A China Surprise - Gold Drops to 2-Month Low

Morning Miners!

It is a thin flat washer past 6:00 AM. Have a hot cup of Monday Joe and let's get to work. Most news headlines are like highway signs on a very long trip. Some catch your eye, some don't; their message is usually forgotten quicker than they become small dots in your rear view mirror. Once in a long while there is a sign not forgotten, one that perhaps changes your trip plan - "Let's go see the Grand Canyon, it's only a few miles north of here." Some may even change your destination, "Eureka seems like a nice town, why should I bother going any further?"

There is a headline in this morning's Wall Street Journal that caught my eye and deserves at least a rest stop on our trip down the global recovery highway: "China Becomes Top Energy Consumer."


Whoa, what's going on here? The United States has been the world's largest consumer of energy for more than a century - I bet since Grandpa Edison flipped the first switch! As the Chinese dragon's appetite has grown bigger and bigger, I seem to remember someone saying that this crossover would occur some time in the future - can we be there already?

According to this story, new data from the International Energy Agency (IEA) says yes:

"The Paris-based agency, whose forecasts are generally regarded as bellwether indicators for the energy industry, said China devoured 2,252 million tons of oil equivalent last year, or about 4% more than the U.S., which burned through 2,170 million tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear, coal, natural gas and renewable sources such as hydropower." (WSJ, 7/19/2010)

The WSJ goes on to say that the old estimate for this baton hand off was five years. Apparently the recession has changed all that. Although we remain the largest energy consumer per capita (five times more than the average Chinese citizen), our economic slowdown and energy-efficiency programs have rapidly brought this date forward. IEA chief economist Fatih Birol says, "The fact that China overtook the U.S. as the world's largest energy consumer symbolizes the start of a new age in the history of energy."

This is a thought worth contemplating buckaroos. The diameter of this earth doesn't expand with population growth, especially with more new folks arriving around the world that want to live as we do. Demand for new energy sources and diminishing natural resources will write the history pages of this new century. That affects everyone but especially those who live in commodity-sensitive economies like our own.

Let's leave this rest stop for now and continue down our highway. I promise we'll stop again on this topic.

Gold started this week by dropping to 2-month lows on the London spot exchange:


We'll keep on eye on the glitter - copper moved up thankfully and, with the exception of the gold diggers, the metals & miners are recovering some from last week's malaise (Metals & Miners Call in Sick for Friday). Here's how Miss Moly fared last week:

Weekly Molybdenum Update

Molybdenum prices remain in a close but stable range with Western moly oxide price now slightly below European moly and LME futures seller contracts. The Report's new mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) remains at $14.00/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) moves up to 14.25/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $31,550/metric ton $14.31/lb

3-Month (Buyer) $31,000/metric ton $14.06/lb
3-Month (Seller) $32,000/metric ton $14.52/lb

15-Month (Buyer) $31,000/metric ton $14.06/lb
15-Month (Seller)$32,000/metric ton $14.52/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:



Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) through Friday's close. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County.


(a larger, more readable chart is near the bottom of this blog page)

The Eureka Miner's Index remains sub-par at 81.30, slightly down from Friday's 82.13 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

Enough talk, let's walk the walk:

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is above 25; metals & miners remain on shaky timber with benchmark FCX trading in the low to mid-$60s well below its 200-day average of $76 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment

The YELLOW light is turned back on for Commodity Reflation with copper trading below $3/lb

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

The YELLOW light is on for Investor Confidence as further market corrections are possible.

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: Oil is up $0.08 in early trading to $76.46 (September contract, most active); Gold is down $5.6 to $1182.6 (August contract, most active); Silver is down $0.078 to $17.710 (September contract, most active); Copper is up $0.0090 to $2.9385 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.25; LME moly 3-month seller's contract is $14.52, LME cash seller is $14.31

The DOW is up 71.06 points to 10,168.96; the S&P 500 is up 7.92 to 1072.80. The miners are up except for the gold diggers:

Barrick (ABX) $41.30 down 1.08%
Newmont (NEM) $58.13 down 1.31%
US Gold (UXG) $4.43 down 2.64%
General Moly (Eureka Moly, LLC) (GMO) $3.03 up 1.00%
Thompson Creek (TC) $8.79 up 0.34%
Freeport-McMoRan (FCX) $60.58 up 0.83% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.95 up 3.10% - global steel producer
POSCO (PKX) $101.50 up 1.51% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.08% to $1,314,717.55 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus

Metals & Miners Call in Sick for Friday

Morning Miners!

It is 6:35 AM. Have a welcome cup of that delicious Raine's Red Label TGIF brew. Do I hear an echo? Maybe it is because the break room is empty, the miners called in sick today - maybe they've got plans for the weekend. One day does not a market make but it is a little disappointing to end this week with everything we cherish in the red. I delayed writing this report until the broader markets opened hoping the ole Colonel could find some sun in our canyon. Nope, not today.

I started my morning in London to watch gold and silver nose dive. Spot gold plumbed $1189.98 before recovering slightly; silver touched $17.85:



And our poor old canary in the mineshaft of global recovery wasn't faring much better. Copper, which has been bravely flying just above $3/lb all week, spiraled to lower altitudes:


The Eureka Miner's Index (EMI), which has been above-par since last Friday, reflects the morning malaise by plummeting to a sub-par 81.4 (an EMI greater than 100 is good times for the metals & miners). The Eureka Miner's Grubstake Portfolio is down 2.32%. Nuts.

What's up? That old enemy fear has crept back into the marketplace - fear that the economic growth story is on the ropes again. Here's how the Wall Street Journal reports it this morning:

NEW YORK—U.S. stocks fell broadly as investors registered their disappointment with a gloomy consumer sentiment report, and as a round of earnings reports showed revenues falling below expectations.

Data on consumer sentiment from the University of Michigan came in well below expectations with a reading of 66.5, down from a prior reading of 76.0. Economists had been expecting 75.0.

So far this week, most bellwether companies had been reporting strong earnings that indicated the U.S. corporate sector was still faring well despite an apparent slowdown in economic indicators. Friday, however, the earnings were less encouraging, which added fuel to investors' concerns over economic growth. (WSJ, 7/16/2010)

We have been reporting contrary indications all week but sometimes it's just good to take the day off. Stay on your horse, pardner. Happy trails 'til Monday.

Enough talk, let's walk the walk (to the parking lot):

Our newly minted Eureka Miner's Index (EMI - what's this?) falls to a sub-par 81.37, a big drop from yesterday's 100.46 but still an improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is just below 30; metals & miners remain on shaky timber with benchmark FCX trading in the low-$60s well below its 200-day average of $76 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment

The YELLOW light is turned back on for Commodity Reflation with copper trading below $3/lb

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

The YELLOW light is on for Investor Confidence as further market corrections are possible

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: Oil is down $0.34 in early trading to $76.28 (August contract, most active); Gold is down $16.8 to $1191.5 (August contract, most active); Silver is down $0.462 to $17.900 (July contract, most active); Copper is down $0.0255 to $2.9865 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $15.20, LME cash seller is $14.97

The DOW is down 167.64 points to 10,191.67; the S&P 500 is down 18.72 to 1077.76. The miners are off for the day:

Barrick (ABX) $41.85 down 2.83%
Newmont (NEM) $59.23 down 2.42%
US Gold (UXG) $4.63 down 2.75%
General Moly (Eureka Moly, LLC) (GMO) $3.06 down 1.92%
Thompson Creek (TC) $8.83 down 2.75%
Freeport-McMoran (FCX) 61.82 down 2.14% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.21 down 2.18% - global steel producer
POSCO (PKX) $101.07 down 1.29% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.23% to $1,329,797.18 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus

Moly Futures Bounce - Thompson Creek (TC) Expands

Morning Miners!

It is 5:59 AM. Our favorite Norseman, Thor, brought over some ground-pounder coffee last night to celebrate his day - light the fuse and stand back while it brews. Happy Thor's day! I believe he's sailing off to England this weekend for holiday. Cheers.

Yesterday the Report looked for news to counter the prevailing mood of gloom and doom (Maybe Things Are Not So Bad After All). We found some pretty encouraging signs in early corporate earnings and forecasts as well as declining inventories of base metals at the London Metal Exchange (LME). Commodity King, Dennis Gartman, often reminds us that collectively base metals have a PhD in economics. Let's look at three curves to remind us of some of the challenges facing our metallic geniuses. Here is a 3-month price performance chart for COMEX copper:


From the lofty days of April when prices were north of $3.5/lb, copper fell all the way to $2.7/lb territory and has recently risen above the key $3.0/lb level. Today COMEX copper creeps a tad higher to $3.025/lb. Over this same time period gold (orange) has risen (on average) as copper (blue) has fallen. This is called an "inversion" and is almost always a bearish sign for metals:


The same has been true for oil (orange) which has recently demonstrated a very tight correlation with copper (1-month correlation = 0.954; 3-month = 0.747):


OK, Colonel so what? Well, pardner, these inverse relations have peaked, continue to weaken and that's a bullish sign going forward. Let's checkout the morning LME headlines:

LME ALUMINIUM JUMPS TO ONE-MONTH HIGHS AS EURO GAINS FURTHER

LME LATEST - Metals regain ground on robust euro, JPMorgan earnings underpin sentiment

Hmmm...stronger euro ($1.2866, a 2-month high), weaker dollar, stronger gold (COMEX up $5.6 to $1212.6/oz) and base metals rally - say we've been to this rodeo before and it's not a bad one!

Confidence in Europe is returning with a successful bond auction in Spain, U.S. banks are stronger than expected (a surprisingly good J.P. Morgan quarterly report) and Chinese growth is slowing but not by much. The last point comes from the release of a second-quarter 10.3% GDP growth number for China; analysts expected 10.5%. The slightly smaller number dipped Asian markets but the metals don't seem to care. With our domestic GDP numbers expected to be in the 1.5 to 2% range for some time to come, the ole Colonel will take a China growing north of 10% any day. Maybe things are getting better.

Yesterday POSCO had good profit numbers and a positive forecast for Asia. Checkout today's top article summary for Steel Business Briefing:

Steel prices stable, may strengthen in Q4: Mechel

Russian miner and steelmaker Mechel sees prices for steel in both Russian domestic and export markets being stable for the next two months, with possible strengthening beginning at the end of September.

"We see the possibility of a new ascending trend starting after the Islamic holidays are over," the company’s chairman Igor Zyuzin said during a conference call monitored by Steel Business Briefing. He described Mechel’s sales in the first half of the second quarter to the Middle East and South-East Asia as "very strong" with "continued price rises," as customers were stocking up before Ramadan and the rainy season. (SBB, 7/15/2010)

Another happy steelmaker and guess what's happening to molybdenum, a key alloying metal in steel production? Even though western moly oxide has dropped to the $14/lb level consistent with euro moly oxide pricing, the molybdenum LME futures have bounced more than 6% to $15.42/lb ($34,000/ metric ton). Here is a one-month chart of the molybenum 3-month seller contract:



Are we witnessing a trend reversal for moly prices going forward?

Benchmark moly producer Thompson Creek (TC) isn't too glum about the future and moves to diversify their commodity exposure with a new acquisition announced this morning:

Thompson Creek Metals Company Inc. Enters Into Agreement to Acquire Terrane Metals Corp. (Press Release, 7/15/2010)


Kevin Loughrey, Chairman and Chief Executive Officer of Thompson Creek, states:

"The acquisition of Terrane fits well in our strategic growth plan, providing us with clear production and revenue growth while diversifying our commodity exposure, all in a project with mining and milling processes, and a regulatory environment, with which we have considerable experience. We are utilizing a portion of cash on our balance sheet and our current cash generating capacity from existing operations while capitalizing on financing opportunities available through the Gold Stream Transaction. The upside from our existing asset base has been retained for our shareholders while structuring a transaction that we believe will be highly accretive on a cash flow basis once Mt. Milligan is in production. We believe with our Endako expansion, and now the Mt. Milligan project, we have substantially improved Thompson Creek's growth profile." (Press release, 7/15/2010)

From the Terrane Website:

"Terrane is focused on the future commercial development of the large-scale copper and gold reserve at Mt. Milligan, British Columbia. Mt. Milligan has an open pit reserve of 2.1 billion lb contained copper and 6.0 million oz contained gold. Upon development the project will have an average annual production of 262,100 oz gold and 89 million lb copper for the first six years of a 22.1 year mine life."

So there we go buckaroos. Early U.S. earnings reports, base metals, a Russian steelmaker, Miss Moly and Thompson Creek seem to all be in the same bleacher rooting for brighter days. Just more bits of news that may be saying things may not be so bad after all. Stay tuned.

Enough talk, let's walk the walk:

Our newly minted Eureka Miner's Index (EMI - what's this?) remains just above-par at 100.44, ever so slightly down from yesterday's 100.88 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is slightly above 25; metals & miners remain on shaky timber with benchmark FCX trading in the low to mid-$60s well below its 200-day average of $76 (our new warning level), 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/lb

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

The YELLOW light is on for Investor Confidence as further market corrections are possible but less likely

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: Oil is down $0.05 in early trading to $76.99 (August contract, most active); Gold is up $5.6 to $1212.6 (August contract, most active); Silver is up $0.120 to $18.410 (July contract, most active); Copper is up $0.0165 to $3.0250 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $15.42, LME cash seller is $14.21

The DOW is down 31.25 points to 10,335.47; the S&P 500 is down 2.44 to 1092.73. The miners are down except for TC:

Barrick (ABX) $42.81 down 0.41%
Newmont (NEM) $60.77 down 1.54%
US Gold (UXG) $4.71 down 0.63%
General Moly (Eureka Moly, LLC) (GMO) $3.14 down 0.95%
Thompson Creek (TC) $9.56 unchanged
Freeport-McMoRan (FCX) $63.19 down 0.74% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $30.09 down 0.17% - global steel producer
POSCO (PKX) $101.18 down 1.29% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.63% to $1,362,167.62 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus

Maybe Things Aren't So Bad After All - POSCO Pours Steel

Morning Miners!

It is 5:57 AM. Have a soda cracker with your first cup of hump day coffee. You may think you need it with all the headlines of doom that we lived through over the past several months. The ole Colonel would like to provide a counterpoint to all this double-dip-here-comes-the-next-depression talk. At the end of the day economic growth is the only elixir that will cure rising national deficits and debt; there are few if any examples of countries taxing themselves back to prosperity. The pistons in the engine of growth and job creation are businesses large and small and they have plenty of excuses for not performing in the present environment. Uncertainty about new taxes, health care and financial reform are enough reasons for a business to call in sick or just call it quits.

Fortunately we are not a nation of quitters and the early corporate earnings reports paint quite a different picture of American business response to hard times. We started the week with Alcoa surprising the gloomy-doomers with an upbeat earnings and forecast report. The numbers were not terrific but good enough to keep the aluminum giant on his feet and walking down the global recovery highway. Maybe the giant can soon afford to buy one of those new cars his product helps to manufacture and cruise in the hammer lane again - sure beats kicking rocks on the shoulder.

This Report rarely looks at the Technology Sector to gauge how things are going in the metals & miners' mineshaft. Yesterday may prove an exception when Intel reported the best quarter since their creation:

"Intel Corp. provided dramatic proof that businesses have joined consumers in snapping up new computers, as the chip maker posted the strongest quarterly results in its 42-year history." (WSJ, 7/14/2010)

How is it possible to set records like this if businesses truly believe we're on the path to Western economic collapse? Why would you upgrade your IT infrastructure if it's time to run for the lifeboats?

For some examples a little closer to our mill site, base metal prices have risen across the board in the last several days and inventories are in decline. There is some pullback in the commodity space today on less than rosy news that U.S. retail sales tumbled a second straight time in June. Is this any surprise? We've got a whole lot of folks out of work and that's going to take some time to change. However, if businesses are on the mend, new jobs will follow. We can expect metal price sensitivity to headline news and continued volatility - the question becomes, what's the trend?

Copper is bravely holding above the key $3/lb as inventories at the London Metal Exchange (LME) decline. The warehouse levels for aluminum, nickel, zinc and lead are also down although lead is showing signs of bottoming. Here is a 30-day chart for copper:


Yesterday's inventory is down a full 22% from an inventory peak of 555,575 tons last February (2/19/10). There is always great argument about what LME inventories really mean but it seems awkward to point to these multiple supply declines and make a strong case for a stagnant global economy.

My last example this morning for "maybe things aren't so bad after all" comes from POSCO, the South Korean steelmaker and 20% owner of Mt. Hope. Here's a newswire from yesterday:

POSCO (PKX) is mulling issuing dollar denominated global bonds in order to raise approximately KRW 1 trillion ($831 million), which would be used for acquisitions and to boost liquidity, according to industry sources

and another this morning...

POSCO (PKX) reported earnings results for the second quarter ended June 2010. For the quarter, the company's net profit had almost tripled to KRW 1.19 trillion ($981 million) due to price rises and growing demand. The April-June figure compares with a net profit of KRW 431 billion in the second quarter of 2009. Sales jumped 25% to KRW 7.93 trillion over the same period and operating profit surged to KRW 1.84 trillion from KRW 170 billion.

A steelmaker thinking about further acquisitions and making healthy profits doesn't sound like a corporation with prospects in decline to me.

We'll close with an update on pending mining safety legislation reported by MineWeb:

U.S. House committee debates miner workplace safety bill (Dorothy Kosich, MineWeb, 7/14/2010)

Get ready for a new law followed by the natural law of unintended consequences. I'm adding this one to the adverse regulation/legislation warning light on the Eureka Outlook Dashboard. I think this light is destined to remain ORANGE for a long time, hopefully it never turns red.

Enough talk, let's walk the walk:

Our newly minted Eureka Miner's Index (EMI - what's this?) remains just above-par at 100.88, slightly down from yesterday's 106.58 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is slightly above 25; metals & miners remain on shaky timber with benchmark FCX trading in the the mid-$60s well below its 200-day average of $76 (our new warning level), 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/lb

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

The YELLOW light is on Investor Confidence as further market corrections are possible but less likely

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: Oil is down $0.44 in early trading to $76.71 (August contract, most active); Gold is down $4.3 to $1209.2 (August contract, most active); Silver is down $0.032 to $18.225 (July contract, most active); Copper is down $0.0015 to $3.0160 (September contract, most active)

Western Molybdenum Oxide is at $14.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $14.52, LME cash seller is $14.30

The DOW is down 16.88 points to 10,346.14; the S&P 500 is down 3.36 to 1091.98. The miners are resting after yesterday:

Barrick (ABX) $42.86 down 0.63%
Newmont (NEM) $61.42 down 0.42%
US Gold (UXG) $4.69 down 1.68%
General Moly (Eureka Moly, LLC) (GMO) $3.17 down 1.25%
Thompson Creek (TC) $9.56 down 0.52%
Freeport-McMoRan (FCX) $63.24 down 1.37% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.94 down 1.19% - global steel producer
POSCO (PKX) $102.00 down 1.92% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 1.05% to $1,361,917.94 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus

Biscuits in Mumbai - Metals & Miners Rally

Morning Miners!

It is 6:04 AM. Let me pour you a cup of joe to start your Tuesday. Before we see what's cooking in India let's do a little followup.

Earnings season kicked off with flagship aluminum producer Alcoa reporting after the bell yesterday. Although expectations were low, this Report hoped for a slightly less gloomy outlook on global growth and we got it. The aluminum giant's top and bottom line improved with a 12% uptick in demand from the automobile and airplane sectors. The expectation was 10% and one analyst on CNBC Business News stated that "15% would have been great". But that's not the world we live in now, pardner - if 12% allows Alcoa to muddle along that's probably fine in the "new normal" we discussed yesterday (A "New Normal" for Metals & Miners?).

The proof will be the market reaction today and things are already looking positive with oil and copper moving up with gold and not in bearish opposition. Here is the mid-day jump in London spot gold & silver:



Now don't start putting up the party banners just yet because a bad earnings report or headline from Europe could easily reverse this rally. A little up, a little down would be fine for the ole Colonel - sideways progress in a stable market sure beats a deeper correction in my world. It's like driving in sage to avoid spring mud - as long as you're moving forward you'll get home, stop and it's handyman time in the muck and mire.

OK, the broader markets are open and our favorite miners have got some traction. Here's how the Wall Street Journal reports it:

NEW YORK—U.S. stocks jumped, as strong earnings reports from early bellwethers buoyed hopes that the global business environment continues to strengthen.

Better-than-expected results from Alcoa boosted optimism for second-quarter earnings, starting the Dow Jones Industrial Average on track for its sixth straight winning session. The aluminum giant, the first of the Dow components to release earnings, rose 4% after reporting a $136 million profit on stronger-than-anticipated 22% revenue growth and hiked its global aluminum consumption forecast. (WSJ, 7/13/2010)

There, isn't that terrific for a Tuesday? If you want a good laugh you can read about the popularity of gold biscuits in Mumbai, India as reported this morning in MineWeb:

Gold 'biscuits' selling like hotcakes in Mumbai (Shivom Seth, MineWeb, 7/13/2010)


These small gold bars or "biscuits" are quite popular in India as demand picks up during a normally slow period in Asia. Some of the reasons behind this trend are explained by one of this Report's favorite gold bugs, Lawrence Williams (at least when he's not predicting the collapse of Western World economies):

Demand for gold remains positive at current lower prices (Lawrence Williams, MineWeb, 7/13/2010)

I'm still impressed by the magnitude of gold investment as evidenced by the ever popular exchange-traded fund (ETF) - SPDR Gold (GLD). This morning's price is $118.86/share backed up by physical gold stored in a London bank. Let's do a quick calculation to see what that deposit is worth today.

For 433,400,000 shares outstanding:

$118.86 X (433,400,000) = $51,513,924,000

$51 billion dollars of gold investment from mom and pops' retirement savings to holders as large as China, the GLD is a monster. I would hazard to guess that the weight of this deposit has brought London several millimeters closer to sea level. Here is how the GLD has fared for one-year (share price tracks the value of its underlying asset):



The SPDR GLD ETF along with the iShares ETF for silver (SLV) have been two of the twelve investments in the Eureka Miner's Grubstake Portfolio since inception.

Enough glitter talk, let's walk the walk:

Our newly minted Eureka Miner's Index (EMI - what's this?) remains above-par at 106.58, slightly down from yesterday's 110.55 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners remain on shaky timber with benchmark FCX trading in the the mid-$60s well below its 200-day average of $76 (our new warning level), 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/lb

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

The YELLOW light is on Investor Confidence as further market corrections are possible but less likely

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: Oil is up $1.61 in early trading to $76.56 (August contract, most active); Gold is up $18.4 to $1217.1 (August contract, most active); Silver is up $0.368 to $18.285 (July contract, most active); Copper is up $0.0165 to $3.0255 (September contract, most active)

Western Molybdenum Oxide drops to $14.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $14.11, LME cash seller is $13.88

The DOW is up 126.1 points to 10,342.88; the S&P 500 is up 12.14 to 1090.89. The miners are having a good day:

Barrick (ABX) $44.01 up 1.01%
Newmont (NEM) $62.38 up 1.30%
US Gold (UXG) $4.83 up 3.87%
General Moly (Eureka Moly, LLC) (GMO) $3.12 up 1.63%
Thompson Creek (TC) $9.55 up 0.84%
Freeport-McMoRan (FCX) $63.54 up 0.99% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $30.37 up 3.40% - global steel producer
POSCO (PKX) $103.84 up 0.49% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.83% to $1,376,459.55 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus
Photo of gold biscuits by www.usagold.com

A "New Normal" for Metals & Miners?

Morning Miners!

It is 6:00 AM sharp. Grab a cup of Monday-got-here-faster-than-the-World-Cup-ended java and let's get to work. The World Cup reminds us of how many players there are in the world, not only in the popular sport of soccer but in the commodities that influence our local economy. We'll look at two examples this morning then contemplate a little global philosophy for these markets.

Before we start, please note that we have a Eureka Miner's Index (EMI) update to your right. The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County. You can read more about this index by clicking on the small chart icon. Last week the EMI ended above par at 111.3 (an EMI greater than 100 is good for the metals& miners). We could have some pullback today as investors await aluminum giant Alcoa's (AA) quarterly report at the close.


(a larger, more readable chart is near the bottom of this blog page)

Alcoa is the first company in the Dow Jones Industrial Average to report last quarter's earnings and expectations for the new quarter and beyond. It is important to this Report because it is also the first metal producer at bat and gives us an important data point on global growth. This Bloomberg article summarizes current expectations:

Alcoa Earnings Won’t Recover for Years, Analysts Say (Edmond Lococo, Bloomberg News, 7/12/2010)

Alcoa faces some unique challenges: aluminum prices have declined 40 percent since reaching a record on July 14, 2008 and they have idled 20 percent of their aluminum-smelting capacity because of excess global production and soaring inventories. More than one-half of their 2009 sales were in the U.S. so Alcoa is pulled by both domestic and global forces. The expectation is a report of sluggish growth for the former and improving prospects for the latter.

Another important piece of the global story was reported by Bloomberg last Friday:

Commodity Shipping Slumps for Longest in 9 Years on China Steel (Alaric Nightingale, Bloomberg News, 7/9/2010)

The decline in Chinese steel prices has diminished the nation’s iron ore demand which creates the single-biggest source of demand for dry-bulk shipping. Investors therefore monitor the Baltic Dry Index, a measure of commodity shipping costs, to gauge the robustness of steel and other commodity sensitive industries. It has fallen for the longest period in almost nine years.

The markets are now open and the Eureka Miner's Grubstake Portfolio is down but not by much (0.69%) and the Eureka Miner's Index is 110.6 just slightly below Friday's 111.3.

Two samples of scary headlines followed by only a measured reaction from the companies we follow. Predictably, our poorest performers this morning are related to the steel industry (POSCO, Arcelor-Mittal, Thompson Creek and General Moly) and falling copper prices (Freeport-McMoran). But the declines are not pronounced and could easily reverse on slightly less gloomy news from Alcoa this afternoon.

We are operating in a "new normal" as PIMCO CEO, Mohamed El-Erian, accurately coined the expression last year. The metals and miners are adjusting to slower domestic and global growth as the western world unwinds a massive debt load. Their stocks and products are being slowly "repriced" to reflect this new reality and seemingly bad news has less affect on both now that expectations are being lowered across the board. The headline of a major European bank failure or the collapse of some segment of the Chinese economy would no doubt bring a severe correction in these markets but lacking that the ole Colonel expects that we will witness bounded up-and-down adjustments for some long time to come. Price discovery is the work of stable markets and they are busily doing that now that the fear we experienced in May-June is slowly receding from the marketplace.

That's our philosophical thought for the morning as we enter earnings season. Stay tuned buckaroos and keep an eye on the EMI!

Weekly Molybdenum Update

Molybdenum prices continued to remain in a trading range with Western moly oxide price sitting above European moly and LME futures seller contracts. The Report adjusted a new mid-range price target for 2010 moly prices of $15.71/lb (see note 1); the old target was $16.50/lb.

Western Moly Oxide (FeMo65) remains at $16.00/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) moves down to 14.00/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $31,500/metric ton $14.29/lb

3-Month (Buyer) $30,000/metric ton $13.61/lb
3-Month (Seller) $32,000/metric ton $14.52/lb

15-Month (Buyer) $30,000/metric ton $13.61/lb
15-Month (Seller)$32,000/metric ton $14.52/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:


Enough talk, let's walk the walk:

Our newly minted Eureka Miner's Index (EMI - what's this?) is above-par at 110.6, down slightly from Friday's 111.3 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough but improving roads in the marketplace; The VIX or "fear index" is slightly below 25; metals & miners remain on shaky timber with benchmark FCX trading in the the mid-$60s well below its 200-day average of $76 (our new warning level), 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/lb

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

The YELLOW light is on Investor Confidence as further market corrections are probable but less likely

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: (problems with the WSJ commodity link preclude reporting delta prices this morning; COMEX silver price is an estimate from COMEX gold multiplied by the LME Au:Ag ratio for this afternoon's trading):

Oil is $75.83 (August contract, most active); Gold is $1204.7 (August contract, most active); Silver is $17.990 (estimate); Copper is $3.0120 (September contract, most active)

Western Molybdenum Oxide is at $16.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $14.52, LME cash seller is $14.29

The DOW is up 5.71 points to 10,203.74; the S&P 500 is up 0.36 to 1078.32. The miners are mixed:

Barrick (ABX) $44.09 up 1.19%
Newmont (NEM) $62.16 up 0.37%
US Gold (UXG) $4.88 down 0.41%
General Moly (Eureka Moly, LLC) (GMO) $3.19 down 1.85%
Thompson Creek (TC) $9.74 down 1.62%
Freeport-McMoRan (FCX) $64.01 down 2.99% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.71 down 1.82% - global steel producer
POSCO (PKX) $103.84 down 2.04% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.69% to $1,375,644.92 (what's this?).

Cheers,

Colonel Possum

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

Note 1: The Colonel hasn't developed a molybdenum price model to date since this minor metal is thinly traded. As the futures market matures and more investors are involved it may make sense to do so later on. Presently molybdenum trades on fundamentals in a tight supply condition. It's relative price stability is good for producers like Thompson Creek (TC) and encouraging for General Moly (GMO) as they enter Mt. Hope mine construction next year.

For a trading range of $30,000-$40,000/metric ton is is instructive to look at both the arithmetic and geometric means (since we have no model):

Arithmetic mean (i.e standard average) = $35,000/metric ton or $15.88/lb
Geometric mean = $34,641/metric ton or $15.71

I tend to favor the geometric mean in understanding the "middle" of trading ranges so let's choose $15.71 as a measure of where we are in the moly pricing world. I'll give moly prices a "GREEN" light on the Eureka Outlook Dashboard if Western moly oxide is above this number; "YELLOW" if it falls below (our old trigger level was $16.50/lb).

Headline photograph by Mariana Titus

The Sun Shines on Molybdenum & General Moly (GMO)

Morning Miners!

It is 5:55 AM. Scott took back his double-dip TGIF coffee and restocked the break room with good ole Red Label. Have a cup and let's close this week on a high note. Gold got a nice bounce above $1208/oz on euro weakness and our miners should have a good day as fear slowly recedes from the marketplace. We'll check on them in a moment but I can't wait to tell you a great molybdenum story, that versatile transition metal that lives just 21 miles north of town in General Moly's Mt. Hope.


This Report's favorite London correspondent, Claudia Carpenter of Bloomberg News, e-mailed the ole Colonel a lead late last night (early her time) on the progress of a growing alternative energy application for Miss Moly. Here is a Bloomberg article by her colleagues down under:

Molybdenum, Silver Link Near 12-Year High From Solar Panels: Chart of Day (By Lee J. Miller and Rebecca Keenan, Bloomberg News, 7/7/2010)

Molybdenum is used in in thin-film CIGS (Copper, Indium, Gallium, and Selenium) based solar cells which promise a real cost advantage over other competing technologies. As shown in this diagram, a thin layer of molybdenum (Mo) lies above the cell substrate and serves as an electrode on which the the CIGS layer is deposited:


The thin-film in CIGS solar cells are minuscule — angstroms to microns thick. More common silicon solar cells use a wafer of silicon that is a 10 story building in thickness compared to these thin films. The potential to dramatically reduce the cost of manufacturing with a high production yield is explained in this 2008 article from Renewable Energy World:

Why Thin-Film CIGS Solar Cells Are Poised for Big Growth (Greg Howard, Renewable Energy World, 1/7/2008)

The recent Bloomberg story reports much progress has already been made. They quote Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne:

"The solar panel market is particularly strong at the moment, and there's been an uplift for both silver and molybdenum demand for panels...I see this strong correlation continuing, and I think it will tighten up going forward."

These observations are supported by another article published in May of this year from the International Business Times:

New Markets for Molybdenum (Michael Montgomery, International Business Times, 5/5/2010)

In this piece, Anthony David, for Critical Strategic Metals, reiterates the potential advantages of this application:

"Molybdenum is also being utilized prominently in thin-film CIGS solar panels which are expected to be substantially less expensive than traditional solar cells due to their much lower material and potentially lower fabrication costs..."

A persistent theme of this Report is the importance of Northern Nevada's strategic metals (e.g. molybdenum, rhenium, vanadium, lithium) to the emerging alternative energy industry. Molybdenum use in solar panels is one of many examples. Here is a summary of Eureka Miner articles on this exciting story that may greatly benefit our future:

The Next Big Thing in Northern Nevada (The Eureka Miner's Market Report, 9/28/2009)

A Big Step into the Future for Eureka County (The Eureka Miner's Market Report, 10/23/2009)

A Silver Lining for the Silver State? (The Eureka Miner's Market Report, 11/16/2009)

What's in a Battery for Eureka County? (The Eureka Miner's Market Report, 11/23/2009)

More News on US Gold & Western Lithium (The Eureka Miner's Market Report, 01/12/2010)

A Third Tank on Our Hill? Lithium & Vanadium Updatee (The Eureka Miner's Market Report, 03/22/2010)

Rhenium - Will the Sun Shine on One of Earth's Rarest Elements? (The Eureka Miner's Market Report, 4/29/2010)

Is There Rhenium in Them Thar Hills? (The Eureka Miner's Market Report, 05/11/2010)

Enough talk, let's walk the walk:

Our newly minted Eureka Miner's Index (EMI - what's this?) remains just sub-par at 99.67, up from yesterday's 89.33 and a big improvement from the 6/7/10 low of 50.7. Remember an EMI greater than 100 is good times for metals & miners.

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is above 25; metals & miners remain on shaky timber with benchmark FCX trading in the the mid-$60s well below its 200-day average of $76 (our new warning level), 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/lb

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

The YELLOW light is on Investor Confidence as further market corrections are probable but less likely

The GREEN light remains turned on our Fuel Gauge with oil below $80

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

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

NYMEX/COMEX: Oil is up $0.04 in early trading to $75.48 (August contract, most active); Gold is up $12.3 to $1208.4 (August contract, most active); Silver is up $0.208 to $18.080 (July contract, most active); Copper is up $0.0240 to $3.0395 (September contract, most active)

Western Molybdenum Oxide is at $16.00; European Molybdenum Oxide is at $14.00; LME moly 3-month seller's contract is $14.97, LME cash seller is $14.74

The DOW is down 8.25 points to 10,030.74; the S&P 500 is down 1.34 to 1068.91. The miners are having a good day:

Barrick (ABX) $43.63 up 2.47%
Newmont (NEM) $61.69 up 2.24%
US Gold (UXG) $4.86 down 1.46%
General Moly (Eureka Moly, LLC) (GMO) $3.13 up 0.32%
Thompson Creek (TC) $9.37 up 0.64%
Freeport-McMoRan (FCX) $64.00 up 1.33% (a bellwether mining stock spanning copper, gold & molybdenum)

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

ArcelorMittal (MT) $29.63 down 0.24% - global steel producer
POSCO (PKX) $105.45 up 1.74% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 1.04% to $1,366,956.21 (what's this?).

Cheers,

Colonel Possum

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

Headline photograph by Mariana Titus
CIGS Solar Cell Diagram - The International NanoScience Community (Sanjay)
Solar Panel Array - UberReview