Whilst reading the papers, FT Five challenges for Indonesia president-elect Joko Widodo By Ben Bland in Jakarta it was no surprise that
Joko (known as Jokowi) has his work cut out. The ill-thought-out policies
including the unprocessed ore of his predecessor haven't exactly
instilled charm in his country folk. Prabowo Subianto will obviously have to
scream about election fraud etc...however with near 6% margin the result is
unlikely to change according to the people that know this better! See: BBC Indonesia election:
Prabowo Subianto to challenge result.
What Indonesia need is Foreign investment and this is going
to come with a common-sense price attached. It’ll be slow, due to the legalities
regarding the election result as the Ex-General (Prabowo Subianto) either eats humble pie or does a sour
grapes approach to the election being second.
This bodes well for Churchill Mining et al, including Freeport
and Newmont (Specifically their subsidiary Newmont Nusa Tenggara part owned by Newmont,
Sumitomo and an Indonesian partner) whom recently announced they wished to
challenge the policy. The Batu Hijau
mine (Cooper + credits for gold/silver) employed near 3.3K people, 90%+ of
which were sent home last month due to the issues around being unable to export
unprocessed ore (Copper).
As
mentioned here awhile back, its likely the Government will initiate a form
of Smelter Bond scheme for miners/producers which will enable the processing of
of the ores at a later date. The Government for smaller companies may even be
considering a Smelter Royalty Bond Scheme for the smaller producers that are unable to afford the one off costs. The pain, 7
months in, is now being felt on the ground, there’s around 150 firms impacted
by the ban which doesn’t bode well for employment as more producers/miners lay off.
One key element is how Jokowi deals with the Sukarnoputri
family connections and the older generations will be praying Indonesia does not
return to such blatant corruption and the sectarian violence. Jokowi’s task won’t be easy, just a quick look
at the fuel subsidies issues alone doesn’t bode well for his popularity. Expect
news of talks fairly early on, as the Ores ban needs resolving to show a
willing/respect for Foreign Investors, which Jokowi will need to tap for around
$50b in his first year in tenure (30% of Government expenditure approx.). Patience required, but perhaps a wry smile in the Churchill Mining offices...
On to the realities
of BLT Billiton (BLT), BLT
Operational Review for the Year Ended 30 June 2014, it reads as unexciting
with promises of tomorrow. Despite strong performance, with Rio increasing, BLT
have no choice but to aim for 245 Mt Iron Ore Target from the Pilbara in the
2015 financial year. Iron Ore is set for a Mexican stand off, with increasing supplies to market well above even the most bullish demand forecasts, the price is set
for one direction. The Lower quality Co’s have a real problem in negotiating decent
deals, similar to London Mining’s most recent update showed it was possible to
improve margins and AMI (assuming they get round to improving their
concentrator) are focusing on quality. Petroleum is where I see the growth this
is mirrored in their results, with an emphasis on their highest return acreage.
BLT need to get in gear and acquire BG Group whilst its cheap, the update today
clearly shows they can afford the deal. So with expanding production in the
short-term, what better time to add some long-end dated items to the shelf for
tomorrow?
On the coal front,
it would be wise to follow the NCA Project deal and whether Glencore increase
their stake. Will this be another contrarian deal by GLEN, whom only recently
bought Rio’s Clermont share with Sumitomo Corp for just over $1b. Strangely Sumitomo
Corp’s actions are contradictory, with them wanting to sell their 10% share in
addition to Itochu Corp wanting shot of their 35% in the Aussie NCA. With JPM
(Representing Itochu) & Rothchild’s (Sumitomo) brought in to sell the
stakes, who will be a buyer. Its looking like it’s “only GLEN” in the running.”
NCA has struggled in the recent coal climate. Will it be en par with the
Clermont deal, I suspect not, with anything above $400M for 45% being be a
surprise with the Newlands Project extension already being wound down nevermind
other producers closing, over-supply in Asia and $70-80/t pricing currently, it’s
unlikely to be enticing for many. One can’t ignore the carbon taxes and
changes on profit taxation in Australia on the plus side.
One should “put out
a cheer for Serabi Holders today”, with the Declaration
of commercial production at Palito and second quarter operations update,
with the company valued at near £40M, the grades bode well for an all in cost
of around $750. Albeit its nothing to get excited about for me.
Atb Fraser
Fraser- yes- the right winner in Indonesia, albeit the new vice president has said there should be "no tampering with the ban", but his boss with sit down with the interested parties, who I believe did have 7 or so years notice re the ore export bans and most seem to have done sfa in that time. Indonesia has some major issues, one being the 2.4% budget deficit which is partially fuelled by the state fuel subsidies, which stand at $21bn pa!! And then there could be a bit of corruption in too :-)) He may not be "popular" for very long if he starts to sort out the mess in any seriousness. Still CHL are better off with him, he can settle with them and blame the previous idiots, which always seems a nice card to play.
ReplyDeleteRe BLT- yes, a good set of results, good mgmt. like RIO and they probably need rerating, even given the weak iron ore market.
Ive been looking at Bolivian nationalisations (a la Rurelec) and there is a nice long list for me to peruse, they have been prolific in this area in the part, possibly a policy that has won them votes but will cost them billions over the coming decade. Ive done some pruning and am down to 5 investables now, with further work to come (in between the Tour de France coverage at present). If you are interested, let me know and I will relieve my best risk/reward case by the end of the week, hopefully. And lets hope they do a tad better than RUR :-))
Cheers. The Leggie