Good Morning,
As a recap to yesterday, Petra Diamonds (PDL) updated on Q1. The diamond sector in the short and mid-term
isn't necessarily the place to be increasing ones leverage - Net debt at
Period end of $306.2 million (30 June 2015: $171.7 million).
Considering the updates from De Beers (via AAL) and Alrosa,
Petra's were as expected. The lack of a tender in the quarter hasn't assisted
Petra - whom acknowledge prices have got weaker (down 8.8%).
As a poignant reminder, the significance of the Antwerp
Diamond Bank should be noted (See EMC: January 2015 Antwerp Diamond Bank. Not only was this
underestimated by the market, but evidence is suggesting financing has
tightened further.
Petra should accept the headwinds affecting their buyers'
financing and the ramp up of production in the diamond space. Prudently the
majors have reduced their expectations on the sightholders. As a result, Petra
with their ramp up, are likely to be a price-taker to meet
their cashflow demands.
With inventories up, prices down and the delay in tender,
Petra need some luck to achieve targets. It’s important to acknowledge why Petra
didn't have a tender in Q1? The EMC view is that due to the car wreck of sales
by the majors in Q1, Petra delayed their tender. A reminder being that Petra have
a standard sales cycle. Whereby they hold one tender in Q1 and two tenders Q2.
Will there be three in Q2? For those searching out last year’s Q1 for
comparatives, here (Q1), where they confirm the sales cycle as well.
In the absence of an improvement in the financing or
balancing of supply and demand, prices are unlikely to recover. Expect some
cost cutting initiatives to those miners that ignored the realities of the
Antwerp Diamond Bank (ADB) closing. Is there any reason to hold a diamond
producer? Certainly not without some glimmers of hope or telescopic belief in a
pricing recovery or M&A.
The Federal Reserve threw the gauntlet to commodities sector
(in particular) and the markets yesterday. There will now be some revisions
across the sector as the outlook becomes more challenging. Somewhat after the
horse has bolted but all the same, if the global economy doesn't wobble in and
employment numbers stay circa 160K+ the FED is raising rates.
Fortescue Metals Group (FMG) are buying back debt cheap at
between 14-19% discounts. China's Jiangxi Copper (HK: 0358) (China’s main
producer/smelter) reported a -59.79% drop in third quarter net profit.
Jiangxi's numbers were in-line with the expectations here,
but "the read across to Glencore" should be acknowledged. Having
recently signed an agreement with state owned China Minmetals Corporation (Las Bambas for those that
need reminding), it's an acknowledgement of how tough the market place
is.
As a result of the FED indications, the iron ore producers
are going to benefit at an OPEX level. "The four" (Rio, BHP, FMG
& Roy Hill) will be expecting an Aussie interest rate reduction to improve their bottom line. Although it
won't offset all the fall in iron prices, especially with current Chinese steel
dump and associated prices.
Its only when reading KAZ Minerals Q3 & IMS that one gets a realisation of how bad
things are going to get when they results are "in-line." KAZ have
been lucky thanks to the devaluation of the Kazakhstani Tenge. The management
have been prudent to avoiding giving guidance on cash costs in the IMS Q3 - Thankfully
for them they have cash, debt is up. One can obviously look forward to updates
on Koksay scoping, along with the production for Bozshakol and
Aktogay in H1 2016.
Finally, we have OPAY come out with some historic personal data breaches - being out at a loss on this, it was not unwelcome.
Atb Fraser
No comments:
Post a Comment