Morning Mumble: Sirius Minerals NYMNPA, Platech's cashbox placing & clever play and Anglo's Sherlock Award + Paragon Diamonds "share buyback!"

Good Morning,

Its rather bemusing that the market expected the planning officers report to do anything bar go against the grain and recommend anything! In summary, 

• Officers' policy conclusion is that they do not believe the development represents exceptional circumstances and that the economic benefits and mitigation/compensation do not outweigh the harm caused.

• Officers acknowledge the high level of mitigations, the significance of the economic and social benefits which could attain national significance and the very strong local support.

• Special Planning Committee to meet, as previously announced, on 30 June 2015 to determine the application.

The full report is available: NYMNPA Special Planning Committee Report (PDF). Anyone that did not derisk significantly really needs to consider their approach. With no recommendation, it’s down to the planning committee to determine the result. One suspects that the "no recommendation" is to avoid the potential legal implications of being pro-ante the project. Its down to the test for a ‘Major Development’ that is a key government policy. In the event of refusal, expect SXX to become representative of arbitration value, circa threepence. 

30th June beckons...where Members of the Authority will make a decision on the application, based on their own views of the planning balance, and have the option to resolve to approve, defer a decision or refuse the application. One suspects it will either be approve or deferral, refusal has significant consequences on a number of levels. 

Playtech (PTEC) have announced a placing that should be considered a cashbox and has only aided the short component in PTEC. With greater scrutiny over PTEC and analysis of its core business (including PLUS), PTEC's model needs cash. The commitment to buy PLUS is one of a binary nature, both shrewd and well-timed or simply, a stupid gamble where the product offering could have been replicated with a better perception of brand. 

As PLUS has had so many issues, its "plug and play" type model is now ruined (in regulated markets) expect some significant revisions and reconditioning on growth forecasts. With a vast amount of convertible loan notes/bonds in existence at circa £7.25 and the placing. Wonders would never cease if the placing was at the convertible price level?

PTEC holdings at 9.36% in PLUS. The market simply should price in the takeover happening now, as PTEC are merely saving themselves near 5% of the offer price in market. Clever? if it turns out a good buy not goodbye, time will tell. With 44.96% voting in favour now, they need a smidge over 5% to do the deal. Unfortunate for a few funds, some of which had the opportunity to avoid such a calamity. Alas, don't consider the amateurs knowing a thing or two!

Apparently, Anglo American (AAL) shareholders pressing for more cost savings, Investors press Anglo American chief executive for cost cuts. It’s taken a considerable length of time to realise the returns of 15% ROCE (Return on Capital Employed), are but a mere hope. One was in a quandary about whether to give the Sherlock Award to the company or the shareholders believing in the unachievable target, with the asset class, commodity price and OPEX costs. 

The performance to date suggests Mr Cutifani has over-suggested/promised in a backdrop of misery for asset sales and rationale of costs for a producer with little hope of cost savings in its current structure. Alternatively, it could have been much worse? Unlikely. It may have been safer for the Australian to stay at Ashanti Gold.

In the current climate it would be unwise to sell De Beers in the current cycle of diamonds. Having been in place for two years two months, it’s mystifying what has taken shareholders so long to realise what has not happened. 

The obvious has occurred, dire performance, coupled with the disposal of assets that are very unlikely to achieve anywhere near was is hoped or implied price. Anglo's other entities operate in a depressed market with the outlook clouded by contradictory data from China and slump in ore prices. 

Examples of sales, the Mantos Blancos and Mantoverde mines, as well as its 50.1% stakes in El Soldado mine, and the Chagres smelter have been slow. Its alleged Codelco have trumped X2's offer of $486M. Although unlikely as Codelco's natural fit is Chagres, with their smelter division and need to create value in their own offering/assets.  AAL (management) could just be forced to take fire sale prices to appease their shareholders. 

Other analysts and reporters suggest the Mantos Blancos and Mantoverde mines won't achieve anywhere near the $1B hoped and there's an offer by Glencore and X2 Resources around $500M. Any expectations of a value of near $1B save for some 'wannabe' conglomerate, are unlikely to become a reality. Although the wildcard goes to GKR Corporation, whom may come through as a strong contender, being well financed and having not completed a deal for near 12 months. 

GKR purchased the Navachab Gold Mine in Namibia from AngloGold Ashanti in June 14. Not necessarily the best timed purchase, and minor in the grand scheme of things. Mantos Blancos and Mantoverde mines, as well as its 50.1% stakes in El Soldado mine, may have economies of scale for GKR and certainly fit their remit. Over to the Qatari advisors!

Is the time right to buy Anglo? Perhaps as pressure mounts, although the South African issues cannot be ignored nor can the likely hit on the bottom line by divesting such assets into a separate entity. AAL must now be considering a perfume dowry of financing to cover up the quality of the South African assets and lack of returns.  Sound familiar? South32? Whom managed to obtain funding lower than Rio's! 

AAL is perhaps a buy as its near the target of 905 pence, being near or thereabouts, there's limited downside for the shorts, neutral perhaps or knife catcher. Certainly not short from now until further news. 

Paragon Diamonds (PRG) announced 'debt financing' to commence a share buyback programme and "to support short term working capital requirements" whilst the Company progresses the acquisition of the Mothae Diamond Project in Lesotho from Lucara Diamond Corporation (the “Mothae Acquisition”) which was announced on 5 May 2015. 

It begs the question of the sensibility of such an arrangement, when PRG are starved of cash and could only raise £130K in March. Over to International Triangle General Trading LLC whom control the shots. Perhaps its more to fund the flights to and from Lesotho whilst creating a squeeze in the stock to get another placing away post the Mothae acquisition? Who knows...in the absence of news, the price is about right. 

The cost of such a deal me simply outweighs the benefits to shareholders of a modest increase in SP, and one would be wise to factor in a few risks in this type of irrational corporate action. Surely if the company has prospects and potential the market will rate this on results "not" hopes. With the expense of borrowing, warrants and costs, why this was done now is bemusing!

Atb Fraser

Morning Mumble: Chaarat Gold Holdings (CGH)...SXX + AMEC

Good Morning, 

Chaarat Gold Holdings (CGH) preliminary results are out. With 9 months since CGH last spiked and an overriding sell (EMC CGH Sept 2014), CGH is looking more positive. If the market is capable of accepting the fact CGH's assets are in Kyrgyz Republic and the Chinese connection risks, then things are starting to look positive. 

With sufficient cash to complete the DFS (Definitive Feasibility Study) that is due very soon. It’s a case of what the shareholders will end up with, as the entire project is likely to be funded/developed utilising Chinese companies. This includes their 9% shareholder China Nonferrous Int'l Mining Co. (also involved in the DFS). 

CGH have a JORC of just shy of 6.1m Ounces, (6.096m/oz.) when "various" mining methods are applied to maximise the project, with the bulk being measured and indicated within the high grade ore, circa 4.6m/oz's. 

The suggested economics, assuming the Kyrgyz Republic don't pull another fast one, are starting to stack up. CGH have secured an extension to the power supply quota, where the cost of power is less than 3¢/kwh. To put this in perspective, the UK is averaging 15¢/kwh with South Africa (to the miners’ detriment) at around 13¢/kwh. 

It’s noted CGH have now removed the additional expense for a tunnel (at least for the first 10 years anyway). One shall await the DFS but at 10-11 pence, assuming a conservative valuation of the measured and indicated + cash, it’s got better appeal than 9 months ago! Will 2015 be “a milestone year for Chaarat." It’s wise to consider Centerra Gold's technical report (TSX: CG)

A quick thought goes to Sirius Minerals (SXX). The North York Moors National Park Authority environmental consultant report Amec Foster Wheeler. Will they agree, diary date of 30 June 2015 NYM Site

More perhaps later, very busy morning! 

Atb Fraser

Morning Mumble: Sirius Minerals (pointing out the obvious) and...Iron Ore + Are ORM getting FORM?

Good Morning, 

Not connected with the title, we'll side step the busy schedule yesterday that resulted in a faux pas by yours truly. When discussing another company that was appropriately labelled crap, its wise to consider people’s connection or association with said crap (or more so, do homework beforehand). After that momentary silence, perhaps realism on their part, things did improve. 

Sirius Minerals (SXX) appears to have more leaks that Horse Hill, readers of the Whitby Gazette will be aware of the local news of 'likely approval.' On top of that, Roger bade informs us that the "North York Moors National Park (NYMNPA) Director of Planning recommending for approval North Yorkshire Council’s proposed park and ride scheme near Whitby; 180 of the spaces are dedicated for York Potash. Now you can’t have a park and ride for a mine without having that mine as well, can you?" 

With the obvious needs of the capital requirements of a mine, SXX has the benefit of a stable geopolitical environment, and save for any elected party member getting a bee in the bonnet. SXX is not a case of rubber stamping, but procedural meddling. SXX has a high chance of a positive outcome for the company and perhaps the equity holders. 

The market would be wise not to be over-expectant on SXX's timelines, but more importantly, having been a buyer, its wise to acknowledge the risk of potential dilution. This is one of a few companies where there's a willing cooperation and acknowledgement of dilution. Equityholders should be open to dilution, SXX, subject to the low risk possibility that would be highly damaging to any value if the mining application was refused, has the potential of a great future.

Obviously there is a risk of a 'nearby mine' meddling in the process, one that shouldn't be ignore. The board of Cleveland Potash would be wise to consider they live in a glass house. If the aged memory is correct Shaft Sinkers had the contract for Cleveland Potash, how things change. 

With things hotting up in Columbia, Red Rocks sale of Columbian gold mine, should be a welcome reduction in security costs at a local level. One cannot help but wonder what the risks are of default of payments are by Colombia Milling Limited (CML). The company isn't so diverse or large enough to be enticing for a balanced investment. Its one that falls into the very high/blind punt areas of investments. The company may have assets, however as most are feeling, save for lithium and a few rare earth minerals being flavour of the year, there's a continual pressure on funding. 

Yesterday, a chap spent significant time looking at the costs of production for AIM companies, there's commodity price expectations (and subsequent) returns that are simply unrealistic in the short-to-mid-term. We'll save naming and shaming for the time being and wait for a better opportunity, however readers will be aware of EMC views on specific companies. 

Iron Ore allegedly bounced on stockpiles reducing. Its rare to entirely disagree with news, but what utter hogwash, Iron ore rallies on China inventory fall. Stocks are still high in China, the reaction was the result of two entities buying in the market as a result of their supply agreements coming to an end suddenly. 

The market would be wise to check assertions from time to time, including the EMC. So from Li, (many thanks) this morning. “China's ports are still holding high levels of iron ore, even [with] steel mill[s] restocking. Inventories [continue] to remain high. Market orders are slowing near [as quick] as the supply is reducing from the market. With demand in China continuing to slow iron ore [is] piled up at Chinese ports” 

Connemara Mining obtained five new prospecting licenses that are apparently on trend with other operators in the area. Fundraiser anyone? Not a stock that's been covered, but with rises like this, the company would be wise to jump on sentiment and get some cash as the coffers as they must be near dry! In the absence of some decent news and lack of borrow, CON won't be covered any time soon. 

For the vanadium followers, Evraz's equity value in Highveld Steel and Vanadium may need revisiting. This does not bode well for Kenmare (KMR) or Sierra Rutile's (SRX) outlook, are Highveld one of the distressed sellers in the market? 

Whatever is happening at Ormonde Mining (ORM) is anyone's guess. Almonty Industries Inc (TSX-V : AII) do not appear to have engaged in the process or perhaps they are keeping their powder dry. ORM update on the Barruecopardo Project Financing, with absolutely no information contained within it. Simply put, in the absence of Almonty coming up with some of the goods, Oaktree will acquire an asset for a song, ORM will retain some 'sort' of management fee, and equity-holders are at risk of having little if any value. 

Over to ORM, "Very significant progress has been made during the exclusivity period, and the parties are expected to be in a position to finalise agreements shortly. A further announcement will be made in due course." Very significant? Well that would be open to interpretation, how this is considered material news in the absence of specifics is of "concern". Does the NOMAD consider the omission of the material facts of progress satisfactory?  

Limited time for Anglo Asian Mining's (AAZ) update, with positives across the board, increased production (floatation plant due online Q3 (possibly Q4), running down inventories (sales exceeding production) and production in line. The disappointment is there's no guidance on cash costs, leaving one to throw a dart at costs.

It would have been nice to have some guidance on all in cash costs as a result of material movements in energy costs (fuel) and heap leaching costs coming down near 20% in the six months. Quick calculations suggest AAZ's costs should be around $945/oz, although this has a significant margin for error, circa 10%. With the repayment of debt going as planned, AAZ can ill-afford any hiccups, with around $0.5M cash at hand there's little margin for error.

Atb Fraser