The Colonel's Metals Outlook; Metals & Miners Weekly Roundup

Morning Miners!

It is 5:49 AM. Have a cup of Monday Hooyah Java - give it a shout and let's get to work...

The Colonel's Metals Outlook

It's a tough way to start a week when you're wondering whether that rustle in the bushes is a bear or just a bull who has lost his way. That's the June markets, pardner. Does the bull find its way back to pasture this summer or are we headed for some serious bear country?

At Friday's close our trusty Eureka Miner's Index(EMI) dropped to a another new low for 2011 (see below). I keep waiting for the EMI to bottom so we can head back up the canyon; maybe today...maybe not. We'll check on that in a moment when the broader markets open.

Dennis Gartman, "Commodity King" and respected author of the Gartman Letter, has been a busy prognosticator lately. Last week he was very bullish on gold at least in terms of the euro or pound sterling. This morning, Mr. Gartman is sending up warning flares on base metals, especially copper, as reported in a Kitco Market Nugget:

Market Nuggets: Gartman: Copper, Other Base Metals On Defensive Amid Economic Worries (Kitco News, 13 June 2011, 08:54 a.m.)

You may have to do a little digging on this link because the Market Nuggets update frequently. Mr. Gartman ponders the fate of copper and base metal prices given worrisome signs about the economy in the U.S. and elsewhere:

“Copper’s history is that when long-term, well defined upward sloping trends are broken, long-term, definitive and oft times surprisingly large bear moves follow. A close today or this week below the psychologically and technically important $4/lb level shall make the case for $3.50/lb to follow hard upon...and even that support shall likely prove ephemeral we fear,” he says. “And we need to note here that it is not just copper that is showing signs of fatigue; so too are most other base metals.”

Nuts. Nuts...Nuts.

Copper has been our faithful canary in the global recovery mineshaft since the darkest days of March 2009. I dread finding our faithful friend feet-up one morning in the COMEX cage. This is just a Gartman warning - one I'll listen to, however.

This weekend the ole Colonel updated his own models of oil, gold, silver and copper to see what lies ahead. You may recall that I look at commodities in relation to a reference commodity (gold or oil) to determine fair value, ranges and trends. Here is an example of copper versus gold prices:



Each chart is a scatter plot of recent futures prices for a commodity (e.g. copper) versus the reference commodity (e.g. gold). I then update a model each month (magenta line) with 3-month data for each commodity pair. The aqua lines show a statistical boundary for current price variations (yellow wiggly line) from the model. The blue line is a 20-day moving average of the commodity pair price. You can find larger plots of copper versus gold, copper versus oil, oil versus gold and silver versus gold near the bottom of this blog page.

Last month I predicted that COMEX gold prices would break $1,600/oz sometime before Labor Day. This would probably take a pretty scary headline to drive investors back to gold's safe haven but there are any number of possibilities these days (e.g., gridlock on raising the U.S. debt ceiling followed by a big hiccup in the bond market). One would expect commodities to suffer on such news and that is what the above plot suggests; as gold prices increase, copper prices fall consistent with Mr. Gartman's current thinking (i.e. gold bull, base metal bear).

Here is how copper, silver and oil fare in this scenario. For COMEX gold = $1,600/oz:

The fair value of COMEX copper is $4.0238/lb in a range of $3.7437/lb to $4.3039/lb
The fair value of COMEX silver is $44.751/oz in a range of $37.904/oz to $51.610/oz
The fair value of NYMEX oil is $108.13/bbl in a range of $98.54/bbl to $117.73/bbl

Today COMEX copper is trading very near the above fair value at $4.0270/lb. It could, however, fall below $3.75/lb as suggested by the lower limit. According these models, COMEX silver moves up with gold on scary news and could take another shot at breaking the Hunt Brother's all time record of $50.35/oz. I think this unlikely because silver will no doubt feel the headwinds of falling industrial demand in a downbeat economic scenario. Today COMEX silver is trading at $35.715/oz.

I'm less confident in the NYMEX oil numbers since the 3-month correlation of oil and gold just flipped negative (see below) this morning. Copper and oil are still showing a fairly tight positive 1- and 3-month correlation (both above 0.6) so it is likely that if copper falls, so will oil. Today NYMEX oil is trading down at $98.61/bbl.

Molybdenum spot prices are below $17/lb but remain fairly stable. Detailed prices and futures may be found below in the Weekly Molybdenum Roundup below.

The broader markets are now open with the S&P 500 and DOW up slightly from Friday's close. Let's see how our poor miners are feeling.

Eureka Miner's Index (EMI)

The Eureka Miner's Index (EMI) gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. Below is a chart of the EMI at Friday's close. The magenta line shows the EMI; a composite of three benchmark miners, key oil and metal prices, the 10-year Treasury rate and market volatility (.VIX). A 1-month moving average is given by the blue line (a larger, more readable chart can be found near the bottom of the blog page):


This morning the Eureka Miner's Index(EMI) is above-par at 213.80, up from Friday's new 2011 low of 211.88 and below the 1-month moving average of 266.27. The EMI continues to be down from the high set on January 4th and the 1-month moving average has established a troubling downtrend.

The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners relevant to Eureka County.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 79.68 up from Friday's close of 79.08 and above the 1-month moving average is 78.45. Gold is gaining value. Today's Value Adjusted Gold Price (VAGP) is $1,601.2/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value 0f 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Below is a chart of the GVI at Friday's close. The magenta line shows the GVI, a 1-month moving average is given by the blue line and the dotted line represents a "fair value" for a commodity-based valuation based on historical data (a larger, more readable chart can be found near the bottom of the blog page):



Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $98.61
ICE North Sea Brent crude $119.96
Spread (ICE- NYMEX) = $21.35 (Friday $18.85)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $99.77
ICE North Sea Brent crude $118.88
Spread (ICE- NYMEX) = $19.11 (Friday $16.77)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110 Brent and $90+ NYMEX in September favoring high oil prices throughout the summer. Today's jump in spreads is notable. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. With supply and demand fundamentals returning to the commodity space, diminishing correlations between key commodities are less alarming but trends should still be carefully monitored especially with spiking oil prices.

Here are the latest correlations given this morning's NYMEX/COMEX trading:

Oil/Au correlation +0.5572(1-month) -0.0338 (3-month)
Cu/Au correlation +0.6125 (1-month) -0.5505 (3-month)
Cu/Oil correlation +0.6831 (1-month) +0.6560 (3-month)

Here are the numbers from our last roundup (5/31/2011):

Oil/Au correlation +0.7892(1-month) +0.2439 (3-month)
Cu/Au correlation +0.7658 (1-month) -0.4468 (3-month)
Cu/Oil correlation +0.7342 (1-month) +0.5404 (3-month)

We now have two negative correlations with further deterioration in copper versus gold (1-month)and oil versus gold has just put a toe in 3-month negative territory, a bearish sign. Copper versus oil (3-month) maintains a fairly tight positive correlation for both 1- and 3-month data (>0.6). The metals & miners tend to do best when all correlations are positive.

According to my new June models (see bottom of blog page): oil is presently undervalued with respect to gold by -1.57 standard deviations and copper is undervalued by -0.81-standard deviations. Copper is presently undervalued with respect to oil by -0.76-standard deviations.

One way to visualize these correlations over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in a graph of oil versus gold and copper versus gold. The blue line indicates the correlation trajectory since October 1st; the magenta line is more recent data (ref: China to the Rescue?):



In the case of oil versus gold, we start out on 10/1/10 in the "+,-" or "yellow" quadrant and move upward until both are positively correlated (i.e. in the "+,+" or "green" quadrant). Copper correlated positively faster than oil last fall and has was initially in the green quadrant longer. Correlation data in this region is typically considered bullish. After a brief venture into the "-,+" quadrant, the return of oil vs gold to the "+,+" side was bullish but now with a drop into "+,-" quadrant the trajectory has turned bearish; the movement of copper vs gold in the "+,-" quadrant is down and bearish.

Gold:Oil, Oil:Copper & Gold:Copper Ratios

The Report has been tracking the stability of the gold:oil, oil:copper & gold:copper ratios. Although they ended last year rock solid (<3% variation, 1-standard deviation/mean) the ratios have diverged. The period of divergence is what prompted my January 14th comment to Adella Harding, Elko Daily Free Press, "The recent divergence of our lustrous friend [gold] from copper and oil...may signal a near-term correction for the overall metals and mining sector.". The mining sector remains on shaky ground.

Once the ratios exceed 3% error, they become less useful in predicting the price moves of one commodity with respect to the another in the ratio pair. The errors have been falling lately which suggests a return to greater stability.

For the past 3-months we have these statistics given this mornings' numbers:

Gold:Oil ratio

mean 14.289 bbl/oz
variation > 3.0% limit at 5.82% (1-standard deviation/mean)

Oil:Copper ratio

mean 24.85 lbs/bbl
variation > 3.0% limit at 3.86% (1-standard deviation/mean)

Gold:Copper ratio

mean 354.84 lbs/oz
variation > 3.0% limit at 5.70% (1-standard deviation/mean)

Weekly Molybdenum Roundup

Spot prices for molybdenum oxide are below $17/lb territory with $16.42/lb out West and $16.60/lb in Europe. Western and Euro moly spot prices remain in a mild contango with both 3-month and 15-month London Metal Exchange (LME) seller contracts. (contango occurs when the price of a commodity for future delivery is higher than the spot price, or a far future delivery price is higher than a nearer future delivery; backwardation is the opposite of contango).

The 3-month seller at $17.01/lb is comfortably above the Colonel's mid-range moly price target for 2010 of $15.71/lb but below my target of $20.21/lb for 2011. The Report will give moly prices a "yellow-green" light on the Eureka Outlook Dashboard for now. I did believe we could see much higher prices this year although recent commodity reversals have put a damper on that expectation. There is an excellent analysis of the supply/demand argument for $20+/lb moly provided by General Moly's Seth Foreman in the General Moly Update.

Here is a detailed pricing summary for last week:

Western Moly Oxide $16.42/lb (FeMo65, the price tracked by Infomine - see the side bar graph in the lower right column)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.60/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $37,200/metric ton $16.87/lb

3-Month (Buyer) $36,750/metric ton $16.67/lb
3-Month (Seller) $37,500/metric ton $17.01/lb

15-Month (Buyer) $35,500/metric ton $16.10/lb
15-Month (Seller) $38,750/metric ton $17.58/lb

Here is a 1-year chart of the LME 3-month contract (seller), please ignore the data glitch at the far right hand portion of the LME chart:




Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - The miners are in a rough shape; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is below its 200-day average of $51.08(our new warning level, 06/10 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch as the Federal Reserve resumes buying Treasurys (aka QE2)

The YELLOW light is turned back on for Investor Confidence as investors begin to avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90/bbl

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.68 in early trading at $98.61 (July contract, most active); Gold is down $2.2 to $1527.0 (August contract, most active); Silver is down $0.612 to $35.715 (July contract, most active); Copper is down 0.0290 to $4.0290 (July contract, most active)

Western Molybdenum Oxide is $16.42; European Molybdenum Oxide is $16.60; LME moly 3-month seller's contract is $17.01, LME cash seller is $16.87

Stock Market Morning Update

The DOW is up 39.43 points to 11,991.34; the S&P 500 is up 3.89 at 1,274.87

Miners are mixed:

Barrick (ABX) $43.52 down 0.09%
Newmont (NEM) $52.16 up 0.12%
US Gold (UXG) $5.66 down 1.39%
General Moly (Eureka Moly, LLC) (GMO) $4.36 up 0.93%
Thompson Creek (TC) $9.55 up 0.53%
Freeport-McMoRan (FCX) $49.01 up 0.16% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.82 up 0.07%

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

ArcelorMittal (MT) $32.26 up 0.12% - global steel producer
POSCO (PKX) $100.25 up 0.59% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.21% at $1,612,483.46(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (Wiki).

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Gold Down, Elko Expo Up - Buy Gold?

Morning Miners!

It is 6:02 AM. Have a welcome cup of Raine's Golden Friday. Somebody is happy about gold - maybe you should be happy too...


Gold, Silver, Copper Drop

COMEX gold and silver held hands and took a lover's leap at 8:20 AM ET. After a 50-minute fall gold was down $15.7 at $1,526.70/oz or 1.0%; silver was down $0.91 at $36.460/oz or 2.4%. Both have come up for a gasp of air, now trading at $1,530.50/oz and $36.740/oz respectively. Spot copper dropped more than a percent this morning too; COMEX copper is presently holding above $4/lb at $4.0560/lb down 1.25%. Nuts.

Pretty rough way to start a morning or is it? I couldn't make it this year but Mining Editor Adella Harding reported last night that there are lots of happy gold miners at the annual Elko Mining Expo:

Mood upbeat at Elko Mining Expo (Adella Harding, Elko Daily Free Press, 6/9/2011)

She begins the article by quoting Elko Mining Expo volunteer Jackie Williams, "Everybody is smiling when gold is up." Hey, the ole Colonel can't argue with that - gold IS above $1,500/oz and I'm sticking with my prediction that we'll see $1,600/oz before Labor Day. Apparently, visitors pouring into the sold-out Expo are feeling pretty upbeat too.

Buy Gold?

Dennis Gartman, "Commodity King" and author of the respected Gartman Letter, is feeling pretty chipper about glitter too - at least in euro or pound sterling terms. Kitco News carried one of their Market Nuggets on the Commodity King's latest thoughts, "we no longer consider gold to be a commodity, but is instead a currency and we are recommending strongly that our long gold positions be ratcheted up...we are about to turn violently bearish" of the euro and "all things European" (do a little digging on the Market Nuggets link, they update frequently).

Hmm, that's pretty strong talk, pardner. The U.S. dollar is getting a much needed lift on a falling euro this morning. According to Gartman, currency investors are presently more skittish about the European than United States debt problems. I heard Gartman on CNBC Business News the other day predict that the euro will fall from $1.45 pasture to $1.35 hard scrabble in the near term, it won't break my heart.

When Gartman says he is buying gold in euro or pound terms he is actually buying U.S. dollar gold in an exchange traded fund like the SPDR Gold Trust (GLD) and then shorting the euro and/or pound sterling. This is clever but probably a little tricky for the average investor. Here is how he explains the approach if one were to buy gold in terms of the Japanese yen:

"The position has to be created; that is, one has to buy gold in U.S. dollar terms and then one has to sell the yen against the dollar, leaving one long of gold in yen terms. This can be done in any number of ways, the simplest being to own gold in the form of the gold ETF and then selling spot yen short on the forex market or selling it short on the IMM futures market. The difficulty in the trade is making certain that one has equal sums of dollars on the long and the short side so that one has the trade done in proper dollar equivalency. Or more simply put, if one is long of gold futures and short of yen futures, in the proper sizes, one has bought gold in yen terms. Even broking firms adamantly opposed to trading futures will allow this sort of trade to be done, but will they do it for you? No, you have to do it yourself." (Dennis Gartman)

The Colonel's less effective but simpler approach is to buy the U.S. Dollar Index (e.g., PowerShares DB US Dollar Index Bullish Fund - UUP) which is essentially a "soft short" on the euro and pound sterling (taken together these two currencies comprise 70.5% of the index, see note 2). The advantage is that UUP is also an exchange traded fund like GLD and you don't need a forex account to do currency trades. The risk is that the index does include other currencies like the yen and Swiss franc that may corrupt the purity of the Gartman approach. Good enough for ranch work from where I sit.

"My heads starting to hurt, Colonel! What's your dad blame point?"

Since I already have lots of UUP (perhaps, too much), the ole Colonel decided to buy a little more GLD this morning to balance things up a bit. I don't like to ignore Gartman, especially on a day when gold is pulling back on a strengthening dollar. Now are you a bit more happy?

Please do your own thinking on this one, the Colonel has taken a few wrong turns in the gold/currency forest before.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 230.59, down from yesterday's 239.47 and below the 1-month moving average of 271.45; the lower trend line is 215.01. The EMI is down from the high of January 4th but above the 2011 low of 223.22 set 6/8/2011. The 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 78.66, up from yesterday's 78.49 and above its 1-month average of 78.32. The gold-gaining-value trend has stalled. Today's Value Adjusted Gold Price (VAGP) is $1,625.7/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $100.20
ICE North Sea Brent crude $119.05
Spread (ICE- NYMEX) = $18.85 (Yesterday, $16.58)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $101.21
ICE North Sea Brent crude $117.98
Spread (ICE- NYMEX) = $16.77 (Yesterday, $15.18)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $50.92 (our new warning level, 06/08 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys in June (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The RED light is turned on our Fuel Gauge with oil above $100

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $1.73 in early trading at $100.20 (July contract, most active); Gold is down $12.2 to $1530.5 (August contract, most active); Silver is down 40.684 to $36.740 (July contract, most active); Copper is down $0.0515 at $4.0560 (July contract, most active)

Western Molybdenum Oxide is $16.42; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is down 97.11 points to 12,027.25; the S&P 500 is down 10.00 at 1,279.00

Miners are down:

Barrick (ABX) $44.05 down 0.77%
Newmont (NEM) $52.60 down 0.60%
US Gold (UXG) $5.80 down 1.86%
General Moly (Eureka Moly, LLC) (GMO) $4.38 down 0.45%
Thompson Creek (TC) $9.67 down 2.03%
Freeport-McMoRan (FCX) $49.78 down 0.14% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.07 down 0.36%

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

ArcelorMittal (MT) $32.88 up 0.43% - global steel producer
POSCO (PKX) $100.39 down 1.04% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.98% at $1,637,472.88 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.

It is a weighted geometric mean of the dollar's value compared only with

* Euro (EUR), 58.6% weight
* Japanese Yen (JPY) 12.6% weight
* Pound sterling (GBP), 11.9% weight
* Canadian dollar (CAD), 9.1% weight
* Swedish krona (SEK), 4.2% weight and
* Swiss franc (CHF) 3.6% weight

(source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Time to Feel Good about Something ; Another Question for General Moly (GMO)

Þūnresdæg
Morning Miners!

It is 6:12 AM. Have a cup, our favorite Norseman has just brewed a second pot. "Happy Thor's Day" - it's time to feel good about something...

Time to Feel Good about Something

It is pretty easy to feel glum these days; a lousy jobs report last Friday, the broader markets have been on a six-day losing streak and we may be headed for a sixth consecutive week of declines. While I was on the road this report's Eureka Miner's Index(EMI) plumbed a new low for 2011. The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County so the coldest reading for the year is not particularly encouraging when summer is just 13 days away!

But maybe that's the good news - it's June 9th. Last year, June 7th was arguably the worst day for the metals & miners in 2010. The EMI was sub-par at a lowly 50.67 (par or 100 is the dividing line between cold and hot markets). By the close of 2010, the EMI had reached a white hot 795.98. OK, yesterday's low for the year (so far) was 223.2; cold but not frigid. Some of the same concerns are still with us as last year. For example, here is an excerpt from our June 30th report (Metals & Miners on Shaky Timber):

What's got everybody spooked? Nearly everything would not be a bad answer, checkout this Wall Street Journal summary this morning:

"Treasurys have garnered strong demand [i.e. driving prices higher and yields lower] in recent sessions as concerns rose that an economic recovery could falter in the second half of the year as government stimulus fades away.

Recent data in the U.S. have showed a struggling housing market, and the Federal Reserve last week turned more cautious in its assessment on the economy. Investors increasingly are coming around to the view that the Fed's ultra-low interest-rate policy will remain in place for the rest of the year and even into 2011.
The anxiety was further heightened as a gauge of the economic outlook for China, one of the world's leading growth engines, was revised sharply lower than previously thought. The fear pushed down riskier assets from stocks to commodities." (WSJ, 6/29/2010)

At that time, the 10-year Treasury had headed to sub-3% pasture; today it is 2.942%. I think the WSJ could reprint this same observation by only changing "2011" to "2012" and be spot on. Now for some good news, here is a pair of recent articles to read during your break:

Commodity prices should snap higher in H2, dollar unlikely to recover until 2012 - Morgan Stanley (Rhona O'Connell, MineWeb, Thursday , 09 Jun 2011)

Copper to Surge to Record by Year’s End on Chinese Demand, Barclays Says (Yi Tian, Bloomberg - Jun 8, 2011 9:46 AM PT Wed Jun 08)

The first piece reports that Morgan Stanley does not expect the Federal Reserve to raise rates for at least another year and Chinese economic growth should be sustained. The second quotes Nicholas Snowdon, an analyst at Barclays Capital in London as saying:

“The Chinese market is awakening from the destocking cycle that lasted nine months ...Their backyard inventories have been completely depleted. By July, we will begin to see a steady increase in imports.”

The article goes on to predict that the London Metal Exchange inventories will peak and then decline to satisfy the Chinese demand for the red metal. Here is where the LME inventories stand today:



Still rising but it's not July yet, pardner. Last year copper inventories peaked around 550,000 tonnes before descending on increasing demand and higher prices. Today the LME is at 476,750 tonnes, I'd say we have something here to watch closely in the coming months.

My other question to General Moly (GMO) CEO Bruce Hansen

Last week the ole Colonel had the privilege to ask General Moly CEO Bruce Hansen some questions about his company in particular and the mining sector in general (full report on the meeting and Q&A: Eureka Moly Takes the Cake). With respect to the big picture going forward, Mr. Hansen cited continued strong "Asia-centric" demand for steel and China's shift from being a net exporter to net importer of molybdenum as bullish signs for both GMO and the important alloy of high-quality steel. He did, however, caution that headwinds such as persistent debt problems of the "PIIG" countries (Portugal, Ireland, Italy and Greece) could weigh on the prospects for the sector.


Our discussion shifted to the price of copper and Non-Executive Chairman Patrick James (above right) pointed to the demand for the red metal in rapidly expanding offshore automobile production. With a lot of former copper miners in the audience, there was some levity about $4/lb copper with respect to the sub-$1/lb levels in the good ole days. Copper prices are important to monitor because they have proved to be a reliable barometer for global growth. I believe there was common agreement in the room that supply restriction may very well keep most metal prices up even though the demand picture is much tamer than envisioned early in 2011. All in all, a positive outlook with some prudent caution from the staff of General Moly.

The broader markets are now open and it looks like we may be on our way to breaking a losing streak. I just threw a few shares of South Korean steelmaker (and 20% owner of Mt. Hope) POSCO (PKX) and copper giant Freeport-McMoRan (FCX) in the buckboard. History often does not repeat in markets - we probably won't have the mad dash post-June metals & miners rally of 2010 but I'll bet you we'll close the year in a lot better shape than yesterday's EMI low. Oh, what about General Moly (GMO) stock? Shucks, I already picked up some more of that in gloomy May.

Always do your own research folks, the ole Colonel could be dead wrong.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 239.47, up from yesterday's 2011 low of 223.2 and below the 1-month moving average of 276.48. The EMI is down from the high of January 4th and the 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 78.49, up from yesterday's 78.58 and above its 1-month average of 78.24. The gold-gaining-value trend has stalled. Today's Value Adjusted Gold Price (VAGP) is $1,640.0/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $101.44
ICE North Sea Brent crude $118.02
Spread (ICE- NYMEX) = $16.58 (Yesterday, $16.96)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $102.41
ICE North Sea Brent crude $117.59
Spread (ICE- NYMEX) = $15.18 (Yesterday, $15.06)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $50.92 (our new warning level, 06/08 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys in June (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The RED light is turned on our Fuel Gauge with oil above $100

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.70 in early trading at $101.41 (July contract, most active); Gold is up $1.8 to $1540.5 (August contract, most active); Silver is up $0.635 to $37.255 (July contract, most active); Copper is down $0.0435 at $4.0650 (July contract, most active)

Western Molybdenum Oxide is $16.42; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is up 56.99 points to 12,105.93; the S&P 500 is up 6.77 at 1,286.33

Miners are mixed:

Barrick (ABX) $44.09 down 0.52%
Newmont (NEM) $52.43 up 0.17%
US Gold (UXG) $5.79 up 0.35%
General Moly (Eureka Moly, LLC) (GMO) $4.26 up 1.91%
Thompson Creek (TC) $9.90 up 1.02%
Freeport-McMoRan (FCX) $49.17 up 0.72% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.92 up 0.52%

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

ArcelorMittal (MT) $32.44 up 0.59% - global steel producer
POSCO (PKX) $100.57 up 1.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.65% at $1,633,150.69 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Eureka Moly (GMO) Takes the Cake!

Morning Miners!

It is 5:22 AM and the morning greets the Diamond Valley with a ruby smile. Let me pour you a freshly brewed cup of Raine's Red Label. The ole Colonel can't think of a nicer day to start this 500th market report for Eureka County. We started in March, 2009 and have only missed a few when I've been on the road. By the by, I'll be following that white line again soon but this report will be back on the air bright and early next Thursday, June 9th.

Eureka Moly (GMO) Takes the Cake!

Yesterday, Eureka Moly LLC held a mid-day and evening town hall meeting at the Opera House to provide the community with an update on the nearby Mt. Hope Molybdenum Project and to introduce its new General Manager Mike Iannacchione ("Mike I" to his friends and fellow employees). Mariana and I made the second show and boy was it ever fun!



General Moly CEO Bruce Hansen, Non-Executive Chairman of the Board of Directors Patrick James and V.P. of Engineering Bob Pennington all came to Eureka to support the meetings. I believe they would agree the cake for Mike Iannacchione stole the show. Brenda's Cakes & Confections (note 2) created a colorful replica of Mt. Hope complete with the sign by HWY 278, a haul truck, chunks of molybdenum, sage brush and cacti - all edible. The cake said "Welcome to Eureka Moly Mike" and was a real treat for young and old.



We began the evening with a delicious meal (the cake was for later) that featured meatballs with bean, potato and green salads catered by our local Pony Express Deli. Eureka Moly's Zach Spencer kicked off the meeting by introducing Mike I to the attendees who included a good cross-section of the county; local business folks, miners, farmers and ranchers. Many in attendance remember Mike when he was a superintendent at the Atlas Gold bar Mine in the late 1980s-early 1990s. Mike was born and raised in Ely and is a third generation miner. While at Atlas two of his six children attended Eureka schools; his wife still teaches school. Mike I comes with a solid background in Northern Nevada Mining including the Robinson, Round Mountain and Marigold mining operations in addition to his tenure at Gold Bar. Welcome back Mike!


After Mike spoke and shared a few good humored comments about the cake, Eureka Moly's Environment and Permitting Pat Rogers gave an update on the EIS and the ongoing water rights issues. He reminded the audience that once in full operation, Mt. Hope will require 7,000 gallons of per minute 24-7. For this reason, Eureka Moly is taking every precaution to ensure that the agricultural concerns in Diamond valley will not be adversely affected. Although the primary Mt. Hope water draw is from a basin separate from Diamond Valley there is reasonable concern from many that depend on water for their livelihoods that they may eventually be impacted. To address these concerns, Eureka Moly plans to monitor the water drawdown on both sides of the Whistler Range to periodically check their models with reality. Nonetheless, the water issue continues to delay the pemititng process.

The next speaker was CEO Bruce Hansen who introduced Non-Executive Chairman Patrick James. Pat was appointed to the Board of Directors last December and shares much mining experience with Bruce in the past including Santa Fe and Pacific Gold operations. Bruce Hansen then commented on a range of topics including the 400+ Mt. Hope high-quality jobs, significant school, county and state tax benefits, and outreach to politicians at the local, state and federal level.

Bruce mentioned the good work consultant Elaine Barkdull Spencer has done in forming the Eureka Business Netwwork (which has a terrific cattle-brand-style logo), including surveys and communication with local business leaders (Elaine's Barkdull Spencer Agency link is included in the Miner's Corner to your right). General Moly's CEO then commented on other community contributions including new stadium lights and scholarship programs.

With the permitting and water rights delays, most folks were interested to see the latest schedule for Mt. Hope. It is the same as the one presented at last week's Goldman Sachs Basic Materials Conference. If all the schedule Q2s & Q3s make your head spin, I roughed out worst-case/best-case dates last week in the Report. It goes like this: mine construction is expected to start sometime between mid-April and late December of next year, the first pound of molybdenum comes from Mt. Hope production sometime between hunting season 2013 and Labor Day 2014.


Vice President Bob Pennington, who also comes with a generational mining background, followed Bruce with engineering and construction updates. He began by discussing the expected 200 million dollar tax revenues to Eureka County and the 600 jobs required to support the construction stage. Bob then expanded on Pat Roger's comments on water with a description of Eureka Moly's "monitor & mitigate" plan to protect Diamond Valley agricultural interests. They will have a recovery plan in place if there is any observed water draw-down moving towards the Diamond Valley. Bob closed by saying he believed the business community was "jazzed" about the Mt. Hope Project bringing economic benefits to the town and county.

Bob then opened the floor to Q&A from the audience. Eureka's Pete Edera asked if Kennecott's expanded molybdenum operations would compete with General Moly's business plan. Bruce Hansen answered that their new autoclave facility would improve Kennecott's process and avoid costly off-site roasting costs in Mexico. He didn't, however, foresee it impacting the global moly market significantly. Bob interjected that it is the goal and mission of General Moly to become the "world's largest moly producer."

This report asked whether other strategic minerals (e.g. rhenium) may be discovered at Mt. Hope during the production phase. Bob answered that they would be on the hunt for that and precious metals then determine their economic potential for processing or stock piling. Pretty exciting stuff, pardner.

The report also asked Bob Hansen to give an overview of the mining sector as well as General Moly in light the recent downgrades of domestic and global growth expectations. I'll save his thoughtful comments and insight for upcoming blogs in light of a dismal U.S. Labor Department jobs report released this morning. Hey, I'm still an optimist - keep the faith.


Q & A was followed by one-on-one discussions at various booths that included operational planning, taxes and permitting. Mt. Hope Engineer and good friend of this report Juanita McCord stood ready to answer engineering questions and helped served the delicious cake; the Colonel got a chunk of moly, Mike I got the haul truck.



I then had a chance to chat with Bruce Hansen. He mentioned that there were other things he could have done in his life. I said, "I bet you're doing Mt. Hope because you love this work." There was a twinkle in his eye - I can relate, I love to report on a project that is so important to the future of Eureka County.

A special thanks to my wife Mariana who captured the images for this article and the previous 499. Have a great weekend folks!


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 274.62, down from yesterday's 288.40 and below the 1-month moving average of 289.54. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. The 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 80.31, up from yesterday's 78.72 and above its 1-month average of 77.90. The gold-gaining-value trend has picked up. Today's Value Adjusted Gold Price (VAGP) is $1,606.8/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $98.62
ICE North Sea Brent crude $113.80
Spread (ICE- NYMEX) = $15.18 (Yesterday, $14.90)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $101.35
ICE North Sea Brent crude $114.48
Spread (ICE- NYMEX) = $13.22 (Yesterday, $13.13)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $90+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is still below its 200-day moving average of $50.50 (our new warning level, 05/31 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The ORANGE light is turned on our Fuel Gauge with oil above $90

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $1.78 in early trading at $98.62 (July contract, most active); Gold is up $11.6 to $1544.3 (August contract, most active); Silver is down $0.492 to $35.710 (July contract, most active); Copper is down $0.0200 at $4.0645 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is down 75.00 points to 12,173.55; the S&P 500 is down 6.96 at 1,305.98

Miners are down:

Barrick (ABX) $45.59 down 0.58%
Newmont (NEM) $54.99 down 0.27%
US Gold (UXG) $6.86 down 2.00%
General Moly (Eureka Moly, LLC) (GMO) $4.59 down 1.92%
Thompson Creek (TC) $10.45 down 1.32%
Freeport-McMoRan (FCX) $49.77 down 0.02% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.16 down 1.28%

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

ArcelorMittal (MT) $32.15 down 0.80% - global steel producer
POSCO (PKX) $99.56 down 1.21% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.99% at $1,699,307.02 (what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - Brenda's Cakes & Confections (775-318-1222 or 775-237-5784) earlandbrendao@sbcglobal.net

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Eureka Moly (GMO) Town Hall Meeting Today

Þūnresdæg
Morning Miners!

It is 6:10 AM. Have a cup of Morning Sunshine. Nothing upsets our favorite Norseman more than a clearing sky over a Diamond Valley warming to the morning sun. Thor has had enough fun with stormy weather lately; I'm grabbing him by the horns and taking him down to the Eureka Moly Town Hall Meeting today. If you've never met a semi-retired thunder god come and join us. Looks like we'll be at the afternoon session (5:30 to 6:30 PM, Eureka Opera House) but there's a chance Thor and I will make the noon to 1:00 PM session too.


Welcome aboard to Mike Iannacchione our new Mt. Hope General Manager! The ole Colonel has heard General Moly CEO Bruce Hansen and Independent Chairman Patrick James also plan to attend.

Stormy Markets

Thankfully, it looks like the markets are getting a little needed sunshine today too - at least the metals & miners are getting back on their feet. We left yesterday with a lot of troubling domestic and global economic news on our morning doorstep: China PMI suggested the dragon was running out of fire, the ADP jobs report disappointed and ISM numbers indicated a suprising decline in manufacturing in the United States last month. After this report signed off the poor data led to a global selloff in markets with our own DOW plunging 279 points; the S&P 500 falling 31 points. Pretty ugly.

Although COMEX copper sold off it managed to stay above $4/lb and this morning is trading down slightly at $4.0960/lb. If we can avoid a reversal in copper price at the close (i.e. lower high, lower low and lower close from yesterday), Wednesday may have been more willies than worry. Sub-3% 10-year Treasurys are a scary signal from the bond markets (currently, 2.995%) and the U.S. dollar remains weak against the euro (U.S. dollar index is back to early May levels).

It's almost pointless to predict where the markets head next until tomorrow's U.S. Department of Labor jobs report is released at 5:30 AM PT. The broader markets are now open and the miners are mixed but mostly up with bellwether Freeport-McMoRan (FCX) trying to crawl back above its 200-day average, General Moly (GMO) is getting a nice pop to the upside trading at $4.64 and Barrick (ABX) is holding ground at $47.26. The Eureka Miner's Index(EMI) is back below its 1-month moving average but not by much retreating to 288.4 from yesterday morning's 335.9 (see below). Stay tuned, tomorrow is the BIG ONE.

See you at the Opera House!


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 288.40, down from yesterday's 335.92 and below the 1-month moving average of 297.18. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. The 1-month moving average continues a troubling downtrend.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 78.72, up from yesterday's 77.35 and above its 1-month average of 77.53. The gold-gaining-value trend has stalled. Today's Value Adjusted Gold Price (VAGP) is $1,661.2/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $100.33
ICE North Sea Brent crude $115.23
1Spread (ICE- NYMEX) = $14.90 (Yesterday, $14.05)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $101.35
ICE North Sea Brent crude $114.48
Spread (ICE- NYMEX) = $13.13 (Yesterday, $13.10)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just below its 200-day moving average of $50.50 (our new warning level, 05/31 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The RED light is turned on our Fuel Gauge with oil above $100

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.04 in early trading at $100.33 (July contract, most active); Gold is down $2.6 to $1540.6 (August contract, most active); Silver is down $0.669 to $37.025 (July contract, most active); Copper is down $0.0105 at $4.0960 (July contract, most active)

Western Molybdenum Oxide is $17.00; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is down 20.96 points to 12,509.62; the S&P 500 is down 0.48 at 1,314.07

Miners are mixed:

Barrick (ABX) $47.26 down 0.04%
Newmont (NEM) $56.65 down 0.04%
US Gold (UXG) $7.16 up 2.29%
General Moly (Eureka Moly, LLC) (GMO) $4.64 up 1.98%
Thompson Creek (TC) $10.77 up 1.51%
Freeport-McMoRan (FCX) $50.13 up 1.52% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $14.49 unchanged

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

ArcelorMittal (MT) $32.23 down 0.03% - global steel producer
POSCO (PKX) $100.09 up 0.40% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.00% at $1,731,665.22(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

A Maiden Moon - How Will the Metals & Miners Fare?

Wōdnesdæg
Morning Miners!

It is 5:58 AM. Have a cup of New Moon Java for a little lunar luck. Heaven knows we need it after the month of May. Old Miner Woden told me this morning that the Maiden Moon is a time of energy and alertness, a time to start new projects. I'm still trying to finish putting a roof on my wood shed, maybe the metals & miners will fare better in June...

How Will the Metals & Miners Fare?


The beginning of every month brings on a host of global and domestic data, the big boy will be the Labor Department's jobs report this Friday. Already we have declining Purchasing Manager Index (PMI) data from China supporting their anticipated economic slowdown, Automatic Data Processing (ADP) released a disappointing report on private sector jobs growth and the U.S. manufacturing sector slowed sharply in May. Nuts.

Predictably Treasurys soared this morning as investors sought safe haven and the U.S. dollar got hammered. COMEX copper dropped more than 1% on the China news. It is troubling that the yield on 10-year treasuries is on the doorstep of sub-3% (presently 3.002%; yields go down when bond prices go up). This report's Eureka Miner's Index(EMI) includes the 10-year in its calculation - presumably, low interest rates are good for mining companies. However, the EMI stops counting low interest rates as a good thing when the 10-year drops below 3%, generally a sign of tougher times ahead (get ready for the "deflation before hyper-inflation, the world's going to hell" crowd to crawl back out of the closet).

OK, everything is lousy so let's go home? Nuts to that too!

Let's put a little perspective on this. Early last June the EMI plunged to the 50 level, today's number is in the mid-300s. The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County; 50 was horrible, mid-300s isn't all that bad. Remember, we plumbed a 2011 low of 225 May 23rd and things have been trending up ever since.

Bellwether miner Freeport-McMoRan (FCX) was heading for its 400-day moving average and has now climbed above its 200-day; not great but better. General Moly (GMO) visited the $3 basement in late May and is now back in the high-$4s trading presently at $4.79 against all this bad news. Pretty resilient I'd say.

The ole Colonel thought analyst Gayle Berry of Barclays Capital had a good view on what's ahead as reported by London Reuters this morning:

"We're moving from what was a period of very fast expansion in 2010 as economies went into recovery, into a more mature phase where you'd expect to see rates of expansion slow. You need... perspective when looking at these [China PMI] numbers." (London Reuters, 6/1/2011)

Here is a link to the full article:

METALS-Copper steady after China data, soft dollar supports (London Reuters, 6/1/2011)

I think "mature" is the key word here. We have moved from overly optimistic views on domestic and global growth in late December and early January to much slower recoveries. But the U.S. and the world are still recovering, pardner. We won't get another hell-bent-for-leather late year rally for the metals & miners but we're not going to hell-in-a-hand-basket either.

See you at the Eureka Moly town hall meeting tomorrow.


Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 335.92, down from yesterday's 356.03 and above the 1-month moving average of 305.23. The EMI continues to be down from the high set on January 4th and set a new 2011 low of 225.03 on May 23rd. There may be a reversal to the upside in the works.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between good lands and bad lands for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

Our newly minted Gold Value Index (GVI) is below-par at 77.35, up from yesterday's 76.23 and above its 1-month average of 77.24. The gold-gaining-value trend has stalled. Today's Value Adjusted Gold Price (VAGP) is $1,661.2/oz.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. Although gold prices have been on the rise, the GVI has been trending down since 6/7/2010 when it had a value of 100. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has been a reliable proxy for global growth and 3) silver is a precious metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $102.26
ICE North Sea Brent crude $116.3
1Spread (ICE- NYMEX) = $14.05(Yesterday, $13.26)

Here are the September contracts* with a narrower spread:

NYMEX light sweet crude $102.8
0ICE North Sea Brent crude $115.90
Spread (ICE- NYMEX) = $13.10 (Yesterday, $11.72)

* NYMEX futures contracts have rolled forward, we now show July & September for a 2-month look-ahead

Prices are off their crisis highs but we still have $110+ Brent and $100+ NYMEX in September favoring high oil prices throughout the summer. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on rough roads; The VIX or "fear index" is below 25; bellwether Freeport-McMoRan (FCX) is just above its 200-day moving average of $50.50 (our new warning level, 05/31 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation Watch The Federal Reserve will phase out buying Treasurys (aka QE2) but maintain low interest rates for now

The YELLOW light is turned back on for Investor Confidence as some investors avoid commodity-sensitive equities

The RED light is turned on our Fuel Gauge with oil above $100

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.44 in early trading at $102.26 (July contract, most active); Gold is up $0.9 to $1537.7 (August contract, most active); Silver is down $0.355 to $37.950 (July contract, most active); Copper is down $0.0505 at $4.1270 (July contract, most active)

Western Molybdenum Oxide is $16.60; European Molybdenum Oxide is $16.60; LME cash seller is $16.87, LME moly 3-month seller's contract is $17.01

Stock Market Morning Update

The DOW is down 60.17 points to 12,509.62; the S&P 500 is down 6.30 at 1,338.90

Miners are mixed:

Barrick (ABX) $47.69 down 0.15%
Newmont (NEM) $56.12 down 0.80%
US Gold (UXG) $7.11 up 0.57%
General Moly (Eureka Moly, LLC) (GMO) $4.79 down 1.84%
Thompson Creek (TC) $11.08 up 2.03%
Freeport-McMoRan (FCX) $51.43 down 0.41% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) 15.04 down 0.68%

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

ArcelorMittal (MT) $33.13 down 0.96% - global steel producer
POSCO (PKX) $101.85 down 0.17% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.49% at $1,761,881.44(what's this?).

Cheers,

Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Headline photograph by Mariana Titus

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market