PM Bolt On: Syrah Resources (SYR), Harvey Norman,

Good Evening,

We'll call this the Australian focus.

In my determination, I'm getting back into the 'blogging', albeit not as prolific as yesteryear, but also an Australian Theme, as that what interests me at the moment; save of course for my WPP thesis.

I'll start off with Syrah Resources (ASX:SYR), I've been short there for some considerable time, based on a my views below:

1)    A sub-tier asset, with certain questions over the viability of the development. A major element is, “how can you mix Graphite with unspecified levels of Uranium and still be viable?” Perhaps I'm missing something within the company agenda? Feel free to voice it if you think I am off the radar.

2)    Remember, first and foremost, Syrah's asset, Balama was only acquired after a number of attempts at proving up a substantial Uranium deposit. These attempts were disappointing to say the least. This doesn't mean it had no Uranium, more so the levels are/were uneconomic. I’ll maybe come back to what a battery specialist was educating me on recently.

3)    After the last Sales and Marketing Investor Session, there appears to be a lot of hope being put forward. For those unaware or perhaps not following, the Graphite Export Tax has been removed in China. Source: http://benchmarkminerals.com/china-begins-graphite-overhaul/

4)    The capacity in China should not be ignored and elsewhere in the world, perhaps some closer to home than Syrah give credit for, such as Triton; a quick refresher of the Triton Minerals presentation (2017). There's high grade in the region, predominantly reliant upon by the flame retardant industry and not the battery industry (my view again)

5)    Whatever happened to SYR’s promises of a US plant, not only is the balance sheet, in my view, incapable of accommodating such an expansion, SYR have switched to an Asia focus and,…in my view still needing capital. So, assuming I’m correct, the 'dreams' of being a Tesla ‘major’ supplier, are out the window too? I think so. The new CEO might have more abilities than the last, but only time will measure that.

6)    The price assumptions and cash flow of Syrah simply don't stack up either, I'd got as far to say totally unachievable, but being the 'amateur' here, what do I know. My estimates of the balance sheet is Syrah will need further cash towards the end of the plant development  in Mozambique (save for a prepayment deal). Admittedly for those in the last placing, at least they'll be able to average down. For those short, it at least improves the liquidity.

Nevermind, I’ll revisit after the next set of news. By my estimates its not far off…

On to Harvey Norman (HVN), apologies for the Australian focus, having been rather centered there recently, it cannot be avoided. My largest short for many a year is Harvey Norman, purely on the basis the rebate model and Franchise support is out the Window. 

For the HVN lawyers, this is my view, not determined just by company statements but importantly, investigating how the support model has shifted. The company has to consolidate the Franchisees’ account and importantly has to deal with an AISC enquiry relating to some ‘issues’. https://www.channelnews.com.au/asic-investigating-failed-harvey-norman-franchisee-operations/

Then again what do I know? More to come...

Atb Fraser

Morning Mumble: Bowleven, a little Lonmin, the Caterpillar & WPP (Belatedly)

Good Afternoon,  Good Evening, its been so long I forgot to click publish.

Some tiddler octane both in the board room and stocks volatility, the occasional police raid, with Global Advertising expectations easing.

Bowleven, at around the current price (c.34) there's potential, sadly the management appears to have done very little to progress things for stockholders in my view. It’s bizarre that statements appear in the FT from the likes of New Age's Steve Lowden, "who he can’t actually remember the last time he even had contact with Bowleven." See: Bowleven, the former exploration and production company. Perhaps someone should ask BLVN board about their progressive and dynamic approach to its assets, seeing as Steve Lowden's comments raise a serious question.

The management's lack of ability to monetize the project for shareholders is very difficult to measure, especially if you base the share price in comparison to the remuneration of Directors, I'd go as far to say its appalling. The board appears to have commissioned supposed independent reports, enthusiastically recommending all the resolutions are voted against. Perhaps these reports should also disclose if and what fee the company has paid them. The cost of this defence, including promoted Tweets on Twitter, is appalling and lacks the substance even smaller companies are able to achieve. A quick glance at Ascent Resources (AST) and Victoria Oil & Gas, proves this, albeit I have zero interest in the latter having taken decent profits.

Those holding for some time will be aware of the glossy promotion that has come through the door. Additional items include Institutional Shareholder Services, Inc. (ISS), the leading corporate governance and proxy advisory firm, and Pensions & Investment Research Consultants Ltd (PIRC), and further waffle from, Glass Lewis. Save for the PIRC throwing Philip Tracy under the bus for some reason or other, it's vote against every resolution.

The board had ample time to do something, with a lot of activity happening around the Etinde license, and the potential of funds getting more actively involved in the neighbourhood, to me the board are lacking any credible defence.

Simply, Crown Ocean Capital P1 Ltd (unfortunately abbreviated) are right, perhaps the cash return needs to be reconsidered, but there's potential with a new Board to establish and progress things. There may even be a few more changes post a successful change in the company!

Lonmin, (having traded it a few times) where according to the gossip out in South Africa is contradictory to the share price movements. Admittedly they have a few staff 'communication' and cost issues, but the M&A in South Africa for large projects is far from finished. Sibanye decided to acquire stillwater mining company for $2.2 billion, instead of LMI.  

Will Sibanye be back at the table having been so close? One suspects so. Plenty discussed in various papers about this and the recent public walk away by Sibanye to complete on Stillwater Mining. Perhaps they'll be back, however with a fairly decent platinum price ($990/oz.), and costs controls being worked on with a simpler mining structure, it's not for the faint hearted or impatient, at these prices, some see further downside, but likewise, orphans and fainted-hearted shouldn't apply. It shall be interesting, all the same. Tightly held at times, it is very volatile.

Not so amusing for Caterpillar, yesterday I’d decided to go short on Caterpillar (CAT), the US construction figures were off and missed even the most conservative expectation. Caterpillar has a long way to go to benefit from the ‘Trump-Tastic’ and now with serious issues relating to a raid by US federal agents as part of a tax probe, it’s a welcome benefit to the short...

In France, populism is growing behind Le Pen, could this become the start of things to come. Most certainly in Spain, discontent is growing. One shouldn't discount those that are disenfranchised or feel trapped in a proverbial corner, they just may be forced/motivated to vote a la Brexit.

The global advertising landscape is shifting, I've been doing some work looking at the real advert figures vs the unaware audience, which despite not even noticing the advert, are considered to be a viewer of the advert; in measured terms, what is the organic reach of the advertising platforms of today compared to the success of yester-year. Too much reliance put on what people perceive as value and reach, when the results are now not materialising despite the alleged success and brand awareness. If there isn't a significant change in the measured reach of an advert and acceptance of smaller targeted campaigns, there will be a reversion in trends.

WPP, are the barometer of expectation in the advertising sector and are not overly positive for 2017, preliminary results. Its not looking so rosy for the eternal acquirer WPP. Is there a goliath out there that will be impacted more by this, I think so! 

Atb Fraser

Please remember the views are my own, etc...it pays to do your own due diligence. Common-Sense Rules apply!

Morning Mumble: Its been awhile...

Good Morning,

It's been a considerable amount of time since I last posted, with commodities going through the cycle and various other issues such as Brexit, Trump and finally Le Pen coming to a head.

The market even has the likes of PurpleBrick's on Steroid's, who would have thought it!

Whatever next? A pertinent question...

Atb Fraser

Morning Mumble: What a year! How do you spell Christmas?

Good Morning,

It's been a pleasure and thank you for the many words/thoughts. 

We shall endeavour to post some musings over the Christmas break, what with various items taking priority EMC has taken a back seat. We had our first 'proper' scoop in the western hemisphere the other day, a pleasure and 24hrs before the rest!

The lack of reporting on the "convention" of base metal traders meeting this weekend to discuss...purchasing more metals. One might also need to consider that some out of the money traders will look to take the losses, but at least some Christmas cheers for those long. Expect some adjustments in stockpiling and the reporting of such numbers. (EMC: China Base Metals)

Here's hoping everyone enjoys the festive break and gets some 'R&R.' Li is heading to Macau this year, obviously gambling and the like; who'd have thought it!?! We should feel privileged some declined such opportunity in Macau and are UK bound. No doubt laden with anything duty free like thinking they've got a 'real bargain.'

Yesterday was a proverbial bath with Oxus's failure in their arbitration outcome. The mystery is how Richard Shead kept the RNS professional in light of what some consider a failing in a legal process. 

There will be Oxus update in the new year, but don't expect too much. The monies awarded should cover Calunius's costs, albeit little left over. One would be very surprised if there was an appeal save of course for a curve ball of showing complete incompetence by one of the panel. Is that possible? 

This was not a case of quantum but of reliability of the facts...something that an entity may be able to argue quite cleanly. Fit for practice springs to mind....albeit taking no shine off a stellar year as prudence always suggests taking profits along the way, the beauty of these types of arb type cases. 

We shall await the "trading updates in January!" One cannot help but wonder what the level of inventory in the shops implies for their bottom line. We note the contributors to EMC retail opportunistic survey finding healthy levels in most stores with very few non-food items being sold out (The largest number of contributors we've had - thank you!). 

Does Christmas now start with an E(commerce)?

All the best and Merry Christmas, Fraser

Morning Mumble: Concha & some base metals + Glencore's Chinese Zinc Premium

Good Morning,

After abuse for over a year relating to Concha, its a poignant time to remind parties of: EMC: Concha - CHA Cha cha (No known links to Cuba) & congratulation to non-holders of CHA & Kefi. The market is finally pricing things in? It's about the money for now...but one to run away from.

The lack of reporting on the "convention" of base metal traders meeting this weekend to discuss...purchasing more metals. One might also need to consider that some out of the money traders will look to take the losses, but at least some Christmas cheers for those long. Expect some adjustments in stockpiling and the reporting of such numbers.

Glencore (GLEN) may not have to update the market on their Zinc pricing but it has not gone unoticed they've reduced their Chinese premium considerably, albeit tightened the band, it's still down. Previously $160-130/t to $125-110/t. Strangely in line with Korea and Hindustan producers.

Atb Fraser

Morning Mumble: Should we set up a due diligence Firm of Randgold? + Plus Other News..

Good Morning,

What does it say for the risks of management when companies are prepared to consider joint ventures on assets that are uneconomic? Of course regular readers will remember the EMC: Volte Face Randgold Resources from September... after: EMC: Randgold preferred Fed Arb play. 

To quote:

Whether its Elephant country or not (FT), prudence dictates purchasing a decent asset with a better outlook than Obuasi. Good money after...As a reminder, PWC's Mining Taxes and Royalties (PDF)s  and an article (Ghana Chamber of Mines) that AngloGold Ashanti's might want one to quickly forget.  

Disappointing waste of time on RRS and perhaps losing ones mind! When investors thousands of miles away from the mine can assess the benefits or lack of in investing in Ghana, concerns should prudently be raised. More later...

It would appear Randgold needed to spend significant time and perhaps money conducting due diligence to form the same opinion as EMC. Today, they give an update on the Obuasi Gold Mine. Over to Randgold (Bold Italics and Underline are additions):

Jersey, Channel Islands, 21 December 2015

On 16 September 2015, Randgold Resources Limited (Randgold) and AngloGold Ashanti Limited (AngloGold Ashanti) announced their intention to form a joint venture to redevelop AngloGold Ashanti's Obuasi mine in Ghana, subject among other things to the completion of satisfactory due diligence by Randgold and the agreement of a revised development plan.  After undertaking a due diligence exercise into the mine and the redevelopment opportunity the mine affords, and following the work undertaken on the revised development plan, Randgold has determined that the development plan will not satisfy Randgold's internal investment requirements.  Accordingly, Randgold has decided to terminate the investment agreement entered into with AngloGold Ashanti, with immediate effect.

Chief Executive Mark Bristow said Randgold remained committed to creating real value for all its stakeholders by continuing to invest substantially in its exploration programmes with their proven record of success as well as by investigating potential growth opportunities presented by the market.

What due diligence was needed to formulate the same view as here?? Randgold can now throw in the towel and purchase Amara Mining’s (AMA), Yaoure Project, whom recently gave an update on grade and resource.  

In other news, the AIM loses a director whom had sat on a few boards…one such company, BacanoraMinerals Ltd. Perhaps entities were finding their proverbial taps cut off…same for AfriAgPLC, InspiritEnergy (INSP), EvocutisPlc and RareEarth Minerals. Apologies if they weren't all covered…

We have not ignored the marco news, or iron ore moves, China’s woes with imports/exports, BHP Billiton issues and other areas, merely time rationed. Its interesting to note there are subsidies for purchasing cars if you “live in a rural area.” As migrant work forces are considered as living in Rural Areas, the mainstream media may need to wake up and consider the significance of such a stimulus…bringing forward more purchases by near 3 years!

Atb Fraser

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