Good Afternoon,
Another manic week with various bits of news coming out - a speedy run through of what can be remembered:
Sirius Minerals (SXX) - It would be laughable if it wasn't
true - from memory Israel Chemical (NYSE: ICL) via Cleveland Potash Boulby Mine
raised concerns/objections regarding the application or process for SXX's York
Potash polyhalite mine.
ICL inform the market of the refocusing at the Boulby Mine
and will mine polyhalite.
With some amusement, ICL have trademarked a brand called Polysulphate –
amazingly derived from polyhalite. ICL is listed NYSE and with limited upside,
what reasons are their to hold the stock.
Vale / BHP - The trade was the debt at Samarco owned by Vale
and BHP Billiton (BLT) - They have been compelled to undertake further emergency tailings dam work. The damage and overall
cost implications are unknown although perhaps affordable, the market now
should price in a real cut to BLT's dividend. The price has risks...even for
Vale, whose leverage is phenomenal but the price is now about right. How will
one sleep at night not being short Vale?
South32 (Short32/S32) – updated the market. The same however
cannot be said for Anglo American (AAL). AAL own 40% of the venture where they have yet to notify their shareholders of Samancor manganese joint venture issues. Anglo deem
it appropriate to update on the changes to their senior management and ignore the woes of their 40%
stake in SamancorCR.
From South32, the joint venture's South African
mines will remain closed until the completion of the ongoing strategic review.
Production was suspended following a fatality at the Mamatwan mine on 2
November 2015.
SunEdison (NYSE: SUNE) - The idea of SUNE being a car-wreck
was pooh-poohed when we raised the question "why was SUNE valued near the
same as Solarcity?” Our view was that there was limited equity value
left for shareholders in SunEdison. In contrast others believed in the solar
expansion of the world.
The markets may be right about solar longer-term, but not
with SUNE - they expanded fast, attempted to hold on to projects rather than
sell them and have significant leveraged. It's an all too familiar story of
elastic expansion that may not snap, but is likely to be a shadow of its former
self.
Despite some inference we had lost the plot in June, July
and August, we were vilified by the price action on Friday where SUNE's ability
to access capital and outlook has finally been realised. The
price still is unappealing but there's no reason to hold the stock unless a
white knight can be found. We know it's not Blackstone, they came out and said they weren't considering it on Wednesday (Reuters).
SUNE's second quarter results released in August only
confirmed what the market should have acknowledged debt vs earnings and
over-expansion is a recipe for...What are the implications for the yieldco's?
Another over-expansion similar to the Chinese co's of yesteryear.
Barrick Gold (NYSE: ABX) continues to flogs four mines to
continue reducing debt. It makes one wonder why they bothered in the first
place - See Mining.com Barrick Gold. Their need for cash is
keeping the short-interest happy in Acacia Mining (ACA) - from memory ABX still
have 64% in ACA and with the significant overhang, would you be a buyer?
Lucara Diamonds in Canada (TSX: LUC) - not only found 1111 Carat Diamond where the share price was muted but
then LUC recovered two more diamonds including a 813CT stone. We missed
the price action due to travels but what took the market so long to react
positively?! Certain traders...tut tut.
Anglo Pacific (APF) - companies apparently have efficient
with their IR - last weekend we had reports in the press that Rio Tinto were threatening to close their Kestrel operationsdown if they did not get approval for Kestrel. APF, by the silence,
obviously do not consider the ground water issues in Australia significant
enough to update the market on the future prospects of Kestrel. Perhaps the
market will be honoured of an update within the Q3's due 26th November 2015 this week coming.
Kaz Minerals (KAZ) - luckily for them they have a Chinese
contractor whom appears to be very flexible. KAZ have been granted a reprieve
with some can kicking of liabilities by Non Ferrous China (NFC). Over to KAZ, (bold and italics are
additions):
Under the revised terms, $300 million of construction
costs which were scheduled to be paid in 2016 and 2017 will be settled in the
first half of 2018. There is no change to the overall amount payable to NFC or
the project budget of $2.3 billion. Aktogay remains on track to commence
production from oxide ore in 2015 and production from sulphide ore in 2017.
Oleg Novachuk, Chief Executive, said: "The deferral
of $300 million to 2018 provides KAZ Minerals with additional liquidity
during the construction and ramp up of Bozshakol and Aktogay. This
agreement also demonstrates the strength of our relationship with NFC and
continues our strong track record of securing support from our partners in
China for these strategically important copper projects."
We maybe have a different understanding of the term
additional liquidity to others, however the directors think it's a positive
- John Mackenzie bought 5000 shares, Andrew Southam purchased 99,238 shares and Simon Heale (and connected parties) purchased 77655 shares.
Perhaps they feel the purchases will be beneficial and a sign of a recovery in
their company - hmm What additional liquidity is there?!?!
Coal - The UK Government came out with all coal power
stations Technica - coal power plants to close 2025. This doesn't bode
well for the industry as a whole nor prices where similar policies are impacted
on global prices. Mick Davis / X2 might just be better suited to other
projects, but one suspects they smell a bargain on some Australian
assets.
Are Drax (DRX) viable? With risks associated with their
subsidies and the general outlook to biomass. Having met with a few private companies
recently involved with ports, the outlook certainly isn't encouraging with some
owners looking to sell. Implications for HSP (Hargreaves Services), albeit it
should be cash generative even allowing for RedCar Steel closures. What is the
read across to Associated British Ports and Clarkson's (CKN) etc....etc...
Cliffs Natural Resources (NYSE: CLF) - continued with
their views on dumping in the US by China as well as announcing they are temporarily idling iron ore pellet production at its Northshore Mining operation in Minnesota by Dec. 1, 2015. Another company where
this is no reason to hold the stock until anti-dumping measures are enforced.
One suspects there's others issues at stake so it's going to take longer than
the companies under pressure hope for.
Royal Mail (RMG) - came out with better than expected
results. The sector outlook remains competitive and consider RMG, in the
absence of significant change, to be a dinosaur. The industry, like most
sectors, is cannibalising their own
margins in the search for dominance. Not specifically aimed mail and courier
companies - but there appears to be a thirst for expanding into space at the
cost of all. See DX Group (DX.) trading update and UK Mail (UKM) half yearly report whom both showed the competitive nature of the market.
Johnson Matthey (JMAT) – Interim results were undoubtedly
better with the added bonus of further savings (£30M). The news from JMAT’s
Emission Control Technologies division (ECT) was waited for. There have been
few/little indicators of how well the diesel market was performing after the
current VW issues (whom just increased the number of cars with emission woes).
Our belief that the diesel demand would fall has so far proven incorrect
with Europe doing well – more so it appears to be expanding.
There has been continued commentary around NOx emissions
from diesel vehicles and speculation as to whether diesel's share of production
in Europe may decline. The proportion of diesel vehicles produced in
Western Europe was stable at 51% in our first half (H1 2014/15 50%).
We did not properly consider that lower PGM prices would be
so beneficial to the working capital levels. Nor the true read across
from the NOx issues that are a hot topic as a result of VW’s actions. JMAT,
like Umicore (EBR: UMI), informs us that 6B + NOx requires additional catalyst
technology and increases sales per vehicle for Johnson Matthey by around 20%.
JMAT's Dividends will be hugged in a shrinking market. (bold
italics addition) - An interim dividend of 19.5 pence per ordinary
share has been proposed by the board which will be paid on 2nd February 2016 to
shareholders on the register at the close of business on 8th January
2016.
The estimated amount to be paid is £39.6 million and has not been recognised in these accounts. The board is also recommending a special dividend to shareholders of 150.0 pence per ordinary share which will be paid on 2nd February 2016. JMAT could have utilised the sale proceeds better, one would hope they’re in the process of one or two acquisitions before the 2nd February.
Have a good weekend, Atb Fraser
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