Morning Mumble: China, Puerto Rico Chinese Housing desperations and PGM producers (LMI), has someone lost the plot.

Good Evening,

It would appear that the only issues relate to Greece at the moment rather than the liquidity crisis occurring in China and the likes of Puerto Rico defaulting (curve ball alert, more coming on this in due course). A dramatic statement, but one only has to look at the commodity woes of Dr Copper and his juniors to understand the yoyo of liquidity. On the one hand you have physically purchasers “taking opportunity”, and the rest of the market is a risk off environment. Even the hedge funds are wary of (at the moment). Nickel a prime example...

China has all but banned the selling of stocks, cancelled the borrow on what little was left and also hovered over those with a decent sense of market actions, to threaten them to change and/or stop trading.

Whilst away, it’s been interesting to grasp a sense of understanding on the Asian markets as a whole. A plus being there’s limited ability to check the western news flow, without some neanderthal type market assessment. Aslthough China are “protecting their market” (shall we call it protecting confidence), the wider population not only disbelieve the Chinese Government statements, but more so, are massively wary of the outcome. Expect news on a few arrests in due course. 

Housing is at risk on a number of levels more recently, where there’s the threat of action by developers on potential customers pulling out of deals. Quite how, even in Chinese terms, one is legally obliged to buy in the absence of a contract is anyone’s guess. It would appear “by threatening it” there’s some financial benefit for those developers. More on this later, perhaps when at home! Accessing liquidity cash, akin to "fitting the BP compensation criteria, appears to be the staple diet of the month. 

On AIM, we had Anglo Asian Mining (AAZ) coming out with a productionupdate. One would be wise to wait until the next set of results before getting carried away. Agitation leaching recoveries saved the decline in grades, one hopes they can maintain this.

Copper production came in a corker at 236 tonnes, compared to 182/t (admittedly a poor comparison). The reagent costs should still be coming down in price, but disappointingly there’s no guidance on costs, yet again.

Although net debt was reduced, its not wise to carry inventory and debt. With the director lending a small chunk ($4M) to continue ops more recently, it’s a positive that cashflow is appearing to be well managed. With the woes of commodities and the cashflow management needing a dictator type management style. EMC:AAZ potential cash call looks like it will either be a slow journey whilst paying down debt or today’s news is the positive before the dump.

It was interesting to listen to a trader whom considers Lonmin a screaming buy now. It’s not Friday, it’s not gin o'clock and more so, one hopes he has a better understanding than the rest of South Africa. This doesn't mean it’s not a bad idea, its just significantly high risk.

Precious group metal (PGM) producers are right on the wire at the moment, if volumes and demand do not pick up soon, expect a low price for longer across the board. Not necessarily the best thing for Lonmin, whom lets face it, had they consider other avenues for their marketing and trading options, could have turned themselves into a force to be reckoned with. 

Hindsight is a wonderful thing, alas for Lonmin, one wouldn't like to be in their shoes, especially in light of their OPEX CAPEX cost when considering Platinum/Palladium. For the first time in a while my email box contains some sensible suggestions about the PGM market, congrats pros!

On Exillions, limited time, but perhaps the company would like to make a few announcements about "holdings in company." Unless of course the rules only apply to mortals! 

Atb Fraser

Morning Mumble: Disclaimer, Scotgold Resources (SQZ), Anglo Asian Mining (AAZ)

Good Morning,

The past few days have been rather silent, for a number of reasons. It’s best if readers see the disclaimer, which is already covered by Google's "disclaimer about content." In the event parties disagree with the disclaimer either of EMC or Google then they should close the webpage and not return.

SGZ came out with a resource upgrade on their Cononish Gold Project (in Scotland not as some think Ireland or Cornwall). SGZ have increased their resources by revising their Mine Development Plan, en par to a Prefeasibility Study. One got all excited about the announcement and share price to look for the borrow to short, sadly there's zip! Even retailer spread bet firms couldn't/wouldn't! Although it was intraday greed! Purely on a belief of an unjustifiable appreciation in the SP, normality has since returned.

Anglo Asian Mining final results, continuing on from the director loan from EMC 22nd May 2015 Director Loan AAZ's going concern is a tricky statement. Its common-sense the AAZ's forecasted cash position and ability to repay debt have a number of assumptions. 

•  Achieving the forecast production of its gold production operations, principally its heap and agitation leaching; [Also an assumption about grades and recovery should be considered].

•  its gold price assumption; and [it’s difficult to validate that gold price assumptions as the all in associated costs per ounce appears absent].

• the small scale flotation plant being commissioned on time and achieving its planned performance. [Crucial].

Bold is EMC not AAZ!

With some sensible rearrangements in the debt repayment to the Bank of Azerbaijan (IBA) it is a going concern. With cash at the end of the year at less than the price of a semi in London, it’s no wonder the director loan was organised, and in hindsight, one could have argued a higher % should have been charged.

One doesn't envy AAZ if their grades drop below 3g/t as costs will increase and thus impact on cash flow. Personally, AAZ require circa $10M in capital to improve the balance sheet, and in an ideal world $20M would be welcome. The leveraged play at the current levels means they can survive as long as IBA are willing participants. 

EMC estimated of cash costs were a little conservative at near $945/oz AAZ have come in at $971/oz. Simply put, it’s not without its risks, if one assumes they can continue with grades above 3g/t, keep cash flow positive, floatation plant on time, budget and working properly, improving recoveries, oh and the gold price remaining stable. Please remember, every Chinese person and their dog is favouring equities (no doubt leveraged) over gold and increased supply in the gold market. It doesn't sound that great, especially with net debt of $52.4 million.

Kingfisher (KGF) came out with Q1 trading statement. No change in sentiment here, one just needs the buyback to end and the realities of poor trading and conditions in France (the acquisition or lack of may have been very fortunate to KGF). 

Screwfix are still cannibalising revenue from B&Q, one wonders whether KGF would be better shrinking B&Q stores and farming space out to other providers whom don't duplicate the offering. Perhaps something for supermarkets to consider or...car sales or similar? Gyms? This would maintain Screwfix in growth and costs seem to be easier to control and traction in the market making it the shining star. 

KGF are quick to point out about margin improvements, although on the comparative period this would not be hard! UK gross margins up 90 basis points reflecting weak comparatives (-210 basis points Q1 2014/15) due to more promotionally-led showroom sales last year. 

One has to wonder whether KGF's costs focus is something they shouldn't be echoing to the market, more so maintaining efficiencies. Costs benefited from on-going productivity initiatives offset by phasing of marketing costs. Could Kingfisher benefit by cancelling their over 50's discount scheme that appears not to be abused by anyone whom can grab a granny/granddad. It does not promote loyalty, it just promotes abuse of the system! 

Its somewhat hilarious commentators and the press are suggesting the handyman is driving sales with a belief all these workmen are disappearing off to Screwfix. Having been in a Screwfix recently, its surprising the lack of trade, although Screwfix are enticing trade with free tea and coffee when picking up goods. 

Simply, the punters have realised the catalogue model is easier, you don't have to walk round a huge great bloody warehouse to then ask where such and such valve is. For heavy materials or plants there's a difference, simply put, for tools and "Screwfix's" key market, you're better off getting someone else to get locate and organise your order for no charge. 

Screwfix simply meets the three C's of Convenience, Consolidation and Conservation of time, in terms of marketing. As always, ones very foolish to bet against share buybacks. Today was merely aiding closing the longs as the market laps up the premium applied to the buyback that in reality shouldn't purchase any stock above 325 pence. 

Iofina (IOF) popped their final results out yesterday. There's a big difference between positive EBITDA and operating profits. Global iodine prices have continued to be under pressure, we'll ignore SQM (Sociedad Quimica y Minera S.A) issues as such, on the basis they have a very different balance sheet and muppets seem to think it’s relevant. So save for comparing margins or performance within sector the EBITDA figure (or lack of) is like a chocolate teapot for a developing company.

Iofina hope by 06th June they should be in a position to update fully on the Atlantis Water Depot Project. With a high probability of being granted the permit, it would be rude not to have some binary money on the possibility for high risk exposure, although IOF's downside may deter some speculators! 

We'll leave Iofina to summarise their accounts, record revenue, record loss...hmmm

Atb Fraser

Morning Mumble: Anglo Asian Mining AAZ, Oh eck (Gedabek) + PayPoint Plc.

Good Morning,

Anglo Asian Mining (AAZ) have waved the flag stating "financing is becoming limited for Gedabek." The CEO has stumped up a $4M loan, amazingly unsecured. So it either means one of two things, AAZ are likely to be in a position to repay the loan by the 8 January 2016 (the term) or there's a placing on the way. 

One would be wise to err on the side of caution! Those muppets giving abuse for shorting AAZ last year need a reality check,  EMC: AAZ 28 May 2014. It was noted in April (EMC) within AAZ's Q1 2015 Operations Update that the costs guidance was totally absent. Today's raises further woes, with net debt of US$52.4 million as of 31 December 2014, things are not looking pretty. 

With a quick breakdown of the figures available (as guidance is unavailable), all in costs are likely to be around $945/oz, although this has a significant margin for error, circa 10% this excludes debt/interest repayments. Has AAZ had another hiccup? Its rather looking like $10M is needed sooner rather than later, with the loan keeping the wolf from the door in the interim. One simply cannot factor in too much benefit for the reduction in energy costs (fuel) and heap leaching agents, without more information from AAZ. 

Some gossip on PayPoint Plc (PAY) doing the rounds.

More later pending commitments.

Atb Fraser

Morning Mumble: Sirius Minerals (pointing out the obvious) and...Iron Ore + Are ORM getting FORM?

Good Morning, 

Not connected with the title, we'll side step the busy schedule yesterday that resulted in a faux pas by yours truly. When discussing another company that was appropriately labelled crap, its wise to consider people’s connection or association with said crap (or more so, do homework beforehand). After that momentary silence, perhaps realism on their part, things did improve. 

Sirius Minerals (SXX) appears to have more leaks that Horse Hill, readers of the Whitby Gazette will be aware of the local news of 'likely approval.' On top of that, Roger bade informs us that the "North York Moors National Park (NYMNPA) Director of Planning recommending for approval North Yorkshire Council’s proposed park and ride scheme near Whitby; 180 of the spaces are dedicated for York Potash. Now you can’t have a park and ride for a mine without having that mine as well, can you?" 

With the obvious needs of the capital requirements of a mine, SXX has the benefit of a stable geopolitical environment, and save for any elected party member getting a bee in the bonnet. SXX is not a case of rubber stamping, but procedural meddling. SXX has a high chance of a positive outcome for the company and perhaps the equity holders. 

The market would be wise not to be over-expectant on SXX's timelines, but more importantly, having been a buyer, its wise to acknowledge the risk of potential dilution. This is one of a few companies where there's a willing cooperation and acknowledgement of dilution. Equityholders should be open to dilution, SXX, subject to the low risk possibility that would be highly damaging to any value if the mining application was refused, has the potential of a great future.

Obviously there is a risk of a 'nearby mine' meddling in the process, one that shouldn't be ignore. The board of Cleveland Potash would be wise to consider they live in a glass house. If the aged memory is correct Shaft Sinkers had the contract for Cleveland Potash, how things change. 

With things hotting up in Columbia, Red Rocks sale of Columbian gold mine, should be a welcome reduction in security costs at a local level. One cannot help but wonder what the risks are of default of payments are by Colombia Milling Limited (CML). The company isn't so diverse or large enough to be enticing for a balanced investment. Its one that falls into the very high/blind punt areas of investments. The company may have assets, however as most are feeling, save for lithium and a few rare earth minerals being flavour of the year, there's a continual pressure on funding. 

Yesterday, a chap spent significant time looking at the costs of production for AIM companies, there's commodity price expectations (and subsequent) returns that are simply unrealistic in the short-to-mid-term. We'll save naming and shaming for the time being and wait for a better opportunity, however readers will be aware of EMC views on specific companies. 

Iron Ore allegedly bounced on stockpiles reducing. Its rare to entirely disagree with news, but what utter hogwash, Iron ore rallies on China inventory fall. Stocks are still high in China, the reaction was the result of two entities buying in the market as a result of their supply agreements coming to an end suddenly. 

The market would be wise to check assertions from time to time, including the EMC. So from Li, (many thanks) this morning. “China's ports are still holding high levels of iron ore, even [with] steel mill[s] restocking. Inventories [continue] to remain high. Market orders are slowing near [as quick] as the supply is reducing from the market. With demand in China continuing to slow iron ore [is] piled up at Chinese ports” 

Connemara Mining obtained five new prospecting licenses that are apparently on trend with other operators in the area. Fundraiser anyone? Not a stock that's been covered, but with rises like this, the company would be wise to jump on sentiment and get some cash as the coffers as they must be near dry! In the absence of some decent news and lack of borrow, CON won't be covered any time soon. 

For the vanadium followers, Evraz's equity value in Highveld Steel and Vanadium may need revisiting. This does not bode well for Kenmare (KMR) or Sierra Rutile's (SRX) outlook, are Highveld one of the distressed sellers in the market? 

Whatever is happening at Ormonde Mining (ORM) is anyone's guess. Almonty Industries Inc (TSX-V : AII) do not appear to have engaged in the process or perhaps they are keeping their powder dry. ORM update on the Barruecopardo Project Financing, with absolutely no information contained within it. Simply put, in the absence of Almonty coming up with some of the goods, Oaktree will acquire an asset for a song, ORM will retain some 'sort' of management fee, and equity-holders are at risk of having little if any value. 

Over to ORM, "Very significant progress has been made during the exclusivity period, and the parties are expected to be in a position to finalise agreements shortly. A further announcement will be made in due course." Very significant? Well that would be open to interpretation, how this is considered material news in the absence of specifics is of "concern". Does the NOMAD consider the omission of the material facts of progress satisfactory?  

Limited time for Anglo Asian Mining's (AAZ) update, with positives across the board, increased production (floatation plant due online Q3 (possibly Q4), running down inventories (sales exceeding production) and production in line. The disappointment is there's no guidance on cash costs, leaving one to throw a dart at costs.

It would have been nice to have some guidance on all in cash costs as a result of material movements in energy costs (fuel) and heap leaching costs coming down near 20% in the six months. Quick calculations suggest AAZ's costs should be around $945/oz, although this has a significant margin for error, circa 10%. With the repayment of debt going as planned, AAZ can ill-afford any hiccups, with around $0.5M cash at hand there's little margin for error.

Atb Fraser