Not International Arbitration but some tenuous links to Churchill Mining: Iofina Plc (IOF) & Indonesian Protectionism...Nickel gone mad!

After a number of messages & comments regarding the Friday 13th December 2013 Water Permit Iofina RNS. I thought it'd cover it. For clarity, the IOF thread ADVFN FJP IOF Holdings Page was my work on the company from near 3 years ago before every-man and his dog started punting it. I received a large amount of abuse, and people hoping the company would go bust. I stopped reading the boards as such shortly after that...a) because I was busier and b) I don't need to read 99% of the trash that is there. For BB users, it would pay to read it to be aware of the risks of posting or using BB's. Had I followed their advice of a 'dog of a company' and similar I'd have missed out!

IOFina by my estimates has around 2.4-2.5% of the stock tradable so its tightly held and as such volatile; so 2-3M volume will move it! I'm perplex why some investors did not take some off the table when it spiked, but that's for them to deal with. I find it pathetic people hold hold hold and not take any profit. Are they mad...or just so greedy they can't use their common-sense; of course a 10 fold profit isn't "something to consider selling into is it!" (I hope you sense my sarcasm there) However, that's another discussion and something I'll perhaps cover another time or when this blog changes in the New Year.

My RSL (Reserve Stop Loss) kicked in because it's a stock that is so illiquid I don't wish to be caught in a tank (loss). It was a loss on a recent purchase it's nothing that I would cry about having sold a lot of stock significantly higher. The cause? The Water Permits, firstly, I was surprised that IOF did not RNS's it immediately, perhaps there is a reasonable excuse, but everyone else had read the denial of the permit for  Pending Water Right Applications before Iofina had RNS'd the news (not a positive display of management of market news).

The problem from what I can see is people (investors) are adding so much value into each element of the company before it happens, its either creating an unnecessarily high share price or people's psychology of the share is so stressed (I think the latter in this case). The value for the water permit is hard to determine until any deal is done, but it's certainly not the only reason why people should be holding on to the stock at the moment above it 'adding some value at some point in the future.' The value is in the Iodine production *(Plus technology) and will at some point be taken over by SQM or similar; did the water permit issues mean the value should have plummeted, not at all, but that's the markets.... This doesn't mean you shouldn't have some form of trade plan though, those that ignore the signals generally pay dearly. A prime example being Range Resources (LSE: RRL), a stock I've traded every now and again but not on the positive side for a long time.

People that have ignored the story of RRL should make themselves aware of it to understand the reasons for it (including what risks to ascribe to the management). RRL are similar to a lot of companies that have had or are having a complete destruction in the share price; ironically its almost identical to Nyota Minerals (NYO). There were a number of shorting signals with failed promises of the sale of assets, the acquisition and worse still, the complete destruction in share support. Without any deal soon, I don't envisage Range going anywhere soon. Worst still, even with good news it takes a significant time to bring new investors to the table as most will rightly look to save some via an exit on any good news. Nighthawk being a prime example..I now avoid (or short) once a company cannot keep to its 'aims and objectives' i.e. Market Promises. I'd rather miss some gains than not have confidence in my investment decisions.

This leads me to my earlier post in the week about Victoria Oil & Gas. So from what I can make out the management were in essence part-responsible for the legal actions and the costs to deal with those legal issues arising. However, please look at the next accounts to see if there's a reduction in their salary and no bonuses, including the withdrawal of their options, shall we say on the same % as the share price? Then correlate the SP to the targets that haven't been met...see below for the dire performance.

For the week ahead, due to the sell off on the major miners, I envisage some Christmas support coming in. Will that mean a rise? Yes but nothing of significance without some material change in the indicators. Rio surprises me, as the Chinese appear to love Australian Iron Ore (at the moment) and perhaps more so with the deterioration in the Australian Dollar (my main Forex play) they'll increase their support.

The main story appears to be whether other Countries will benefit from the Indonesian Export Ban. My view is there's going to be a backtrack by the Indonesian Government until such time as the Indonesian Smelter Capacity can handle such requirements (if ever). The main benefactors of any ill-thought move by the Indo Government in my view will be the Philippines for pricing and quality but not quantity, close proximity being a benefit as well. Nickel however should make some obvious trades as the deadline approaches: January 2014. 

The Nickel industry in the Philippines is incapable of upping production in such a short space of time and would take till 2015 (end of) at best to meet Indonesia's contribution to the world market. A good time for a small time Nickel Miners listed to start attracting finance agreements! I hope they use the window wisely. Didn't Dwyka (now known as Nyota Minerals) have a Nickel deposit but based in Burundi near Xstrata's? which I don't think will ever progress; a lot of drilling but that's about it. Based on the news, DMCI's offer for ENK plc was a very clever move! Perhaps totally undervalued by the larger shareholders in the company...Ironically Toledo Mining, whom if I remember correctly had the same suitor as ENK earlier this year, have utilised this "positive news" delist the company from AIM. Strange to say the least!

The Nickel Institute is worth a read to understand more about the Commodity, as Indonesian Nickel is of high grade and it could knock supply and demand significantly. The main loser will be Indonesia in terms of revenue, and the additional costs to the consumer/buyer by the surge in price of Nickel if there is no common-sense applied to the new law! If Indonesia don't do the sensible thing, it will lead to how many small Nickel companies closing until smelter capacity is up and running. China have stock piles that will support production demands for around 5-6 months at best, so with that, producers will resort to using lower grade Nickel. This will in turn push up production costs and all costs throughout the chain. 

Indonesia CANNOT afford to lose the massive amounts of export revenue, estimate as much as $400m a month by Reuters (on the 6th December 2013) and trade that is currently there for their resources that will be instantly cut off. bar the small amount complying with the new law. Indonesia needs in excess of 128 new smelters ; (I think it was Barclays commenting on it not so long ago)! Its a prime example of Indonesia's total ignorance of its industries and knee-jerk protectionary regulations (look at the Churchill Ruling on appeal decision ). I do wonder if Indonesia make up their laws over a Weekend with significant amounts of booze. Surely someone in the Indonesian Government thought: Excellent move in terms of creating Country revenues, but...we don't have the smelters! Surely??? Well it would appear not... 

Have a good weekend! Atb Fraser