Morning Mumble (Via Email): Indian Taxation (cost savings), VED+CNE, Polyus Gold (PGIL) not quite what it seems, S'ard Africa and the bets!

Good Morning,

Being dressed very conservatively "autumn warm", with a sense of decency and propriety (as per invite), and with the compulsory braces and hip-flask just in case service slows down, it was rude not to check on the state of the market. Autumn warm? Who writes these things!

Yesterday, Vedanta got slapped with a tax demand. Can Vedanta make a joint claim against India? Unlikely, but it would be wise for VED and Cairn Energy to collaborate and really stick it to the India Tax authorities. They must surely be aware of the damage it is doing to FDI* in India. VED just aren't having a good time of it!

We'll ignore the obvious from Polyus Gold (PGIL) where those with a basic maths qualification can see the obvious in their annual accounts. Afren's coming has happened today, with the term, highly dilutive to existing shareholders summing things up. 

There's rumour's coming up out Republic of South Africa (RSA) that the banks are putting pressure on Lonmin putting the cap around for $500M post Glencore divestment. With common-sense prevailing, Lonmin's Furnaces need some long-term work, their capex expenditure can be pared back to some degree but there's a lot of $ to sink yet. Expect news in due course...Some decent analysts suggest it's as low as $300M. 

The going today is good to soft, having bet the ranch on Road to Riches ridden by Bryan Cooper today. Noel Meade wants the win more than the Grand National, the horse will obviously have the final say. With all the confidence in the world, it’s rude not to back AP McCoy's last attempt, Carlingford Lough as well. 

Atb Fraser

* Foreign Direct Investment

PM Bolt On: Kingfisher (KGF) read across from HOME (Homebase specifically), + Hippo's sweets.

Good Evening,

A long day, and limited time for any thoughts tomorrow as its Cheltenham Gold Cup and tardiness is not allowed. We have Indiana (Ian) heading back to honour us with his company for the weekend +2 days, as he never replies to text at least he can read here that Hippo's sweetie is stuck the vent of his car.

Some thoughts on the train home, with Kingfisher’s (KGF) preliminary results due on the 31st of this month, with Homebase's performance not instilling much in the way of confidence for KGF. 

France, as a country, has struggled to achieve anywhere near the 2% EuroZone target and is now in deflation.  The outlook for retail including DIY and building projects isn't positive as a result of the deflationary pressures. 

Psychologically, we as the consumers (surprisingly the same in France) delay purchases (especially significant purchases) for longer when in a deflationary environment, in the hope goods or services will become cheaper. Last November, Kingfisher's French Castorama and Brico Dépôt sales declined adding to an overall 11.8% fall in profits to £225m. The cause was clearly weak consumer confidence in France (and Europe) and adverse currency moves, which have continued through to January 2015. 

More recently, France had a 0.4% decline in annualised prices in January (released March 2015). This previously occurred after the financial crisis in 2009/2010 where the French economy slipped into deflation (notably margin pressure from consumers), so the read across for the economy does not bode well in the short-term. 

Kingfisher's bottom line will be under-pressure not only by the currency strength of the pound (in reporting terms) but France's weakness in addition to the retail outlook in Germany, Poland, Portugal, Romania and Russia (Ruble watch out) along with their margins. Fools bet against buybacks of considerable size, however Kingfisher are likely to cap their price in the coming weeks. Save for some short-term momentum in the SP by the closing of the B&Q China deal for £140M.

The market should rightly be cautious about KGF performance, excluding the UK & Ireland revenue being marginally better (circa 2%). Kingfisher is logically up on the share buyback and special dividend. One will be very surprised if anything within KGF operations has been outstanding above and beyond the known. Screwfix will most likely be the shining star and still cannibalising the margins over at B&Q. 

With the buyback continuing for some time and being in the market for circa  5-8% of the stock most days, its not rocket science to know which way the stock was going. The news on the 31st March should change sentiment, save for speculation of the PE boys liking KGF cashflow and business model its hard to justify a target price of 270 excluding B&Q China special dividend of 6 pence. One wouldn't rule out The Home Depot lining up Kingfisher, but speculation is short lived in the absence of news. 

Whilst reviewing KGF, there was a fatal flaw in KGF operations, that not only did the man from Halfords (Matt Davies) identify in his strategy at Halfords, but changed the entire direction of the company. Having mused the possibilities of KGF, it was wise to close the last of the KGF longs today. (The prize for identifying the flaw is a pair of socks).

Atb Fraser

Dairy date of interest: PLUS500 (PLUS) Ex-dividend and special dividend date. 

Morming Mumble: APF's Largo Resources Royalty + ANTO's $25M Whoopsie (small change), Serco Group (D'err), Glen-shrewd, Soco (SIA), DOR, and GKPence + ASOS savvy traders!

Good Morning,

Anglo Pacific (APF) completed on the Narrabri Royalty Acquisition yesterday without updating its shareholders on the Largo Resources (TSX: LGO) refinancing. Just so those TSX: LGO holders are aware of the risks, there is a 20% coupon  bearing down on them via the Canadian $12-Million Convertible Bridge Loan. One hopes there's light at the end of the tunnel and not a train!

EMC was near as damn it on the money with the $CDN12M raised so far and a proposal to raise a further $CDN40M; with the likelihood of a little more cash being put up. Had APF waited and conducted a sensible deal, they would have got more bang for their buck, although historically speaking, it's hard to say when they have timed any purchases well, see share price. 

Antofagasta (ANTO) have resolved the Los Pelambres issue with their cheque book and proposals for desalination for any expansion at Pelambres, plus funding a few items. Rather contradicts ANTO's statements in their first protest announcement about "a small group who do not necessarily represent the valley community." ANTO's statement caused a 'ramping up' not in production, but of protesting, costing ANTO circa 3K tonnes more of lost copper production, circa $25M worth. Whoops!

ANTO didn't think through their statements treating natives that way, especially those with some degree of education and an internet connection! ANTO would be wise to appoint a local representative/diplomat to Les Pelambres to listen to concerns and establish a social fund to assist those directly affected. The desalination plant (the future of most mining ops in Chile) for expansion impacts on costs, with some estimates being near 50 cents a pound on production. One hasn't worked through this yet, but it gives an indication of the struggles. 

We need a fanfare, it appears that Glencore has conducted a decent deal with Russneft (FT), not to be confused with Rosneft, whom they have a crude supply contract (circa 2013) and a prepayment facility of $10B circa 2014. 

What next for GLEN? GLENseft? Contary to the article Russneft only produce 13.9m tons of crude oil or for the old school, multiply that by around 7.1475121 to equate to barrels (pending gravity at 99.35041819M/bbl per annum). 

The deal is very good for GLEN, even allowing for the $900M exchange of debt and current outlook. The benefit being it gives Russneft some breathing space and allows change to be conducted purposefully. One wonders who next for 'West Africa.'

Having been in dialogue with ex-employee of a gold company, I am flabbergasted to learn what lengths companies will go to manipulate assay results and production when they are looking for finance. If the statements eventually prove correct, I'll endeavour to publish in full. No underwriting required, but for those knee-tremblers, do not worry this company has already gone to the wall, the creditors might not be so pleased however.

For those novice shorters out there, where every many and his dog should have been short on Serco Group (SRP), 10 November 2014 since the update on strategy, capital structure and trading at least until January 2015 and certainly into these results for a double up. SRP have managed to get a fully-underwritten rights issue away. At one stage holding SRP shares were long for the recovery and this proved misguided, with further warnings, shorting was the only answer.  

A few more hit the Christmas card list, Soco International (SIA) preliminary results reading a a candidate for contradiction to their update in January. Having risen 20%+ on the back of their last trading update in January, there was little upside to the stock. TGT drilling programme will be scaled back and the flow rates at TGT/H5 being conservative, all has aided to kick the SP. Don't we have Enquest reporting soon? 

With absolutely NO SURPRISE, we have Doriemus Plc (DOR) have conducted a placing. A member of the Horse Hill contingent, but more importantly, one would be wise to read the RNS properly. Over to DOR to explain I've underlined the irony of the part of the statement:

This funding will be used to strengthen the Company's balance sheet and used towards further farm-ins and other potential investments within the UK conventional oil and gas sector, and in accordance with the Company's stated investment strategy."

Donald Strang, the Company's Chairman, commented:

"This new funding will be put towards general working capital, expected 2015 contributions for on-going work on the Horse Hill discovery and for assessing further acquisitions in the UK and European oil and gas sector.

For the candidates in denial of the risks with Gulf Keystone (GKP). They have called a meeting of bondholders, to remove the "Book Equity Ratio ("BER") Put Option of 0.4 in order to strengthen the Company's ability to negotiate with the interested parties regarding the Corporate Actions." 

Now if you were a bondholder...save for something promised in return, what would you do? Would you really buy the stock now or the bonds? The latter certainly has more security over it, perhaps those followers would be wise to follow the trades in the bond rather than the stock from now? Sounds like the low ball, was indeed, very low-ball!

One hopes decorum and limited profanity from a certain party will be kept after selling the last block!:-). Hat tip to the trades pilling into ASOS on the back of BOOHOO yesterday, sadly one can't be everywhere all of the time! 

ITV acquired  Talpa Media (Big Brother creators), that is good for both parties. Were ITV playing poker with Entertainment One (ETO) or looking to acquire both. If the reports/gossips of a deal with Entertainment One were correct, then its unlikely (without more debt) that they could fund any such deal in the near future, one of ETO's size anyway, over to a US Big boy! 

Atb Fraser

Any web-designers with spare time please contact! Having now been let down by three parties, despite paying, I'm after a freebie! 

Morning Mumble: Ormonde Mining (ORM) with a caveat of risks associated with trading on Gossip,

Ormonde Mining PLC (ORM) have allegedly received an offer (no cash folks) that equates to 1 Almonty Industries (TSX-V: AII) share for every ten ORM shares. Logical, would/should the management of ORM like to update their shareholders?? Whoops! 

Seems a bit rich but willing to be wrong, considering all the same, perhaps the market knows more. Do AII see more value than the market at circa 3.5-3.75 pence pending how you do the maths? Over to Oaktree whom won't be happy having their party crashed. Could there have been a bit of egg on the face of certain individuals? 

Atb Fraser

Morning Mumble: Kenmare (KMR), Chinese car manufacturing and the Copper Giant's misguided belief about demand + SXX, Cairn (CNR) ++ ORM's spanner in the works for management!

Good Morning, 

Kenmare today confirmed the EMC view that operations should have only been nine months of the year. KMR Operations Update confirmed "the effect of the power outage will be mitigated due to the significant levels of ilmenite product inventories on hand. The Company has recently secured additional off-take volumes with a new ilmenite customer for the product that makes up the bulk of the inventories on hand at Moma." For the punts in at circa 2-3 pence, things might just be improving enough or Iluka Resources to finalise all the due diligence conducted so far. 

The FT inform us of that the fate of copper hinges on Chinese demand. The EMC ran with looking further east for copper demand, to Japan and America. What the traders are currently missing is the absence of speculation in copper for China at the moment. 

Demand and restocking is occurring post Chinese New Year and with better stock management, stocks are not being filled without consideration for the market. Li's quote of the day is, "they're learning how to trade and restock" without contracting supplies sufficiently to spike the prices. 

With China adopting a sensible approach to any stimulus and resetting market expectations by lowering the GDP to around 7%, the market cannot justify the speculation. So far, none of it has worked, with the supply of housing at all-time highs, one wonders why the prices aren't declining more. 

Li, has had a couple of dinners recently, despite piling on the pounds post Chinese New Year has found Chinese property prices are declining further. His opportunity surveys of up and coming professionals is threefold, wage to loan ratios (affordability), wage stagnation (and unemployment risks) and most importantly of all, delayed purchases on the basis there's too much of an offering and limited bargains. 

The FT copper article suggests the funds short on copper on the "Shanghai Futures Exchange show that the same funds have not reduced their short positions following the end of the new year holiday." With growing speculation in Japan and America, one would be unwise to take the foot off the pedal in Shanghai until your full game has been unwound. Apologies for the lack of city speak of the hedges in the purchase of physical metal (the longs) that the same funds are making at the moment. 

What the city and those sent musketeer-like to ascertain the demand for copper is the planned "build out of the electricity grid" isn't on the scales that have previously been guided nor is it likely to be. China is accepting growth and over-capacity. The grid was in part dependent on the growth in housing and 'urbanisation'. If housing is stalling, with factories demand erratic and exports under-pressure slightly (via shipping figures), the outlook for growth in copper demand is going to be down on the current expectations. 

The outlook is for growth, however, limited on the expectations of the likes of Glencore and Rio. With a high-users finding demand visibility harder to predict, most are electing to avoid longer-term contracts where they have been previously punished or locked in at a significant higher prices. Just in time...

Car factories, one might be wise to check the number of car factories in China and the absolute over-capacity in car manufacturing. For those simple like myself, a brief statistic is there were 125 car factories (plants) in China 2014 running at 90% capacity and by 2017 there will be 148 factories (EMC:Li based on current intended use). So with over-capacity, car manufacturers would be wise to factor in a significant pressure on margins. With every manufacturer hugging the same space of Chinese growth, over-supply, margin contraction and dwindling growth in sales are going to be a common news item. 

Sirius Minerals (SXX), placing and warrant extension, SXX would be wise to attempt to cover near £28M to avoid the need for further funds in the short-term. The placing is likely to be the cap now until such time as the approvals are in place. Ten percent discount to the price in light of the potential is somewhat of an insult, then again, it's not selling a placing nowadays it’s called giving away. 

Thanks to Roger, Allied Nevada Gold Files for Chapter 11 Bankruptcy Protection. and Ormonde Mining (ORM) watch, Canada-based Almonty Industries proposes to acquire Ormonde Mining, has to be better than the other?!?! Over to the shareholders but putting a spanner in the works of certain management?

Limited time to cover the aluminium (AL) woes (testing significant levels of support), EMC considers the weakness in AL as a contradiction to some sectors of growth.. The gossip of Nevsun's (TSX: ANV), most recent potential acquisition. Cairn speculation upon us as the market digs in to the realities of the tax demands, orphans and widows need not apply. One hopes the speculators with some waterproof shorts managed to lump in on the short! 

Atb Fraser

Atlas Iron didn't drop overnight and is still 15 Aussie cents. 

PM Bolt On: Lonmin & Connaughty

Good Afternoon,

The market has finally woken up to the large short courtesy of  Glencore (GLEN) with a drop of near 40% drop in any LMI value that was there. LMI at this rate will be a penny dreadful. Today, LMI has hit the target price for EMC to close short positions and review. EMC LMI GLEN Short. One expects photos of certain analysts eating their hats as the price went sub 115 pence!

Connaughty (poor I know) FCA statement (Connaught Statement). and finally, something useful for even the most savvy of analysts getting the country of operations wrong. Listed AIM Companies main country of operation and incorporation (LSE)

Atb Fraser.

Morning Mumble: The Drought with ANTO and SQM, Largo + APF and Allied Minds, + IGAS/INEOS

Good Morning,

With a growing discontent in Chile over the drought, the press are awakening to the idea it's not good for Chilean copper production, more so the natives. Yesterday EMC reported on the protests at Antofagasta's (ANTO) Los Pelambres. For those needing to the geographical model, Chile Copper Mines. 

It was asserted that, "The protests were triggered by a small group who do not necessarily represent the valley community and are seeking action by Pelambres and the local government to help alleviate the current drought conditions. Discussions regarding water availability have been proceeding for some time with the intention of establishing a lasting solution." Yet today, almost entirely contradicting that statement is the court ruling against Los Pelambres (ANTO subsidiary) we’re notified of issues regarding the Pupío stream flowing through Los Pelambres. 

The majority of miners in Chile are suffering, those myopic iodine speculators will still be focussed on SQM's iodine production, will be well versed in the problematic history of security of water supply. The sector is not without its issues of corruption and the legal system / prosecutors are starting to pay attention. 

A few families control 50% of all mining interests in Chile (read being perceived to be above the law), with growing resentment from the locals. Not only brought on by a perception of greed but increase belief that profit comes above all else, the 'stream' at Los Pelambres being a prime example.

With various other options available to the miners including a sea water pipeline (at cost) and not necessarily viable at the current prices, it's going to be a difficult situation to manage. The blame is placed firmly at the door of El Niño (a rather large swelling amount of warm water in the eastern tropical Pacific ocean), although the miners get the pain/blame by the locals. 

APF (Anglo Pacific) still do not appear to have updated the market on the Largo Resources (TSX: LGO) refinancing issues. If these end negatively (although unlikely) could have a material impact on the royalty.  Largo emailed out the corporate update last night in respect of its Maracás Menchen Mine and announced the appointment of Mr. Mark A. Smith as its new Chief Executive Officer. 

Basic maths suggests TSX: LGO needs $60M (CDN), with Mark at the helm financing should come easy for those old-timers of Molycorp and more recently NioCorp (Niobium at Elk Creek). Perhaps on the 25 March, Anglo Pacific (APF) will give some indication of their knowledge. Based on their share price performance since, 2011/12 it doesn't bode well.

Shorts were scambling to cover on Allied Minds (ALM) this morning. Those betting on sentiment should be more short-term, with the announcement of BridgeSat costing some profits. BridgeSat intends to develop optical connectivity system that aims to increase the speed, security and efficiency of data transmissions from low Earth orbit (LEO) satellites at a reduced cost compared with traditional radio frequency solutions. 

Igas Energy (IGAS) finally came forward with the long-awaited UK Shale Farm out Agreement with INEOS. The figures aren't bad at all for both parties, the Swiss Chemical Group (INEOS) get to fund some decent acreage with Igas getting some much needed cash, and carry. The market, perhaps, should have reacted better to a deal worth £65M, alas there's no pleasing some people. 

The news is sufficient to find even the negative of investors now reconsidering. The large bets (EMC) causing some drop as they take short-term 30% gains in six weeks, perhaps they might just leave some skin in the game. 

Leggie, Cairn Energy out today! 

Atb Fraser