Morning Mumble: The Data Dump - China's retail sales Grew...with Golden Week included. + Steel and Defaults - But hey we're not worried!

Good Morning, Good Afternoon,

Unlike the echolalia in the press, we have decided to work backwards from the almighty data dump and finish with a compelling statement of the realities of the situation. 

The market is now pricing in a stimulus - whether this is delivered or massaged into figures is another matter. We shall avoid all references to a “wappy wending” heard recently on a conference call! Li’s mishap was more entertainment than anything else, but gives the realities of the steel situation in China.

We have the mystical deflation that is occurring in food prices, retail and manufacturing both in goods inwards and outwards - Not the model one likes when leveraged and expecting non-stop stellar returns!

On Saturday (the trade data) in conjunction with today’s economic data merely represents the facts. We’ve had disappointment in imports (18.8%), exports (down 6.9%) and retail flat (11% up compared to this time last year).

What with the trade data and dump, we’re back to media copy and paste measures eluded to here and in the odd morning note and call. The PBoC are listening to the cries of those that scream blue murder at “only 6.9%” (yeah right) GDP growth (EMC has always been 4-4.5%).

The PBoC is now left compelled to slash interest rate, massage the Reserve Ratio Requirements (RRR) and stem the capital outflows. Actually, the latter could perversely damage China with a requirement to “bring home the bacon” in terms of revenue. There is now a need to also diversify away from a reliance on an overcooked and slowing economy. Sell China/US? Hmmm compelling argument.

All the above is compounded by an inflation rate, that for saying there’s been X stimulus etc…etc… (We’ll avoid the bore), the inflation rate is falling. Aided to some degree by the price of pork falling…as covered here! Also in part due to producer prices slid 5.9%, declining for the 44th consecutive month. Never mind the inventory issues and wage costs that may have further implications on non-performing loans (remember those last time around?).

With the industrial figure being below consensus, September’s reported 5.7% and near 5.6% the market has looked for reassurance in retail performance - Retail can only be described as flat. The sales however mask an element we’ll be covering here called Chinese Margins, because one suspects they’ve taken a beating as well. Footfall’s and voids at malls, giving a different view on the figures as well. A quick survey of rents paid shows some eyebrow raising questions…why if retail is improving are the very retailers struggling?

The industrial production figure at 5.6 was below September's 5.70 per cent level and below the pencil brigades’ consensus - The data validates China’s need to move towards consumption. The speed of the transition is likely to be the stumbling block for expectations, with some pain and unknown implications for growth.

One needs to see further evidence in the PMI Services for China to start to turn modestly positive of a floor being found in the economy. This may be aided by a massive glut/trend of Private Finance Initiatives/Public Private Partnerships to assist the transfer of wealth from state to comrade. (We’ve covered this previously).

We are also reminded of the Chinese Iron and Steel Association report whereby their members have reported collective losses of near $4.5B. What with the “assistance” they’ve received both in the pricing of energy, rebates and what we shall loosely call Central/Local Government grants - quite staggering if there was a level playing field.

We note that ArcelorMittal pulled the trigger on a rights issue in South Africa, that’s not only bad for Kumba Iron Ore with their revised pricing agreement but gives an indication of sector realities. The Kumba Iron Ore and Atlas Iron fan club have beaten back into action with some meaningful suggestions on occupations for yours truly!

Expect more headlines similar to this on Thursday when China Shanshui Cement Group defaults on its debt. The prudence, as reported by Bloomberg is: China Fund That Gained 24% on Bonds Sees Substantial Correction. Additionally, following on from the EMC piece of steel, where apparently Chinese Steel Mills were reacting to market forces, then we need to consider Baoshan Steel's Loss Highlights Crisis Engulfing China Mills.

As promised, at the beginning (if you’re still reading) – from the Baoshan Article on Bloomberg:

HFT One-Year Open Bond Fund was ranked No. 2 among the 270 bond funds, according to Haitong Securities.

“We aren’t worried about large-scale defaults because the central bank’s monetary policy will stay loose within the coming two years,” Shao said, adding he plans to expand his fixed income team from 16 to as many as 25 within the coming three years.

We’ll just ask readers to consider that again in Italics…and leave it out there:

“We aren’t worried about large-scale defaults because the central bank’s monetary policy will stay loose within the coming two years,” Shao said, adding he plans to expand his fixed income team from 16 to as many as 25 within the coming three years.

Atb Fraser

N.B. We note the Prosecutor on the Tailings Dam is citing Negligence on the radio and in the media…whether BHP can walk away from this is another story. Vale simply cannot afford to as the cashflow or “hope of cashflow is needed.” Samarco debt trading at a near binary bet of existence.

Morning Mumble: Chinese unemployment on the rise, BLT's delayed bad news & Anto & Rio's Mo (no I've not lost it).

Good Morning,

China's unemployment figures are on the rise. It’s an open secret that people are out of work or 'job sharing' until they find something else. With the change in school rules for migrant workers in municipals it’s harder a choice for families. Left with a choice sending children back to the country for education, where often there's little resources or educating privately.

With amusement, both the SHCOMP (currently 3,803.4600) and SZCOMP (2062.8640) are holding steady. The only buyers appear to be those with Government funds or backing. The news is all positive for the likes of media with little mention of anything regarding a "contraction of liquidity" of any form. China have got a rare opportunity to blame the lack of GDP growth on the stockmarket manipulation causing a slowdown, the seeds are already being sown.

We had some significant news out with BHP Billiton's (BLT) write-down after the onshore asset review and today's Rio Tinto's (RIO) Q2 operations update/review. BLT's review will be bite-sized, for the market to ignore the greater woes. The onshore asset review should have been announced on the 25th August (date for diary) with all the "others." However, the market shall carry on obliviously ignorant to what will not be a pretty review. Save of course for a remarkable uptick in commodities.

Rio on the other hand have forgotten to mention to the market about near 14% increase in copper production costs.  Due to molybdenum (Mo) having a serious decline since January of epic proportions any by-product cash cost credits are limited. One would have a thought with Mo being of such a benefit to the bottom line costs of copper via by-product credits, they'd have given Mo a cursory mention. Antofagasta are not absent of these woes, making up near the same Mo by-product benefit to cash costs. Can it be viable to produce MO at the current prices?

Rio also had revisions to guidance for Iron Ore (weather related), Uranium (decline grades) and titanium dioxide slag. With Energy Resources of Australia’s (ASX: ERA) lower mill head grade and recovery impacting on processed ore, it’s not the only problem there with a writedown expected in the interims. Rössing’s grades are recovering from comparative quarter weakness, but being in Namibia there’s no mention of taxation woes at a corporate level.

One could argue it was in Rio’s interests to not “force” the weather, supporting some sensibility in iron ore prices. Things are not going well at Bingham (EMC: Bingham) Over to Rio,

Kennecott Utah Copper

Mined copper production for the first half was significantly lower than the same period of 2014 due to the current focus on de-weighting and de-watering the east wall of Bingham Canyon which is expected to continue in the second half.

Lower mine production, partly mitigated by a drawdown of inventory, resulted in first half refined production being significantly lower than in the same period of 2014. To optimise smelter utilisation Kennecott continues to toll third party concentrate, with 166 thousand tonnes of concentrate received and smelted in the first half. This is excluded from reported production figures.

There’s also no mention of a possible insurance claim in respect of Bingham…Escondida (Chile) is also suffering from water availability and which will be made worse by the decline in grades. Will Rio be forced into using desalination and what are the impacts for Iodine producers? Piping water from the coast could be costly. All dwarfed in-part by the ramp up at Oyu Tolgoi which as always raises the question of when Rio will take out Turquoise Hill Resources (TSX: TRQ).

Rio should have a rerating here, based on cashflow rather than the aspirations of a growing super-mining, now under-review. Limited upside of growth, more so evidence of a cashflow star that the market, if they have to hug one stock may be wise to do so with Rio? Under-review.

We have had Iofina (IOF) offer up another smoke and mirrors piece to the market with a Corporate & Trading Update. Is it beyond sensibility why the shareholders were not updated on the cash position of the company? EMC: Iofina Cashflow absent. Over to Iofina, The Board is delighted to report that the Company was EBITDA positive in H1 2015. The company has debt, whether they’re supportive or not, any hope of the convertible element kicking in is but a mere distant memory.

Likewise, IOF debt holders will want a ‘sweetener’ in the event of any debt renegotiations.  Whether this company is scaling up is immaterial to the cash balance. Ironically, having spoken with Hugo, the technical wizard believes Iofina could see some upward pressure but too early to say, personally I don’t think so.

If one applies a sensible correlation between a different sector, say Iron Ore with comparatives between Atlas Iron (ASX: AGO) (as Iofina) and Rio Tinto (Rio) as (Sociedad Química y Minera/NYSE: SQM), its easy to explain the iodine price woes. With producers having rushed into the space and global demand declining, it’s no wonder Iodine has performed like it has (almost identical to iron Ore).

Iofina, having been a favoured play here, selling £2+, is now a leveraged model on Iodine. In the absence of any improvements in Iodine prices or sales by IOF, expect an identical replica to Atlas. The only caveat being the event risk of SQM et al seeing some longer potential for the IOF tech. Although, considering the peak demand in Japan post Fukushima, the market didn’t get the continued return they had hoped for in pricing.

Ironically, a chap noticed whilst in Japan when iodine prices increased significantly, consumers switched to seaweed. Although this won’t explain the large decline in price on its own, it rather does make one consider the alternative risks, same for televisions.

It would be rude not to cover Rurelec (RUR), having only recently be upgraded from the (EMC) Jam Tomorrow Award , they now gain the full (EMC) "destroyer of any value for shareholders award."  With a good kicking at the AGM. It’s no wonder the short-term loan facility requires clarification. It would appear that Sterling Trust Limited have grown tired of the shambles, and are now likely to want to attempt to recover some of their monies, if at all possible.

There is a question about why Peter Earl resigned, and left with ‘an asset’ that was meant to improve the global footprint of Rurelec but now “spun out” to save costs. The AGM announcement was insulting left until 4:30pm despite it taking place at 10:30am in the day. Perhaps Colin Emson needed to find the password? If you’re still a holder, perhaps it’s time to revisit your investing values?

Anglo American’s (AAL) Q2 Production Report makes for a compelling read of the realities facing the company, with write-downs now expected in the interims. Sadly for Anglo there were insufficient positives to make the proverbial “sandwich” of good news, bad news, and good news.

With AAL now stretching the facts to consider their situation unique to one annus horribilis. If ever there was a cursory reminder of crap. Simply, there is no reason whatsoever why I should change my view from 2011. Despite challenges to my view point over near four years, this company is in need of a complete corporate overhaul.

Investors would be wise to apply a barge pole unless they enjoy a gambling like thrill on AAL. The two positives are marred with bad news, platinum being compared to a previous strike quarter and thermal coal prices on decline (post Japanese contract settlements). Had there been time, AAL’s news is worthy of a biblical length comment on the woes of all operations. Over to the city, to now realise the train-wreck…no doubt totally ignored one cannot turn a blind eye for ever.

Like Rio Tinto, Anglo are suffering the water shortages woes now (in Los Bronces) where water managing is becoming a skill. Overall made worse by the “speed” (stability restrictions) places on Collahuasi avoid vibrations on two processing lines.

Water appears to be the norm for operating in environments where there is an ambundance of copper. To keep it simple, whether Anglo’s production is in line with guidance or not, production declines will not be helpful whilst commodity prices are under pressure. Any one would think Anglo were writing the news for a “bull cycle” of commodity super prices.

On a more positive note, EMED Mining (EMED) finally got their municipal activity licence. With production due end of Q3 2015, EMED should have some form of rerating. One disappointing factor for EMED will be their profit. Since overcoming significant hurdles to develop Proyecto Riotinto, it’s unlikely the current copper price will have an impact on the viability. What may do is any “leverage” that may be considered. Having been a buyer until recently, there’s some decent potential, but do not get too carried away with expectation.

A very interesting meeting with a plant engineer whom knows about Wolf Minerals (WLFE) and the plant they’re using. In order to save a few $$ they elected to go for a different kit which would not only reduce costs but also improve efficiencies.

Normal service perhaps next week! Poor old Petroceltic (PCI), where Worldview there appears to be a repeat of recent events. Are Worldview intent on damage the company to the point it becomes uninvestable then buy it on the cheap? Surely not…

Luckily for Zincox (ZOX) the SP rose sufficiently to lock in a few punters with a placing  that’s allegedly going to improve performance. Previously it was coating the inner shells of the heat exchanger, now its debottlenecking supply and replacing said heat exchangers. What is of concern is the “lack of domestic EAFD (Electric Arc Furnace Dust) that might just be essential to operations!

What ZOX responsibly mentions is the critical need of the EAFD. With a rise in Zinc prices likely with a contraction in supply, how are ZOX going to manage this. Crucial, the competition for EAFD has not “hotted” up yet, but will do towards the end of the year and ZOX already cannot manage supply. So how are they going to cope with increased competition?  

More so, with the woes of the heat exchangers they’re now replacing them. Please note the utilisation of the word “troublesome equipment” within the RNS. With an absence of EAFD, how are ZOX going to convince third party funders of the “future” potential.

Either this company is totally under-priced or the realities of ZOX’s promises are telling a different story. Within the RNS there’s hopes for $40M EBITDA plant with an inference that the mechanics of the RCF process/plant is proven. Strangely similar to other companies able to “demonstrate” a proven technique. With support likely around the 12 pence market until a joint venture in conjunction with bank financing?

The question of the week, how much floating storage do Iran have….

Atb Fraser

Morning Mumble: Sirius Minerals (SXX), Lonmin's (LMI) surely heading for AIM & AMC's bounce.

Good Morning,

Sirius Minerals gave an s, update on the key proposal that make it difficult to find any reason to hold the stock in the short-term. 

• Approvals close out work ongoing during government call-in window. Sirius have perhaps created a risk for the Government to hold an enquiry by the expansion of the production model being proposed. Although unlikely, it has to be consider. 

• Final decision notices for key approvals expected by end of September 2015. This timeframe may have to move significantly especially in light of a Definitive Feasibility Study (DFS) being published in Q4, although this may be Q1 2016. 

• DFS being finalised with input from approvals and key contract tenders. 

• DFS results expected to be published during Q4 2015

• Financing to focus principally on debt provision, split into two stages. The risk of performance is on stage one of the financing where there's likely to be a significantly higher element of equity requirement than in stage two. Perhaps most of the debt liability will be disproportionately weighted towards stage two. 

• Stage one financing expected to be completed by end of Q1 2016. Positive in so much as they wish to limit dilution, but...

• Good progress continuing to be made on polyhalite sales to support financings. Expect further news on this with some deals awaiting the "approvals" stage. This will also go to support / derisk the "call-in" possibility by National Government.

The expansion of the plan to near 10mtpa/20mtpa also brings with it a significant increase in CAPEX, although with operating cost benefits. Save for any corporate type event there's likely to be no reason to hold this stock unless you're "very" long-term. 

One has to wonder whether SXX may be considering a royalty type model with an upfront payment.

Iron Ore was thankfully trading around 5 minutes ahead of Rio/BLT's stock with the spike overnight benefiting the miners. This brief rally will benefit Atlas Mining's fundraising efforts. 

For those concerned about the AMC (Amur Minerals) position, its wise to revisit the 2007 SRK DFS and assumed pricing. Whether the project is profitable at $7.50-$9.50/lb is immaterial to the realities of today. Including amongst other things, rising inventories and all this whilst Indonesia restricts exports etc...the Supply Demand assumptions are warped. 

A quick glance at LME nickel stocks over the past 5 years gives a good indication of why there's price weakness. With near 1/3 of total annual world consumption just stored LME. As shorts take their profits expect a bounce in the short-term, true value will out!

More later...on China's commodity grab (QE). Is Lonmin LMI heading for AIM? What is LMI's capital requirements for this year with PGM's near their lows $1030/oz.  Some very interesting gold trades in Asia/America suggesting volatility is coming. 

Atb Fraser

Morning Mumble: Schtump by SHCOMP & SZCOMP! Copper, Iron ore and market woes + Iron ore & Nickel.

Good Morning,

Having had a late night/early morning, its at times bewildering to see the latest actions on the Chinese markets. Not only are insurance companies wading into the market to "assist" with stability but companies have woken up to requesting trading halts (Reuters). It’s now approaching near 1/5th of the 2800 on the Shanghai and Shenzhen Stock Exchanges are now suspended. 

How the reduction in trading costs will assist with the support of the Markets. It was not restrictive before nor the cause of the volatility. Anyone would have thought the cause for the fall was the prohibitive costs of trading. 

China has also restricted the size of purchases of CSI 500 index futures to 1,200 lots for rise and fall. In a bizarre turn of events, the Central Huijin Investment Company (CHIC) (financing arm of the Chinese government) has started purchasing ETF's at an undisclosed rate nor with any guidance of for how long or what funds etc. Likewise the funding restrictions in on commodities is not helping Copper et al, on a pivotal $2.50/lb (circa). 

China Securities Finance Co. (CSFP) is now cashed up, as per EMC: PBOC providing funds to CSFP. So with State Owned Enterprises (SEO) listed on their markets, the Chinese are merely buying them. Limiting the transfer of wealth from Government to Comrade/Citizen. Disorderly all the way. 

From this morning (EMC link) (in full in italics)

In looking for a long position, it's likely any such long trade on trade on the SHCOMP and SZCOMP would be foolish on Chinese markets (without a good set of indicators)

With the Chinese government attempting a soft landing in most areas from property, employment and now the stockmarket, it's pertinent to consider a new dawn approaching for its overheated margin fuelled bull market, that's now having a contraction.

In 3 months (September) the HK-Shenzhen trading goes live. This may provide a brief element of support, but the theme is set, irrespective of whether the Chinese government can halt the selling in the short-term.

The Chinese government should look at the Hang Seng Index before any further intervention. Although the wider populous will not like the results, on comparative weighting the SHCOMP and SZCOMP look positively overcooked.

China needs a stockmarket, but with so many investors already torched, at what point does the bubble pop!? It doesn't bode well for the long term if primary brokers, acting in concert, agree not to sell stocks, more so create a fund to buy them. Although the terms of such purchases are unknown currently, one suspects they are not buying the crap!

Cyan Holdings (CYAN) give a trading update that's so full of jam, anything now above cash value is looking like jam. A perennial failure to deliver and they appear to have found some intelligent folk to stump up £4.6M gross. Its now well-funded to seek to secure more orders and increase revenues. Promise + Placing has so far not delivered the = revenue.

The placing at 0.2 pence may provide support in the short-term but as cash burn occurs so will the SP in the absence of an order. The placees appear totally unaware of the previous promises and lack of delivery. Having had 3,279,766,136 shares (2014) and 2,797,766,136 share (2013), the trend isn’t looking good with 6,780,873,628 mid-way through 2015. Some dilution...

With very limited company news, save for the obvious commodities debacle with iron ore hitting $52.30-53.15/t Atlas's short lived recovery may me look like a historic glimmer of hope (dead cat bounce) with funding. Although, all parties should be congratulated for working so tirelessly to at least attempt a recovery, the crucial funding phase is due...soon (well maybe). 

With AU$58M committed so far, will the backers take a leap of faith! Rather them than I! Or at least rather them with someone else's money! They need a further AU$122M minimum, and their job has just got very hard indeed with the iron ore price being trashed a further 20%.

With limited support for iron ore, including an absence of speculation, one has to ask, can iron ore hit $33-37/t? Having thought long and hard about this, margin/speculation down, demand down, over-supply, reducing steel mill capacity, its simply not sounding rosy. The road may be merrier for nickel pig iron as Chinese inventories deplete and a "normal" market environment starts to appear. 

With Nickel floundering around $5.1175-$5.3080/lb there's limited prospects for producers. In the absence of a recovery in price, the market will force a recovery by shelving expansion plans. Thus, a conviction short on Amur Minerals (AMC) is maintained (although still reducing with wisdom (taking profits)! The nickel market is admittedly fickle with lumpy trades throwing the price, its wise to be cautiously bullish to $6.15/lbs

How will the liquidity and financing crisis that is developing impact on Central Rand's $150M (up to) sale. 

Atb Fraser

Morning Mumble: Mundane Iron Ore, Spot Supply (A Hedgies heyday!), Oxus (no news) & Woodstock & could Atlas be a buy!

Good Morning, 

The analysts and reporters are of the opinion stockpiles at ports are 'yet again' too low and there's a sudden need for restocking. One would be wise to consider how China have managed their supplies, rather than the inaccuracies that are cited. With spot supply in limited demand, China are a lot better at managing their orders than what the markets are giving credit for. 

The steelhome china iron ore total ports inventory reports a circa 84Mts at ports. This should perhaps be considered within the normal range, with slowing demand. Remembering it’s a float for the steel economy and should run between 5 and 7 weeks of total demand. Admittedly yesterday's figures suggest it’s dropped below 5 weeks demand. There's a simple explanation for the spike, one that was pointed out awhile back, that being the hedgies have realised that a lot of commodities have limited physical spot supply. 

China has the additional woes for short supply, not only a reduced number of smaller privately owned iron ore operators coming back online post their winter break in the north. The supplies that would have naturally be replenished by internal production are now being sourced on the market via spot supply (the spike). Amazingly some state owned mines with costs at $70/t+ have been refused permission to close and source on the international market. The Chinese government may feel security of supply is required, in addition to contracts with steel mills and avoiding a massive spike in unemployment. 

The Chinese of course may do something about their northern mines (perhaps 'development' Grants) to avoid a growing discontent within the entire mining sector. With proposals being considered for subsidies in hardest hit coal and iron ore operators to at least maintain a 'sort of production.' (Direct quote from a Chinese iron ore trader there! 

Thankfully it’s made it very easy to make some decent gains in weeks rather than months, with spot prices moving 8.5% in 6 trading days at circa $62.5-63.10/t. There's a risk of limited upside so expect those able to supply the demand to take some healthy profits! 

With Xinchuang Li, (president of China Metallurgical Industry Planning and Research Institute, & Deputy Secretary General, China Iron and Steel Association), believes the range will be $55-65/t, implying that the peak seen on Weds/Thurs of $63/t+0.9% is towards the top of the Chinese industry consensus (read as wanting acceptable price). One would be wise to have a confirmed change in direction before speculating. 

The hope factors are reliant on the Chinese government increasing spending in "infrastructure" projects to motivate the economy. This may be a little optimistic with a shift from manufacturing, property (commercial and residential) and infrastructure towards service-based industries. Remembering of course the long-term averages (4-5 years) for iron ore stocks at ports is a smidge under 90mts it’s not the panic some would have you think it is. One could argue its almost like the Chinese are fracturing the market!

The positive is Atlas Iron is back in production, even coming out with resources upgrades, a modest "non-cash impairment charge on assets, a royalty relief period and a deal on costs including capital raising. It’s almost as though Atlas is an entirely different company! With mining restarting and Mt Webber likely to help reduce operating costs further. Post reorganisation, it could almost be worth a punt! 

With gossip about Fortescue Metals Group (FMG) in Australia, could they have a very sizeable Chinese partner at operating level or a take-out; surely Baosteel have been approved for 43B RMB overseas investment (imply 25% upside if there was a take-out on FMG). With limited competition in the market for such assets don't get too over-expectant about the price of a deal, or any deal for that matter, so being without intelligence it was rude not to speculate on the stock! 

Oxus Plc (OXS) final results in summary they cannot tell us (shareholders) anything, they remain confident "of fair compensation" for their claim, and they've put in a facility just in case it continues for a longer period of time. Quite what the panel have been doing since May 2014 is anyone's guess. With clarity on the actions of the Uzbekistan Government, it’s not difficult to assess the quantum surely! Even as a range, perhaps one would be wise to consider there's some 'behind' the scenes discussions or cattle trading is going on that 'may' have delayed the outcome! 

Having not "bothered" much with Minco (MIO) for some time (EMC: July 2014) the Q1 Results aren't really anything to get too excited about. The currency gains should have been expected and the cash on hand and value of investments is a plus for those calculator investors and giving appreciation to the SP today. 

What the market should consider is the possibly development of Woodstock being considered by a Chinese entity, with some "potential" upside. Supported in part by cash MIO has potential prospects at long last. After near a year with little price movement, the 'tide just could have turned for MIO" if they can complete on a deal. It would be an astute move by Hongxin Group in terms of a currency hedged producer outside of the Hubei province. With a deal last year in the Ukraine, it’s not beyond reason that a Canadian project could have strategic importance. 

Atb Fraser

PM Bolt-On: Just Eat (JE.), is a 43+% abstention really a vote of confidence!?!? + Iron Ore (no) Investigation + the Chinese / Australian Volte-Face

Good Evening,

Something that was planned for tomorrow, but being time limited, it was to do it now or never. 

In just before the final bell today, Just Eat (JE.) complete the bookbuild at 425 pence, but the biggest issue being 43.67% of the stockholders have declined to take part. Namely JE.'s main three pre-IPO investors, The Sara Marron Discretionary Settlement, Index Ventures and Vitruvian Partners. So far all three have indicated they do not intend to take part in the placing or open offer. One certainly to watch, this vote of confidence is far from positive. 

The Australian Government walks away from an iron ore investigation that appears to have kicked up a storm (perhaps in a tea cup). Witch-hunt or common-sense? Australia may have just inadvertently kicked their currency in the proverbial. With wisdom, yet again closing out longs on GBP vs. AUD earlier than planned, as it approaches a key support level. In fact closing all GBP Vs, out on the basis of an unprecedented run which has little reason or substance.  

With Rio Tinto and BHP Billiton having their plans scuppered by the Chinese deal with Vale. It is a true and perfect bi-volte-face of deals. Not only taking the control away from Rio/BLT (read as also putting pressure on) but diversifying supply for China. Fortescue Metals (FMG) are likely to be under pressure as a result. More importantly China's about turn with Valemax suggests some very strategic deals are likely to be put in place, having previously been prohibited from ports.
Can Atlas Iron relist as a result? 

Atb Fraser

Apologies for grammar, a late one! 

Morning Mumble: BG Group finally succumbs to one of three suitors, is there another offer?

Good Morning, 

BG Group, the favoured long oil and gas play of the goliaths, has finally accepted a cash and share offer, albeit this wasn't the rumoured Exxon but Royal Dutch Shell (RDSA). The deal, at today's prices, will make any interested party think twice before making an offer. 

The offer is rich 'enough' allowing for the blend of assets, Egypt and Australia plus deep water opportunity and increasing market share in LNG. BG's cashflow for the future justifies the premium and will not be ignored by the big fish!  

RDSA now becomes the real bet and favoured over BP et al (save for M&A there but unlikely with litigation on-going). One cannot see any shareholder rejecting this offer. Its borderline rich and only a fool would consider voting this down.

Its one M&A action where it may just be worth holding the stock until the paint is dry, as two companies with plenty dry powder may just see future value above and beyond 1350 pence (383 pence cash and 0.4454 Shell B Shares). At the price, any offer is very unlikely, but...never say never. So entirely contradictory of the above, all stock was sold today!  A greater believer in taking the money now, rather than the hope! 

Staying in sector, with the gossip Gulf Keystone (GKP) just about to be 'part of a deal', with company being very tight-lipped, Malcy's assertions look to be bang on the money.  Some interesting moves to wash away the Easter fat!

We had Centamin Egypt (CEY) Q1 production report, without many concerns and bang on the money. CEY at some point need to change. With a suggestion of grades improving towards the end of this year and guidance back to 450K ounces per annum, there should be some improvement in broker opinion. The outlook, although marred by litigation and failed joint ventures has not done the company much good. Perhaps it’s time for a change of management at CEY. With no indication of costs, one assumes CEY have improved on the previous quarter/half by circa 6%. 

The iron ore producers had a mini-celebration with a common-sense assumption up to 15mpta of iron ore have disappeared off the market. For those following the saga, EMC had not appreciated that had Atlas got South West Creek up and running the cash costs would have been a not too shady, $42/t. Something that isn't that enticing in the current market but longer-term for bondholders there's some 'hope.' 

Sirius Minerals (SXX) announced the results of their potato crop trials last week (8th April), the benefits to 'key crops is not to be ignored nor are the capital requirements. SXX will be viable, although one should consider not going all in, more so buying over time. 

With some friends around Hatton Garden commenting on the news crews in the locality reporting on the heist, it’s nice to see a  Forensic Chemist wanting to apply to be a Jason Statham extra for the impending film. A few pounds lost might improve your chances Adrian! One can look forward to hearing about what was left behind, if its like previous robberies, laundered cash, guns and odd narcotic will be the flavour of the day! One hopes they had adequate insurance and expect some knock on benefits as dealers and jewellers restock. 

Atb Fraser 

Morning Mumble: Atlas Iron (limited)

Good Morning, 

Despite the obvious being ignored by 'some', Atlas Iron shares have been suspended. Simply put, Atlas's bondholders are now sifting through the pieces in order to attempt to recover some of their monies. In the absence of an unlikely sale, a willing investor (possibly Chinese) and some sympathetic bondholders, there's almost zero equity left in the company for shareholders. 

If parties (Australian readers) are unsure of the process, one would be wise to read up on Afren, African Minerals et al for the outcome that has been obvious for a significant lengths of time. Put quite simply, Atlas Iron produce / mine iron ore, the price is in the crapper, with a reduction in fuel costs giving a glimmer of hope. Atlas Iron have suffered via detrimental (but obvious) currency depreciation against the dollar, the iron ore price falling a further 25%+ and now the headwind is untenable.

The management and company to their credit have done their best with what they had. Although if one was to use the phrase a presentation phrase I coined awhile back, Atlas had entered the Formula One championships, in a Ford Fiesta. We'll ignore the analyst's comments inferring the EMC (*and Li) did not know what we're talking about, and stick with the facts.

Any royalty or taxation reduction proposed by Australia are unlikely to be able to save the shareholders, perhaps bond holders, but shareholders are now wiped out. One envisages Atlas being a long-term care and maintenance/mothball until such time as prices recover (consistently above $60/t).

Amara Mining 2014 full year results were out today. Contrary to some coverage, they were not in line with expectations, spending circa £1M more than guidance, although immaterial to the grand scheme of things. Yaoure is the only way forward, with the Pre-feasibility Study (PFS) due May/June (*from memory this is a delay), one expects some rubber stamping and no surprises. Randgold best get their finger out, or they could find themselves missing out!

Kefi, keeps spinning those plates, update at hawiah Saudi Arabia. One wonders if they would be better off focusing on Tulu Kapi and conduct the bare minimum of works on other licenses unless incentivised by another 'well-wisher' (read as funder).

Oil 'steady' as she goes, with some short-term recovery and narrow of the WTI / Brent spread (gap). It would be rude not to acknowledge some decent work by Goldman Sachs on the long-term outlook for Oil, lower for longer, although their price expectations are like darts in the dark!

Atb Fraser

PM Bolt On: Happy Easter, The Snap on (S)AGA Rangemaster (AGA) + Atlas Iron Watch, the new low.

Good Evening,

Some may be pleased to know EMC will be offline until after Easter, safe for two items (potentially). Ian has this golden opportunity to become active, although looking at his social diary, I suspect Ibuprofen and Paracetamol will be a key component of breakfast.

Following the (S)AGA Rangemaster (AGA) from FTML, with today's SP it’s wise to bank profits on all shorts. With near 30% downside in the SP from my previous target, it’s wiser to be a little more conservative and bank. Do not fear, the softness may be short-lived. 

AGA are currently pushing their marketing in China and have formerly launched their AGATC and Redfyre brands. With any likely benefit in brand in China potentially improving performance benefiting and support in the stock with "hope value" (speculation.)

Performance in the UK, with access to easier credit, should be around 2.5% better. A new launch for North America with the AGA Marvel range (the Northland acquisition circa 2003) this autumn, will assist the company plus China and Europe in QE. With a decent potential momentum on all continents, one is turning morning positive on AGA. 

Without knee-jerking to a long, it’s certainly under review, with some decent news flow (potentially positive) across the entire range (poor pun). AGA have had some well-timed launches across all regions, the future could just be warmer for AGA than the previous 12 months, with a disappointment in the market performance for those holding long. Patience could just be rewarded.

Atlas Iron (ASX: AGO), touched a new low overnight, at circa AU$0.12, bouncing back, reality? 

Happy Easter, a break if you're avoiding Easter or merely just enjoy the bank holidays. 

Atb Fraser

P.S. Stay tuned a well-versed commentary in due course with a contrarian view on a stock.

Morning Mumble: Atlas Iron Share Price Watch.

Good Morning,

Separately, Atlas Iron hit a new low overnight, with increased pressure on costs and the price of iron becoming difficult to predict, the 'drift' is on. With BC Iron, Mount Gibson Iron and Atlas Iron all being evicted from the ASX 200, expect selling as tracker funds dump their stock, better late than never. 

Atb Fraser

Polite statements/comments will be published. 

Morning Mumble: Kenmare (KMR), Chinese car manufacturing and the Copper Giant's misguided belief about demand + SXX, Cairn (CNR) ++ ORM's spanner in the works for management!

Good Morning, 

Kenmare today confirmed the EMC view that operations should have only been nine months of the year. KMR Operations Update confirmed "the effect of the power outage will be mitigated due to the significant levels of ilmenite product inventories on hand. The Company has recently secured additional off-take volumes with a new ilmenite customer for the product that makes up the bulk of the inventories on hand at Moma." For the punts in at circa 2-3 pence, things might just be improving enough or Iluka Resources to finalise all the due diligence conducted so far. 

The FT inform us of that the fate of copper hinges on Chinese demand. The EMC ran with looking further east for copper demand, to Japan and America. What the traders are currently missing is the absence of speculation in copper for China at the moment. 

Demand and restocking is occurring post Chinese New Year and with better stock management, stocks are not being filled without consideration for the market. Li's quote of the day is, "they're learning how to trade and restock" without contracting supplies sufficiently to spike the prices. 

With China adopting a sensible approach to any stimulus and resetting market expectations by lowering the GDP to around 7%, the market cannot justify the speculation. So far, none of it has worked, with the supply of housing at all-time highs, one wonders why the prices aren't declining more. 

Li, has had a couple of dinners recently, despite piling on the pounds post Chinese New Year has found Chinese property prices are declining further. His opportunity surveys of up and coming professionals is threefold, wage to loan ratios (affordability), wage stagnation (and unemployment risks) and most importantly of all, delayed purchases on the basis there's too much of an offering and limited bargains. 

The FT copper article suggests the funds short on copper on the "Shanghai Futures Exchange show that the same funds have not reduced their short positions following the end of the new year holiday." With growing speculation in Japan and America, one would be unwise to take the foot off the pedal in Shanghai until your full game has been unwound. Apologies for the lack of city speak of the hedges in the purchase of physical metal (the longs) that the same funds are making at the moment. 

What the city and those sent musketeer-like to ascertain the demand for copper is the planned "build out of the electricity grid" isn't on the scales that have previously been guided nor is it likely to be. China is accepting growth and over-capacity. The grid was in part dependent on the growth in housing and 'urbanisation'. If housing is stalling, with factories demand erratic and exports under-pressure slightly (via shipping figures), the outlook for growth in copper demand is going to be down on the current expectations. 

The outlook is for growth, however, limited on the expectations of the likes of Glencore and Rio. With a high-users finding demand visibility harder to predict, most are electing to avoid longer-term contracts where they have been previously punished or locked in at a significant higher prices. Just in time...

Car factories, one might be wise to check the number of car factories in China and the absolute over-capacity in car manufacturing. For those simple like myself, a brief statistic is there were 125 car factories (plants) in China 2014 running at 90% capacity and by 2017 there will be 148 factories (EMC:Li based on current intended use). So with over-capacity, car manufacturers would be wise to factor in a significant pressure on margins. With every manufacturer hugging the same space of Chinese growth, over-supply, margin contraction and dwindling growth in sales are going to be a common news item. 

Sirius Minerals (SXX), placing and warrant extension, SXX would be wise to attempt to cover near £28M to avoid the need for further funds in the short-term. The placing is likely to be the cap now until such time as the approvals are in place. Ten percent discount to the price in light of the potential is somewhat of an insult, then again, it's not selling a placing nowadays it’s called giving away. 

Thanks to Roger, Allied Nevada Gold Files for Chapter 11 Bankruptcy Protection. and Ormonde Mining (ORM) watch, Canada-based Almonty Industries proposes to acquire Ormonde Mining, has to be better than the other?!?! Over to the shareholders but putting a spanner in the works of certain management?

Limited time to cover the aluminium (AL) woes (testing significant levels of support), EMC considers the weakness in AL as a contradiction to some sectors of growth.. The gossip of Nevsun's (TSX: ANV), most recent potential acquisition. Cairn speculation upon us as the market digs in to the realities of the tax demands, orphans and widows need not apply. One hopes the speculators with some waterproof shorts managed to lump in on the short! 

Atb Fraser

Atlas Iron didn't drop overnight and is still 15 Aussie cents. 

Morning Mumble: Dee Effe Esse, China's Steel Mills (No news), PMO Zebedee BOING! & APR Energy (the Fluke)

Good Morning,

Following on from the EMC February comments on DFS Furniture (DFS), today we are informed (with no surprise) the management and owners of DFS are running for the door selling around 25% of the company. Advent will still hold between 50-55.9% of the company, so those realists will be wise to remember the rules of illiquid stocks at least until the stabilisation facility has been finished!

With Li Keqiang (and as such the Chinese Government) acknowledging the downward pressure on the Chinese economy intensifying. China have finally utilised the over-capacity and pollution to justify the closure of the mills. It’s positive for the Chinese as they're openly stating iron ore demand is reducing and there is currently over-capacity in steel mills even with the closures. With the extended trading hours on the DCE (Dalian Commodity Exchange), the price reacted very positively (for the shorts), dropping 3%. 

We should initiate the Atlas Iron share price watch again, with those holders knowing full well the bounce at Christmas was the time to get out! Only 10% ish off its lows, the holders can fill mailboxes with the abuse despite knowing the realities. Of course it has nothing to do with cost of production and the supplied market. We'll ignore the facts of Russia exports being enticing for India on the back of their currency debacle. As Russia languishes in a mire of contemplation and ignorance, what better time for military exercises (FT). Often children find comfort in playing with their toys after being on the naughty step....

With both WTI and Brent sat on levels of support, one assumes the bulls will return with the ECB printing presses, at least on Brent, whilst WTI focuses on shipping America to Asia to meet demand. Later today I hope to catch up with a shipping chap about the current health of rates and demand. Will update in due course, the delay surely cannot be on the basis it’s his turn to pay (not that one is counting having paid for the last 4!)

Premier Oil (PMO) are getting busy with the drill bit, so the fanfare will no doubt be out for Rockhopper (RKH) over the next few weeks. Wasn't Zebedee a child's spring type character well before my time? RKH Zebedee announcement.

APR Energy, by sheer fluke being short on technicals alone, APR Energy aided EMC et al with a market update. Time to press that button on APR, with a trading update/market update not the best timing with discussions with their banking syndicate in full flow. Its pleasing to see a number of positions utilise yesterday's spike to sell near break-even, how prudent to sell positions. 

One would be wise to consider how much cash APR banking syndicates will expect shareholders to stump up. That alleged offer late last year isn’t looking so speculative and cheeky now is it! The EMC Christmas Card list is bordering on the who do we not send them to. 

Limited time to cover GLIF’ s investment, in Open Energy Group, and the dull performance of Inspired Capital (INSC) not to be confused for those fat fingers with Inspirit Energy (INSP). Both a longer-term hold since circa 2013/2014.

Atb Fraser

No comments required on Afren (AFR) due to the obvious there. The quote of the day goes to one fund manager with, "whoops." 

Morning Mumble: Wafers...treading on thin ice &

Good Morning,

Hanergy Thin Film Power Group will be in the press a lot over coming months be it a squeeze or drop. The FT runs with Breakneck growth of Hanergy raises question. It’s a different twist on the repeat in the solar cycle for China. There's been significant consolidation, but do the earnings and receivables having a similar whiff about them. It’s a tightly held stock with the founder holding circa 70% of the stock, 5% out on loan, there could be a difficulty covering any short positions in a further squeeze.  

The article does not go into the trading elements on the market, Hanergy's (HNGSF) price has appreciated by a significant short squeeze. A stock which most traders have been waiting on the side lines to about turn and ride down circa 80%. 

For those not short-selling of any form HNGSF is one for the packs, its already at a pivotal point and the shorters have (please note past tense) clambered over themselves to obtain stock. This stock is worth no more than 1.30HKD on a good day and the FT will no doubt be reporting in due course about its share price movements in more detail. 

The accounts are not the only issue with HNGSF. Would HNGSF like to clarify what development grants are within the accounts including any Government payments? HNGSF's position may also be fuelled by the closure of positions that had been previously rolled over in the Chinese brokers now under review and suspended from taking new clients? Of course the China Securities Regulatory Commission (CSRC) inspections will find no issues at all...but with Shanghai and Shenzhen holding around $175B of leverages shorts it does not bode well if the industry got a regulatory slap. 

HNGSF as a listed solar companies is unusual, due to its HKEx  listing. You do not have to be too shrewd to find a way on to the train. Normally OTC stock via NYSE, or alternative derivatives but its globally available via even the most basic retail spread-betting portals. 

One illiquid delayed trade that has been been good for long until the trend now being at significant risk is the CSOP CES China A80 ETF (SEHK). Fairly simple product and one that mirrors Chinese Pref A Equities. With Chinese industrial profits falling, the market is falling back/stagnating until further stimulus is announced. 

In the land of the AIM, it’s amusing to see the markets pricing in so backward with Mosman Oil and Gas (MSMN). For those readers now aware of MSMN, (EMC: Up the creek), if you know a long holder, it might be wise to lock their drinks cabinet and submit them for drug testing. Is there any reason why this stock is above 2 pence? If you are wishing to email about MSMN please don't the sympathy departed in December 2014. 

We have another, Bagir Group (BAGR) (EMC Bagir Group May 2014 Sarcasm) today with their trading update , which comes with no surprises. Ever since the IPO the warnings have come out, the revisions downwards and the company I suspect will at best break-even. Listing at 56 pence, there's not much further for them to go. (Disc: no position now). There should be some serious questions asked about the timing of the BAGR listing and when they knew about the material downturn in trading so shortly after listing, from memory 1 month after listing a warning was out.

The disparity between Brent and WTI is not without sense, with various opinions going round about $50/bbl being the new ceiling or floor. If $50/bbl is the new floor, how is WTI trading at $45.47/bbl and Brent $49.06/bbl. 

Iron ore really starting to put the boot in on the listened smaller entities, those with higher leverage FMG (Fortescue Metals Group) and Atlas Iron (AGO: ASX). Whilst it was with some hilarity someone attempted to point out why AGO's a buy based on dividend yield. If there is one? Christmas was your exit, you've missed the boat!

JMAT (Johnson Matthey) today give the Q3 trading statement. The refinery additives and diagnostic division is going to come under further pressure being reliant on the petrochemical industry. The industry is currently sick as a dock and expenditure being scaled back, why would JMAT be exempt?

The outlook for the car and haulage industry varies but the majors guiding to a decline in production of circa 1% and as a result a drop in earnings, stagnation is likely for JMAT at best until the cycle changes. The technology premium for JMAT should be under review. Emission Control Technologies the kingpin of the company is reliant on on industries peaking or little growth. There seems to be an echo of EMC just getting it write (scuse the pun) EMC JMAT above its money and under pressure. One could argue there’s no viable benefit in holding JMAT until oil is 40% up…JMAT still missing their AAL (Anglo American) fees! 

Little time for the other items...

Atb Fraser

Thank you for the well-wishers for my daughter, she's not playing again today and didn't sleep well. Being off on business soon I hope she recovers from the lurgies. 

Morning Mumble: Potential Manflu but more operational than some miners!

Good Morning, 

There's a spate of potential manflu which I appear to have caught from my daughter! So having been up most of the night with her one doesn't expect much activity today bar essential items. Staying with the theme of manflu it appears we had yesterday’s South32 announcement from BLT (BHP Billiton). The reasoning for the name is not because it gives a good indication of which way the share price is expected to go but because most of the assets are in the southern hemisphere. No doubt contradicting those with common-sense for some time as people position themselves. 

Yesterday also saw the announcement of LMI's Number One Furnace leaking molten furnace matte. For the regular followers of Lonmin (LMI), one hopes this isn't chrome related for saying that LMI have historic grandfather rights to ConRoast (owned by JLP for 10 years) why didn't they make improvements last time? So with cash costs likely to shoot up and net borrowing to increase (anyone's guess on the final figure) will there be the requirement for another rights issue? One assumes they won't be asking the International Finance Corporation for $100M. Quite how LMI will come up with a resolution to mitigate these issues shall be interesting. 

Today's announcement came as no surprise for the FitBug placing the disappointment was I lost out on a bet by a mere 12 hours. The loan conversion looks to be creating an overhang as well with anything above 1.5 pence being in the money. 

Rambler Metals (RMM) inform us of a reoccurring theme that continues with a decline in grade and revenue. With these sort of returns the case for a management change are increasing. RMM's measurements of earnings per share are dire the drop in grades and absence of disclosure of the grades sums things up. The denial contingent will state things can only get better...

Tesco's (TSCO) came out today with some a material statement which pending on demands will come back to in due course. With no position either way, it's certainly an indicator of how competitive the market is currently. Make this year count, next year's Christmas could well be 25% more expensive, so get the elastic waist expander and utilise those cheap track suit bottoms. 

Gold and silver have lost all energy recently after some serious swings the trading implies no one wants to hold a position long, up in NY, down in Asia and back up in London. It would appear a few Australian's had a slap of common-sense and finally got out of Atlas Iron last night. Those knife catchers reading Bloomberg wished they'd ignored Atlas Iron Offers Cheapest Bet on Ore’s Rebound: Real M&A. It makes you wonder what the position of Baosteel Group Corp (Chinese Steel producer) is. Tony Poli must be thankful of the deal earlier in the year, perhaps one of the best deals of the year. 

With Chinese import data out on Sunday, China's Nov iron ore imports hit second lowest this year on Sunday it was no surprise where the bets were. The figures I'm reliably informed have lead (I known!) to a lot of late night work for a few analysts to review their opinion of Rio/BLT. One hopes their figures are better than mine save for a GLEN bid which would be madness and my view is unaffordable. Next stop for Rio is said to be 2600...

So much to cover and so little time, this morning it was the day to close my Afren shorts with a view (no specific timeframe) to buy the equity with the short profits. Afren, despite its positives, is a lesson on when to take a loss sell and short. For those learning the arts of the dark side (as one chap calls it) Afren is perfect example of when to change the shorter-term opinion and get in there.

Atb Fraser