Yesterday, was the last day of my short on London Mining
(LOND) closing yesterday and today. The price of Iron Ore is about the monies for LOND now, their discount
for the inferior ores does not bode well for LOND. The management are capable
but sadly the economics of higher grade lower impurities are neglecting the
second tier producers.
LOND's like AMI's (African Minerals) rainy season is upon
them, the moisture content will be very topical from a shipping/freight
perspective, last year left me wondering whom was insuring the cargo without
increased premiums/costs. LOND are delaying their capital expenditure, albeit
this does not bode well for them in the depreciating prices. Interesting
there's rumour they've found a strategic partner with deep
pockets to assist with funding to 8-8.5mt per annum for around $150M up front.
This is more favourable than funding from cashflow at the current
prices...whereby margins are thin to say the least.
AMI have the benefits of scale and paying down debt and
lower costs...LOND's risks in the absence of a strategic partner are
limited. Not a case of bankruptcy but certainly an unloved company, once with
significant prospects. For the shorters, the risks are now with news of
additional funding to ramp up, reduce costs and improve revenues (hopes on India's imports increasing). Likewise,
LOND's management are prudent with the costs and reductions they can work with.
With limited supplies of higher quality ore and India's
increased demand it's only time before the discounts narrow. As such, the
prices for the lower quality ores are likely to be near or if not at the bottom
of their prices with recovery likely in Q3.
It was pleasing to see SuperGroup (SGP) bounce as every man
and his dog took significant profits on their shorts. Yet again the market is
becoming predictbale...will ASOS (ASC) follow? I suspect it'll flip on the bank
before depreciating to around the 2500 mark, albeit I maintain my target of
2250. Serial offenders of targets do not do well!
Amerisur Resources (AMER) operations update bodes well for holders, albeit at
the money for now. The rises need to consolidate, albeit the news could be
argued as doing that instead of the price. One will be amazed if they complete
the pipeline on time or budget, afterall its Ecuador not Walthamstow.
Remembering the well was more about infilling the assets, one expects a
reserves adjustment upwards once the full impact of the well has been
considered. With Platanillo-15 coming in on the money that's 14 wells in
addition to the 3 sidetracks, that's some record.
Yesterday having discussed Carclo Plc (CAR), yesterday it was interesting to see the price. Director buys, post results and trading updates when considered in full look to be about the price. I never liked this company's price when I first looked at it near 18 months ago. It was truly overvalued on the basis of revenues, profits, and prospects with value being wrongly attributable to the limited earnings.
Having taken the morning to start researching it certainly looks fair value with little in the way of positives being attached to the current price. The debt's increasing significantly but affordable, likewise the 2% dividend is a bonus, but not without risks. Being poised for growth does not often equate to increased earnings. The most recent final results underping a way forward for CAR, perhaps the brokers need a kick up the arse as well!
The traders will look to Rolls Royce's share buyback to start trading! Buybacks often beg the question of whom truly benefits in real terms!
Atb Fraser
Fraser- Hi- well done on the iron ore play via LOND and AMI- not sure if they have a great future if the io price stays here or drops further, and the bills still need paying so the mkt is prob right with them at present.
ReplyDeleteRe AMER- another long for me and the pipeline is a key factor for them, given the transformational nature re their costs and income too. I agree that late 2014 would probably require a miracle and costs will prob go over the top, but its worth it to hold for me.
Buybacks- mainly to help EPS and give the board their bonuses imo.
Cheers. The Leggie
There's gossip/news/rumour coming in regarding some massive Iron Ore losses for 1-3 of Chinese largest Mills. Unsubstantiated at the moment, but it would appear my first views on the Chinese Gov-T being directly involved in the Iron Ore market is to support this unwinding and financial backing to cover the losses. Alleged losses are approaching $3b which would be in line with the market and mills reducing. Perhaps lower quality ore will be utilised to make up these losses? Hmmm...What's a little bit of pollution? One hopes these positions aren't financed multiple times on any bond!?!?!?!
ReplyDeleteAtb Fraser
Fraser- thx- looks like the pressure on those Chinese mills and high cost prods isn't going to disappear easily. SP Angel have this today re low quality io discounts, if you haven't seen it or similar already-
ReplyDeleteReports suggest that Rio has increased discounts on its lower grade fines product – Robe River Fines from 6% to 13% with effect from July 1. This follows similar reports of discounts being offered by Fortescue. This is against a backdrop where domestic low grade high cost iron ore production was reported as going up despite the fall off in iron ore prices. This could be an ongoing attempt by the Australian iron ore producers to incentivise Chinese steel producers to close down high cost integrated iron ore production.
Cheers. The Leggie
Morning Leggie! Firstly check your spam bin!
DeleteIndia appears to be pollution accepting in regard to Iron Ore grades, as such they appear to supporting the prices to a degree. The reductions are a contradiction in motivation Chinese High Cost producers. The main stopping point is the leveraged elements of the mills, well over 100% and that's after they've sold "their ass"ets to the Chinese Government with little left to cover obligations in the event production stops.
It would be interesting to see the cost differentials for production between DSO and inferior ore grades.
TC F
Fraser- I don't get much spam, which is prob a shock, but there wasn't anything in it from yesterday. Have a missed something??
DeleteRe io and China- yes, an issue for them as they are aware of the social unacceptability of large job losses, which in the past has been the catalyst of civil unrest but they have a deeply inefficient steel milling sector, and pollution is a massive issue too. Difficult to solve all these problems at the same time, so no doubt they will bail out their "friends" steel mills and allow selective closures. $90 seems to be pivotal for now, but lets see.
Cheers. The Leggie