Morning Mumble: Yesterday I was being paid to work! Shocking...Anglo Pacific's Acquisition &...ASOS

It was a pleasure to be back in Bristol as I have not been there for awhile and was working with a few traders. Yes professionals (shocking term), and doing some paid work. The chaps were decent, some old school and some more "modern." Picture a twenty-something in a Miami Vice suit (we’ve all seen them) but crossed with a Laurence Llewelyn Bowen that I’m assured was ‘designer’. (No accounting for taste). You would not expect this Company to be going into active shorting but times are changing, perhaps they won't be after that visit! Well I'm back there in August for near 10 days...just don't tell security. Albeit, in passing, the Director did say to charge all expenses to them! Gin anyone!?!?

What is odd is the limited number of short selling funds out there. Yes there's James Chanos, with his notoriety of Enron and Paulson, but on the whole there are not many "discreet" shorters and funds out there. A quick glance across appears to be more about screaming why its short only when going in the right direction for them! Or post-obvious-news, with "blah blah blah why I'm short." Yes the market needs these critiques (Kynikos (see what I did there) + Chanos) and the chap Simon Cawkwell aka Evil Knievil? Perhaps its a psychological barrier or maybe their ethics? Morals? Well surely if one was 100% pure you'd not invest but grow vegetables and watch Cricket? Leggie?!?!:-) Albeit, I suspect there will be more Companies changing practice very soon.

One thing I noticed awhile back was the decline in volume yet prices have stayed up, this creates an imbalance, on liquidity, i.e. the number holding long or more positively for the bears, long cashing out whilst the floor looks for direction. One will wait and see, but there will no doubt be comparisons to the market crash / financial crisis and money supply restrictions of late 07/08. When in fact money is flowing fairly well save for a few blips, likewise, consumers are getting shrewd and China is wising up...the soft landing of realism is the Rising Sun and Chinese knows this (Setting Softly). See: Defaults in China, Pollution impact on pricing of low quality base metals, growth expectations and better still, changes in their currency. One will be looking for the next earnings quarter to evidence any shift, which would be nicely timed for post St Ledgers day for market reactions…expectations of some form of sideways trading in the interim (yawn).

Whilst on the train yesterday, despite the assurance of Wi-Fi that should be called 1/2 Wi-Fi as it only worked that much, I was able to review a number of items. Namely the predictable dire positions of Tesco et al (Leggie those returns WILL be reducing in dividend terms either via inflation or a real terms drop (perhaps off a cliff). What I believe is happening is the shoppers have 'suddenly' wised up to avoiding (please note the term) shopping in one location and forcing the retailers to be more price sensitive, rather than 'sales incentive based.' This was reiterated in the Tesco announcements. One suspects the discounts will come to an end soon along with “the heavier” enticements of spend £60 get £15 off. The market simply cannot afford all these incentives. Please note Asda's model of fuel discounts and the lack of enticements. 

I'm not sure I'd agree with the APF acquisition. Namely the market has/had been led to believe or should I say, expected, a decent deal and then the Maracás Vanadium Project acquisition comes along. Quite why anyone would want a Vanadium Oxide Royalty (there’s some potential in the “other minerals” possibilities) is beyond me. So if you look at the figures for Largo and Vanadium in the short-medium term and based on what APF paid, you’re looking at 10.8% IRR if you price the warrants in as well. Then add to that its in Brazil…lovely location for a holiday but vanadium? Hmm. A bet on the bottom of Vanadium might not be so wise and as always time will be the measure. The plus side is, the Kiln's are in action for Largo.

One of the reasons I’ve been previously short on APF, was the asset class does not hold up well with deteriorating (or current) prices, least we not forgot the RRR/RGM Royalty. Will I be a buyer on APF? No, they really need a decent deal to support their balance sheet/company model. Yes Kestrel earnings should improve as production moves into more of their Royalty license and land but there's better returns elsewhere.

Gossip: APF is there is some gossip that London Mining are ‘in discussion’ to sell their Isua iron ore project in Greenland. As APF followers will know, or LOND for that matter, APF have a 1% Royalty over Isua. The size of Isua is likely to mean the Royalty is going to be bought out rather than left to run. This all bodes well for APF over time, however, in the short-medium term their asset class isn’t seeing any improvements in prices…one will wait for some positives in APF before considering a long, but the news is slowly stacking up for a short. Viewed in contrast with APF Director Buy this morning, one will be patient…APF would be wise not to refuse $45-47M, not bad for 3 years work. The historic royalty to the previous owner of Isua might be as sticking point as they 'perhaps' aren't so keen to convert their USD0.40 per tonne of ore mined royalty.

There’s a significant unwinding of positions in Nickel currently, with raw demand supporting the unwind. Indonesia’s realities are coming to force, with mass worker layoffs and a decline in exports, investment and development in the country. So expectation some relaxation of the law but with a firm stance on “smeltering” and processing requirements…a modest tax on raw exports is more likely. Expect Nickel to react accordingly…

My final thought goes to ASOS, well what can the bulls say, bar have some form of stale reiteration of potential over the long-term? Profits not as expected, currency far from going in their favour and let’s face it yet another disappointing update! What I expect analysts to finally comment on is the increased cash burn and father deterioration. Will they? That’s another matter, by my estimated the company is burning cash, and more so as a result in the recent decline! Is the model sustainable? Of course, but not at stupid valuations! Rightly I closed my positions in ASOS near two weeks back, we don’t have the benefit of hindsight...for trading. ASOS (ASC) Trading Update (RNS) and market realism.  

Atb Fraser

P.S. Will get round to Black Sea Property Fund (BKSA) soon Leggie, suffice to say, you could buy at 1.36-1.50 range yesterday so not sure on the quoted.