Good Morning,
Long day yesterday, on the way home I was reminded of my
views just after the Greek election. Its felt Greece have a greater
agenda than the debt and appear to be acting like they have
nothing to lose. The poker face has big stakes (€323 billion), in the immediate
if the grand total is excluded, this year alone Greece is meant to
repay €26b. The Greek government are in a better position than those
that are owed the money. Greece although failing in their international
obligations, can enforce the hair cut with a sense of popularity.
Excluding the IMF, International Bailout Fund and the
combined total of "other European bonds", Germany, France, Italy
and Spain all have the most to lose if Greece default. Well that's what
analysts hope Italy and Spain don't notice, as its actually only Germany and
France. There would be no reason for Italy or Spain to continue the status quo
in the event of Greek default.
Just after the election, I was in a meeting not with Greeks,
but with two of the five living in Greece and they're of the view it's about
as close as Scotland going independent*. That's fairly close for any
analyst, logically if the populous are blaming the conditions for the bailout
on the issues, then one is going to gain popularity whilst being in poverty,
unity so to speak.
Greece is 50/50 on leaving the Euro, perhaps not the
Euro-currency until such time as the Greek Government can appoint De La Rue for
a little paper to be able to print the Drachma notes. The Greek
Government allegedly created the note designs in 2012 when the EU
hypothesised about the Grexit plan.
If you've got tough measures to swallow, you may as well go
it cold turkey and be done with it. Often when there's little left, it’s
perhaps the wisest of options, reset of Greek economy and expectations.
Consider the Grexit a resetting of standards, with significant consequences
both locally and internationally, expect stocks to act accordingly with a sense
of risk.
Off to the market, with Brent being the
new copper (*currently keeping its head above $2.60/lb). The
global bellwether of indicators, bouncing near 25% from lows, with supplies of WTI being
greater than Brent, its premium to WTI is going to be
validated in the short-term. It’s a hard call with Brent, with Greece wobbling,
and the market pricing in rig reductions in advance, there's a good possibility
(65%) of $70/bbl Brent and $64-68/bbl for WTI, save
for a melt-down or two. A lifeline to those marginal oil producers and even
Afren might have a new opportunity, but one doesn't hold out much
hope.
The latest victim of analysis appears to be Noble
Group with the most publicised version being Iceberg Research. Having not read most
of the report save for the headlines, people would be wise to see how this
unfolds. Noble Group manages a portfolio of global supply
chains covering a range of agricultural and energy products, as well as metals,
minerals and ores. Quite why Iceberg Research published a report if they don't
trade in the Singapore market and hasn't participated in any trade related to
Noble Group. Unless something bigger is coming along... ...
Staying with Noble's theme, Simbe Darby Plantation may have
just had a well-timed takeover of New Britain Palm Oil (NBPO). The palm
oil market certainly looks to be turning a corner bouncing away from a critical
$601/t. There's risks to the supply chain as Eltinus
Omaleng, the bupati of Mimika Regency in Papua, has officially issued
a decision document to call a complete stop to PT Pusaka Agro Lestari (PAL)’s
activities.
PAL is operated by Noble Group on behalf of COFCO,
(China National Cereals, Oils and Foodstuffs Corporation). Whether legal or not
it may go some-way to support the price as the industry signs to
longer-ended-dated contracts that will change the sentiment in palm oil
prices. In the event the excessive supplies continue to come to market palm
oil is heading to $427-433/t. Those lipstick wearers can relax, supplies aren't
that bad they need to start hoarding their favourite reds!
A poignant day at Shaft Sinkers, bringing
together those holders around an oil barrel to torch their certs. Shaft
Sinkers suspends their stock with, "no value remaining that is
attributable to the equity in the Company." This company is worth
significant analysis, especially for a certain brokerage that published a
report in 2011 that brought Shaft Sinkers to my attention. How SHFT managed
4 years 2 months on the market is a feat in itself, a bull market play that in
a cash conscious environment was doomed to failure and will never succeed
where the risks are not equitable with the owners of miners.
Kenmare Resources (KMR) come out and state
they've laid off 14%
of their staff it was too little, too late to stave off the impact of
reduced prices. There's going to be a further 15-20% of redundancies in the
future. These actions appear to suggest that Iluka Resources whom
can see potential if the employees are halved. With respect to some, it was not
hard to work out if you're carrying an inventory of circa 25% of your annual sales
that you can reduce costs by near 25%. Perhaps time to save a little in board
room pay as well? Over to Iluka!
EMC:
As a seller of GEM Diamonds, validated the view on Gemfields (GEM) with
their market
update as Q4 trading was under pressure. Production up, costs up
and grades down plus Faberge being impacted by Russian spending down a not so
insignificant 12%. The diamond and precious gem sector is the Christmas trading
quarter with restocking and reading across the numbers, the market doesn't
appear to be in sparkling health! (I known).
The Russian's woes won't be the only issue as investors
consider a conservative approach to investing and extravagance. Over to
Ian Harebottle, CEO of GEM whom "remain upbeat about the
growth and development of our sector and look forward to the results of our two
forthcoming auctions and the various luxury events scheduled to take place over
the next few months."
It would be wise to believe there's still a softening in the
market (not forever) and GEM have a lower quality rough
emerald and beryl auction scheduled for the end of the month. If the
gossip of a share consolidation is correct for GEM, they'd be wise to wait
until the market has more clarity, what more does one need than a greater
downside than up!
Quadrise Fuels International (QFI) holders
appear to be badgering the company why the price has tanked so much. The sell
was July 2014 (EMC
QFI July 2014), not with hindsight but more clarity required on the
potential of QFI. Those whom appear shocked by the company's tank even after
the Business
Update. Do the holders have any understanding of the concept of the model,
that being the difference between heavy fuel oil and diesels. Stick with
utilities if in doubt...
Congratulations to Aureus
Mining Inc. (AUE), who got the ink dry on the equity
financing they announced recently including the rump from the IFC (International
Finance Corporation). Save for further Ebola issues and further delays, AUE could just
be on the turn. The New Liberty mine even allowing for higher all in cash costs
by my figures of $937/oz., still has a decent margin of profit not
at today's prices, and would make circa IRR 25% at $1171/oz.
Wood Group (WG.) reminding the market its not
all doom and gloom, with full year results for the year ended 31 Dec 2014, but
perhaps not out of the woods yet!
Atb Fraser
*Political Rant: Well ignore the fact that Alex Salmond was
categorically wrong, just look at the bellwether of oil that he relied so
heavily upon. In supporting him, had your desired outcome occurred you'd have
been selling the big issue to the English Government again, rather than the UK
Government when needing a little assistance?
