Morning Mumble: Jumpy to say the least...where to start!

Today jumps about a lot as it’s a bit of a review that’s forward looking, its been a funny week, flying by with various meetings and the speculation around certain miners. I had started a piece about the IPO of Bagir Group (BAGR) and the pricing including the reliance on one customer that has now decided to reduce its orders. There was gossip awhile back the client was Marks and Spencer’s which to my view would be the only reason to withhold such information as it’s not exactly positive in light of their sales. We can only wait and see in a few years time (I hope you see my sarcasm) as to whether BAGR's Director Dealings will be found to be prudent. Samuel Vlodinger Non-Executive Director purchased 133,333 @ 22.5p &  Tessa Laws Non-Executive Director purchased 24,390 @ 20.5p. When did BAGR know about a material downside in trading and should this have been pointed out at IPO as the company was only listed on the 15th April and the profit warning/trading statement came only one month later (15th May). 

For those that read my commentary on Amara Group (AMA) you'll note the Director dealings that for once aren't a paltry £10K 'but believing in the value.’ This does confirm to those fixating on the takeover event by Randgold that there's nothing happening 'currently.' Its my view the directors did not have much choice, with the 1st Quarter Results being so grim, they had to appear to align their interests especially with the placing just gone. The positives are they will have circa £27M in cash now, a decrease in cash costs (16%) to US$1,082 per ounce (is that all in? I don’t think so but will have to check), but shareholders should be concerned with the guidance being towards the lower end of the 60-70k company given ($2m short on top end guidance EBITDA). Yaoure is key to AMA and the PEA evidences that...patience is the key, over to Randgold to get its juggernaut into action.

In reviewing posts here I have noticed a number have gone missing, the Chinese Nickel market fiasco (trades) and the market for some reason ignore the fact the Chinese have been funding smelters in Indonesia for some time (If parties got them in an email could they be so kind as to email me them at so I may repost them).  The Chinese Government unsurprisingly didn’t inform the market of its intervention in Nickel and Iron Ore. The plummet was only supported by Asian trading, I suspect saving the bacon of a few over-exposed Chinese traders. The press merely repeated what was news in 2013, namely the deal between Ibris and China’s Yong-Xing Alloy Material Technology Taizhou Co. Ltd which was well ahead of the recent developments, its nothing new, the demand is still a touch above supply on Nickel. However the Chinese Government position was well played and caused a pull back, or cautionary note being taken by the speculators. 

In addition my Tronox review and the impact on Kenmare Resources (KMR) disappeared...From memory the results were a little ahead for Tronox, but nothing spectacular. The main noise coming from Tronox is the pigment market has stabilised. As such there’s going to be “no planned increase in demand” but what I can make out is the stocks and demand have turned, which should bode well over the longer-term. This however in the current climate won’t do well for Kenmare without some improvement in the market over and above stability. What is concerning is, that demand is down around 12% for Tronox and prices down 30%+ with this is mind Kenmare may have had a belated sell off as people were slow to react to the little improvement in the sector, which for Kenmare is always worse…no wonder with a performance history. I’ll hold what little I have as a higher risk exposure but I’d certainly not be running to buy more even at these prices. Tronox Quarterly (PDF via Tronox Site). Remember Tronox is a ‘fully integrated producer’ which saves them some of the significant pain that Kenmare have been experiencing. It does however raise significant questions when you compare the pay between the Tronox Board and Kenmare…perhaps I’m missing something?!?!

One that deserves a re-rating is Central Asia Metals (CAML), this stock I’ve held for some time now, its rare to have a decent asset and a dividend on AIM. With the stamp of approval on the Kounrad copper project in Kazakhstan CAML kick off with expansion plans which are stated as being fully funded from cashflow. Things may be delayed a little with expansion if the price drops to $2.45/lb or below, but with a fully inclusive Kazakhstan cost of $1.13/lb (2012: $0.98/lb) for f/y 2013, things look very rosy. One hopes the Kazakhstan Government don’t think they’ll just take the entire asset and be damned? Or take and sell to a certain larger Kaz miner, all country risks, but the approval process gives some reassurance for the orphans. Until the full expansion plans can be pulled apart, £2/£2.15 is about the money on fair value, so perhaps the market may get ahead of itself.

It would appear the Nickel’s strength and current Indonesian position is forcing companies with crap assets, oops higher cost assets, to attempt to sell them on. There’s a rumour Anglo America (AAL) are very close to a deal to get shot of their Barro Alto nickel operation in Brazil. AAL need to refurbish their furnaces at Barro Alto, that’s been known for a significant amount of time, what most analysts are missing is the fact Anglo’s returns at Barro Alto do not justify any refurbishment programme, some one assumes Vale having smelt blood have agreed a price that reflects the issues. The issue for AAL is the cost of refurbishment and return on capital, and with the dog of years previously, its one Mark Cutifani is guaranteed to get rid of, the write-downs on the asset is unsurprising, what may be is the price that the willing buyer pays! With no other interest save for Vale, its clear its going to be a 'buy one semi-useless furnace and get another for free."

On to more profitable items, Centamin Egypt’s Dividend Policy was announced last week providing significant support to the stock above the crucial 55 pence level, this was followed shortly by the Director purchases. With taxation now likely to be a positive for the Egypt Government including no subsidies, one would assume the “ministers” would be wise to strike out the license issues and pending court case, albeit I suspect they had this in mind with the retrospective legal changes restricting challenges to Government awards/contracts.

There’s some gossip going around about EMED doing a fundraiser at 6 pence, the reliability of the information is with a cautionary note and surprising as they could raise at 8 pence like before. Perhaps the company has realised what happens when they punish shareholders by deeply discounted and well known prior placings. EMED’s board have a lot to change here including improving the confidence of their holders. The asset is good, the economics positive and the Government very receptive of the project/mine. Its surprising with offtake agreements, and forward sales, why EMED would need more than £30M but let the rumours of £100M do the rounds. 

We had Afren announcing these week and took the opportunity to start buying again in the stock. Its numbers were plumb on developments going well, albeit a little behind in timing. With Lekoil and Afren need for the OGO’s development to evidence their spending and discovery, one expects “good news upon full appraisal and step out well.” Afren is an acquisition target, why this has not happened is anyone’s guess…Perhaps a merger with LEKoil and a dividend policy in 2 years time would be more beneficial? The company are certainly putting the capital/cash to the hardest work possible…unlike many that could be mentioned.

As a thought back to higher cost, low realised prices for iron ore producers, with the market being awash with lower grade Iron Ore it’s unsurprising that African Mineral’s results were so dire, and that’s excluding the most recent price drops, the rainy season being May to November for Sierra Leone and the shipping risks that are totally ignored by the market (save for a few shrew individuals) which may be prohibitive to shipments around October.

It’s acknowledged both London Mining and African Minerals have put measures in place to reduce the moisture build up, but one would be wise to keep an eye on anything above 7%. Africa Minerals is being punished by the demand cycle for superior ore, anything below the “ideal” is being discounted significantly and with the recent price move down to $98-100/t it’s likely to have impacted significantly on London Mining and African Minerals revenues. I’m not pricing out London Mining as bust, but in the current cycle of pricing, London Mining has bills to pay…the Board have done well for me over the years (this does not stop me shorting them), and its predominantly the slowness of ramp up in production that will punish London Mining further. African Minerals are full steam ahead, the faster they can get to their 25Mtpa by the end of December the better. For the knife catchers, the buy reiterations will provide some psychological support, but with the “unknown yet known direction of the Iron Ore” it will punish these two without very close eye kept on costs. AMI/LOND were the Muppet shorts of this year/week whereby everything was known the market just had to catch up, time to now close and await the direction. This was also mirrored by my FX play GBPVs.AUD, which lept nicely from 1.7850 to 1.82+.

Whilst typing this, my news feeds have just shown yet another buy for Centamin Egypt, when time allows…In addition there's a working capital loans for AAZ (Anglo Asian Minin ) coming as no surprise whatsoever with a placing likely…one wonders how they’ll repay all their loans if they cannot fund the working capital? Anyone care to enlighten me?

Why: Polymetal Int PLC Acquisition of the Kyzyl gold project, surely one needs to get their house  in order before attempting to make other assets work?

I took a high risk play in Tangiers Petroleum Ltd, its a 20% chance of hitting a better time for the stock, so 5-1 odds for a significantly higher return in the stock. Its not one for those people that like premium bond exposure though. Whilst on the phone to D yesterday, he shrewdly noticed when the market moved! 

Items of discussion are: RGM/RRR (I'm long on Regency Mining and Red Rock Resources and not mad) and closed my shorts on Ocado (OCDO) along with ASOS (ASC), and Supergroup (SGP). Folk will notice the cancellation of the Fat Face listing, one can only speculate why, but suffice  to say, have the Insti's and Mugs finally woken up to being loaded up with over priced stock? I doubt it, just they're aware of paying too much at the start, they don't really care if they pay to much after a few years! Due to my indecision and unknown variables in Pets at Home (PETS), I have closed my short position. Royal Mail Group (RMG) having been out of the money from 577, is nicely back in profit and moving forward. The company has to restrcture, it's an archaic company with a Governmental Ethos. 

For those vying to take glee, I closed my Mothercare (MTC) position today not at a loss, but wiping out some of my profits...Mothercare Plc : Final Results. Still not looking good, debt up, total UK sales down 7.5% but overall worldwide growth. With the focus on the UK, it still does not bode well for MTC unless more significant changes are made but clearly headway has been made in turning the company round. Perhaps Morrison's spinning Kiddiecare out may be prudent if don't quickly?

Quite why New World Resources is still listed beggers belief...

Finally for those looking for positives in Iofina, one would be wise not to look for too long in the SQM (Sociedad Quimica Y Minera) Q1 results but the numpties will look at the share price recovery and think Iodine being 25% of SQM's earnings rather than anything else including  lithium, potassium-related fertilizers 

and industrial chemicals being the reasoning. The market may wake up to this with IOF this afternoon.

Its my Friday! 

Atb Fraser

Note to self: start typing in word rather than "blogger".