Morning Mumble: Any Old Iron, Chinese Housing, Petra Diamonds (Really...), Wolf Minerals (Pricing update please) and VED, SXX

Good Morning,

As a decent analyst described the iron ore appreciation, as a "the Australian iron ore dead cat has a tin of cream." You'd be hard pushed to disagree. There's an element of physical restocking pushing the price up currently with the minnows left to have the price dictated by the seller, but the overall theme remains the same, oversupply, lower demand. 

The Chinese data, reduction in RRR (reserve requirement ratio for those that complain of the alleged extensive use of acronyms here, get real) is an attempt to offset the capital flight and what the EMC has commented on many a time, the "rolling over of distressed loans and/or alleged financial products." The recent improvement in the Chinese unemployment rate is a farce, forget any conspiracy, it would appear that China have cleverly added a significant number to the migrant worker lists, a staggering 310M now, previously circa 293-298m.

In discussions with Li, he mentioned a "new" survey based approach to unemployment, for which he's finding out more details. Albeit the EMC thinks new may be stretching a long-time policy. From memory, it’s based on taxation, disclosure and bank deposits but only for those that are registered for unemployment benefits and are a 'permanent' resident. It’s wise to wait for more details. What is telling is the contradiction between the official headline rate, which decreased to 4.05% and the survey figure which is nearer 5.1%. 

Li's view, having family classified as migrant workers is, the figure is a lot larger, with the gap (read as break) between jobs for migrant workers is growing. They are managing to live on their lower income. Enough for now, but its clear there's a pattern emerging that will have a further impact on the main expectations of growth.

More importantly, to give people a wider view of normalisation and pricing expectations (read as performance), from the National Bureau of Statistics of China. Advance payments totalled 626.0 billion yuan, a staggering decreased 8.4 percent. The entire sector needs to level out, with limited reason to take a risk on any new housing or commercial property, whilst the sector declines at a rate of knots. 

The merged graphs make for a compelling comparison, with some strength being shown in commercial/retail property, residential is still in significant decline (click on image to enlarge). One would be wise to look at the advance payments (link), totalling 626.0 billion yuan, a decreased 8.4 percent, and now without some sentiment change set in trend. 

Petra Diamonds (PDL) bond issue for the Cullinan plant isn't good news for shareholders, whose return on their shareholder funds has been dire. Despite what's said in the conference call, contradicting a lot of previous assertions including those one only 8 days ago and in the results regarding CAPEX. 

The lack of discussion or disclosure, with 'everything' being hunky-dory previously leaves a bitter taste. It suggests to the EMC that shareholders returns (EMC PDL 16 April 2015) are likely to be worse than previous reports. It’s wise, when the market is surprised, like many a company before them, despite the terminology allegedly being positives, is often not. 

The basis for the funding is large stones are currently crushed in the plant, despite them finding a ‘world record’. Albeit PDL do state ‘when it isn’t not configured correctly.’ Admittedly there will be savings via efficiencies including OPEX, Security and maintenance.  It’s inferred that it will save “up to 15 ZAR per tonne”, current costs have been up to 90ZAR per tonne. We'll see, but don't get excited about seeing any returns shortly, more so a further dent in the bottom line!

Wolf Minerals (WLFE), it might be prudent to revisit their pricing expectations and remind the market re: TIN and Tungsten prices. With an expected production near 1k/tpa of tin at $20K/T, new guidance will be required. From memory, their projections were based on $20K/t, better than the current price. Perhaps WLFE are thankfully they're currently not producing! 

The All in Sustaining Costs (AISC) per MTU should have improved as result of 24/7 operations rather than the 5.5 working week that was previously modelled. WLFE's guidance/expectations of a recovery in the Tungsten price from January 2015, is somewhat absent, current pricing is around US$257.5/mtu, admittedly in a recovery mode, but below WLFE's current expectations of nearer $300/mtu. 

No time to cover the Vedanta (VED) update or the poor performance of Sirius Minerals (SXX) post approval update.

Atb Fraser

Apologies for the poor layout, grammar and readability, very limited time so rushed out in a matter of minutes.  

Morning Mumble: My "King" doom for a horse...& slow market news!

When investing rule one is the "returns" and "potential." However with King I cannot help but wonder will the world wake up one morning and think: perhaps it’s time to read a book on the way to and from work.

In looking at Zynga's not so stellar performance, 1.0 version of the "Gaming Online Entities". Well, let’s put it another way January 30, 2014 - Zynga Announces Fourth Quarter and 2013 Financial Results results are slightly different to King's recent performance on numbers only but I suspect a similar performance profile for their Farmville Offering as Candy Crush. They tried spinning out different games, but the psychology of humans is well known, simplistic app games are fun "for a while." You only have to look at your teenage children, perhaps even you partner to realise Candy won't be sweet forever. I have resisted the temptation to go on pun-overload.

The rate of decline for games is well versed...so if you were to look at Zynga, I cannot help but wonder if the outlook doesn't bode well for online/app gaming as a realistic long-term venture at 'these prices.' The investment case for short-term trend profits bodes well, albeit people argued that for Apple and Samsung earnings, but the difference being something quite massive, parties are able to see, touch and utilise their purchase, it's tangible. It’s not the intangible offering of paying for an arcade styled mental benefit or challenge that, save for the odd addict, generally disappears as a fad or trend. 

The pricing doesn't appear to be so overcooked as Zynga's, Facebook's or Twitter's however in the short-term there will no doubt be some plus as there's plenty of people to sell the story to. So I’m thinking in the short-term (4 months) there may (will) be a material appreciation for the stock but post the ability to sell the story in any great numbers and the comparisons to previous dividend payments becoming reality the price of stock will be lower post the 1st Quarter of listed results. 

This theory is based on there being parties with significant profits on these IPO's and one suspects wanting to realise some gains. Any limits/lock-ins will bode well in the short-term but post which there's going to be a real depreciation in the share price. 

Candy Crush aka King and Zynga are reliant on primary platforms and equipment to function. Facebook, being the social interaction point of millions is indemnified against these risks (including the access point for these games). Candy Crush and Zynga , without a decent roll out of games that are "not reliant" on offering 'free lives' to the original app are doomed to lower returns but currently based on higher expectations. My trading head offers some lemming style longs for brief-periods prior to the reality kicking in post earnings. Let’s see...

Back to reality and normality, the Chinese are now spooked by defaults, China banks begin retreat from risk. It will have an impact on commodity demand again as the oversupply issue "to the market appears resolved with iron ore going back to $110/t for what reason? Well its common-sense that people, banks and bond traders are waking up to the fact that with defaults being real and the perception of guarantees disappearing the market will become real. Higher financing costs for entities (Risk) that really should not have survived in their own right. Consolidation will lead to contraction as savings need to be made to create 'going concerns'. 

It appears that there's rumours of an 'very well paid CEO' departing to attempt to reduce the scandal and distractions affecting a company that's trying to raise funds to produce oil. I can't think who that person is!?! 

The markets is betting on H&T Group (HAT) to benefit from Albemarle & Bonds position. I'd a liken HAT as the DSG to Comet if ABM go fully to the wall. Declining pledge books (across the sector) which is common after a large increase in sector as people realise there is not much left to 'pawn' or sell. The margins are being squeezed on the purchase price as well, which does not bode well for the companies over the longer term, without a reduction in the footprint of stores nationally. Some may benefit with the eventual close of ABM stores that do not meet a viability threshold or are not acquired. 

It’s a mystery why parties thought ABM's demise came about unexpectedly. The odds of a return for shareholders still holding stock (WHY) is likely to be nil. HAT's 2.5% dividend based on yesterday's SP on may present some welcome relief but my concern is these entities do not leverage well for which HAT are focusing on paying down the debt. The issue remains with regulatory pressure on the higher cost lending market is likely to impact on margins further.

Very slow market news wise for directional plays, save for LMI. As one party points to closing operations permanently which would make sense. When will South African's Miners Unions learn that you can't milk the cows nonstop. They do have to graze... Lonmin PLC Update on Protected Strike Action 05th March 2014 was over 3 weeks ago with little change. As such, the cost implications are going to be significantly higher. Russian issues are predictably positive for Palladium, combined with the on-going strikes, is Palladium going to break its 800$/oz. resistance and tick up to a new range? Certainly looks that way, which should benefit Platinum!

The mockery of "analyst" consensus is being exposed again by the revision of Tin Deficits (Reuters) only a near 7 fold increase upwards. Well there's no prizes to think that the price reacted accordingly. 

Finally, Mediterranean Oil & Gas (MOG) Litigation Update suggests that the judgement will be handed down tomorrow on the case Leni Oil & Gas brought against the MOG Subsidiaries. Now based on common-sense, with MOG's announcement so soon after the LGO relinquishment for $1/£1 (whichever it was) surely meant they took legal advice. Its still very odd for the claimants have not issued any news on this? Perhaps it’s on the basis MOG are? Not long to go before the results...

All the best, Fraser