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

Morning Mumble: Greek Poker Clap-O-Meter, New Palm Oil or Napalm for Noble...???

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?

Belated Morning Mumble & PM Bolt On: Shaft'ed (SHFT), AAL something's lacking in the sandwich & AHhhhhhhhh'fren + the Alleged amateur of aim...+the paradigm shift in China's iron ore.

Good Evening, 

With Indaba and a few other items going on it’s been extremely busy week with meetings and teleconferencing from the UK. Today a slide show was emailed around with myself to be "formerly" known as the Amateur of AIM. It’s a pleasure to drink their gin this evening, but restricting the consumption to a few rather than two cases (apology accepted). 

Shaft Sinkers (SHFT) hit the wall with a financing update at 12:32, just a few weeks after a "yoff" (read as person younger than I in a position I'd have loved when I was his age) challenged the EMC analysis of the company and why it hadn't gone bust!?! SHFT is dogged with its inability to share the risks of contracting with the miners, creating an imbalance in returns and something contractors need to learn (mail box for a quote to understand this; its not cheap!). 

SHFT's issues were endemic of commodity prices declining (receding super-cycle), opex/capex cuts, the South African strikes whilst not forgetting the Kazakhstan contacts were totally misunderstood by the market and lack of risk sharing in contracting. It was one of the favoured shorts, kick the dogs. The employees and staff should be ok, it would be wise for investors to note a few key names from the board in their journal for future reference.

Anglo American (AAL) Full Year Results 2014 is/was abysmal. The write-down on Minas-Rio of $3.5 billion is laughable when the company state Minas -Rio is ahead of schedule in October [2014] and expect to bring the project in $400 million below the revised budget. Do the company have a handle on costs at all? Revising costs up, then coming in significantly below the revised budget. Sounds pretty much like a blank cheque. 

The savvy will start questioning whether AAL's net debt target of $12B is realistic in the current environment. With debt set to peak at $15.5 billion (EMC estimates) by end of year, commodities and free cashflow are going to have to significantly improve before one becomes positive on this stock. De Beers should be called Long32 (to mimic BLT's short32/south32) and be divested to support the balance sheet whilst there's value in the market. The market stupidly reacted today, and will ignore the realities. Up near 20% off its lows anyone would be thinking it’s going great guns. 

Afren (AFR) has had a lot of rumours abound today, as per FTML it was proven to be BS, save for the low ball offer that SEPLAT (SEPL) were offering. Afren shot out the gate with little option to maintain but to maintain there's value, with offer talks being terminated. SEPL announcing they had completed extensive due diligence on Afren and made a written proposal to the Board of Afren that provided critical and significant near-term liquidity and value for the stakeholders of Afren. Value for stakeholders...loose term for "not the shareholders"? 

It would appear David Lenigas has started a snowball on Bacanora Minerals (BCN) after the recent request to gain a seat on the board via REM (Rare Earth Minerals). A decent holder said today, they'll reconsider the viability of BCN if David Lenigas gains a seat on the board. Voters would be wise to think where their money is best placed. There's a number of items going on the side lines with BCN and good to follow as the big boys (exc. REM) start to play...its best to leave that one there, however if you're widow(er) or orphan you'd be advised to avoid.

With oil's absolute focus on rig counts it’s a speculators licence to print money as oil was propelled above $60/bbl (Brent) with the Euro-zone giving it a little squirt. Why it's rocketing away is purely down to a bounce with the surplus even allowing for a reduction in production still out gunning demand. The market is rushing to price in a reducing rig count, some "weather issues" (as Malcy eluded to in his blog) creating a better balance. 

The final thought of the weak (scuse the pun) is the iron ore short and the Vale gaining permission to utilise their giant ore carriers to China on Monday. Obviously this has nothing to do with some agreements with Cosco (China Ocean Shipping Group) and the related transactions. 

It’s rare to be able to quote EMC directly, so here's with a little clip from today:

"If China subsidises native production by 30$ a tonne for 125mt it effectively causes over supply and a short to $55/t. The subsidy via development grants will be partially offset by the 700mt at the lower price.  

China have just shorted Rio and BLT by allowing the super ore carriers in on Monday (9th) something Rio et al forgot to mention in their updates! Expect Cosco (China Merchants Energy Shipping state owned), to get further involved in the low cost super/giant carriers the deal with Vale from last year showing they're willing to apply pressure on Australia . The deal with Vale/Brazil has in essence reduced the need for 30% of Australian ore alternatively they [Rio et al] must slash prices.”

We'll leave it there...see you on Monday! 

Atb Fraser

Morning Mumble: Contrarian Gold & CU were told...+ Ahhh'fren + AO. World + SHFT

Good Morning, a fab weekend thank you!

Delays because of an earlier than planned phone conference as people appear to not know the UK is in a different time zone than Switzerland. You are forgiven, this once!

Copper hit a past low, pending one whom you listen to this is a 4 1/2 to 5 1/2 years. All "blamed" on the lack of Chinese Stimulus and Strong U$D. Read in conjunction with EMC Friday is here...Oil will be grateful & Copper lowering demand higher levels of "fire sale" inventory and China’s factory-gate prices tanked. The leverage or lack of, save for the provision by what the Chinese (Government) banks wish to provide now, is impacting on the copper market. 

The issues aside of this, as reported by most being that the German industrial production fell unexpectedly. If it was an unforeseen event, then the consensus should have read the August figures for Germany Industrial Production (GRIPIMOM) in August weren't these an indicator of a cycle? Blomberg ran: German Industrial Output Drops Most Since 2009. 

With futures dropping to $2.755/lb and the absence of positive speculation the trend is set. Historically if oil is setting news lows and tests historic support levels then perhaps copper's chances of Circa $2.5/lb are becoming a real risk. 

The oil cycle, inconsistent data from America in terms of wage growth (or lack of) and lack of new stimulus from China is creating inconsistent moves in Gold. Gold ran up to $1230/oz. slipping a tad to circa $1224/oz. In the absence of any change in the news global there is no reason for Gold to be trending so high. All deflationary indicators are kicking in (the above) with oil being the start of the cycle of lower costs (exc. for OPEC intervention).

Afren (AFR) today came back with a kicking for shareholders with the update on Barda Rash, Kurdistan region of Iraq far from the news the market was expecting. It doesn't bode well for any negotiations for the business as there was a belief of significant upside in Barda Rash. Will this impact on the offer? Hmmm...In fact save for a significantly discounted offer, will there be one! At the current SP its hard to find little value above the current price for equity holders and if oil deteriorates further, there's a potential default (nil value for shareholders). 

AO World (AO.) third quarter trading statement pleased the market today...one shall bide my time there for the next run! At a silly level of future earnings (even today) there's little room for mistakes from AO. 

The leaky ship award goes to Quindell (QPP) and the its only a moment of time award goes to shaft sinkers (SHFT). There's some rumours out of South Africa that certain mining companies are going to provide finance. Over to Impala, ENRC (Via KazChrome) and a few others to decide on the fate...shareholders shouldn't expect too much. From 2012 the writing on the wall has not been good for Shaft Sinkers, a casualty where the equitable risks to projects should have been considered in greater depth (I know bad pun). One will expect a nice apology from a certain group regarding the outcome for Shaft Sinkers. For a quote from a "professional"...your view of shft is misguided if it ever hits 5 pence there will be something very wrong. I wonder what said person thinks to tuppence give or take a few?

With Brent at $48.84/bbl...expect some carnage in the sector. With a timely reminder that Iron Ore dropping subs $70/t, there were no surprises to the casualties. On the Atlas Iron (ASX:AGO) front they were being punished as a result. One hopes they banked significant profits...

Atb Fraser

(Edited/Proof-read as I had a little more time to correct basic errors this mornings was in a significant rush apologies.) Original here: Unedited