Morning Mumble: ASX (Miners) Iron Ore, China (uh oh) Pandora's Box has been opened and CAML + more time needed for GLEN/Gold

Good Morning,

It’s been a long day already with limited sleep due to the antic on the ASX and Iron Ore. Those on the morning ring round appeared positioned well on Iron Ore and on the ASX (Namely Fortescue Metals Group). The market (sell side) is making hay whilst the sun shines. Iron Ore has limited support with risks being put on increasing production and declining demand (echoes of old). So with that, all the iron ore stocks softened up. 

Rio's risk is losing support as Vale's deals with China put pressure on their revenue, same for BLT. Rio and BLT's risks were known, with Vale securing all the funding for S11D and the ability to market at anything between $18.5/t and $21.25 we may be hearing a tempering of expansion plans for the "big boys." 

It was an absolute pleasure to get an acknowledgement of the work here from a certain analyst. It’s pleasing when those disagreeing and criticising come round to acknowledge just a fraction of what goes on behind the scenes. It shall be framed and pinned to the wall, a welcome sign the market is acknowledging not only the amateurs but a more conservative expectation of events and performance. Thank you sincerely.

With Vale being just off it’s more recent lows and the lowest to my knowledge for near 10 years, its going to get some revisions. As a higher cost producer, Vale's decline has been warranted, with a management of costs that questions some projects. Its time to consider there being greater upside than down. S11D is due online later next year, and with that one expects some buying into the potential recovery of the company. With that it’s the first time in near 3 years there has not been a short position(s) on Vale.

China has been playing with the margin requirements and leverage for "betting" on the indices (Shanghai Composite Index Stock & Shenzhen Stock Exchange Composite Index (SZCOMP)). Conversely tinkering with the very limits they put in place to protect excess speculation. 

Chinese “Regulator” (China Securities Regulatory Commission (CSRC)), has now proposed an increase in margined trading, yes contra to previously policies. The Chinese are knee-jerk in an attempt to maintain a disorderly orderly market propped up my speculation. Bailing out a raft of speculators that are in the crapper with ZERO, if not negative gains, for near 14 months.

As was covered here (and only here (EMC)) the issue is the margin (Pandora’s Box) itself that now appears to have been opened by CSRC and the Government. Not the market manipulation that has been alleged by the Chinese Government, encouraging pro-speculation upon growth, the time is now etc…etc…Likewise, the legalising of Pension funds to buy equities in addition to Government agencies now entering the market.

The Chinese government, via related entities and with the assistance of CSRC, was (EMC view) actively buying into near 35 stocks just before the bell, prompting a recovery and in some a rally.

If ever there was manipulation, the Chinese should look in their own back yard. IPO’s encouraged to be so stupidly priced, every man and his dog has a slice of the action. As Li put it, its “easy” to have 10+ trading accounts now and more if you go to the “unregulated” market, where leverage is so extreme people are at risk of losing everything or more.

With the PBOC (Peoples’ Bank of China) having lowered the reserved rate ratios of the banks, the CSRC have followed suit, lowering the ratio so speculators can leverage more against the same amount. Worse, contrary to the previous assertions by the CSRC of enforcing a more sensible approach of restricting the rolling of positions. The CSRC is now allowing the very brokers they gave a proverbial slap to, to do what they did previously. Roll them over, in some cases, state entities are providing liquidity and securitisation to enable this.

To spread the risk further, which is perverse, the CSRC is proposing every man and his dog arm themselves with a margined trading account. Having previously been restricted to those with “cash” (there’s a way round this) of circa $75-105K, it’s now open to everyone.

The CSRC knee-jerking one wouldn’t expect much more needed to resolve this bear market. However SHCOMP and SZCOMP have decided to cut all their fees. Promoting speculation on the crap as well. We can but breathe a sigh of relief it’s not just on AIM crap rises but now SHCOMP/SZCOMP where Co’s with limited potential, little hope and worse massive liabilities are stupidly valued. If one doesn't fall in line and "just buy", we'll investigate market manipulation, oops too late! (BBC Link).

On the AIM, Central Asia Metals (CAML) gave an up on Kounrad Production, post the leak of organic inventory or as they are now calling it a mechanical incident. Here we expected and still maintain a target of 11,700/t for the year (EMC) rather than the 12K/t guidance today. For those thinking this is being a little hard, its still above the 11.1K achieved in 2014. The market has acknowledged this.

No time to cover Glencore in Iran or Graphite, but the latter we shall return to both, in addition to Gold. As today is full of compliments, it’s a pleasure to hear from those whom managed to save a few quid in CIC Gold Grp (CICG)! Not to be confused with Conygar Inv (CIC), whom are an entirely different company with assets and cash!!!! Christmas for Zoopla (ZPLA) and AO World, more needed.

Atb Fraser

A belated a Pm Bolt-On. Morning Mumble: Sirius Minerals (The final hour approaches), Firestone Diamonds, CICG and Gate Ventures

Oops forgot to press publish, so belatedly a Pm Bolt-On. 

Good Morning,

It was perplexing to hear of a number of holders not derisking either on the rise if larger or above 20+pence to find themselves with fear now engrained in the SP (EMC: SXX Derisking threepence target in the event of failure). With such a wide range of valuation between 3 pence and 45 pence. It’s not an easy play, save for some CFD terminals offering a form of arbitrage of a level it makes it a viable play. 

Firestone Diamonds (FDI) is delayed Liqhobong Mine development. FDI may be grateful for this, in light of a further softening in Diamond prices. One savvy analyst feels there's limited growth in the diamond market with the Russian's far from being controlled in their marketing and sales. 

Yesterday Gemfield's (GEM) evidenced the contraction in realised prices and a cap on financing where the traders have to have more skin in the game. Disappointment for FDI, even allowing for the FX and power line benefits, the expectations have been reset 6 months. Q4 2015. 

Finally, it’s the first day of dealings for CIC Gold, one certainly to follow more so for enjoyment than anything else. Same as Gate Ventures (GATE) where the NOMAD has quit, but GATE wish to inform the market they've raised some cash via a convertible loan note. The pricing and terms of such a deal are to remain a mystery for the time being. One assumes that common-sense will start to prevail! 

A slow morning! Thought for the day, if copper has a supply glut, what does this do for those overly leveraged copper producers? 

Atb Fraser

Morning Mumble: CIC Gold, Rurelec (RUR) the debacle and questionable business, Juridica (JIL), Mundane Iron Ore (again), TYO, MIO, DCE and Anglo Pacific.

Good Morning

CIC Gold Group Limited whom allegedly has prominent Chinese gold miners and international mine developers as backers intends to list. It will be certainly an interesting story to follow with various entities struggling on AIM or giving dire returns there's hope for CIC, or is there?

The story doesn't start with CIC Gold but with CIC Capital. CIC Capital notoriously went from sub 1 pence to 10 pence on the back of very little and then subsequently suspended/delisted in 2014. Of course, the current holders are 'looking' for growth. 

If one is contacted by VSA or similar regarding the IPO, it would be wise to ask what DD has been completed on this company including whom the “prominent Chinese gold miners and international mine developers are involved." If one has the time, the prospectus is here. It would be wise to look at the number of shares (the issuance of) and why they have been issued to CIC Capital. 

Rurelec's debacle is not over yet. Today there is a wave of announcements, some that shareholders should perhaps consider more positive, one that is not is the "gifting" of IPC to Peter Earl by Rurelec as he departs. I think RUR have rephrased "spinning-out." 

RUR purchased IPC for £16,560,483.87 including the two Siemens Westinghouse 701 DU turbines that were subsequently sold for £1.2M leaving some £15.3M valuation for IPC. How IPC, can "spin out" (changed as I was typing) to "remove in excess of £500,000 worth of overheads out of the Rurelec Group" is questionable. If all the assets and liabilities have been transferred into Rurelec. One assumes they're factoring in Mr Earl's £230K remuneration commitments? 

What is laughable is, IPC was meant to "accelerate Rurelec's organic growth and increase Rurelec's global footprint." IPC & Rurelec share the same offices, on the 17th Floor, Millbank Tower London. Were their separate staff being transferred out, name Peter Earl and associates? In essence the savings are not savings to RUR in the true sense of the word, without clarity on what "savings are being made). We'll ignore the director loans to a subsidiary but these under Related Party Transactions in final results out today. 

Should the "independent directors" not check with the NOMAD whether this transaction (Spin-Out) is fair to shareholders? In fact, having acquired IPC to increase their footprint, the "nominal sum" payment is laughable, based on potential goodwill and positioning in the market. 

IPC, as a company has a brand value (including goodwill) over and above the assets. However, having been a shareholder in RUR previously and sold out after the dire issue of the International Arbitration and subsequent misunderstanding of Third Party Litigation Funding. It would be wise to reconsider any position if the company cannot protect what assets it had left (or has). 

Should you consider Peter Earl a net seller in the stock now? Having been in consideration of the Jam Tomorrow Award, this may prove very unfair. Perhaps RUR are now being upgraded for consideration of the "destroyer of any value for shareholders award." In gifting / spinning out IPC at a nominal sum! The company would be hard pushed to justify the sale (now spin), when in IPC's own website words, http://www.indpow.co.uk/,

"Independent Power Corporation PLC is one of the United Kingdom's leading power developers and power plant operators. Founded in 1995, IPC has developed, owned or operated 7,000 MW of thermal and hydro power generation facilities in North America, Latin America, South Africa, Asia and Europe." [Within Source of website ]. This was subsequently changed to,

IPC has owned, operated or developed over 4,000MW of thermal and hydropower generation facilities in Latin American, North America, South Africa and Europe. (Current)

IPC's brand/business/company even as a shell should be marketed for sale. 

Having taken profits and dividends in both Juridica (JIL) and Burford (BUR) today's portfolio update was negative on the bottom line. Measured in NAV, JIL is valued after today around $150M (ish) without checking. Consequently, the stock correctly repriced the stock 88 pence. 

With some volatility in JIL at the moment, it’s hard to justify any share appreciation based on the NAV. As a result, a disappointing 17% return over near 3 years on this investment, allowing for today's sale with no further holding. Better than most bank returns but disappointing. Time will tell whether its wisdom to hold Burford (BUR), performing better over the 3 years with a better blend of small dividend and share appreciation (50%) ish. 

The iron ore price gave the proverbial kicking to the producers. Sensibly the drop away from the ceiling set by the Chinese (EMC: Mundane Iron Ore Spot Price) is now a reality. With some hedgies banking significant profits. This was a common-sense trade, especially in light of the reduced imports that fell 8% in May to just under 18MT’s for 62% fines but the price has temporarily. 

There’s a lack of speculation in the physical spot prices / supply / immediate delivery including that on the DCE (Dalian Commodity Exchange). Closing positions on Copper and Iron Ore on the basis they are currently linked. Copper, with the dollar's weakness and potential restock has a greater degree of risk in the short, than Iron Ore. Iron's critical level of support circa $60/t (62% fines) and 65% fines now sub $70 and looking for support. Seven days previously at $74/t (6% decline in a week). 

With steel prices softening in China due to lower demand, iron ore is logically following suit. The belated restocking, was a convenient necessity for all concerned push prices up off the lows. The lack of sustained demand will have the speculators looking to any further declines in the ports inventories just keeping its head above 80m/t's. As a result, in line with the dropping iron ore price, the SP in Rio, BLT, Vale and FMG have all followed. 

A question for the majority of Energy Resources of Australia (ASX: ERA), in light of all the news on Ranger 3 Deeps project – further update and Rio's inclination to avoid funding much further. What reason is there to hold the stock further? Denial? 

Save for some Knight in Shining Armour, of Chinese lineage perhaps? Rio and ERA have appraised the feasibility of expansion and simply, in the current outlook, it’s non-viable. This does not bode well for the other producers if an established entity cannot find economic reasoning to extend LOM (Life of Mine) and justify investment. One hopes if they are also Atlas Iron holders (ASX: AGO) they can keep merge this disapproval in a joint email to save time! 

The market is mystifying at times, on the one hand its prices in any risk (proactive) and likewise, it reactively points out the obvious. Today selling the remainder of Anglo Pacific (APF) and closing spread bet positions. It would be easy to think I've lost my marbles after a decent recovery and better outlook. Well simply, if the Coal Settlement Contracts are as announced it doesn't bode well for Kestrel. Rightly as Roger Bade points out, "it's not good news for APF". 

APF are diversified, but one cannot help to wonder if there's a swelling in supply. How this bodes for US exporters/producers is another question or Mitsubishi Corp, whose share price has seen a decent recovery of late, near 25% gains in a year. Admittedly significantly more diversified than APF from Banking, Food, Machinery, Chemicals & the all-important energy. For those trading the related stocks TYO (Tokyo Stock Exchange) one would be wise to consider the implications. 

Finally, Minco (MIO) announce further drilling results. It adds nothing really exceptional at this stage to the value of Bachans, due to depth and narrowness of veins. As tight as 85cms in depth) and as narrow as 50cms in width. Back to that old chestnut of strategic speculation by the Chinese and potential JV/total sale. Buchan's may need a revaluation in due course, after more drilling. 

Atb Fraser