks which have been steadily building since the beginning of the year.


It looks like a favorable day for the metals and miners even though the U.S. dollar is back in rally mode with more dark news coming from Europe. As reported by the Wall Street Journal this morning:

NEW YORK--The U.K. pound fell sharply against the dollar as concerns over the country's fiscal position and an uncertain political picture led investors to sell off sterling more than 2% on the day...The euro also declined against the dollar as investors wary of Greece's swollen debt questioned whether reports of a possible aid plan would pull that country--and the rest of the teetering euro zone periphery--from the fiscal doldrums. (ESJ, 3/1/2010)

The ole Colonel will continue tracking these events across the pond like a hungry coyote in a snow storm.

Latest Molybdenum News

"Pick-up in stainless output supports FeMo price in Europe - The price of ferro-molybdenum in Europe is continuing to rise and trading sources canvassed by Steel Business Briefing say the price will go even higher over the next few weeks. The price of FeMo in warehouse duty paid Rotterdam is around $41.50-42/kg (€30.55-30.92/kg)[or $18.82/lb], which is up from $36.50/kg [or $16.56/lb] last month." (Steel Business Briefing, 3/01/2010)

Below is a wrap up of molybdenum Friday (2/26) price action. The 3-month and 15-month LME futures contract are now both above $18/lb, an encouraging sign for this nascent market:

Western Moly Oxide (FeMo65) $17.50/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.42/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

3-Month (Buyer) $38,000/metric ton $17.24/lb
3-Month (Seller)$39,900/metric ton $18.10/lb

15-Month (Buyer) $37,900/metric ton $17.19/lb
15-Month (Seller)$39,900/metric ton $18.10/lb

Here is the price action of the LME 3-month contract (seller) from last Monday's launch:


Enough talk, let's walk the walk:

4-WD is OFF - the VIX or "fear index" is below 25, improving broader markets are expected; metals & miners have a smoother road with FCX above $74 (what is this?)

The YELLOW light is back on our fuel gauge with oil just above $80

An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

NYMEX/COMEX: Oil is up $0.59 in early trading to $80.25 (April contract, most active); Gold is down $0.8 to $1118.1 (April contract, most active); Silver is up $0.024 to $16.545 (May contract); Copper is up $$0.0795 to $3.3635 (May contract); Western Molybdenum Oxide is steady at $17.50

The DOW is up 43.76 points to 10369.02; the S&P 500 is up 6.64 1111.13. The miners are mixed:

Barrick (ABX) $37.56 down 0.27%
Newmont (NEM) $49.09 down 0.39%
US Gold UXG) $2.72 up 1.12%
General Moly (Eureka Moly, LLC) (GMO) $2.40 up 2.13%
Thompson Creek (TC) $14.00 up 1.82%
Freeport-McMoRan (FCX) $76.14 up 1.31% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are mixed, (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $38.04 down 0.47% - global steel producer
POSCO (PKX) $116.13 up 0.58% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.70% to $1,263,043.41 (what is this?).

Cheers,

Colonel Possum

Headline photograph by Mariana Titus