Morning Mumble: Tribal (TRB) the tone continues...China, Lonmin (LMI) & Amur's Christmas Present.

Good Morning, 

Machine gun like this morning...

Tribal Group (TRB) - EMC coverage from October. The suspicions we had two months ago have proven accurate and they’ve certainly thrown the kitchen sink in…To quote:

One has a suspicion that the Chief Executive search hasn't gone as seamlessly as thought. What is the debt position of the company and more so....see bold (additions from EMC) that should be thought provoking. There are some positives, we didn't need to highlight the entire announcement. That's Tribal's third strike on the bases of profits/performance updates and as such the caveat of caution applies, expect a kitchen sink approach upon appointment. 

Its Rights Issue and Move to AIM, Tribal have now made the statement that so many before them have ignored. Standard Chartered (STAN) and Lonmin (LMI) both casualties of the same approach, waving a flag for the Rights Issue? The finances are dire…With that in mind and a whiff of smoke and fire, its time for the market to acknowledge the facts and stick the knife in. So expect averaging down, running or avoiding…

The Chinese retail sales and industrial output figures were a surprise, with the shift to consumption growing in pace, there’s time over Christmas to consider the implications for the wider markets. What the implications are for the non-performing loans, negative equity and the overall indebtedness of the Chinese commodities sector and associated industries. China’s Premier and Executives know full well the problems brewing in the mining provinces and the discontent that is brewing.

With Christmas upon us, the rally is likely to be muted as the realities of trading updates and profit warnings increase the anxiety on the visibility in earnings. Albeit, it is the week of celebration and joy, with interest rates being increased in the US on the 16th December. With that China has linked their currency to a broader basket (FT) …but are the rate hikes in the US priced in? The rate cuts and stimulus so far in China appears to be helping the economy, expect more from China post the US interest rate hike.

2016 will present a very different mix of opportunities in the markets, both in the commodities space and retail. With the FTSE hitting the 6K target for near Christmas it’s time for a reality check. Oil and Base Metals will pretty much determine the global markets over the coming weeks…and going into 2016. M&A should now be considered...essential. 

Lonmin (LMI) thank their shareholders… the shareholders are unlikely to be releasing a similar RNS to the management? With the confirmation from the Public Investment Corporation of South Africa (PIC) being stuffed with a 29.99% holding. With so many changes in the PGM space the industry still needs to shut in capacity. LMI’s efforts will assist but we estimate the sector is over supplied by near 650K ounces per annum. With the Russian Ruble weakness it’s not likely to reduce anytime soon.

With the season of goodwill upon us, we wish Crede Capital Group seasonal tidings. It would appear Crede are also in a festive mood, as AmurMinerals announced today.

Atb Fraser

PM Bolt-On: Lonmin (LMI) & Anglo American (AAL) - Kumba, Exxaro, Minas...+ Copper and Chinese Interest Rate Cuts (+waffle) + WPP & Majestic Wines

Good Evening,

Last week, hopes of Lonmin (LMI) being the casualty that the Platinum/Palladium industry needed faded away, with their latest refinancing. Not only would this have removed a significant proportion of the surplus off the market but perhaps improved the outlook favourable. The deal is yet to be inked and with quite a few outcomes it’s not without its risk. 

There's gossip (or hope) of interested parties post the update on trading, business plan and funding. With a number of outcomes, the poignant question is "what equity is there in Lonmin for non-participating shareholders?" The likely outcomes:

1. LMI may raise the monies and based on their cash costs of ZAR10,339 per PGM could have a chance of recovery. Assuming one ignores the past fundraisers that Lonmin quickly burnt through - previously raising in December 2012, 
2. The $817M kept the lights on since -  LMI fail to raise the monies based on shareholders experiences to date - geo-political risk, miner/worker demands, inflationary costs (Eskom's price rises are unsustainable) and the outlook for platinum/diesel associated catalytic converter risks. 
3. LMI raise a partial amount to satisfy the banks in the interim whilst a buyer for LMI is found. The difficulty is determining the value of equity/assets after dilutive equity raise. The risks cannot be totally ignored. 

Lonmin (LMI) -

The Board intends to announce on 9 November 2015 the full terms of the Proposed Rights Issue to provide the new equity funding required of US$400 million and to publish a prospectus and the audited results for the Group for the year ended 30 September 2015. The Proposed Rights Issue is expected to be underwritten on 9 November 2015, inter-conditional with the Amended Debt Facilities.

With not long to decide, it’s over to those already torched and/or underwriting to strike a price. Could this be a 4:1 dilution?

We had Anglo American (AAL) come out the other day and say just how bad it is. Like Lonmin, Anglo face an uphill battle of immense proportions. There's a number of items to be considered, we shall be coming back to them in due course over the coming weeks, specifically the items the market is ignoring.

Not forgetting that the comparable quarter for platinum production was during a strike, it’s sensible to read right to left on the chart below. Save for the warping of platinum, the results are a disaster for shareholders. There's a real risk of De Beers being sold near the bottom of the market. Admittedly there appears to be some form of resistance from the board to dispose of the main value in Anglo, they may be forced into a corner.

The lack of debt guidance in Q3’s is always an issue, but on results there's an indication that the dividend is going to be toast. Cashflow doesn't look ‘great’ and the outlook isn't much better. We estimate $12.6B in debt currently.

Overview (from Q3)

	Q3 2015	Q3 2014	% vs. Q3 2014	YTD 2015	YTD 2014	% vs. YTD 2014
Iron ore - Kumba (Mt)	11.4	13.0	(12)%	33.9	35.8	(5)%
Iron ore - Minas-Rio (Mt)(1)	2.9	-	nm	5.9	-	nm
Export metallurgical coal (Mt)	5.5	5.1	8%	15.7	16.0	(2)%
Export thermal coal (Mt)	8.8	9.0	(2)%	26.1	25.0	5%
Copper (t)(3) (4)	171,100	176,900	(3)%	527,400	573,300	(8)%
Nickel (t)(5)	6,800	10,700	(36)%	19,800	30,500	(35)%
Platinum (produced ounces) (koz)(6)	614	541	14%	1,739	1,267	37%
Diamonds (Mct)(7)	6.0	8.2	(27)%	21.6	24.2	(11)%

 *See notes 1-7 end of commentary

We’ve previously discussed the issues at Kumba Iron (Sishen Iron Ore Company Proprietary Limited (SIOC), more so the difficulties with cost controls. This should have been implemented earlier.

Kumba’s operating costs target is a fairy tale at circa $40/t. Whether this can be sustained longer-term is another question. In the short-term there's a possibility, but sustaining capital investment can only be modestly be reduced. 

The majority of South African operators are suffering and Kumba’s Sishen FE mine is not exempt from the ensuing operational issues and potential unrest. Kumba had a reduction in iron ore production from the forecast 33Mt to 31 Mt (6%)) and an increase in waste tonnage from 200 Mt to 230 Mt (15%). 

Not only do Kumba/Anglo have lower iron ore prices, lower production and higher costs all unwelcome at the cashflow/profits level. The risks associated with the Exxaro black economic empowerment (BEE) vehicle should not be ignored. (EMC: July Morning Mumble: Anglo's further woes thanks to Kumba/Exxaro). Similar to Anglo's dividends, shareholders should not discount the possibility of any credible dividends from Kumba and consider them toast for the foreseeable future. 

Luckily for Exxaro they have the International Development Corporation (IDC) (Article: Creamer Media Mining Weekly) to bail/refinance them. The IDC do not have the greatest track record of investments, en par with the International Finance Corporation (IFC) whom notably invested in Nyota Minerals (2010). With their entire holding now being worth a paltry £48K (Approx.). Admittedly, Nyota was one of those that many (including here) got wrong at the time, but luckily wised up to.

The Kumba Iron Ore fan club need to consider how distressed the operations are. Moving more earth, for less production etc... The FX beneficiation of the South African Rand is of limited positive and remember, with FX devaluation, asset values in dollar terms will depreciate. As eluded to previously, the ArcelorMittal contract premium was in essence a subsidy / saviour for Kumba. They have now stopped gift-aiding.

Anglo's Minas Rio production was a smidge off the pace, allegedly owing to the drought. However, what Anglo have forgotten to mention the “collective holidays” that the company are utilising. Save for benefit to OPEX costs in the short-term aided in part by the Brazilian Real (BRL), ramp-up expectations should be revised downwards. Minas Rio needs 92+% operational capacity to attain a limited/exclusive status of having a profitable mine (with humour).  

We know that contractors have been delayed and/or appointments to positions not made as has been reported in the press. One expects further downgrades at Minas Rio unless their employment returns to viable capacity to improve ramp-up.

Remembering that Minas Rio is another obligation for capital expenditure on the Anglo balance sheet. Anglo are unable to cut this expenditure without significant write-downs/losses that would also impact on assumed cashflow.

Least we remind ourselves of Roy Hill’s first shipment that was pencilled in for this month that is now likely for November/December. See: GinaRinehart's Roy Hill mine to miss deadline for first shipment

Copper production was better than expect but still down, in part owing to the sale of some assets. Its noted diamond prices continue to fall and De Beers are forced to scale back production to offer some support in the market. 

The Chinese created a trading event on Friday, with the majority of commodity share prices benefiting for 10 or so minutes. That was until the realities sunk in, that as the Chinese had cut its 1 year lending rate to 4.35% (25bps reduction) it raised questions about the very state of the economy. The 6^th rate cut in 11 months.

In move contradicts the 6.9% GDP figures that came and the Press Conference of the Ministry of Commerce on October 20, 2015. Having discussed previously the need for cuts, expect a reserve requirement ratio cut of 100bps to 17.5% sooner rather than later (although this may now be averaging out, with the real time rate being lower. The interest rate cut has created more fear than confidence.

There's a likelihood of credit becoming cheaper for longer in China, the threat of further monetary easing in Europe and America’s limitations of a rate rise may give some false dawns. With the trade surplus in decline, China’s switch to consumerism/consumption will/ has to be the more rapid. 

China has to adapt to the full blown capitalist model sooner rather than later to sustain growth and sustain some form wage inflation. This will promote employment opportunities and offset the reduction in manufacturing that is occurring - evidenced in part by the reduction in trade surplus.

China’s “competitive edge" as a manufacturing super power is being eroded. The capital outflows from China are triggering a longer-term devaluation of the yuan. Over the coming quarters China will be compelled to reduce the capital/deposit requirements for property, for leases (including autos) and embrace the leveraged ratios considered the norm in the west. Examples being 90-95% mortgages (perhaps even the equivalent of help to buy in mid-lower tier cities. In addition to near nil deposit autos and cheap consumer credit.

With consumerism/consumption being promoted, China has to bet on service, retail, leisure and tourism sectors. In the absence of any consumption type stimulus China will be in a downtrend until at least demand catches up again.

Expect further cuts in the lending rates and RRR, otherwise China’s corporations are heading for default, including SEO and private/public listed companies. We know Chinese Co's are struggling to maintain debt payments.

The MarkitFlash U.S. Manufacturing PMI ™ showed a five-month high for October that is ultimately making any rate increase harder for the Fed. Admittedly the Q3 results for industrials are contradicting the FED’s confidence in the robustness of the US economy.Could the Chinese capital outflows be aiding the US Manufacturing, a Chinese version of QE with a flight to safer climbs?

More to come on WPP, a model based on acquisition? Majestic Wines - the new off-license? Eroding margins where there's a hope people will order between one and five bottles from Majestic Wine's rather than at their normal supermarket? What are the real costs of customer enticements at Naked Wines? With incentives from the likes of Moneysupermarket/Uswitch? 

Atb Fraser

• (1) Saleable production

• (2) Production includes medium carbon ferro-manganese

• (3) Within export coking and export PCI coals there are different grades of coal with                        different weighted average prices compared to benchmark

• (4) Includes both hard coking coal and PCI sales volumes

• (5)Excludes Anglo American Platinum's copper production

• (6) ASCu = acid soluble copper

• (7) TCu = total copper

Morning Mumble: Glencore, no hindsight 20/20 required here. Hargreaves Services (HSP), APR Energy (No Change in View), Lonmin, could it? Unlikely but its nearly ripe! + Zoopla's support line...plus beware amateur trader shirts!

Good Morning,

Another one of those days, with cheerleading type newsflow, selective reading is advised. Whether it's Chinese missiles, American interest rate policy or the oil price bouncing along with the traders, the market is acting like a flight of starlings. Is anyone capable of forming their own opinions? It would appear the murmation need to consider their own position, with limited open contrarian views in the short-to-mid-term, the market will lack decent direction

Glencore (GLEN) have elected to show their confidence with Director/Management share purchases. Some could have been perhaps timed better. Steve Kalmin aka Scotty (EMC) 1,000,000 Shares at a price of 172.88p (GBP 1.729) per Share, John Mack, 50,000 Shares at a price of 162.85p (GBP 1.629) per Share and yesterday, Paul Grauer, 118,000 Shares at a price of 134.5p (GBP1.345) per Share. 

Rather immaterial when the selling of William Macaulay (EMC) is considered, to quote, "What this signifies in respect of GLEN's key market and likely performance is another matter (EMC).” Bryce went with Glencore sinks on equity issuance fears (FT).

Then again, Glencore can merely pull their levers for this and that to trade their way out? I doubt it's that simple. Quite how the hedging works is a mystery, but the lack of FX exposure suggests that to unwind the RMI (Readily Marketable Inventory) it will require significant capital/work.

If there's any accountants reading, it would be a pleasure to be educated on the carrying costs of said hedging, as it would appear GLEN have made significant gains. These now perhaps need reversing? Some very good analysis here in the comments section (FTML) (Bias). 

Positively, Hargreaves Services (HSP), after the director change today. Having been short on this company because of the woes of "coal. Now having had chance to review HSP (briefly) there appears to be an opportunity, one suspects for some form of leveraged buyout. With limited (£1M) net debt on the balance sheet, and set to be cash generative (even) at these prices, one has a suspicions the wheels will be in motion. 

There's been a number of questions regarding APR Energy. Simply I've not had time to cover all the items mentioned in their preliminary results for the year ended 31 May 2015. Are GE Capital the sellers? With net debt of near $604M, there's a need for cash. This is after allowing for some form of "heck you owe us a lot banking syndicate, here have some more." No change in view...(EMC). 

With Lonmin laying off a few more chaps, one wonders if the entity is “nearly” clean enough for a take-out. If ever the time was ripe, it's nearing that point, event risk warning on those shorts. Likewise, I’m informed that technically speaking, Zoopla has to break 230 pence.

The finally thought goes to an acknowledgement, which was gratefully received after a minor differing of views on all FTSE miners near 3+ years ago. The "beware amateur trader" shirt, no doubt at vast expense, will be modelled when I'm lacking sobriety. However, the pictures of a certain “professional” wearing similar is noted!

Remember, today is a Holiday in China, so can expect some sideways / positive trading of a fashion.

Atb Fraser

Morning Mumble: Robertson's Jam (Fox Marble), Wandisco (WAND) & the panacea for the PGM industry.

Good Morning,

Is it starting to look like a management issue (or perhaps capability issues) with Fox Marble (FOX), after today's operational update? A Lack of orders, issues with machinery, some small orders, some advanced payments and  fire at Prometec SrL, the company responsible for supplying and refurbishing two major pieces of machinery due to be installed at the factory (total write-off). As a plus they were insured. Adding to yet more delays, including 'accessing the higher quality stone.’ At what stage will the company start being proactive? We had EMC: Fox Marble May 2015. 

Having given FOX the benefit of the doubt in December 2014 (EMC), there's little sympathy left for management 8+ months later. Fox Marble, like a few companies on AIM have quality assets, it's just the management erode the value for a number of reasons. FOX may have created an over-expectation in shareholders by their guidance. They certainly haven't delivered and the price will be punished as a result.

For shareholders, they can but hope the management are going to resolve the woes of their existing operations before entering into a joint venture in North America, which should further increase its penetration into the world's largest consumer of polished marble. Time for a management change? Unlikely as the management hold near 25% of the stock, the issue is, whether people will continue to hold is another story. At what stage were all these operational woes including poor sales performance known?

As a plus, there's some jam in there, with visits from their Chinese partner/agent and some politicians, assuming you can be bothered to read the entire RNS. If there wasn't enough in the announcement to attempt dissuade holders from selling, as a last ditch effort, FOX remind the market, as of the 30th June they had €5.6 million in the bank (one hopes not Greek). 

Over to Chris Gilbert, CEO of FOX, to summarise the disaster, "Whilst the first half has been disappointing in terms of sales and we have had some unforeseen operational frustrations, we remain confident in our objective of being a major international supplier of high quality marble. In order to underpin the development of our sales channels we have appointed three additional experienced marble sales staff over the last few months, and we expect that this will also bear fruit as we bring on the production of Illyric White marble from Malesheva 2 and larger volumes from the Sivec quarries in Macedonia." 

Syrah Resources (ASX: SYR) have done the unthinkable and conducted a capital raising (placing). Here's yours truly thinking there cannot be that many mugs out there. Congratulations to SYR and team, they only go and do this on a fully underwritten basis for AU$$211 million (Placement) and Entitlement Offer). This won’t change ones view of the company, Slater and Gordon managed to raise monies.

If one has researched Syrah Resources and the neighbours licensing, it would be wise to start questioning the valuations. Certainly that of Syrah resources, where almost identical operations are valued near 4 fold less (Triton Minerals). Triton Minerals (ASX: TON) has teamed up with AMG Mining AG whom have an interesting history themselves with the debacle that occurred at with Timminco in Canada. 

With a global supply...oops global demand being limited for Graphite currently. Admittedly, one shouldn’t exclude a business on global demand as there “may be” new opportunities. However, the new opportunities do not appear to be presenting to the market. Least we forget Kenmare Resource’s (KMR) venture into Graphite. With Vanadium making a brief recovery and support coming to the price in the market. The prices are now likely to be shattered come 2017/18 when Syrah bring yet more vanadium and graphite into the supply chains. Unless of course there’s a significant change somewhere.

Question for the logistic providers, “why is Nacala port preferred over Pemba?” The port's website is down at Pemba, but should it not be in the frame as a preferred port, compared to Nacala? Immaterial really, when considering the viability of extracting the ore with the current demand, outlook and cycle of commodities. Disappointingly, one has to wait until the trading halt is lifted and the shares resume trading on Thursday, 6 August 2015 (Ex-entitlement).

We had a do at the weekend, where Wandisco (WAND) came up after their sales update and Tom Winnifrith’s short in August views on WAND.  It’s timely, as we introduce the label "JAM" to the EMC to identify companies. Not only the likes of WAND and FOX, but for the entirety of the market as the need arises. As a reiteration, there is no need to change from the view in January EMC: WAND. The lack of cash is the theme and lack of sales/profit. 

From dialogue today (RG H/Tip),...Does Team UK (the markets) not know that Subversion, CVS and Git (and Hadoop) are readily available? In addition to being open source, where some feel WAND do not add additional content to warrant a premium? With one chap coming out with a PT of 14.5 pence, its certainly punchy and one that the market may have to swallow.  

The PGM industry is suffering, as a result of power increases, wage inflation and operational woes, and needs some assistance. We have the answer, or more poignantly, Lonmin (LMI) has the answer. With the market waking up to the realities of LMI, save for a rescue plan from a Chinese entity that themselves are under pressure themselves, the company is due a rerating (downwards).

The panacea for the PGM industry is a large casualty, and LMI fits the bill. Big enough to reduce the over-supply, small enough not to be a significant casualty for the banks. This would also free up electricity capacity, reduce the strangle hold on labour prices but create a deflationary cycle on mining costs in South Africa.

Norilsk Nickel preliminary consolidated production results for the second quarter and the first half of 2015, shows supply increasing into a stagnating market. Norilsk guidance of Palladium (Q performance up 15% q-o-q) targeting 2,580M to 2.610M ounces for the year and 590K-615K (Q2 performance up 6% q-o-q) ounces of Platinum. Just one of many producers ramping up in an attempting to reduce costs to a viable level. 

Any short-term relief is limited with demand and/or speculation being below forecasts. With car and truck (heavy duty) sales coming under pressure from reducing capital investment, Lonmin could just be what the entire PGM industry needs, closure. Removing overnight, a good proportion off the surplus.

In the absence of closure, LMI have their work cut out, with a capital raising required, potentially just to fend off the banks and then there's other woes of cost inflation throughout their entire chain, never mind being in South Africa (RSA) 

Its been pointed out the link off the Indian Times story was inadvertently missed. Hopefully this will be corrected. 

Atb Fraser

Morning Mumble: Turning Japanese - FT, Anglo and Lonmin: Yuck.

Good Morning,

Importantly for everyone that reads the pink pages (via whatever medium), the FT is Turning Japanese. Amusingly, being well off the mark thinking it was Reuters, four city folk were bang on the money. The concern being, that it was never suggested that to gain entry to the city trading houses, one had to know the lyrics and Turning Japanese as a desktop short-cut. We'll remain silent on what that infers for those in city! Whatever next...

After enquiries about IT errors and the like, as a reminder this is a channel for views, pending time. 

It is appreciative that people source the views, whether they agree with them or not, it's a pleasure to read people disagreeing without referring to status or position with insulting terms. With apologies being accepted, and thank you for them, its time to look forward. Perhaps, the EMC will not be a dirty secret of a reference point in future, before penning ones analysis. 

Fear not though, there's a suspicion we shall disagree, but now with a mutual respect. We'll see how it goes this afternoon, meeting with a city chap whose views have differed slightly to here. Especially on copper, iron ore, nickel and zinc. Who picks up the tab is another story and will there be a bun fight!?

On to the carnage from of the market Lonmin (LMI), whom cut this, reduce this, care and maintenance (C&M) that and look for further savings. If someone has not thought of it already, perhaps shutting up shop would support the entire industry. There cannot be much more to cut can there? LMI have been sensible in placing those operations on C&M with least initial cost (contractor mining). How LMI can make money including financing costs etc...at anything below 1185 (under review as well), is anyone's guessing. 

LMI's Q3 2015 Production update is woeful on all levels. With the management now "defending" the value of shareholders. Had this come in 2011 then perhaps we'd have been discussing something very different. LMI is a prime example of inefficiency whilst attempting efficiency. So, without pulling apart the numbers, its fair to say LMI are paying the market to produce PGM's. 

As mentioned in, EMC: Kumba Iron ore one suspect there's going to be an increase in Lost Time Injury Frequency Rate (LTIFR). Sadly LMI workers have been impacted by this as well, with cost cuttings all round, there's a difficult balance between profitability, productivity and viability. Sympathy to the families involved. 

Some contradictory statements, but over to LMI refinancing

We are reviewing the appropriate capital structure for the Company in the new pricing environment as we consider the need to re-finance our debt facilities. The Board is considering the full range of options available to secure long term capital and expects to update the market by the time of our full year results in November 2015.

If any financial institution will stump up (via refinancing) any monies (debt) without a commitment from shareholders, they'll be brave. 

Lonmin Chief Executive Ben Magara said:

"Lonmin is defending value for all stakeholders in responding to the platinum pricing crisis by taking swift, decisive even though difficult measures. Losing jobs is not pleasant but everyone is having to take significant short term pain to preserve optionality for the long term. All costs have to be reduced including labour and I hope our formal consultation process will come up with mitigations to minimise job losses.‎"

Ben's got his hands full, with a growing discontent in South Africa, it's not going to be easy to "minimise" job losses. With the number of unprofitable operations, it’s hard to minimise what needs C&M on a grand scale. LMI, in my view, is not going a concern. The surplus in the global PGM industry (far from assisted by Russia) will make it difficult to justify any investment. If one hasn't noticed already, in the absence of a Chinese aid package (and its being touted), opps one means investment, LMI is destined for AIM at the very best. 

In summary, to go long, without acknowledging all the geo-political, economic and commodity related woes, would require one’s head being looked at. Good luck to those on any form of book build. The facts are clear, even with yet more cash, will it resolve LMI's profitability? Yes, but only if operations are shrunk to an AIM sized entity. 

Continuing in the same vein, we have Anglo America (AAL) reporting H1 results today. Handily, if we do a quick copy and paste from LMI, with the addition of "impairments, write-downs and flog this and flog that" its makes life easier. So, AAL, whom cut this, reduce this, flog this, care and maintenance (C&M) that and look for further savings here and there, are not in the same boat, but it looks like the same boat race. 

We'll summarise quickly with net debt up at a staggering $625 million to $13,496 million and a loss reported for the entire year. Admittedly, there's post-period receipts for the sale of the Tarmac division of $1.6B, which are being applied to debt (like they had a choice). 

If anyone ever speaks to AAL anymore, could they be so kind as to ask them to bump up the P&L reporting to near the top of the page. As a few savvy analysts have realised it's stashed down the pile. 

So AAL have....Commodity price-driven impairments of $3.5 billion after tax, including $2.9 billion at Minas-Rio. Productivity improvements and indirect and capital cost reductions accelerated, with disposals being progressed. 

AAL have very wisely spotted that iron ore is at a cross-roads. With higher cost producers disappearing from the market, these have been replaced by newer lower cost producers. Kumba's lack of dividend is going to exponentially hurt AAL, nevermind the Exarro Resources woes. 

De Beer's couldn't even save the day this year compared to last, "De Beers saw a continuation of the market weakness of late 2014 during the first six months of 2015, resulting in a 25% underlying EBIT decrease. In response to these market conditions, the business has revised production guidance for 2015 to 29 to 31 million carats, while continuing to focus on its operational metrics. De Beers also reduced unit costs by 10% in dollar terms. Read across to smaller producers...

Why AAL is up on anything but the dividend today is a mystery, and that is questionable why it's being paid. The Dividend can only be paid on the assumption of sales receipts from other assets, failing this they'll have to scrap it. This questions the sensibility of such a policy rather than improve the balance sheet. We'll leave the summary to, at 30 June 2015, Anglo American's ratings were Moody's Baa2 (negative outlook) and Standard & Poor's BBB- (stable outlook).

Question of the day, were RIO/BLT were wise to machine gun their way to capacity just to survive? An example being Roy Hill, with Gina Rinehart continuing unabated despite some issues with the family trust that may or may not need resolving. 

Maybe more time later, although that's becoming a reoccurring theme.  

Atb Fraser

Morning Mumble: China + Gold...AAL's / JSE: AMS hand count of PGM's. Rambler's talking of expansion! + RUR's default.

Good Morning, Forgot to press publish this morning, Good Afternoon,

It’s hard to start this morning due to there being so much to cover and little time. 

Everything is going on in China, on the stock market, in the economy and the slowdown in development (read as reducing investment). How's that for economic analysis?! In essence there is no fiscal policy that will not be considered by China to maintain the economy.  

The long fated transfer of wealth between Government and citizen/comrade has now stalled, including the Chinese people's investment in mainland China generally. With monetary outflows from China increasing both directly and via the Shanghai-Hong Kong Stock Connect, the Government is left having to fill the void/gaping hole. Orders are on the increase from mainland China to the Honk Kong (Southbound), where the mature market is allegedly benefiting from greater disclosure and transparency. 

With China catching a cold, those Asian trading partners (south-south trade) are under pressure. What this means for those recently listed, including Alibaba (NYSE: BABA), is yet to be fully determined. BABA will not be exempt from reduced ordering and trade efficiencies that are put in place (read as reduced wastage).  Also likely to have a knock on for Standard Chartered (STAN), whose capital requirement rumours are being raised again, after today's new management changes. How much does STAN need? Although more recently STAN have developed a conservative approach to lending.

Often when looking at the realistic view of China, people mistake negativity or a lack of positives as being the end of the world, rather than resetting expectations. Some brokers, whom were so bullish when attending Camp AV last year (2014) are now reassessing their position on China. One would be wise to consider the notes from Aviate et al (China once upon a time bull's), and look how it’s turned out in 13 short months in comparison to the bullish predictions. 

The drop in construction both residential and commercial, has serious implications for the Chinese economy, throughout the entire supply chain both materials and labour. Factories’ own inventory levels are rising, not helped by lower gate prices. Steel mills producing above and beyond demand but "committed" to certain higher cost Government obligations or funding gets withdrawn. 

Precious Metals are all under pressure (EMC: Gold the “bears” will have this market for longer), the falls in Asia one suspects are a result of a certain trader cashing in their chips. 

Gold: $1116/oz (had been as low as $1080/oz. as knife catchers entered the market). 

Silver: $14.80/oz (had been as low as $14.55/oz.)

Platinum: $980/oz. (had been as low as $970/oz.)

Palladium: $605/oz (previously touched $600/oz.)

Copper: $2.4650/lb 

China is giving an appearance of confidence, with their stock market measures attempting to entice the public to buy into the story. Having committed near $200b of funds in a month or so to margin/equity, its merely propped up the fall. Whilst holding fire on a further $275B worth of equity rescue, (Bloomberg: China Securities Finance Corp ($483B) funding to imply support.

China's latest vote was to release its gold figures. Not only did this conveniently happen on Friday with near 1,658 metric tons of gold under the security of PBoC (remember that phrase it may be important). We'll ignore why China hasn't released any gold figures for near 5 years, and leave that for the conspiracy theorists that make little money. What is important though is the disclosure for the purpose of the IMF (International Monetary Fund) SDR (Special Drawing Rights) for the Yuan. Expect a revision upwards of Gold holdings in due course from China. 

In entire contradiction, the crash in Gold. Another Fund having a coup on the Shanghai Gold Exchange catching most off guard. Whether the seller had other obligations that prompted the sale, is immaterial to the action of resetting the pricing a la Copper (14th January 2015), in addition to shorting Gold. Selling 160K ounces is not to be sniffed at, especially during such quiet trade and limited volumes. What are the implications for CitiGroup who’s trading in precious metals has near quintupled in 4 short months with around $45-50B exposure.

On to the market, Anglo American Platinum Earnings Reconciliation by Anglo American, is almost laughable. It raises significant questions over how Anglo Plat's recognising its inventory. After, a physical count of in-process metals (in the ordinary course of business) resulted in the Company increasing its estimate of the quantity of inventory by an additional c.130koz of platinum and 75koz of palladium. Source: Anglo American Platinum Interim Report Anglo Platinum (JSE: AMS). AMS already down 4% from opening. 

From Anglo Plats ...continues with the repositioning to create a high quality asset portfolio, with low cost and high margin production, low safety risk and high mechanisation potential. The assets that do not form part of the retained portfolio are part of the disposal program. 

If anyone is minded, could they pleased identify the "high quality assets" to save significant investigation time. At current prices, the read across to all the producers with platinum at $980/oz. isn't looking great, Lonmin must have near 6 months before the desperation of cash comes to the fore, if it hasn't already. 

Rambler Metals and Mining (RMM) Pre-feasibility Study has a number of assumption in it, although better than some! RMM, Average copper price of USD $2.79 per pound, gold price of USD $1,100 per ounce and silver of USD $15.54 per ounce. Long term pricing of USD $2.79 per pound, $1075 per ounce and $15.50 per ounce for copper, gold and silver respectively. 

RMM hopes to fund most of it from bulk mining Footwall Zone (LFZ), which is allegedly self-funding from current operations (Circa $66M). Even so, there's a capital short-fall of near $9M and assessing possible debt fundraising has been initiated. The funding plan does not make economic sense on the 5 year plan. With more risks created by the self-funding rate over 5 years. Debt-financing alone does not stack up, especially in the current environment so will there be a % of equity dilution/warrants or associated kickers to entice the backers. 

Having not covered RMM since EMC: RMM 9th December 2014. With the denial contingent still suggesting things can get better. One has to question how much of the cashflow supports financing at current prices. This is likely to be RMM's last chance, in the absence of a rebound in RMM's produced commodities, there's a requirement for cash for this expansion. With a modest improvement in grades more recently, RMM are likely to be able to "sell the story." Any purchases would only be high risk speculation in the current market.

More news for Rurelec (RUR) today that was missing two little words in the title, "loan default." RUR announce the appointment of directors, but update on the default that has taken place. Expect a roller-coaster of a ride for anyone still holding! 

Atb Fraser

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: 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 (Via Email): Petra Diamonds (PDL), Graphene Nanochem (GRPH) when's the placing? Stans Energy mareva being lifted...& BPTY

Good Morning,

Just when you start to look at a long in Petra Diamonds (PDL), you're reminded of their woes but the time is not been wasted. The company now state the strategy for addressing the low grades is not working nor is improving.

PDL’s woes came out in the analysts call back in February/April (would have to check notes) were the concerns for the grades ‘whilst in transition’ on the mature ore. Today’s confirmation of what one analyst (hat tip) spotted that PDL should have considered before the market update. If memory serves me correctly PDL were meant to have a good understanding of the ore.

The grades are lower with fewer high quality stones and the bulk being smaller carats is going to result in lower revenues. EMC: PDL April 2015 noted that a PDL lacking quality then revenues will reflect this. With yet another downgrade in guidance (previous Q3) not in quantity but the quality. As the profits warning strike rule applies, any positives seen are now eroded by the management’s guidance. The market would be wise to price in another, especially whilst the rump is now 2017+

Unless some degree of luck is on PDL’s side with exceptional stones, it’s hit and miss on revenues, and the weighting towards end of year, results will now need to be very good. Date for the diary is the full year 2015 trading update (Production and Sales Report) and annual guidance announcement on 27 July 2015.

The surprise will be if PDL can do $120M in the final quarter. The shares should be about 150 pence after today’s news. Consideration should be given to the potential sale of De Beers and balance sheet needing to look ‘better’, expect a cap on pricing up to Christmas.

The average price per carat in Q3 for Cullinan was $106/CT, after today, a prudent measure would be to downgrade expectations to around Finsch’s Q3 numbers of $88/CT and strip out the majority of any “hope” in the recovery of exceptional diamonds. Translating to $405-410M full year not $420M or $105m ish Q4.

Graphene Nanochem (GRPH), when reading accounts, its mystifying what the market is up to. GRPH’s preliminary results are out and the award of a new tender for $28M over 3 years.  GRPH state they are “Well positioned to capitalise on the growth potential in the oil and gas ("O&G") market.” 

GRPH future revenues may have some potential, but unless the window seat has changed its outlook, GRPH operate in O&G, have net debt of circa $28.2M and do not make a profit. Fundraiser anyone?

On the back of Stans Energy third party litigation funding agreement with Calunius, the Ontario Divisional Court has set aside the Mareva Injunction over the Centerra shares. Although freezing order has been applied for. The appeal, as Stans Energy point out was set aside by the Court on procedural grounds, not on the merits of the case. Being informed its likely they'll win the appeal, without being versed enough in the law its a binary bet at this stage.

What are the odds of bwin.party digital entertainment (BPTY) being bought out now? Of course one sells 6% of the company’s entire issued share capital because there’s a premium coming. Perhaps march madness (in June). SpringOwl Gibraltar? (Poor I know!).

Security at Lonmin's (LMI)'s car parks might be a long-term additional expense as cars/buses were torched in protest at redundancies. Now the managed sale is over of GLEN stock, its back to the realities for LMI. LMI's market cap is now at a level to set up operations would be near 4 times as much $. If one was sensible, resolving the Furnace issues with a revisit of the ConRoast tech (held by JLP) the costs per ounce and long-term maintenance could be significantly reduced. Are analysts going to start to acknowledge the need for cash? For that matter, the company? 

No time again and again for Gate Ventures (GATE) with a placing underway, would you?!?! Or PureCircle! However no reason to change the view that there’s “no reason to hold” EMC: Purecircle 10 September 2014. We can look forward to their trading update towards the end of the month/beginning of next.  

Atb Fraser

Morning Mumble: LMI (Lonmin), PGM's via GFMS, Serabi Gold, Tribal Group + Otto and Capital Drilling!

Good Morning,

The share price of Lonmin (LMI) is rather telling that Glencore (GLEN) shareholders do/did not value or rate LMI. We shall keep this simple, in the absence of an improving outlook, reduced costs and CAPEX and OPEX clarity LMI is on a path of dilution (rights issue). With GLEN now ex-dividend as of yesterday, LMI is being punished, opps the correct term is "managed sales."

Perhaps the value of LMI for some funds will be ignored and held until an improvement or corporate action involving the Republic of South Africa (RSA) Government. The thought for the day goes to those analysts thinking the furnaces have "exceptional or one off costs", that shouldn't be factored into longer-term workings. One assumes they're new to the chrome issues within the PGM industry?!?!?!

LMI will not be assisted by GFMS annual survey is out on the poor man's Reuters Eikon that platinum has the potential to test $1K/oz. It’s not beyond the realms of possibility, with LMI needing to "dump" rather than manage the sale of near 200K with a growing differential between supply and demand. 

With the improvements and an expanding market in recycling  of catalysts, limited growth and even with a shortfall in supply PGM's failed to respond. One could be minded to think the speculators are locked in to Jo'burg ETF's at a loss so are unwilling to apply further capital, same for the Chinese and hedgies focusing on bottlenecking.  SO GFMS put the range to $1K/oz. to $1290/oz. 

Someone popped a BRR media discussion on Serabi Gold (SRB) into my box this morning on the back of the Unaudited Financial Results for the First Quarter 2015. SRB's suggestion there's the potential for M&A in the sector are of concern. SRB are another company that should focus on their current assets, get their start-up at Palito running efficiently and prove up their resources, rather than spinning a plate they can ill-afford to diversify on.

There is little margin on the balance sheet for M&A, save for the issue of confetti. Currently the Brazilian Real (BRL) is favouring their cost base in reporting terms, and with the downgrades in banks, the issues in the economy is unlikely to change. The USD/BRL of 1:3 should perhaps be considered the key support/potential floor. 

With the last placing just over a year ago, the FX losses kitchen sinked and ramp up progressing well, SRB is now looking more positive than the past 4 years. A producer (at a profit) and potential to return monies to shareholders over the longer-term, SRB should not be ignored. Likewise their liabilities, if there was a hiccup in their plans or a significant movement in BRL terms could hurt them. 

Tribal Group (TRB) gave an update into the AGM. With timelines going out further, one would be wise not to ascribe too much value in light of a second warning about the timing of and Keith Evan's departing, the warning signs were there! Having missed the previous year’s targets, the terminology is far from positive, but with a new 'man soon to be at the wheel' there's some hope. 

It was interesting to hear some excitement in the Oz about SC55 operated by Otto Energy. Tiddler watch, Red Emperor (RMP) Resources have a 15% working interest (WI) on a capped cost basis USD5.625m. If costs exceed RMP cap they have the right to reduce their WI!

RMP, a small cap with near £5M in cash (and most of it spoken for, if not all), there's no room for failure. As Ian put it a binary bet on the outcome of drilling in Q3. SC55 was originally farmed out to BHP, time will tell whether they were prudent to have walked away. Widows and orphans need not apply! 

For those with a memory of RMP, they used to be a shareholder in Highfield Resources (ASX: HFR) whom recently raised AU$101M. RMP sold all their stock at circa 80 cents a share (only 4 months or so ago). With little sign of the ASX: HFR ending its bull run at the time, RMP's timing was should be considered poor, or should it be worded as desperate for cash? 

Had Aureus Mining (AUE) been able to release a sensible RNS about their Q1 progress and Management Discussion and Analysis (MD&A), there would have been time to speed through it rather than the snakes and ladders approach to RNS’ing! You can read it here. Their IR best shape up, or investors (including small funds simply won't bother!), first pour expect end of the month! 

No time for the gold speculation in Asia/NYSE (also arbitrage), with investors hoovering up physical ETF's, nor WTI/ struggling to maintain it's $60/bbl support and the Brent GAP expanding again. The analyst who reads the papers two days ago after best have a whip round to speed up coverage.

Thought for the weekend, is the worst over for Capital Drilling (CAPD), compared to those leveraged operators! Good piece in LEX PGM Plunge with Alan Livsey and Richard Stovin-Bradford. Missing some very important indicators but all the same thought provoking. 

Atb Fraser